Provisions of transfer & Transmission of shares under Companies Act & LODR

My article is related to transfer and transmission of shares. In this article I will explain the related provisions of companies Act, 2013 and SEBI (LODR) Regulation, 2015. Before come to the provisions, we need to understand the basic difference between transfer and transmission of shares.

Transfer of Shares

– Transfer of shares is a voluntary act that takes place by way of contract between transferor and transferee.

– Transfer deed is executed in transfer of shares.

– Transfer of shares refers to the transfer of title to shares, voluntarily, by one party to another.

– Adequate consideration is involved under this contract.

–  Liabilities of transferor cease on the completion of transfer.

– Stamp duty is involved under transfer and payable on the market value of shares.

Transmission of Shares

– Transmission of shares means the transfer of title to shares by the operation of law.

– It is initiated by legal heir or receiver.

– No transfer deed is involved in transmission of shares.

– No adequate consideration is involved under this contract.

– Original liability of shares continues to exist.

– No stamp duty is payable.

Provisions under Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015

(A) Section 56 of Companies Act, 2013 read with Rule 11 of Companies (Share Capital & Debenture) Rules, 2014

(1) Transfer of Shares (Form SH-4)

A company shall register a transfer of securities of the company only if a proper instrument of transfer, in form SH-4 as given in sub rule 1 of rule 11 of Companies (Share Capital & Debentures) Rules 2014 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 60 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.

For User’s ready reference link to download of Form SH-4 is given below:

Form No.SH.4

(2) Transmission of Shares

 Intimation/application of Transmission accompanied with followings relevant documents (as require) would be enough for valid transmission request. Execution of transfer deed not required in case of transmission of shares.

(Relevant Documents:-Certified copy of Death certificate, Self attested copy of PAN card, Succession certificate or Probate of will or Will or Letter of administration or Court decree, Specimen signature of the successor)

For User’s ready reference format of application of transmission are given below:

To,

Date: –/–/—-

The Board of Directors,

XYZ LTD.

Address

Sub: Transmission of 1000 no of equity shares under Ledger folio no 215.

Dear Sir/Madam,

I am informing to you that my father Late Sh. ………. expired on dated…….. He was holding 1000 Equity Shares of Rs…. each fully paid up in the company under L.F. No 215. Please find below relevant details of the Equity Shares:

S.no	Share Certificate No.	No. of Equity Shares	Ledger Folio No.	Distinctive Number From	Distinctive Number To
1	100	1000	215	5001	6000

 I, hereby submit the following documents for transmission of such Equity Shares in my name:

1. Certified copy of the death certificate

2. Succession Certificate/ probate of will/ will /letter of administration

3. Original share certificate.

4. Specimen signatures.

5. Self attested copy of PAN Card

Kindly consider and arrange for transmission of the said shares in my favour and oblige.

Thanking you.

Yours faithfully

(……………..)

Legal heir

Others Details (Address, Phone no, e-mail id)

(3)Transfer of Partly Paid shares

Where an application is made by the transferor alone and relates to partly paid shares, the transfer shall be registered, only if the company gives the notice of the application, in Form SH-5 as given in sub rule 3 of rule 11 of Companies (Share Capital & Debentures) Rules 2014, to the transferee and the transferee gives no objection to the transfer within 2 weeks from the receipt of notice.

For User’s ready reference link to download of Form SH-5 is given below:

Form No. SH.5

(4)Time limit to delivery of certificate under transfer/Transmission

Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities transferred or transmitted within a period of 1 month from the date of receipt by the company of the instrument of transfer under point no 1 or intimation of transmission under point no (2), as the case may be.

 (5) Penalty in case of non compliance

 Where any default is made in complying with the above, the company shall be punishable with fine which shall not be less than 25 thousand rupees but which may extend to 5 lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than 10 thousand rupees but which may extend to 1 lakh rupees.

(B)Additional requirement for listed entities for effective transfer/ transmission of securities (Regulation 40 of SEBI (LODR) Regulation, 2015) 

(1) Transfer of securities shall be processed only if the securities are held in the dematerialized form with a depository (this is not applicable in case of transmission of securities).

(2)(a) The BOD’s may delegate the power of transfer of securities to a committee or to compliance officer or to the registrar and share transfer agent.

(b)Board of directors and/or the delegated authority shall attend to the formalities pertaining to transfer of securities at least once in a fortnight.

(c)The delegated authority shall report on transfer of securities to the board of directors in each meeting.

(3)(a) On receipt of proper documentation for transfer,

(i) Listed entity shall register transfers of its securities in the name of the transferee(s) and issue certificates or receipts or advices, as applicable

 Or

(ii) Issue any valid objection or intimation to the transferee or transferor

(Within a period of 15 days from the date of such receipt of request for transfer)

(b) In case of transmission request, it is processed for securities held in dematerialized mode and physical mode within 7 days and 21 days respectively, after receipt of the specified documents.

(c) Proper verifiable dated records of all correspondence with the investor shall be maintained by the listed entity.

(4) The listed entity shall not register transfer when any statutory prohibition or any attachment or prohibitory order of a competent authority restrains it from transferring the securities from the name of the transferor(s).

(5) The listed entity shall not register the transfer of its securities in the name of the transferee(s) when the transferor(s) objects to the transfer:

Provided that the transferor serves on the listed entity, within 60 working days of raising the objection, a prohibitory order of a Court of competent jurisdiction.

(6) The listed entity shall comply with all procedural requirements as specified in Schedule VII of SEBI (LODR) Regulation, 2015 with respect to transfer of securities.

(7) If the listed entity has not effected transfer of securities or has failed to communicate to the transferee(s) any valid objection to the transfer, within the 15 days, the listed entity shall compensate the aggrieved party for the opportunity losses caused during the period of the delay:

Provided that during the intervening period on account of delay in transfer above, the listed entity shall provide all benefits, which have accrued, to the holder of securities in terms of provisions of Section 126 of Companies Act, 2013, and Section 27 of the Securities Contracts (Regulation) Act, 1956:

Provided further that in case of any claim, difference or dispute under this sub-regulation the same shall be referred to and decided by arbitration as provided in the bye-laws and/or regulations of the stock exchange(s).

(8) The listed entity shall ensure that the share transfer agent and/or the in-house share transfer facility, as the case may be, produces a certificate from a PCS within 1 month of the end of each half of the financial year, certifying that all certificates have been issued within 15 days of the date of lodgement for transfer, sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies.

(9) The listed entity shall ensure that certificate mentioned at point no (8), shall be filed with the stock exchange(s) simultaneously.

(10) The provisions of this regulation shall also apply to the following:

(a) Deletion of name of the deceased holder(s) of securities, where the securities are held in the name of two or more holders of securities;

(b)Transmission of securities to the legal heir(s), where deceased holder of securities was the sole holder of securities;

(c) Transposition of securities, when there is a change in the order of names in which physical securities are held jointly in the names of two or more holders of securities.

(C) SCHEDULE VII: PROCEDURAL REQUIREMENT WITH RESPECT OF TRANSFER OF SECURITIES (SEBI (LODR) Regulation, 2015) 

• REQUIREMENT OF PAN

(1) The transferee(s) as well as transferor(s) shall furnish a copy of their PAN card.

(2) In case of residents of Sikkim, the requirement of PAN Card (if not available) may be substituted with Identity proof.

(3) In case of mismatch in PAN card details as well as difference in maiden name and current name, in case of married women, of the holder(s) of securities, the listed entity may collect the PAN card subject to verifying the correctness of the claim by collecting sufficient documentary evidence. 

• DIFFERENCES IN SIGNATURE

(1) In case of minor differences in the signature of the transferor(s)

 (a) The listed entity shall send to the first transferor(s), via speed post an intimation of defect and inform the transferor(s) that objection, supported by valid proof, is not lodged by the transferor(s) within 15 days of receipt of the listed entity’s letter, then the securities shall be transferred;

(b) If the intimation to the transferor(s) is delivered and the objection from the transferor(s) with supporting documents is not received within 15 days, the listed entity shall transfer the securities provided the listed entity does not suspect fraud or forgery in the matter:

 Provided that the listed entity shall maintain proof of delivery for in their record(s).

(2) In case of major differences in, or non-availability of, the signature of the transferor(s)

 (a) The listed entity shall promptly send to the transferee(s), via Speed Post, an Objection Memo along with the documents in original marking the reason as “material signature difference/ non-availability of signature” and an advice to

ensure submission of requested documents of the transferor(s);

(b) The listed entity shall also send a copy of the Objection memo as per clause (a) of sub-para (2) to the transferor(s), via Speed Post, simultaneously;

(c) The above Objection Memo in clause (a) and (b) of sub-para (2) shall also state the requirement of additional documents of transferor(s) as follows for effecting the transfer:

(i) An Affidavit to update transferor(s) signature in its records;

(ii) An original unsigned cancelled cheque and banker’s attestation of the transferor(s) signature and address;

(iii) Contact details of the transferor(s)

(d) If the intimation to both the transferor(s) and the transferee(s) are delivered, requested documents of the transferor(s) are submitted to the listed entity and the address attested by the bank tallies with the address available in the database of listed entity, the listed entity, shall transfer the securities provided the listed entity does not suspect fraud or forgery in the matter:

Provided that listed entity shall maintain proof of delivery in their record(s). 

• ADITIONAL DOCUMENTATION REQUIREMENTS IN CASE OF TRANSMISSION OF SECURITIES

(1) In case of transmission of securities held in dematerialized mode, where the securities are held in a single name without a nominee, for the purpose of following simplified documentation, as prescribed by the depositories vide bye-laws or operating instructions, as applicable, the threshold limit is rupees 5 lakhs only per beneficiary owner account.

(2) In case of transmission of securities held in physical mode:

(a) Where the securities are held in single name with a nominee:

(i) Duly signed transmission request form by the nominee;

(ii) Original or copy of death certificate duly attested by a notary public or by a gazetted officer;

(iii) Self attested copy of PAN card of the nominee.

 Or

(b) Where the securities are held in single name without a nominee

(i) An affidavit from all legal heir(s) made on appropriate non judicial stamp paper, to the effect of identification and claim of legal ownership to the securities shall be required.

(ii) If the legal heir(s)/claimant(s) is named in the succession certificate or probate of will or will or letter of administration, an affidavit from such legal heir(s) / claimant(s) alone would be sufficient.

Note: (link to point no b above)

Value of securities, up to rupees 2 lakh, per listed entity, a succession certificate or probate of will or will or letter of administration or court decree may be submitted.

In the absence of above such documents, the following documents may be submitted:

1. NOC from all legal heir(s) who do not object to such transmission or copy of family settlement deed duly notarized and executed by all the legal heirs of the deceased holder.

2. An indemnity bond made on appropriate non judicial stamp paper, indemnifying the Share Transfer Agent / listed entity.

– For value of securities, more than rupees 2 lakh, per listed entity, a succession certificate or probate of will or will or letter of administration or court decree, shall be submitted.

(iii) The listed entity however, at its discretion, may enhance value of securities, threshold limit, of rupees two lakh.

 Note-For the above purpose, Value of securities of listed entity will be taken as on date of Application.

(The views expressed herein are personal views of the Author. The views expressed herein in not intended and shall not be taken as, legal advice. For any further queries, the author can be reached at following Email id: caankit02@gmail.com)