The instinct is to treat the shares as his salary and stop paying it. The law does not work that way. Once shares are allotted and his name is in the register of members he is a shareholder, and a shareholder who has stopped working is still a shareholder. The company cannot cancel his shares, and the forfeiture power in standard articles is a remedy for unpaid calls, not for leaving. What you can do depends almost entirely on one document, the leaver clause, so start there.
Which situation are you in?
- There is a founders agreement or shareholders agreement with vesting, reverse vesting, a call option or a good-leaver bad-leaver clause. You have a contractual right to his unvested or forfeited shares at the price the clause fixes. Serve the notice the clause requires, tender the price, and if he refuses to sign the transfer form, sue for specific performance or invoke the arbitration clause.
- There is an agreement, but it is silent on what happens when a founder leaves. He keeps what he holds. Your levers are a negotiated buy-out, the transfer restrictions in the articles (which stop him selling to an outsider without offering the shares to you first, if the articles say so), and the rights and remedies available under company law. A genuine capital raise is a separate decision, not a way to confiscate his holding.
- There is no agreement at all, only the incorporation papers. Same as above, and the position is honestly weak. Most two-founder companies in this position settle on a price, because the alternative is a co-owner who can block special resolutions if he holds enough votes to do so.
Can the company just cancel his shares or buy them back?
No. A buy-back under Section 68 of the Companies Act, 2013 is a company-wide exercise with conditions: it must be authorised by the articles, approved by a special resolution (a board resolution is enough only for a small buy-back within the ten per cent limit the section sets), capped at twenty-five per cent of the aggregate of paid-up capital and free reserves, funded from free reserves or the securities premium account or the proceeds of a different class of securities, limited to fully paid shares, and not repeated within a year of the previous offer. It is not a device for taking one person's shares against his will, and it has to be paid for. Forfeiture under the articles is for unpaid calls. Other statutory routes have their own conditions; none follows merely from a founder leaving.
How do shares actually move when he agrees, or is ordered, to transfer?
Section 56(1) is the mechanical rule. For a transfer to which the paper-instrument requirement applies, the company cannot register it unless a proper instrument of transfer, duly stamped, dated and executed by both transferor and transferee, is delivered to the company within sixty days of execution along with the share certificate. Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014 prescribes the form, Form SH-4. Because yours is a private company, Section 2(68) requires the articles to restrict transfers, and Section 58(1) lets the board refuse to register a transfer under those articles provided it sends a reasoned notice of refusal to both sides within thirty days. The proviso to Section 58(2) is the sentence that matters for you: a contract between two or more persons in respect of the transfer of securities is enforceable as a contract. That is what makes a leaver clause worth suing on.
He is ignoring the leaver clause. Can a court make him sign?
Yes, and the law here changed in your favour on 1 October 2018. Before the amendment Section 10 of the Specific Relief Act, 1963 made specific performance a matter of the court's discretion. The Supreme Court in B. Santoshamma v. D. Sarala (18 September 2020) set out the amended Section 10, under which specific performance of a contract shall be enforced by the court, subject only to Sections 11(2), 14 and 16. The court is now obliged to enforce, not merely permitted to. The other side will run to the amended Section 14, reproduced by the Calcutta High Court in Church of North India v. Rt. Reverend Ashoke Biswas (17 April 2019): contracts are not specifically enforceable where the claimant has already obtained substituted performance, where performance involves a continuous duty the court cannot supervise, where the contract depends on personal qualifications, or where it is in its nature determinable. An obligation to sign one transfer form for a fixed number of shares at a fixed price is a single act, not a continuing duty and not a personal service, so in the ordinary case none of those four bars applies. If the agreement has an arbitration clause, the same relief comes from the arbitrator, with an application under Section 9 of the Arbitration and Conciliation Act, 1996 for interim protection while it runs. Our note on urgent orders before arbitration begins covers that step.
Can the NCLT simply correct the register?
Only in a clean case. Section 59(1) lets the company or any member apply to the Tribunal where a name has been entered in or omitted from the register of members without sufficient cause, or where there is default or delay in recording that someone has ceased to be a member. Section 59(2) lets the Tribunal order the transfer to be registered within ten days or the register rectified, with damages. But rectification is a summary jurisdiction. The Supreme Court's decision in Ammonia Supplies Corporation v. Modern Plastic Containers, as reproduced by the Delhi High Court in Vishnu Manglani v. Reliance Industries (8 December 2010), is that a seriously disputed question of title to shares can be sent to a civil suit rather than decided on affidavits. Where your founder says the leaver clause was never signed, or was varied orally, expect that argument. Where he signed, the clause is clear and the price has been tendered, Section 59 is the fastest door.
What if there is no leaver clause?
Then say so plainly to yourself and stop spending money on threats. Three things remain. First, a negotiated buy-out, usually at a discount to the last round's price, documented as a Form SH-4 transfer and a board resolution. Second, if the company genuinely needs capital, a fresh issue under Section 62(1)(c) to new investors, which requires a special resolution and a price fixed by a registered valuer's report. That dilutes everyone including him, and it must be a real raise, because an issue whose only purpose is to shrink one shareholder invites a petition under the oppression provisions, on which see the minority shareholder note. Third, the transfer restrictions in the articles, which at least stop him selling to a stranger without your pre-emption right operating, if the articles contain one.
- The founders agreement and shareholders agreement, signed copies, with any amendment or side letter
- The articles of association as filed, and any later alteration, to confirm the leaver and pre-emption clauses were actually written into them
- The register of members and the share certificates, to confirm how many shares stand in his name and whether they are fully paid
- His resignation email or letter, the date the company received it, and the board minute noting it, because the leaver clause usually runs from that date
- The last valuation report, the cap table after every round, and any ESOP pool, so the price and the arithmetic of a buy-out or fresh issue are on one page
- The arbitration clause, if any, with seat and number of arbitrators, before you send any notice
What I tell founders in this position
The clause that decides this dispute was either written in the first month or it was not. If it was, the case is a document case and it moves quickly, because the amended Specific Relief Act has taken the discretion out of the court's hands. If it was not, the strongest position is a fair, quick offer while he still wants a clean break, made before the next funding round, when investors will otherwise insist on it being resolved at your expense and on their timetable. Whichever you are in, do not stop his access to information he is entitled to as a member, and do not pass resolutions without notice to him. Those are the mistakes that turn your claim into his. Read our guides on founders agreements and on how shareholder exits actually run before the next company you start.