Transfer and Transmission of shares under Companies Act, 2013

In the realm of financial management, the transfer and transmission of securities play a pivotal role. This guide provides an understanding of these processes as delineated in the Companies Act, 2013 and the Securities Contracts (Regulation) Act, 1956.

The Companies Act 2013, along with the Securities Contracts (Regulation) Act 1956, provides the legal framework for the transfer and transmission of securities. These include shares, bonds, debentures, derivatives, and other marketable securities issued by an incorporated company. The guide discusses the step-by-step process to transfer securities and the procedure for the transmission of securities when the ownership changes by operation of law. This includes a detailed look at the process for transferring partly-paid shares, which involves additional steps like providing a notice to the transferee.

I. Referred Provisions:

> Section 2(81) of the Companies Act, 2013

> Section 2(h) of Securities Contracts (Regulation) Act, 1956

> Section 56 of Companies Act, 2013

> Rule 11 of The Companies (Share Capital and Debentures) Rules, 2014

II. Definitions:

1. As per Section 2(81) of the Companies Act, 2013 “securities” means the securities as defined in clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956.

2. As per Section 2(h) of Securities Contracts (Regulation) Act, 1956 “Securities” include

• shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
• derivative;
• units or any other instrument issued by any collective investment scheme to the investors in such schemes;]
• security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
• units or any other such instrument issued to the investors under any mutual fund scheme;]
• Government securities;
• such other instruments as may be declared by the Central Government to be securities; and
• rights or interest in securities;

III. Process for Transfer of Securities

1. Transfer of Securities or interest from one person to another person whose name will be the entered in the register of member.

* There are certain restrictions on transfer of shares of a Private Company

2. Execute instrument of transfer in Form SH-4 which include the following:

• Date of Execution
• Kind and Class of Securities
• Nominal Value of each security
• Amount called up per security
• Amount paid up per security
• Number of Securities to be transferred
• Consideration Received
• Transferor Details along with signature
• Transferee Details
• Details and signature of witness
• Duly stamped as per applicable Stamp Act

3. Either transferor or transferee shall deliver the signed and duly executed Form SH-4 to the company within 60 days from the date of execution.

4. The Company shall deliver the share certificate within one month from the date of receipt of instrument of transfer.

IV. Process for transfer of Partly-Paid shares

1. Before registering the transfer of partly paid-up shares, notice in Form SH-5 shall be given to the transferee

2. The Transferee shall give No objection within 2 weeks from the date of receipt of notice.

* In case the transferee fails to provide No objection within the prescribed time the transfer cannot be registered.

V. Process for transmission of Securities

1. Transmission of Securities means Securities are transmitted from one person to another by operation of law.

2. Documents required:

• Transmission Request Form (TRF)
• Indemnity Bond
• Affidavit

3. The Company shall deliver the share certificate within one month from the date of receipt of intimation of transmission.

Conclusion: Understanding the process of transferring and transmitting securities is crucial for both corporations and investors. Following the defined procedures ensures smooth transactions, avoiding potential legal issues. The Companies Act 2013 and the Securities Contracts (Regulation) Act 1956 provide a robust framework for ensuring these processes are executed correctly, thereby maintaining integrity in the financial markets.