TRANSFER AND TRANSMISSION OF SHARES

TRANSFERABILITY OF SHARES – INTRODUCTION

Nature of shares (Sec. General  The shares are movable
82) provisions property, i.e., goods.

 The shares shall be

transferable in the manner
specified in the Act and the
articles (Sec. 82)
Specific  The shares is a public
provisions company are freely transferable
(Sec. 111A).

 A private company may

impose reasonable restrictions
on transferability of shares.
However, a private company
cannot impose absolute
prohibition on transferability of
shares.
Modes of transfer of Transfer Voluntary transfer of shares from
ownership one person to another.
Transmission Transfer of ownership of shares
takes place from one person to
another by operation of law.

REQUIREMENT FOR TRANSFER OF SHARES

Transfer deed  The application for transfer of shares must be made in the
form prescribed for this purpose.

 This form is called as ‘instrument of transfer’ or ‘transfer

deed’ or ‘transfer form’ or ‘share transfer form’.
Presentation Presentation is Every transfer deed shall be presented to the
of transfer compulsory prescribed authority, i.e., the Registrar.
deed to the Time of The transfer deed shall be presented –
authority presentation
 Before it is signed by the transferor;
and

 Before any entry is made therein.

Stamping The prescribed authority shall affix on the
transfer deed a stamp showing the date of
presentation of transfer deed.
Execution of After the transfer deed has been stamped by prescribed authority,
transfer deed it shall be –

a) Duly filled up by the transferor and the transferee;

b) Duly signed by the transferor and the transferee;
 c) Duly stamped (i.e., stamp duty is paid).
Submission of The transfer deed may be presented to the
transfer deed company by –
to the Submission by
company (Sec. whom?  the transferor; or
110)
 the transferee.
Accompanying The transfer deed shall be presented to the
documents company along with the share certificate.
Time limit for A transfer deed shall be valid only if it is delivered to the company
submission of within the following
transfer deed Nature of Time limit of submission
to the company
company Listed company Later of –

 the date on which the register of

members is closed for the first time after
the stamping of the transfer deed; or

 12 months from the date of stamping of

the transfer deed.
Any other Within 2 months from the date of stamping.
company
Notice by the When is notice The company is required to give notice to the
company to required? transferee only if both the following conditions
the transferee are satisfied:

 The transfer deed is presented to the

company by the transferor.

 The shares are not fully paid up.

Rights of The transferee has the right to object to the
transferee proposed transfer within 2 weeks.
Registration of If the transferee fails to state his objections
transfer of within 2 weeks, the company may thereafter
shares register the transfer.

TRANSFER AND TRANSMISSION OF SHARES

Transfer and transmission of shares Transfer and transmission of shares in
in a private company (Sec. 111) a public company (Sec. 111A)
Restriction on transfer of shares Free transferability of shares

a) The Act requires a private a) General rule – The shares are

company to impose restrictions on
transferability of shares.
b) However, a private company
cannot impose prohibition on
transferability of shares; it can only
impose restrictions.
freely transferable in a public company
b) Exception – Refusal is justified if
there is ‘sufficient cause’. ‘Sufficient
cause’ means a situation where the
propose transfer of shares is in
c) The restrictions on transferability contravention of –
of share must be contained in the
articles of the company [Sec. 3(1)  Securities and Exchange Board
(iii)]. of India Act, 1992 (SEBI Act)
d) The grounds contained in the
articles must be fair and reasonable,  Guidelines issued under
i.e., bonafide and in the interest of Securities and Exchange Board of
the company. India Act, 1992 (SEBI guidelines)
 Sick Industrial Companies
e) If the refusal to transfer the (Special Provisions) Act (SICA)
shares is based on collateral or
arbitrary grounds, such refusal is not  Any other law for the time being
valid. in force.
Giving of notice of refusal

a) Compulsory issue
of notice – Where a private
company refuse to transfer the
shares, it must give a notice of
such refusal
b) Notice to whom?-
The notice shall be given to
 Transferor
 Transferee
 Person
giving intimation of transmission

c) Time limit for

sending notice-The company
shall send the notice within 2
months of receipt of a valid
transfer deed
Remedy available against refusal Remedy available against refusal

a) Appeal to CLB- In case, the a) Appeal to CLB- If,

refusal by a private company is not
justified, an appeal may be made to
CLB.
b) Who can file the appeal?- The
appeal may be filed by-
 Transferor
 Transferee
 Person giving
intimation of transmission
c) Time limit for filing the appeal
 The appeal shall be filed within 2
months of receipt of notice of
refusal
 The appeal shall be filed within 4
months of submission of the
without sufficient cause, a public
company refuses to transfer the
shares, an appeal may be made to the
CLB
b) Who can file the
appeal?- The appeal may be filed by
 Transferor
 Transferee
 Person giving
intimation of transmission
c) No time limit for
filing the appeal?
There is not time limit for filing the
appeal. However, the appeal must be
filed within a reasonable time.
 transfer deed, if the company has
failed to send notice of refusal
Action by CLB Action by CLB

After giving an opportunity of being After giving an opportunity of being heard

heard to the parties, CLB may direct
the company to register the transfer if it
is satisfied that the refusal was not
justified
Rectification of register of members
to the parties, CLB may direct the
company to register the transfer if it is
satisfied that the refusal was without
sufficient cause
Rectification of register of member

a) Application to whom?-CLB a) Application to

b) Grounds for rectification-Without whom?- CLB
reasonable or justifiable cause- b) Grounds for
 Name of a person has rectification- The application shall be
been entered in register of made on the ground that-
members
 The name of a person  The public company has effected
has been removed from the the transfer of shares; but
register of members  There was ‘sufficient cause’ to
 Default of unnecessary refuse the transfer of shares
delay is being made in entering
the fact of becoming a member c) Time limit for
or cessation of membership. making the application?- The
c) Time limit for making application application shall be made within 2
months of-
 No time limit has been
prescribed  Date of submission of transfer
deed to the company;
 Application must be filed  Date of submission of intimation of
within reasonable time transmission of shares;
 Transfer of shares held by a
depository.

d) Application by
whom?

 The company
 SEBI
 The depository
 The depository participant

e) Rights of
information

 General rule- The transferee shall

be entitled to exercise all the
membership rights.

 Exception- CLB may make an

interim order restricting the voting
 rights in respect of such shares until
final disposal of the application

COMMON GROUNDS FOR REFUSAL TO TRANSFER THE SHARES IN A

PRIVATE COMPANY
Malafide object Where acquisition of shares is not made as a
genuine investment but only to acquire membership
rights for the purpose of taking other actions
available under the Act.
Where the transferee belongs to a rival concern

Transferee being a rival

Transferor indebted to the Where the transferor is indebted to the company and
company the articles give the authority to the Board to refuse
the transfers made by indebted members
Apprehended Where the intended transfer of shares will lead to a
mismanagement change in the management, which would be
prejudicial to the interests of the company or to
public interest
Transferee incapable of Where the transferee is not financially capable of
paying calls paying the calls remaining unpaid on the shares
Transfer to minor Where partly paid shares are proposed to be
transferred to a minor
Transfer prejudicial to the Where transfer of shares is not in the interest of the
company company
Invalid transfer deed Where the instrument of transfer is not properly filled
in, or is not properly executed, or is not properly
stamped
Offer to existing Where the articles stipulate that the shares cannot
shareholders be transferred to an outsider if any member of the
company is willing to purchase the shares at a fair
price, which shall be determined by the auditors of
the company or the company in GM.
Employees leaving Where the articles provide that the members who
employment are also employees of the company, shall offer their
shares to other members when they leave the
employment in the company

NOMINATION OF SHARES
1. Applicability a) All companies

b) Nomination is optional
2. Nomination by Every member is an individual can make a nomination
whom?
3. Who can be a a) Only an individual can be nominee
nominee? b) Two or more individuals can be jointly made
 nominees

c) A minor can be named as a nominee provided the

name of a guardian is mentioned in the nomination
form, who shall be entitled to the shares until the minor
becomes an adult.
4. Requirements of a) Nomination shall be made in prescribed manner.
valid nomination
b) Nomination shall be made in prescribed form
5. Time limit for The nomination can be made by a member at anytime
nomination
6. Variation or a) A nomination can be cancelled at anytime
cancellation of
nomination b) Similarly, a nomination can be varied afterwards
 Shares shall vest in the nominee
 The nomination shall be valid and effectual
7. Consequences in notwithstanding anything contained in-
case of death of a) Any other law for the time being in
member force; or

b) Any will made by the shareholder or

any other instrument
8. Right of nominee Right to become  An application signed by the
a member nominee and a death certificate of
the deceased member shall be
submitted to the company

 The application shall state that

the nominee has elected to become
a member of the company
Right to transfer  A transfer deed signed by the
the shares nominee and a death certificate of
the deceased member shall be
submitted to the company

The transfer deed signed by

the nominee shall be valid even
though he is not a registered
shareholder
No right to vote The nominee shall not have any right
at any GM to vote in the GM until he is registered
as a member.

TRANSMISSION OF SHARES
1. Mean of Passing of title of a person to another by operation of law.
‘transmission’
2. Transmissi Where the shares are held jointly by two or more persons,
on in case of transmission shall take place only when all the joint holders die.
joint holding
3. Reasons a) Death of a member.
 for
transmission b) Insolvency of a member.
4. Effect of  A person entitled to the shares as a
death or consequence of death or insolvency of a member does not
insolvency of automatically become a member in the company.
a member
 He becomes a member only when he
makes an application in writing to the company, and the
company registers him as a member by making an entry in
the register of members.
5. Rights of a Right to The person entitled to the shares is required to make
legal become an application in writing to the company requesting
representative a the company to admit him as a member. No transfer
member deed is required in such a case.
Right to If the person entitled to the shares chooses to sell
transfer such shares without first becoming a member, he is
the required to execute a transfer deed. The transfer
shares to deed signed by him shall be valid for transfer of such
any other shares, even though he is not a member in relation to
person such shares.

DIFFERENCE BETWEEN TRANSFER AND TRANSMISSION OF SHARES

Basis Transfer of shares Transmission of shares
1. Voluntary Transfer of shares is a Transmission takes place
act or not voluntary act of parties. because of operation of law.
2. Execution The execution of a valid No transfer deed is required to be
of transfer transfer deed is necessary. executed if the person entitled to
deed such shares agrees to become a
member of the company.
3. Payment of Stamp duty is payable where No stamp duty is lived in case of
stamp duty shares are transferred by a transmission of shares.
member.
4. Considerati Transfer of share I generally Transmission of shares takes
on made for some place without any consideration.
consideration.

CERTIFICATION OF TRANSFER OR SPLITTING OF SHARES OR

PARTIAL TRANSFER OF SHARES
Need for certification The need for certification arises in the following
two cases:

a) Where a member intends to transfer only a

part of shares contained in one shares
certificate.

b) Where a member intends to transfer the

shares contained in one shares certificate to
two or more than two persons.
Submission of documents to The shareholder shall submit to the company –
the company
a) transfer deed; and

b) share certificate
Certification made by the On receipt of share transfer deed and share
company certificate from the member, the company shall
adopt the following procedure:

a) the company shall retain the share

certificate
b) The company shall make a certification on
the transfer deed. The certificate is generally
made by writing the words ‘certificate lodged’
or ‘certificate deposited’ or other similar
words.

c) The company shall return the share

transfer deed (after certification) to the
member.
Certification to be evidence Certification of shares shall be a prima facie
evidence that –

 Shareholder has submitted share

certificate to the company;

 Share certificate contained such number of

share as are specified (by way of certification)
in the transfer deed.

FORGED TRANSFER
Meaning of forged transfer
Forged transfer is void ab into
Rights of parties
The term ‘forged transfer’ means transfer of
shares made on the basis of a transfer deed on
which the transferor’s signatures are forged.
A forged transfer is a nullity (i.e., without any legal
effect).
a) The transferee does not become the owner
of such shares.
b) The original owner continues to be the
shareholder
c) Where a company has registered the
transferee as a shareholder on the basis of a
forged transfer, following consequence shall
follow:
(i) The original owner can compel the
company to restore his name on the register
of member.
(ii) The company may cancel the share
certificate issued to the transferee, and
consequently the transferee shall cease to
be a member of the company.
 (iii) Where the transferee has already
transferred the shares to an innocent
purchaser, the position will be as follows:
 The company can refuse to
register the new purchaser of shares, as a
member.
 However, the new
purchaser of shares shall have a right to
claim damages from the company.

 The company shall have a

right to recover damages from the person
who had lodged the forged transfer deed.

BLANK TRANSFER
Meaning of ‘blank A transfer of shares shall be said to be blank if –
transfer’
 It contain the signatures of the transferor; but

 It does not contain the particulars relating to the

transferee.
Procedure for blank The transferor delivers to the buyer –
transfer
a) Share certificate; and

b) Blank transfer deed.

Effect of blank transfer Option 1 – The (i) The buyer does not
buyer may automatically become the owner of
become the shares on receipt of the share
owner of such certificate and the blank transfer deed.
shares (ii) The buyer gets an implied
authority to complete the transfer
deed. He shall become the owner of
shares only when –
 He completes the blank in
the blank transfer deed;
 He delivers the share
certificate and duly filled in transfer
deed to the company for effecting
transfer of shares in the name; and
 The company registers the
transfer of shares in the same of
the buyer.

(iii) When the name of

the buyer is registered as a
shareholder by the company, he
shall acquire a good title to the
 shares not with standing the fact
that shares were transferred to him
under a blank transfer deed.
Option 2 – The  If the buyer
buyer may does not intend to become the owner
transfer such of such share, and wants to further
shares transfer such shares, he may do so
merely by delivering the share
certificate and blank transfer deed to
a new buyer.
Who is ‘transferee’? a) The last holder of blank
transfer deed will become the ‘transferee’ of shares, and
no intervening buyer of shares shall be regarded as
‘transferee’

b) Until some buyer is

registered as a shareholder, the original holder of shares
(i.e., the transferor) shall continue to be the owner of the
shares.
A blank transfer deed shall remain valid only for such period
as is prescribed u/s 108.
Validity period
The company has - by not sending the notice of refusal to transfer
made a default the shares within 2 months of receipt of a valid transfer
deed

- if the company is a private company

Y may file an appeal - challenging the decision of the company
with the CLB not to transfer the shares

- irrespective of the fact as to whether the

company is a private company or a public company.