Key Provisions Relating to Transfer of Shares

Key-Provisions-Relating-to-Transfer-of-Shares

Key Provisions Relating to Transfer of Shares


    1. INSTRUMENT OF TRANSFER : Section 56 of the Companies Act, 2013 provides that transfer of securities or interest of a member shall not be registered except on production of instrument of transfer duly stamped, dated and executed and has been delivered to the company by the transferor or the transferee within a period of sixty days (irrespective of the nature of the company, whether listed or unlisted) from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities.

2.    IN CASE OF LOSS OF TRANSFER DEED: In case of loss of the instrument, the company may register the transfer in terms of indemnity. It has been provided in section 56(2) of the Act that where, on an application in writing made to the company bearing adequate stamp value for an instrument of transfer, it is proved to the satisfaction of the Board of directors that the transfer deed signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnify as the Board may think fit.

3.   TRANSFER OF PARTLY PAID UP SHARES: Section 56(3) of the Act provides that where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered unless a notice in Form SH-5 is issued to the transferee and transferee gives “No objection” to the transfer within two weeks from the receipt of the notice. The notice to the transferee shall be deemed to have been duly given if it is dispatched by prepaid registered post to the transferee at the address given in the instrument of transfer, and shall be deemed to have been duly delivered at the time at which it would have been delivered in the ordinary course of post.

4.  TIME LIMIT REGISTRATION OF TRANSFER FOR UNLISTED PUBLIC COMPANY: Section 56(4) of the Act provides that every company unless prohibited by any provisions of law or of any order of any court, Tribunal* or other authority, shall deliver the certificates of all securities allotted, transferred or transmitted-

·   Within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;

·   Within a period of two months from the date of allotment, in the case of any allotment of any of its shares;

·   Within a period of one month from the date of receipt by the company of the instrument of transfer or the intimation of transmission, in the case of a transfer or transmission of securities.

·    Within a period of six months from the date of allotment in the case of any allotment of debenture.

Where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.

In case of a listed company, the listing agreement requires that the registration of transfers will be made within fifteen days of receipt of the transfer deeds.
5.   TRANSFER BY LEGAL REPRESENTATIVE: According to Section 56(5) of the Act, the transfer of any security or other instrument of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of execution of the instrument of transfer.

6.   OFFENCE & PENALTY: Where a company registers transfer or transmission of security not in accordance with the provisions of section 56 of the Act, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

7.  VALUATION OF SHARES: If the shares are listed in stock exchange, the valuation will be determined on the basis of quotations available on the stock exchange on the date of execution of transfer deed or the consideration paid whichever is higher.

On the contrary, if shares are not listed on stock exchange, the value of the shares for the purpose of stamp means the price that the shares would fetch at the time of transfer of shares or consideration agreed, whichever is higher.

It is to be noted that no transfer duty is applicable for transfer of shares if shares are in dematerialized form.

8.    STAMP DUTY: At present, stamp duty applicable for transfer of shares is 25 paise for every one hundred rupees or part thereof of the value of share. Section 56 of the Companies Act requires that where share transfer form is delivered to the company should be adequately stamped. It means stamp of adequate value should be affixed and cancelled on transfer deed. Unless a transfer form is duly stamped when it was delivered to the company for registration of transfer, it could not say that mandatory requirement of section 56 is complied with and the company is justified to refuse the transfer. [Patel Engineering Co. v B.Y. Invest Pvt. Ltd. Case No. 20/CLB/WR/91]

The share transfer stamps so affixed on a share transfer form are required to be cancelled either at the time of affixing them or at the time of execution of the deed by the transferee. The transferee must make sure that before lodgment of the transfer with the company, he must cancel the stamps by crossing them on their face. No such cancellation of stamps is required in case shares are in dematerialized form.

If adhesive stamp on transfer deed is not defaced, a fresh deed is to be submitted; company is not obliged to cancel stamp. [Nuddea Tea Co. Ltd. V Ashok Kumar Saha (1988) 64 Comp Cas 775 (Cal)]

Unless a particular mode of cancellation is prescribed in any state, crossing of stamps is sufficient. [Prafull Kumar Rout v Orient Engg. Works (P) Ltd. (1986) 60 Comp Cas 65 (Ori)]

When the number of share transfer stamps to be affixed on a share transfer form is large it is practically impossible to affix all the stamps on the share transfer form. In such a situation, the share transfer form, with which a separate sheet of paper with share transfer stamps of appropriate value having been affixed is permanently attached, should be treated as duly stamped under the Stamp Act - In re. Mathrubhumi Printing & Publishing Co. Ltd. (1991) 5 CLA 64 (Ker.)

It is not necessary that stamps be affixed before transfer deed is executed, they are to be affixed before delivery. [Prafull Kumar Rout v Orient Engg. Works (P) Ltd. (1986) 60 Comp Cas 65 (Ori)]

9. EXEMPTION FROM PAYMENT OF STAMP DUTY: No duty shall be chargeable in respect of any instrument executed by or on behalf of or in favor of the Government in cases where but for this exemption, the Government would be liable to pay to pay the duty chargeable in respect of such instrument.

10.NON-APPLICABILITY OF ABOVE CONDITIONS : The instrument of transfer and the concerned formalities in section 56 do not apply to the transfer of securities held under the system of depositories. Mere delivery of transfer instruction in the prescribed form to the depository participant by the transferor shall be sufficient.
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