Section 44 of the Companies Act, 2013 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.
Sub-section 2 of Section 58 of the Companies Act, 2013 provides that the securities or other interest of any member in a public company shall be freely transferable.
The concept of free transferability of shares in a public and private company is discussed in the case of WESTERN MAHARASHTRA DEVELOPMENT CORPORATION LTD. Vs. BAJAJ AUTO LTD; it was held that the Company Act makes a clear distinction regarding the transferability of shares relating to private and public companies. By its definition, a ‘private company’ is a company, which restricts the right to transfer its shares. In the case of a public company, the Act provides that the shares or debentures and any interest of the company are freely transferable.
Section 56 of the Companies Act, 2013 read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014 provides that 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 Form SH-4 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.
In VARDHMAN PUBLISHERS LTD. V. MATHRUBHUMI PRINTING & PUBLISHING CO. LTD held that affixing stamps on a separate sheet of paper and attaching it to the transfer application or cancellation of stamps by drawing a line across the stamp was not improper and would not invalidate the said application.
Where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the 60 days, the company may register the transfer on such terms as to indemnity as the Board may think fit.
Sub-Section 3 of Section 56 of the Companies Act, 2013 provides that 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 Form SH-5 to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.
Every company shall deliver the certificates of all securities transferred within a period of one month from the date of receipt by the company of the instrument of transfer.
In case of listed companies, Shares in physical form became illiquid w.e.f., 01.04.2019. In other words, transfer of shares in physical form is not allowed w.e.f. 01.04.2019. For more clarity on the subject, have a look on my article “Provisions w.r.t., Duplicate Share Certificate for Listed Company are still relevant?”
PROCEDURE FOR TRANSFER OF SECURITIES IN PHYSICAL MODE
DRAFT RESOLUTION FOR TRANSFER OF SECURITIES IN PHYSICAL MODE
“RESOLVED THAT pursuant to the provisions of section 56 and other applicable provisions, if any, of the Companies Act, 2013 read with rules made thereunder (including any statutory modification(s) or re-enactment thereof for the time being in force) and pursuant to Article ___________ of Articles of Association of the Company, the approval of the Board be and is hereby accorded to the transfer of ____________ shares of Rs. _______ each in the following manner:
RESOLVED FURTHER THAT Mr./Ms. _________, director and __________, Company secretary of the Company be and are hereby jointly/ severally authorized to authenticate the said transfer and to sign and endorse the share certificate in favour of the transferee and to do all such acts, deeds, matters and things as may be necessary, desirable, proper or expedient for the purpose of giving effect to this resolution and for matters connected therewith or incidental thereto.”
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