A company can provide by its articles that the shareholders who are indebted to the company should not be able to dispose of their shares without first paying their debts and that the company has, in such a case, a lien on the shares in question. (Allen v. Gold Reefs of West Africa, 1900)

The right is not inherent and must be provided for in the articles. This can be done by adopting clauses 9 to 12 of Table A which provide for the right.

In Amar Nath v. Karnal Electric Supply Company, 1952, it was held that a shareholder cannot defeat the lien by merely disputing his liability.

A company’s lien can be postponed in cases where the shareholder has mortgaged or pledged his lien before incurring a debt to the company and he has given the company has notice of the mortgage or pledge. Even if a director has knowledge of such mortgage or pledge in his private capacity, it would amount to notice to the company. (UI Sugar Mills Co. Ltd., 1933)

The lien remains effective even after the death of a shareholder and it can be exercised against his executors. (Allen v. Gold Reefs of West Africa, 1900)

Sale

The company may sell the shares it has a lien over in order to realize the money due to it. The transfer of such shares is governed by the doctrine of indoor management and the transferee gets a good title even if there is some irregularity in the procedure of the transfer.

Lien on shares may be exercised even for a time barred debt as long as this can be done without recourse to a court of law. (Ferrom Electronics v. Vijaya Leasing Ltd., 2000)