Transfer and

Transmission of Shares
 Introduction(Summary/Background)
• S. 44 Nature of shares or
debentures
• S. 46 Certificate of shares
• S. 56. Transfer and transmission of
securities.
 Nature of shares or debentures
• S. 44: The shares or debentures or other interest of any member in a company shall
be movable property transferable in the manner provided by the articles of the
company.
• S. 46: Certificate of shares.—(1) A certificate, issued under the common seal, if any,
of the company or signed by two directors or by a director and the Company
Secretary, wherever the company has appointed a Company Secretary, specifying
the shares held by any person, shall be prima facie evidence of the title of the person
to such shares.
• (2) A duplicate certificate of shares may be issued, if such certificate — (a) is
proved to have been lost or destroyed; or (b) has been defaced, mutilated or torn and
is surrendered to the company
 Contd.
• (3) Notwithstanding anything contained in the articles of a company, the manner of issue of
a certificate of shares or the duplicate thereof, the form of such certificate, the particulars to
be entered in the register of members and other matters shall be such as may be prescribed.
• (4) Where a share is held in depository form, the record of the depository is the prima facie
evidence of the interest of the beneficial owner.
• (5) If a company with intent to defraud issues a duplicate certificate of shares, the company
shall be punishable with fine which shall not be less than five times the face value of the
shares involved in the issue of the duplicate certificate but which may extend to ten times
the face value of such shares or rupees ten crores whichever is higher and every officer of
the company who is in default shall be liable for action under section 447.
Notes
Procedure of Transfer
Transfer and transmission of securities(S. 56)
• (1) A company shall not register a transfer of securities of the company, or the interest of a member in
the company in the case of a company having no share capital, other than the transfer between
persons both of whose names are entered as holders of beneficial interest in the records of a
depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped,
dated and executed by or on behalf of the transferor and the transferee and specifying the name,
address and occupation, if any, of the transferee has been delivered to the company by the transferor
or the transferee within a period of sixty days 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:
• Provided that where the instrument of transfer has been lost or the instrument of transfer has not been
delivered within the prescribed period, the company may register the transfer on such terms as to
indemnity as the Board may think fit.
 Contd.
• (2) Nothing in sub-section (1) shall prejudice the power of the company to
register, on receipt of an intimation of transmission of any right to securities
by operation of law from any person to whom such right has been
transmitted.
• (3) Where an application is made by the transferor alone and relates to partly
paid shares, the transfer shall not be registered, unless the company gives the
notice of the application, in such manner as may be prescribed, to the
transferee and the transferee gives no objection to the transfer within two
weeks from the receipt of notice.
Contd.
Contd.
 Power of the Board of Director
• Case Laws:
• Pawan Gupta v. Hicks Thermometers
• The refusal to register transfer of shares on the ground that the transferor had been
indulging in acts which were against the interest of the company shall not be tenable.
• Hemangini Finance & leasing (p.) ltd. v Tamilnadu Mercantile bank 1996 8 SCL237
held that there is no blanket authority available to a company to refuse the
registration of transfer even if the articles provide absolute discretion. When the
articles do not provide for any power for refusal, the company cannot refuse. If it
has restrictive power as per articles the power could be exercised only in regards to
those matters.
 Contd.
• Karnataka Theatres Ltd. v S. Venkatesan
• Where a company give reason for its refusal to register transfer of share that reason
alone will be examined as good or bad.
• When transfer is Complete?
• Transfer become complete and the transferee become a shareholder only when the
transfer is registered in the company register
• Mathrubhumi printing & publisher v. Vardhaman Publisher Ltd. 1992 73 Comp. Cases
80(ker)
 Onus
• When allegation is there related to entry in the register of the members of
the company without following the complete procedure?
• In the case of Radhey shyam gupta v. Kamal oil & allied industry ltd. [1999] 19 SCL
271 Delhi, the court held that the onus of the proof will lie on the person who make
that allegation.
 Notice of Refusal
• Notice of Refusal of the share is the requirement of section 58 which must
be observed even where the shareholder is also a director of the company
and therefore aware of the decision of refusal taken in the board of
meeting.
• Vimal k Gupta v. Auto Lamps Ltd. [1995]5 SCL238
Position during the time when Co. hold
S. 126
 Punishment for personation of
shareholder(S.57)
• If any person deceitfully personates as an owner of any security or interest
in a company, or of any share warrant or coupon issued in pursuance of
this Act, and thereby obtains or attempts to obtain any such security or
interest or any such share warrant or coupon, or receives or attempts to
receive any money due to any such owner, he shall be punishable with
imprisonment for a term which shall not be less than one year but which
may extend to three years and with fine which shall not be less than one
lakh rupees but which may extend to five lakh rupees.
 Refusal of registration and appeal against
refusal(S.58)
• (1) If a private company limited by shares refuses, whether in pursuance
of any power of the company under its articles or otherwise, to register the
transfer of, or the transmission by operation of law of the right to, any
securities or interest of a member in the company, it shall within a period
of thirty days from the date on which the instrument of transfer, or the
intimation of such transmission, as the case may be, was delivered to the
company, send notice of the refusal to the transferor and the transferee or
to the person giving intimation of such transmission, as the case may be,
giving reasons for such refusal.
 Contd.
• (2) Without prejudice to sub-section (1), the securities or other interest of
any member in a public company shall be freely transferable: Provided that
any contract or arrangement between two or more persons in respect of
transfer of securities shall be enforceable as a contract.
• (3) The transferee may appeal to the Tribunal against the refusal within a
period of thirty days from the date of receipt of the notice or in case no
notice has been sent by the company, within a period of sixty days from the
date on which the instrument of transfer or the intimation of transmission, as
the case may be, was delivered to the company.
 Contd.
• (4) If a public company without sufficient cause refuses to register the
transfer of securities within a period of thirty days from the date on which
the instrument of transfer or the intimation of transmission, as the case
may be, is delivered to the company, the transferee may, within a period of
sixty days of such refusal or where no intimation has been received from
the company, within ninety days of the delivery of the instrument of
transfer or intimation of transmission, appeal to the Tribunal.
 Contd.
• (5) The Tribunal, while dealing with an appeal made under sub-section
(3) or sub-section (4), may, after hearing the parties, either dismiss the
appeal, or by order—
• (a) direct that the transfer or transmission shall be registered by the
company and the company shall comply with such order within a period
of ten days of the receipt of the order; or
• (b) direct rectification of the register and also direct the company to pay
damages, if any, sustained by any party aggrieved.
 Contd.
• (6) If a person contravenes the order of the Tribunal under this section, he
shall be punishable with imprisonment for a term which shall not be less
than one year but which may extend to three years and with fine which
shall not be less than one lakh rupees but which may extend to five lakh
rupees.
Notes
Retention of Certificates
Contd.
 Contd.
• Scrips to the transferors, with a view to harass the transferee company.
Such Action is against all the canons of law, justice, equity and fair play
and is not in accordance with sound business principles or prudent
commercial practices.
 Case Law
• Vasant Investment Corporation Ltd. v CLB [1999]19 SCL502(Bom)
• In case of refusal to register a transfer by the board of director, on appeal,
it is always for the party assailing the decision of the board of director to
demonstrate that such decision suffer from unsustainable reasons; i.e. such
reasons are not legitimate or that decision is vitiated by ulterior motive or
corrupt motive or arbitrary conduct or mala fide of the board of directors.
• Suggestive reading: Federal Bank Ltd. V. Smt. Sarla Devi Rathi[1997]
CLA183(Raj).
Transfer of Shares after winding up-Whether
Valid?
• HL Seth v. Wearwell Cycle Co. (India) Ltd. 1988 64 Comp Cas 497
• The Delhi High Court held that as between the transferor and transferee, a
transfer of shares executed after the commencement of winding up is
valid, whether it was executed in performance of a contract made before
or after that time.
Nomination
Transmission of Share and Debentures
Contd.