TRANSFER AND TRANSMISSION OF SECURITIES

Free transferability of share is one essential condition for Company form of business, subject to some restrictions under private companies. New Act, deals with substantially.

TRANSFER AND TRANSMISSION OF SECURITIES (SECTION 56):

A company shall register a transfer of securities or interest of members only when such a proper instrument of transfer; duly stamped, dated and executed by or on behalf of the transferor and transferee and specifying the name, address and occupation has been delivered to the company by either party within a period of sixty days from date of execution, along with the certificate of security or the letter of allotment of securities.

Where, instrument of transfer has been lost or has not been delivered, the company may register the transfer on an indemnity bond.

On receipt of intimation, a company has power to register transmission of any right to securities by operation of law from any person to whom such right has been transmitted.

Where an application is made by transferor alone and relates to partly paid shares, the transfer shall be registered by the company only after giving notice of the application to the transferee, and transferee gives no objection to the transfer within two weeks from the receipt of notice.

The transfer of any security or other interest of a deceased person in a company made by his legal representative shall be valid as if he had been the holder at the time of the execution of the instrument of transfer.

Delivery of certificate of securities:

Every company shall, unless prohibited by any provision of law or any order of court, Tribunal or other authority, deliver the certificate of all securities allotted, transferred or transmitted –

(a)  Within a period of two months from the date of incorporation, in case of subscribers to the memorandum;

(b) Within a period of two months from the date of allotment, in case of any allotment of any of its shares;

(c)  Within a period of one month from the date of receipt by the company of the instrument of transfer or intimation of transmission; and

(d)  Within a period of six month from the date of allotment in case of any allotment of debentures.

However, where the securities are dealt with in a depository; the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.

Penal provision:

Where any default is made under this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

Without prejudice to any liability under the Depositories Act, 1996, where any depository or depository participant, with an intention to defraud a person, has transferred shares, it shall be liable under section 447.

Punishment for personation of shareholder (Section 57):

If any person deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of this Act, and thereby obtains or attempts to obtain any such security or interest or any such share warrant or coupon, or receives or attempts to receive any money due to any such owner, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Simply, any person, who deceitfully represent himself as holder of any security or interest in a company shall be punishable with imprisonment and with fine. Yes, minimum fine is one lakh rupees.

REFUSAL OF REGISTRATION AND APPEAL (SECTION 58):

The securities and other interest of any member in a public company shall be freely transferable.

Any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract. This means any shareholders’ agreement restricting transferability of shares in a public company shall be a private contract among contracting members.

If a private company limited by shares refuses to register the transfer or transmission of any securities or interest of a member in the company, it shall, send a notice of the refusal to transferor, transferee or person sending intimation giving reason for such refusal. This intimation shall be send within a period of thirty days from the date of receipt of instrument of transfer or intimidation for transmission.

The transferee may appeal to the tribunal against the refusal within a period of thirty days from the date of receipt of the notice. Where no notice has been send by the company, transferee may appeal to the tribunal within a period of sixty days from the date on which the instrument of transfer or intimation of transmission was delivered to the company.

If a public company without sufficient cause refuses to register the transfer of securities within a period of thirty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to the company, the transferee may, within a period of sixty days of such refusal or where no intimation has been received from the company, within ninety days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal.

The tribunal after hearing the parties, may either dismiss the appeal or by order –

(a)  Direct that the transfer or transmission shall be registered by the company and company shall comply with such order within a period of ten days of receipt of the order; or

(b) Direct rectification of the register and also direct the company to pay damages sustained by any party.

If a person contravenes the order of the Tribunal under this section, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

RECTIFICATION OF REGISTER OF MEMBERS (SECTION 59):

The person aggrieved, or any member of the company, or the company may appeal to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debentures holders residing outside India, for rectification of the register in following circumstances –

(i)           If the name of any person is without sufficient cause entered in the register of members of a company; or

(ii)          If the name of any person after having been entered in the register is without sufficient cause omitted; or

(iii)         If a default is made or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member.

The tribunal after hearing the parties, may either dismiss the appeal or by order –

(a)  Direct that the transfer or transmission shall be registered by the company within a period of ten days of receipt of the order; or

(b) Direct rectification of the register or record of depository and may, in case of register, also direct the company to pay damages sustained by party aggrieved.

The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal.

Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned.

If any default is made in complying with the order of the Tribunal under this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.

Power to nominate (Section 72):

Every holder of securities of a company may at any time nominate any person to whom his securities shall vest in the event of death of that holder.

In case of joint holding, the joint holders may together nominate any person to whom all the rights in the securities shall vest in the event of death of all the joint holders.

In respect of the securities of a company, where a nomination made purports to confer on any person the right to vest the securities of the company, the nominee shall, on the death of the holder of securities or, as the case may be, on the death of the joint holders, become entitled to all the rights in the securities, of the holder or, as the case may be, of all the joint holders, in relation to such securities, to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner.

This is very important because usually nominee hold property in trust for benefit of all other legal heirs.

Where the nominee is a minor, it shall be lawful for the holder of the securities, making the nomination to appoint any person to become entitled to the securities of the company, in the event of the death of the nominee during his minority.

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