Transmission of Shares under the Companies Act, 2013 and the Importance of Nomination – A Comprehensive Guide
In a common parlance, Shares constitute movable property and represent ownership in a company. Upon the death, insolvency, or lunacy of a shareholder, the ownership rights in such shares may devolve upon another person by operation of law. The process through which the title to shares passes to a legal representative or successor without any voluntary act of transfer by the shareholder is known as Transmission of Shares.
Unlike a transfer of shares, transmission occurs by operation of Law and does not involve any instrument of transfer or consideration i.e. in case of transmission of shares no SH 4 is executed and shares will get transferred by virtue of operation of Law.
This article discusses the legal framework, procedure, documentation, and practical aspects relating to transmission of shares under the Companies Act, 2013 in two situations:
1. Transmission of shares in case of Unlisted Company and shares are in physical form.
2. Transmission of shares in case of Unlisted Company and shares are in demat form.
Meaning of Transmission of shares
Transmission of shares refers to the process by which ownership of shares passes from a shareholder to his legal representative, nominee, successor, or official assignee upon the occurrence of certain events such as:
- Death of a shareholder;
- Insolvency of a shareholder;
- Lunacy or unsoundness of mind;
- Dissolution of a body corporate shareholder.
The right to shares devolves upon the successor by operation of law and not by an agreement between parties.
Sub Section (2) of Section 56 of Companies Act, 2013 governs transmission of shares reproduced below for your ease:
Section 56
(1) 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 such form as may be prescribed, 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:
(2) Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.
The word “intimation of transmission” is required to be emphasized here which clearly mandate that on the basis of intimation Company shall register the transfer request. Further for the purpose of verification Company may ask additional documents like death certificate, copy of physical share certificate, indemnity bond etc.
Another special point to be taken care of by the shareholder of the Company is execution of Nomination form i.e. SH 13. In accordance with Section 72 of the Companies Act, 2013, a shareholder may nominate a person to whom the shares shall vest upon his death and in such cases, nominee becomes entitled to claim the shares in accordance with Section 72 of the Companies Act, 2013 and judicial precedents upon production of:
- Death Certificate of the deceased shareholder;
- Nomination details;
- KYC documents of the nominee;
- Transmission request.
Here Company is not required to identify the legal heir of the deceased shareholder and shall register the shares in the name of nominee.
In the absence of a valid nomination, the legal heirs are required to establish their entitlement through:
- Succession Certificate;
- Probate of Will;
- Letter of Administration;
- Legal Heir Certificate or other documents as accepted by the company.
The company may seek additional indemnities and affidavits before approving the transmission.
Now let’s discuss first scenario – Transmission of shares in case of Unlisted Company and shares are in physical form.
Step 1: Submission of Application
The claimant submits a request for transmission along with supporting documents.
Step 2: Verification of Documents
The company verifies:
- Death certificate;
- Whether Nomination done or not by the deceased shareholder;
- Succession documents;
- Identity and address proof of the claimant;
- Indemnity and affidavits, wherever required;
- If no nomination exists, No Objection letter’ from other legal heirs;
- Any other additional documents at the discretion of the Company.
Step 3: Approval by the Board of Directors
The Board of Directors considers the request and approves the transmission by passing a Board Resolution.
Step 4: Entry in Register of Members
Upon approval, the name of the deceased shareholder is replaced with the name of the legal representative or nominee in the Register of Members.
Step 5: Issue of Share Certificate
Where shares are held in physical form, the company endorses or issues a new share certificate in the name of the successor (we recommend endorsement on the existing share certificate) and shall within a period of one month from the date of receipt by the company of the intimation of transmission under sub-section (2) of Section 56 deliver the certificates of all securities transmitted.
Now let’s discuss our second scenario – Transmission of shares in case of Unlisted Company and shares are in demat form.
For shares held in dematerialized form, transmission is processed through the Depository Participant and your Registrar and Transfer Agent (RTA). List of documents asked by RTA is varied on different RTAs, The indicative list above is based on documentation generally sought by KFin Technologies Limited and may vary depending upon the RTA, depository requirements, and facts of each case.
Step 1: Submission of Application
The claimant generally submits the transmission request through the Depository Participant (DP), and the DP/RTA processes the request in accordance with depository regulations.
List of supporting documents asked by DP/RTA:
- Request letter duly signed by Claimant(s) for Transmission of Shares;
- Copy of Succession Certificate/Probate of WILL/ which is to be obtained from the Court Or Indemnity bond and Affidavit as per the proforma shared by the RTA;
- Signature verification of Claimant(s) by Bank Manager;
- No Objection letter’ from other legal heirs, if any, on a non-judicial stamp paper of value of Rs. 50/- duly attested by Notary Public/Special Executive Magistrate, along with their ID proofs i.e., attested copy of PAN copy/Passport/Election ID/Driving License etc;
- Transmission form need to be filled by Claimant(s) and attested by Bank Manager with official seal;
- Photo Copy of Death Certificate of deceased holder duly attested by Notary/Gazetted Officer;
- Identification and Address Proof of the Claimant(s) i.e., attested copy of PAN card/Passport/Election Commission card/Driving License….etc. and Telephone Bill/Electricity Bill/Bank Pass Book etc also duly attested by Notary;
- All available Original Share Certificate(s);
- Cancelled Cheque Copy of the Claimant.
Step 2: Verification of Documents
The RTA verifies the above documents and may ask an additional clarification if required.
Step 3: Approval by the Board of Directors
After verification and approval from the RTA, The Board of Directors considers the request and approves the transmission by passing a Board Resolution.
Step 4: Entry in Register of Members
Upon approval, the name of the deceased shareholder is replaced with the name of the legal representative or nominee in the Register of Members as maintained by the RTA.
Refusal of Transmission
A company may refuse transmission only in exceptional circumstances, such as:
- Defective or insufficient documentation;
- Dispute among legal heirs;
- Court order restraining transmission.
In case of refusal, the company must communicate the reasons to the claimant within the prescribed time.
Practical Challenges in Transmission Cases
Some common issues faced during transmission include:
- Disputes among legal heirs: To cure this Company/RTA take NOC from other legal heirs and if NOC not received Company will keep the transmission on hold;
- Absence of nomination: In case Form SH-13 has not been submitted with the Company than Company will ask an additional documents and claimant needs to establish his/her status as a legal heir of the deceased member either by probate/will/succession certificate.
- Non-availability of original share certificates: Company may generally ask for a copy of the FIR, indemnity bond, and duplicate share certificate documentation and tendered before the Company which is also a big challenge for an individual.
- Delay in obtaining succession certificate or probate: In case nomination is not exist than obtaining a succession certificate or probate from the court of law is a time taking and costly process.
- Mismatch in signatures or KYC records: In case of mismatch in signature Company may ask affidavit and also an undertaking which to be attested by the bank officials.
Companies should exercise due diligence while ensuring that genuine claimants are not subjected to unnecessary hardship and shareholders are also required to aware about their rights and to mitigate all the unnecessary challenges execute a nomination form with the Company.
Key Takeaways for Shareholders
- Always file Form SH-13 (Nomination Form).
- Keep share certificates safely.
- Ensure PAN, Aadhaar and address records are updated.
- Inform family members about investments.
- Maintain records of demat and physical holdings.
Importance of Nomination
“Nomination does not substitute succession laws in all circumstances. While a nominee may receive the shares from the company, disputes relating to beneficial ownership among legal heirs may still be governed by applicable succession laws and judicial precedents.”
Conclusion
Transmission of shares is a statutory process through which ownership of shares passes to legal representatives or successors upon the occurrence of specified events such as death, insolvency, or incapacity of a shareholder. Since transmission takes place by operation of law, it differs fundamentally from a transfer of shares and does not require execution of a transfer deed or payment of stamp duty.
Companies must ensure compliance with the Companies Act, 2013, their Articles of Association, Depository Participant guidelines and applicable regulatory requirements while processing transmission requests. Proper documentation and timely action help protect the interests of both the company and the rightful successors, thereby ensuring smooth succession of ownership rights.
*****
Disclaimer: The information contained in this article is intended solely for general informational and educational purposes and does not constitute legal, tax, financial, or professional advice. While every effort has been made to ensure the accuracy and reliability of the information presented, the author and publisher shall not be responsible for any loss or liability arising from reliance on the contents of this article. Readers are advised to seek professional guidance before taking any action based on the information provided herein.
Source
Sources Referenced:
- The Companies Act, 2013
- Companies (Share Capital and Debentures) Rules, 2014
- Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI)
- Securities and Exchange Board of India (SEBI) Regulations, as applicable
- Depositories Act, 1996 and related regulations
- Checklist of Kfintech RTA
***
Author Note: CS Deepak Singhal is the founder of Deepak Singhal & Associates, Company Secretaries, with its head office at Unit No. 209, 2nd Floor, ILD Trade Center, Sector 47, Gurugram – 122018, Haryana. For any queries, feedback, or professional assistance, the author may be contacted at +91-9992693555 or via email at sdeepak.cs@gmail.com.
The views expressed in this article are personal and are intended solely for academic and professional discussion purposes.
Author Bio
