Introduction: Understanding share transmission is crucial, especially during significant life events like death or insolvency. Unlike voluntary share transfers, transmission involves legal procedures and is governed by specific provisions in the Companies Act. This guide explores the nuances of transmitting physical share certificates, shedding light on the process, legal implications, and important provisions.
A. Short Summary: The word “transmission” means devolution of title to Shares otherwise than by transfer.
The transmission of shares is an often encountered subject when dealing with share certificates; however, it is not widely recognized. The Companies Act distinguishes between the act of transmission shares and the act of transfer shares. Transmission occurs through legal procedures, as opposed to share transfers, which are based on the voluntary decision of the shareholder. “Transmission” denotes the transfer of ownership of shares through means other than physical transfer, such as in cases of marital breakdown, death, succession, inheritance, bankruptcy, or several other legal procedures.
When shares are transmitted, the new owner becomes the registered shareholder with full rights and responsibilities associated with the ownership of those shares.
This process is typically governed by company laws, regulations, and the specific terms outlined in the company’s articles of association or shareholder agreements.
The process of transmission in case of holding of shares in Physical or in Demat form is different. In this editorial, the process of transmission of a physical share certificate shall be discussed.
“Transmission” means passing of property in Shares, other than by way of transfer, by operation of law consequent to the death or insolvency of the member.
B. Provisions of Transmission of Shares:
- Section 56, 58, 88 of Companies Act, 2013
- Rule 11, 19 of Companies (Share Capital and Debentures) Rules, 2014
- Rule 5 of Companies (Management and Administration) Rules, 2014
- Table F of Schedule- I of the Companies Act, 2013
- Reference – Secretarial Standard 6 of ICSI (It may be use for reference purpose)
C. Important Note: i. There is no need to prepare a transfer deed for the transmission of shares. ii. There is no stamp duty applicable on the transmission of shares. iii. There is no consideration involved in the transmission of shares.
D. Process of Transmission of Shares:
I. In case of Nominee: “Nominee” means an individual named in accordance with the Act by a shareholder(s) whose Shares should vest in such an individual on the death of the shareholder(s) and that individual need not be a legal heir.
In case the deceased shareholder has nominated any person as their nominee, the Shares shall vest in the Nominee on the death of the Member. On the death of the shareholder, the Nominee has the option to elect either to register himself as the holder of the Shares of the deceased or transfer the Shares to any other person. The transferees need not be the legal heirs of the deceased shareholder(s).
The nominee shall submit the following documents with the Company:
i. A request letter from nominee
ii. KYC Documents of Nominee
iii. Copy of Death Certificate
iv. Copy of Original Share Certificate
v. Execution of Indemnity cum affidavit
Work by Company: The Company shall check the name of nominees from their records. If information matched with the record of the Company. The Company shall do the followings in 30 days of receipt of request:
i. Hold a Board Meeting for passing of resolution for Transmission.
ii. Register the name of the nominee as shareholder in the register of members.
iii. Endorsement on the Share certificate.
iv. Deliver the Share certificate to the nominee.
v. Type of Entries: The company is required to make necessary entries in the Register of Members (Form MGT-1) for the transmission of securities. Alternatively, if applicable, entries can also be made in the Register of Debenture Holders or other securities holders (Form MGT-2).
vi. Timeline for Entries: The entries should be made within 7 days of the Board Meeting in which the transmission of securities was approved.
vii. Approval Process: The approval for the transmission of securities appears to be a decision made during a Board Meeting.
NOTE: Original Share Certificates: If the claimant for the transmission of shares of a deceased shareholder is unable to produce the original share certificates, the company should issue duplicate share certificates after following a specific procedure.
Entitlements of Legal Representative or Nominee:
The legal representative or nominee of the deceased member is entitled to receive the same dividends and other advantages that the deceased shareholder would have received if they were the registered holder of the shares.
Limitations on Voting and Other Rights:
However, the legal representative or nominee is not entitled to exercise voting rights or other rights in a general meeting unless they are registered as a member in respect of the shares.
Liability on shares shall continue:
In the case of a transmission of shares, shares continue to be subject to the original liabilities, and if there was any lien on the shares for any sums due, the lien would subsist, notwithstanding the devaluation of the shares.
II. In case of Joint Holder: As per Table F of Schedule I, provides that on the death of a member where he was a joint shareholder, the survivor(s) shall be the only person recognized by the Company. The legal heirs of deceased members are abstained from getting registered as joint holder along with the surviving holder.
III. In case of held in single name (No Nominee or Joint shareholder):
|
Sr. No. |
Documents required for transmission | Sole holder deceased & nomination registered | Sole holder deceased & nomination not registered |
| 1. | Transmission Request Form | Annexure C | Annexure C |
| 2. | Original death certificate or Copy of death certificate attested by a notary public/gazette officer or copy of the death certificate attested by the nominee(s)/claimant(s)/legal heir(s), subject to verification with original by the RTA/Listed Issuer | ✓ | ✓ |
| 3. | Self-attested copy of Permanent Account Number Card of the nominee(s)/claimant(s)/legal heir(s) issued by the Income Tax Department | ✓ | ✓ |
| 4. | Copy of Birth Certificate (in case the nominee/claimant/legal heir is a minor) | ✓ | ✓ |
| 5. | KYC* of the Claimant Guardian (in case of nominee /claimant being a minor / of unsound mind). | ✓ | ✓ |
| 6. | Original security certificate(s) | ✓ | ✓ |
*If not KYC compliant
| 7. | Notarized affidavit from all legal heir(s) made on non-judicial stamp paper of appropriate value on identity and claim of ownership, as per the format provided in Annexure D. | NA | ✓ |
| 8. | In case the legal heir(s)/claimant (s) are named in the Succession Certificate or Probate of Will or Will or Letter of Administration or Legal Heirship Certificate(or its equivalent certificate), instead of the document mentioned in point 7 above, an Affidavit from such legal heir(s)/claimant(s), duly Notarised and as per the format provided in Annexure D, shall be sufficient. | NA | ✓ |
| 9. | Copy of any of the following documents:
(a) Succession certificate; or (b) Probate of Will; or (c) Will, along with a notarized indemnity bond from the legal heir(s)/claimant(s) to whom the securities are transmitted, as per the format specified provided in Annexure E; or (d) Letter of Administration; or (e) Court Decree; or (f) Legal Heirship Certificate or its equivalent, along with (i) a notarized indemnity bond from the legal heir (s)/claimant(s) to whom the securities are transmitted, as per the format specified provided in Annexure E; and (ii) No Objection from all the non-claimants, duly attested by a notary public or by a gazetted officer as per the format provided in Annexure F. The document should be Attested by the legal heir(s)/claimant(s) subject to verification with the original or duly attested by a notary public or by a Gazetted officer |
NA | ✓ |
| 10. | For cases where the value of securities is up to rupees five lakhs per listed entity as on the date of submission of complete documentation in case of securities held in physical mode and up to rupees fifteen lakhs per beneficial owner in case of securities held in dematerialized mode, instead of and where the documents mentioned in point 9 above are not available, the following documents may be submitted;
(i) no objection certificate from all legal heirs(s), as per the format provided in Annexure F, or copy of family settlement deed executed by all the legal heirs, duly attested by a notary public or by a gazette officer; and (ii) notarized indemnity bond made on non-judicial stamp paper of appropriate value, indemnifying the Share Transfer Agent/listed entity, in as per the format. provided in Annexure E. |
NA | ✓ |
Conclusion: Navigating the transmission of shares involves understanding legal intricacies, procedural nuances, and specific documentation. This guide provides a comprehensive overview, from the provisions in the Companies Act to the practical steps involved in transmission. Whether dealing with nominee cases, joint holders, or single holders, the process is demystified with expert insights, ensuring a smoother understanding of this vital aspect of shareholder dynamics.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
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