Recovery of Shares

Common Scenarios Leading To Transmission of Shares and How to Handle Them

Common Scenarios Leading To Transmission of Shares and How to Handle Them

Articles (also known as Articles of Association) of the company usually provide the provisions for the Transmission of shares. But in a scenario where there is the absence of such AOA, the company can follow Regulations 23 to 27 of Table F to govern all the provisions related to the transmission of shares.

This article is an attempt to elaborate on the concept of shares, the transmission of shares along with the different scenarios that can lead to the transmission of share in India.

Meaning of Transmission

Transmission of shares is one of the less well-known but frequently encountered issues while dealing with share certificates. Transmission of shares is distinct from the transfer of shares according to the Companies Act. While transferring shares involves the shareholder’s voluntary action, transmission occurs as a result of the legislation. The term “transmission” refers to the passing of ownership of shares other than through a transfer, such as through death, succession, inheritance, bankruptcy, marriage, etc. While the delivery of a suitable instrument of transfer, such as a transfer deed that has been properly stamped and executed, is required for the transfer of shares, the transmission of shares is accomplished by sending the required paperwork to the firm, such as a notarized copy of the death certificate. The person entitled to the transmission of shares becomes a shareholder of the firm upon registration of the transmission and has all the rights and is responsible for all the obligations of such a shareholder.

If the dead shareholder had shares in many companies, the necessary paperwork must be provided to each of the firms, along with the share certificates, in order to complete the transfer of shares for those shares. As a result, the mail service is heavily relied upon. If the survivor(s) desires to take advantage of the benefits acquired through these shares, follow-up may need to be made with each of the corporations in order to get the transmission implemented before the book closure.

Transmission of Securities in the Depository System

All these issues are lessened under the depository system because shares are represented as account balances in electronic form. Not only is the transfer process through the depository straightforward, but it also moves forward more quickly. This is so because the heir to the title only communicates with his DP, a single entity.

  • Transmission of Securities held jointly: The surviving holders must ask the DP via a form called the transmission form and a copy of the notarized death certificate for the transfer of the securities from the deceased’s account to the surviving holders’ account if the deceased was one of the joint holders. The surviving clients are required to have a depository account for this reason, which may be with the same DP or a separate DP.
  • Transmission of Securities held singly: The legal heir(s) or legal representative(s) of the dead must ask the DP to transfer any remaining balances on the sole holder’s client account to the account of the heir(s) or representative(s) in the event of the sole holder’s death. In order to do this, the legal heir(s)1 or representative(s) of such securities must submit the transmission form to the DP together with the following necessary paperwork:
  • A copy of the death certificate duly notarised
  • A copy of the Succession certificate duly notarised or an order of a court of competent jurisdiction where the deceased has not left a Will; or
  • A copy of the Probate or Letter of Administration duly notarised.
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Nevertheless, the DP will process the transmission request on the basis of the following documents if the legal heir(s) or the legal representative(s) express an inability to produce either of the documents listed under (b) and (c) above, and the market value of the securities held in each of the deceased’s accounts as of the date of application for transmission does not exceed INR one lakh:

  1. Transmission form;
  2. Copy of the death certificate duly notarised;
  3. Letter of Indemnity duly supported by a guarantee of an independent Surety acceptable to the DP, made on appropriate non judicial stamp paper;
  4. An Affidavit made on appropriate non judicial stamp paper; and
  5. No Objection Certificate(s) from all the legal heir(s) who do not object to such transmission.

A transfer of the balances to the legal heir(s) or legal representative(s)’ client account will be made after the DP confirms that the documentation presented by the legal heir(s) or legal representative(s) are in order.

After effecting the transmission, the DP will close the account of the deceased.

  • Transmission of Securities in case of Nomination: In case the shareholder has appointed a nominee, the shares will be transmitted in favour of the nominee on execution of an indemnity cum affidavit. The following documents are required:
    • A duly executed indemnity cum affidavit
    • A copy of death certificate of the deceased (Note: this has to be duly attested by competent authority (magistrate, notary public, Government of India or manager of any Scheduled Bank)
    • Original share certificate(s)
    • All the documents has to be sent to the bank or to the Registrar effecting transmission.
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NOTE 1: In a case where there is a single shareholder, and no nominee has been appointed but a will is made, then shares will be transmitted favour of those  persons who are heir of the deceased registered shareholder as per probated will.

Note: 2: Another scenario where the deceased shareholder has died intestate and no nomination has been made, then in this case the transmission of share will be effected only on complying with required procedure.

Conclusion

In this article the author has talked about different scenarios that leads to transmission of shares in India. As per Section 56 of Companies Act of 2013, transmission is a result of the operation of law. The transmission of shares takes place on death or insolvency of a holder of securities or been deemed insane by a court of competent law.

Frequently asked questions (FAQs)

  1. Who all eligible to apply for transmission of shares?

    So in case of joint holding of securities, the survivor is eligible get the securities transmitted in their names by giving the death certificate of the deceased holder of those shares and securities.
    Also, in case of securities are not held jointly the legal heir of the deceased member shall have the rights.

  2. What is meant by the transmission of shares?

    The term “transmission” refers to the devolution of title to Shares other than through transfer. In simple terms, transmission means the transfer of title by the operation of law. So the transmission of shares occurs when a registered member dies or is adjudicated insolvent.

  3. What is meant by the transfer of shares?

    The term share has been defined under Section 2 (84) of the Companies Act of 2013. Transfer of share is when the title of the share is transferred from one person to another. Therefore the shares in any company are transferable like any other moveable property in the absence of the expressed restrictions under the Articles of Company.
    Transfer of shares can be conducted due to multiple reasons. A person can sell or transfer the share to raise net working capital for the company or completely re-organise the firm

  4. What are the provisions regarding the transmission of shares?

    Section 56 of the Companies Act of 2013 elaborates on the concept of transmission of shares. The section empowers the company to register on receipt of an intimation of any rights to securities by operation of law from any person to whom such right has been transmitted.

  5. What are the procedures for the transmission of shares?

    As per Section 56 of the Companies Act, a simple application can be made to the company by the legal representative along with the following documents:
    • A certified copy death certificate;
    • Copy succession certificate – the certificate is issued by a competent civil court certifying a rightful person to be the successor of a deceased person.
    • Finally, the specimen signature of the successor.

  6. What is Form SH-4?

    Form SH-4 serves as an essential instrument of transfer through which the process is initiated. The transferor is required to submit the form, which is duly executed, dated and stamped.

  7. Who all are involved during the process of transfer of share?

    Here is the list of people who are involved during the process of Share of Transfer:
    • Subscribers to the memorandum;
    • Legal Representative (in case of a deceased);
    • The transferor;
    • The transferee;
    • Company (whether listed/ unlisted).

  8. Are there any penalties on the companies that are in default?

    There is a penalty of INR 25,000 which can goes to up maximum of INR 5, 00,000 for the companies at default.

  9. Is stamp duty payable for transfer of share?

    The stamp duty applicable on share transfer. Share Transfer Stamps can be obtained from the authorised stamp vendors

  10. What is the nature of a share as per Section 44 of the Companies Act of 2013?

    AS per the Section 44 of the Companies Act, 2013, all shares shall be movable property, transferable in the manner prescribed by the Articles of Association of the company. Shares of public limited companies are freely transferable. A duly executed and stamped transfer deed transfers ownership of shares by delivery of transfer deed along with share certificate.

  11. What is the time limit for issue of security certificate on transmission?

    The company is required to get the approval for transmission of security from the board, and as per the Section 56 (4) of the Companies Act company is required to deliver the certificates of all security transmitted within a period of one (1) month from the date of receipt of application/transmission.

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Read Our Article: Transmission of Shares under Companies Act, 2013

References

  1. https://services.india.gov.in/service/detail/legal-heirs-certificate

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