Recovery of Shares

Transmission of Shares under Companies Act, 2013

Transmission of shares

A transfer is the movement of an asset; it can be either physical transportation or ownership of the item’s title, or both. When discussing securities, this movement might be voluntary or mandated by law. The transfer of shares occurs due to the operation of law, which occurs upon the death of the shareholder or in the case that the holder becomes insolvent/lunatic.

What paperwork is necessary for completing the transfer of shares?

  • Certified Copy of death certificate
  • Succession Certificate
  • Probate
  • Specimen Signature of Successor.

Understanding the transmission of shares: A guide for shareholders

Rarely does the company’s capital consist of a “single unit”; rather, it consists of several indivisible components. These units represent a particular quantity. As a result, when a person buys a unit like this or numerous units, he also buys a predetermined portion of the company’s share capital. In this instance, he joins the company’s other shareholders. The Companies Act defines a share as a share in the company’s share capital, which is a very nebulous and imprecise definition.

Transfer refers to the act of moving an asset. Physical movement, asset title ownership, or both may be considered movements. This movement may be voluntary or mandated by legislation in the case of securities.

The term “transmission” refers to a legal transfer of title. It might occur in succession Shares are registered in a company in the name of the deceased person, or an insolvent person is registered in the name of his lawful heirs by the company upon proof of death or insolvency, as applicable, in accordance with the legislation. When a registered member passes away or is declared insolvent or insane by the appropriate court, shares are transferred. According to Section 56 of the Companies Act of 2013, a company has the authority to register after receiving notification that a security right has been transferred to another person automatically.

Meaning of transmission of shares

Shares are registered in a company in the name of a deceased person, or an insolvent person is registered in the name of his lawful heirs by the Company on proof of death or insolvency, as the case may be. This is a process by operation of law.

  • The Company may transfer the shares to the nominee with the production of a copy of the death certificate if the shareholder has signed the Nomination Form, filed it with the Company, and the Company has taken it on record.
  • Shares are transferred when a registered member passes away, is found to be insolvent or insane by the appropriate court, or both.
  • The provision for sharing transmissions is often included in the company’s articles. In the absence of such provisions, the Company will adhere to Regulations 23 to 27 of Table F of the 2013 Companies Act when transmitting shares.
  • Shares held by the deceased person’s legal representatives are entitled to be paid out, and the firm is required to recognise the evidence of Succession.
  • Evidence of succession includes the Succession Certificate, Letter of Administration, Probate, and any other documentation the Board of Directors deems necessary.
  • In the case of small shareholders transmission, the transfer may be considered and affected by the Company without obtaining a succession certificate. Succession certificates are documents issued by a competent court (civil) declaring a rightful person to be the successor of a deceased person. The Board of Directors must ensure the legal heirs have given enough proof.
  • The Board will authorise the transfer of shares in favour of the successor once it has received and reviewed all relevant documentation.
  • If fresh share certificates are being transmitted to new shareholders, there is no stamp duty that needs to be paid.
  • The corporation must complete the transfer of shares procedure within 30 days.
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The distinctions between the transmission of shares and the transfer of shares are shown in the following table:

The following table illustrates the differences between the transfer of shares and the transmission of shares:

S. No.Transfer of SharesTransmission of Shares
1It is a voluntary actIt is an optional by law
2They are always initiated by the transferor or transferee.Shares are intimated by a legal heir or receiver.
3On transfer of shares, one has to pay the stamp duty that is payable on the market value of shares.On transmission of shares, it is not compulsory to pay the stamp duty. 
4In case of a transfer of shares, executing and submitting a transfer deed is necessary.In the case of the transmission of shares, it is not necessary to execute and submit a transfer deed.

Documents required

Executing and submitting a transfer deed is not necessary when shares are transferred by operation of law. For the transfer of shares, a simple application to the firm by a legal representative and the following required documents are sufficient:

  • A duplicate death certificate
  • A certified copy of a will with a grant of administration of the testator’s assets is known as “probate” under the Indian Succession Act of 1929.
  • A copy of the succession certificate (needed only if “Probate” cannot be obtained).
  • Legal heirs can give an affidavit on non-judicial stamp paper that has been notarized and an indemnity bond on non-judicial stamp paper in the absence of a Succession Certificate or Probate.
  • A sample of the successor’s signature; a transmission application; a copy of the legal heir’s ID and proof of address;
  • Original Security Certificate In cases when securities are to be transferred to one or a small number of legal heirs out of many legal heirs, the remaining legal heirs must furnish a NOC.

If the dead’s securities were dematerialized, the legal heir of the deceased must ask the Depository Participant (DP) to transfer any remaining amounts to the legal heir’s account. The legal heir must provide the DP with the aforementioned documents and a Transmission Form to do this.

India Overseas Bank Limited v. ThenappaChettiarWhen shares have been given succession certificates, the Company cannot demand the submission of a letter of administration or probate.

Note 1: If a member of a corporation passes away and leaves a will or letter of administration, the surviving members must get a copy of the “will” that has been certified under the seal of an appropriate court.

  1. A “probate” is the legal term for the will’s certified copy. When a letter of administration or probate is granted, a succession certificate is not needed.
  2. If a company member passes away without leaving a will, the company must receive a succession certificate from a court with the appropriate authority. A succession certificate that has been issued gives the business full protection against the legal transfer of shares.
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When there is joint ownership, the survivors can get the shares transferred into their names by presenting the decedent’s death certificate.

Note 2: Despite not being a member of the Company, such a legal Representative is the legitimate owner of the Shares. He may transfer the shares just as the deceased or insolvent member may have done without being enrolled as a member.

Note 3: A transfer paperwork is not required in cases where another person automatically gains ownership of the shares.

Note 4: Since the Transmission is governed by law, no stamp duty nor consideration is necessary for the Transmission Instrument. 

Note 5: Unless he is registered as a member with respect to the Shares, the Legal Representative of a deceased member is not permitted to exercise voting privileges or other rights at a general meeting.

Note 6: Transmission in the event of joint ownership of shares:  According to Regulation 23 of Table F of the Companies Act of 2013, the only individuals recognised by the Company upon the death of a member who was a joint shareholder are the survivor or survivors. Legal heirs of a member who has passed away are not permitted to register as joint holders with the still alive holder.

Nomination

By submitting Form No. SH-13 to the company, a security holder of a corporation may choose any individual to whom his securities shall vest in the case of his death. A division bench of the Bombay High Court ruled in Shakti Yezdani and Ors. vJayanand Jayant Salgaonkar and Ors., that nomination neither grants the nominee an absolute right on the shares nor supersedes the law of testamentary or intestate succession. Because of this, the shares only become the nominees until the legal heir or successor of the shareholder who passed away can prove that they are entitled to the shares’ succession.

The time limit for issuing of security certificate on transmission

The corporation must get the board’s consent before transmitting securities. According to Section 56(4) of the Companies Act of 2013

1

a firm has one month from the date it received the application or transition from the legal heirs to submit the certificate for every security sent. Any one of the Company’s Directors must initial the legal heir’s name on the reverse of the original security certificate.

Time Limit for Refusal of Registration of Transmission

According to Section 58 of the 2013 Companies Act, a private business has the option to decline to register the transfer of securities. Within 30 days of the date, the intimation of transmission is sent to the company, and a notice of refusal with justification must be sent.

Time Limit for Appeal against Refusal to Register Transmission

The legal successor may file an appeal with the Tribunal if a Private Company declines to register the Transmission of Securities within 30 days after the date on which the Company’s notice of refusal was received.

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If after 60 days have passed after the day, the company received the transmission notification, no such notice has been received.

The legal heir may file an appeal with the Tribunal if a Public Company refuses to record the Transmission of Securities without good reason within 60 days of such rejection.

If such notice is not received within 90 days of the date on which the corporation received the transmission notification. 

Conclusion

Shares are transferred as a result of the operation of law, i.e., when the holder has died, gone insane, or become bankrupt. It may also occur if the stockholder is a company that has filed for bankruptcy. The rights to the shares are granted to the transferee without the execution of a transfer document, and the transmission is only recorded if the transferee provides evidence of their claim to the shares. The shares will be transferred to the legal representative in the event of a decedent’s death and to the official assignee in the event of a decedent’s insolvency.

FAQs

  1. Who all involved during the process of the transfer of shares?

    Following is the list of people who are involved in the process of Share Transfer is as follows:
    · Subscribers to the memorandum.
    · Legal Representative, in case of a deceased.
    · Transferor.
    · Transferee.
    Company (whether listed/ unlisted).

  2. What are the penalties for the companies in default?

    The penalty for a company at default is a minimum of INR 25,000 which can go up to a maximum of INR 5 00,000.

  3. Is stamp duty payable for the transfer of shares?

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

  4. 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.

  5. 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

  6. 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.

  7. 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.

  8. 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.

Read our Article: Procedure for Transmission and Transfer of shares as per Companies Act, 2013

References

  1. https://www.indiacode.nic.in/handle/123456789/2114?sam_handle=123456789/1362

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