Shares are movable property. Its ownership can change hands. If ownership of shares goes from one person by voluntary act of parties, it is termed as Transfer of Shares.
If the ownership of shares goes to another by operation of law. It is called transmission of shares. Transmission is involuntary transfer of ownership of shares from one person to another.
TRANSMISSION BY OPERATION OF LAW:-
Transmission of shares by operation of law takes place in following situations:-
a) Death of member. In case joint holding, transmission occurs only when last surviving member dies.
b) When member is adjudicated insolvent.
c) When the member becomes mentally ill (lunatic).
d) When the Company is amalgamated and fresh shares of new company are issued.
e) When the member is a Company, it is merged with other company or it goes into liquidation.
f) When shares are held by guardian for benefit of a minor and the minor becomes major.
g) By order of Court.
h) By order in case of Arbitration award.
Transmission of Shares in case of Death of Share Holder:
It was held that “transmission” on death of last holder of shares, is by operation of law. It is instantaneous transfer of ownership to the heirs of last holder from moment of death and what a company does is only the secretarial work of entering the names of the legal heirs once the requirements of the Articles are complies with.
Process of Transmission of Shares:-
Application by Survivor:
In case of death of shareholder of Company, The survivor in case of joint holding or legal heir, as the case may be, who want transmission by operation of law in his/her favour, shall file a simple application with the Company with relevant documents such
· Death Certificate,
· Succession Certificate,
· Specimen Signature of Successor etc., depending upon various circumstances may be considers necessary for transmission by the Company.
Duty of Company:
· The company records the particulars of the death certificate and a reference number of recording entry is given to the shareholder so as to enable him to quote such number in all future correspondence with the company.
· The company review and verify the documents submitted with transmission request. In case all the documents are in order, company shall approve the transmission request and register the shares in the name of the survivor or legal heir as the case may be.
· However in case documents submitted with transmission request are not in order and it is the case of refusal, company shall within thirty (30) days, from the date on which the intimation of transmission is delivered to the company, communicate refusal to the concerned person.
· Once company satisfy with the documents will endorse shares in the name of Survivor and register his name in register of Member.
Matter Relating to Transmission of Shares:-
Voting Right only after name is entered in register:
The transferee may become owner immediately, BUT he gets voting rights only after his name is recorded in the register of members of the Company.
Time limit for issue of share certificate on transmission (Section-56(4)):
Every company, unless prohibited by any provision of law or of any order of any Court, Tribunal or other authority, shall, within One month deliver, the certificates of all shares transmitted after the application for the registration of the transmission of any such shares received.
Transfer Deed duly executed not required for transmission:
Transfer deed duly executed and stamped, along with original share certificate is not required to be submitted to company, if the security is transmitted by operation of law.
Since transmission is by operation of law, instrument of transfer i.e. transfer deed is not essential for transmission. No “STAMP DUTY” is payable on transmission.
No time limit for applying for transmission:
There is no limitation period for making application for transmission. Similarly, transmission can’t be refused even during lock in period of shares.
Production of share Certificate necessary, but company can issue duplicate:
Production of share certificate is necessary for transmission. This is because name of new member has to be endorsed on the share certificate.
If the person claiming transmission is not able to produce original share certificate, he should be asked to submit an indemnity bond to indemnify the company in case of any loss that the company may sustain by issue of duplicate share certificate.
Duplicate Share Certificate should be issued only under authority of Board.
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
Directly Transfer of shares by Legal Representative:
Transfer by legal representative of deceased member is specifically permitted under Section 56(5).
Legal representative can directly transfer shares to third party instead of getting transmitted in his name.
Transmission in case of OPC:
In case of OPC, person nominated by the sole member will have title of all the shares of the deceased sole member. The nominee shall inform member’s death to the Board. The nominee will be entitled to dividends and all rights as member.
Once he becomes member, he will nominate another person as member, after obtaining his prior consent.
Right of Legal Representative:
· Person entitled to shares is entitled to dividends and other advantages of Shares.
· He can attend General Meeting and vote only after his name is registered as a member.
Right of Company:
· If a person doesn’t elect to become a member and doesn’t even transfer the shares, company can issue him a notice to him to either register himself or transfer.
· If he doesn’t comply within 90 days, Board can withhold payment of dividends, bonuses and other moneys payable, till he complies with the notice.
Provisions relating to transfer of securities apply if nominee decides to transfer securities:
If the nominee decides to transfer the securities, all limitations, restrictions and provisions of the Companies Act, 2013 relating to transfer and registration of transfer of Securities shall apply, as if death of the shareholder or debentures holder had not occurred, and the notice or transfer is transfer deed signed by shareholder or debenture holder.
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at email@example.com)