Transmission of Shares under Companies Act, 2013

The Companies Act 2013 provides for the transmission of shares under Section 56. It means that the shares are transferred by operation of law. The word “transmission” means the transfer of title and the word “Operation of law” is a way whereby someone gets certain rights automatically under the law without taking action. For instance, if a person dies without a will, their heirs are determined by the operation of law. The succession of shares could be regarded as the transmission of shares.

The transmission of shares is a process of transfer of shares by operation of law where the Shares are registered in a Company in the name of:

1. An insolvent person
2. Deceased person

These shares are eligible for transmission if they are registered in the name of legal heirs by the company on proof of their death or insolvency.

Section 56: Transmission of shares

Sub-section 2 of Section 56 of the Companies Act 2013 provides for the transmission of shares. It states that the company is obliged to transmit the shares by operation of law on receiving an intimation by the claimant.

The company shall, under Sub-section 4, deliver all the certificates of the securities to the claimant within 30 days, provided that they are not prohibited by:

1. Provision of Law
2. Any order of the court or tribunal
3. Any other authority

Refusal of Registration

According to Section- 58 of the Companies Act 2013, a private company limited by shares can refuse to transmit the shares in the name of the person concerned in pursuance of any power of the company under its AOA (Articles of Association)^[1]. The company refusing the transmission shall give notice to the person concerned within 30 days from the date of receiving the intimation for transmission and the said notice shall include all the reasons dictating conditions for refusal.

Appeal for Refusal

The claimant has the right to appeal in tribunal against the refusal within 30 days from the date of receipt of the notice.

The person can also appeal within 60 days from the date of intimation of transfer to the company if the company is unable to process the request.

Penalty

The company shall be held liable for making any defaults in transmission to the claimant. The quantum of the penalties are:

1. Company : Rs 25,000 to Rs 5,00,000
2. Any officer of the company:Rs 10,000 to Rs 1,00,00

Table F of Companies Act, 2013

The relevant provision under the schedule are:

1. Eligible persons: The persons eligible to apply for the transmission of shares on the death of the member under Rule 23 are:
2. Survivor/Survivors, in case the shares are held jointly.
3. Nominee /Nominees
4. Legal representatives
5. Election: Any person becoming entitled to the shares can elect :
6. Himself as the holder of the share or
7. Make a transfer of share, as the member had made when he was alive
8. Delivery of Documents: After becoming entitled to the share, a person shall have to deliver all the documents to the company as may be provided from time to time.
9. Entitle for Dividends: The person who becomes entitled to share because of transmission occupies the right to receive the dividends. Along with dividends, he acquires all the rights attached to the shares.

Requirement of Documents for the Transmission of Shares

The documents that are required at the time of filing the form are enumerated below:

1. In case of nomination:
2. Shares held Singly: The following documents are required:
3. Signed transmission form from the nominee
4. Original death certificate/Copy of death certificate, attested by the nominee
5. Copy of Pan card, attested by the nominee
6.  In case of No nomination:
7. Shares held Singly:The following documents are required:
8. Signed transmission form from Legal representative/heirs
9. Original death certificate/Copy of death certificate, attested by Legal representative/heirs
10. Copy of Pan card, attested by Legal representative/heirs
11. Duly notarized affidavit signifying legal ownership
12. Any other required documents
13. The notarized indemnity bond shall accompany the copy of the will
14. In cases where a legal heir certificate is to be submitted, the said certificate shall be accompanied by the below-mentioned supporting documents:
15. Indemnity bond, duly notarized
16. NOC from all legal heir who has relinquished their right
17. In the case of securities held in physical mode are up to Rs 5 lakhs and in the case of securities held in the dematerialized form are up to Rs 15 lakhs. The supporting documents are:
18. Indemnity bond, duly notarized
19. NOC from legal heirs

Procedure for Transmission of Shares

The SEBI enumerates the operational guideline for the transmission of shares via a circular on 18^thMay 2022:

1. The claimant of the share shall make an application to the issuer company for the transmission of shares.
2. After examining the documents, the issuer company executes the transmission by issuing a LOC (Letter of Confirmation).
3. The RTA (Registrar and Transfer Agent) shall retain the physical shares and stamp on the copy of the certificate or the reverse of the certificate that is to be given to the claimant.
4. The issuer companies shall give the digitally signed copy of the LOC to the claimant by registered speed post.
5. After receiving the digitally signed LOC, the claimant shall submit the DEMAT request within 120 days of the issue of LOC at the Depository participant.
6. The depository participant shall furnish the DEMAT request of the claimant and forward the request to the issuer company for opening the DEMAT account.
7. If the claimant does not process the DEMAT request within 120days of issuance of the LOC, the securities will be credited into the Suspense Escrow DEMAT Account of the Issuer Company.

Conclusion

The transmission of shares provides the shares of a deceased individual from getting obsolete. The legal heir, representatives, the nominee, and the survivor can insist on the transmission request. A transmission is a form of transfer whereby the transfer to the claimant takes place by operation of law. There are cases when the shares of the shareholder get forfeited. In that case, the companies act provides the ways by which the nominee or the legal representative of the insolvent member can claim the shares in their name. The claimants themselves shall take this transmission process and have to apply it to the issuer company. The issuer company is defined as the company whose shares were held by the person while he was alive.

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