Transfer of shares

1. BY CS A RENGARAJAN
COMPANY SECRETARY

2.  PRIVATE LIMITED COMPANY
 PUBLIC LIMITED COMPANY
 JOINT VENTURE

3.  TRANSACTION RELATING IN A CHANGE
OF SHARE OWNERSHIP
 Transfer of shares is a voluntary act of
members and it is the method of transferring
the ownership rights of the shares from one
person to another.

4.  CONTRACT TO SELL THE SHARES
 EITHER BY DELIVERY OF A SHARE
WARRANT
 OR EXECUTION OF A SHARE TRANSFER
 ENTRY OF TRANSFEREE’S NAME IN THE
REGISTER OF MEMBERS

5.  The word 'transfer' is an act of the parties by
which title to property is transferred from one
person to another. The word 'transmission' is
referable to devaluation of title by operation of
law. It may be by succession or by
testamentary transfer.

6.  "private company" 5[means a company which has a minimum
paid-up capital of one lakh rupees or such higher paid-up capital
as may be prescribed, and by its articles,-]
 (a) restricts the right to transfer its shares, if any;
 (b) limits the number of its members to fifty not including-
 (i) persons who are in the employment of the company, and

 (ii) persons who, having been formerly in the employment of the
company, were members of the company while in that
employment and have continued to be members after the
employment ceased; and

 (c) prohibits any invitation to the public to subscribe for any
shares in, or debentures of, the company;
 6
[(d) prohibits any invitation or acceptance of deposits from
persons other than its members, directors or their relatives

7.  RESTRICTION FOR TRANSFERING SHARES
OF PRIVATE LIMITED COMPANY

8.  Transfer Vs Transmission
 Transfer 1) By deliberate act 2 Requires execution of
formal instrument of transfer 3. There must be
adequate consideration.4) Stamp duty is payable
 Transmission 1) By operation of law 2) Requires an
evidence showing the legal entitlement. 3) There is
no consideration 4) Stamp duty is not payable.


9.  SECTION 82 SAYS SHARES ARE MOVABLE
AND TRANSFERABLE AS PER THE
PROVISIONS CONTAINED IN THE
ARTICLES OF ASSOCIATION OF THE
COMPANY

10.  Section 108 requires that where share transfer
form is delivered to the Board it should be duly
stamped. It means stamp of adequate value
should be affixed and cancelled on transfer
deed.

11.  The provisions of section 108 of the Companies Act are
mandatory, according to which a company shall not
register a transfer of shares unless a proper instrument
of transfer duly stamped and executed by or on behalf
of the transferor has been delivered to the company
along with the certificates relating to the shares. In the
present case, with reference to the shares mentioned in
Lists A, B and C, the instruments were not duly
stamped, as the stamps thereon were not cancelled as
required by the provisions of the Indian Stamp Act
which are also mandatory. According to section 12 of
the Indian Stamp Act, if the stamp is not cancelled at or
about the time of execution of the instrument, the
instrument shall be deemed to be unstamped

12.  Section 108 provides that a company shall not register a
transfer of shares of, the company, unless a proper
transfer deed in Form 7B as given in the Companies
(Central Government's) General Rules and Forms, 1956
duly stamped and executed by or on behalf of the
transferor and by or on behalf of the transferee and
specifying the name, address and occupation, if any, of
the transferee, has been delivered to the company,
alongwith the certificate relating to the shares, or if no
such certificate is in existence, alongwith the letter of
allotment of the shares:

13.  Absolute restriction on the right of transfer, contained in the
Articles, shall be ultra-virus the Act. Usually the Articles
empower the directors to reject transfer of shares on the following
grounds:
(a) where partly paid up shares are to be transferred to a pauper
or a minor;
(b) where the transferee is person of unsound mind;
(c) where a call is unpaid against the shares to be transferred;
(d) where the company has a lien on the shares because the
transferor is indebted to it;
(e) where there is a personal animosity between the directors and
the proposed transferee or the transferee would harass the
management;
(f) where the instrument of transfer contains some apparent
irregularity, e.g., not signed or stamped properly

14.  Splitting of Joint Holdings of Shares
If the joint shareholders want splitting of their joint
holding of shares and registering them in their
individual names, they have to follow the procedure
prescribed for transfer of shares.
An instrument of transfer properly stamped and
completed is necessary for registering the transfer in
each case, as converting a joint holding into a separate
holding is essentially a transfer from joint ownership
into individual ownership.
The instrument of transfer will have to be executed by
all the joint holders as transferors and by the individual
in whose name the shares are to be registered as
the transferee.

15.  Right To Dividend to be held in abeyance pending
Registration of Transfer of Shares
With a view to protect the investors a new Section
206A has been inserted in the Companies
(Amendment) Act, 1988. This new Section provides
that in case of share transfers pending registration, the
dividend accruing on such shares shall be transferred
to the "Unpaid Dividend Account" (referred in Section
205A) unless the transferor authorises the company in
writing to pay the same to the transferee specified in
such instrument of transfer. The company shall also
keep in abeyance in relation to such shares the offer of
"right shares" and issue of fully paid bonus shares until
the transfer is registered

16.  if a private company refuses, on any ground not stated
in the restrictions contained in its Articles of
Association, to register the transfer of any shares, the
transferor or transferee may prefer an appeal to the
CLB against the refusal.
Appeal to be filed within 2 months of refusal
accompanied by petition with prescribed fee
 On examination, if found, CLB direct the company to
register the shares and allot bonus/right issue if any
within 10 days receipt of the order
 Default in executing the CLB order penalty imposes on
company and every defaulting officer a sum of
Rs.10000

17.  In Mathrubhumi Printing and Publishing Co. Ltd. v.
Vardhaman Publishers Ltd. [1992] 73 Comp Cas 80, the
Kerala High Court rendered a similar judgment. That
was a case in which the adhesive stamps on the
instruments of transfer of shares had not been
cancelled at the time of execution but only at the time
of lodgement with the company, and the court held
that the board of directors of the company was justified
in rejecting the request of the transferees to have their
names entered in the register. Reliance was placed on
Mannalal Khetan's case

18.  Stamp duty for transfer of shares is 25 paise for
every Rs. 100 or part thereof of the
 value of shares as per Notification No. SO
130(E), dated 28-01-2004 issued by the
 Ministry of Finance, Department of Revenue,
New Delhi

19.  Not less than Seven days notice previous
notice by advt in newspapers where registered
office situate to close register of members and
debentures for any period or periods
aggregate of 45 days but one time 30 days
 Shorter notice or excess or continuous of the
limits, every officer who is default is shall be
punishable with fine of Rs.5000 per day for
everyday register is closed

20.  In the case of listed company, at any time before the
date on which the register of members is closed, in
accordance with law, for the first time after the date of
the presentation of the prescribed form to the
prescribed authority under clause (a) of section 108(1A)
or within twelve months from the date of such
presentation, whichever is later.
 In any other case, within two months from the date of
such presentation

21.  i) Obtain the transfer deed Form 7B, endorsed by the prescribed authority.
 (ii) For transferring debentures, the instrument of transfer need not be in the prescribed Form 7B but
this Form can be used, being convenient to do so.
 (iii) Get the transfer deed duly executed both by the transferor and the transferee or on their behalf in
accordance with sections 108 and 109 of the Act and the Articles of Association, in case of
shares, and also in accordance with trust deed in the case of debentures.
 (iv) The transfer deed should bear stamps according to the Indian Stamp Act and Stamp Duty
Notification in force in the State concerned. The present rate of transfer of shares is 25 Paise for
every one hundred rupees of the value of shares or part
 thereof.
 (v) See that the stamps affixed on the transfer deed are cancelled at the time or before
 signing of the transfer deed.
 (vi) The signatures of the transferor and the transferee in the share/debenture transfer
 deed must be witnessed by a person giving his signature, name and address.
 (vii) Attach the relevant share or debenture certificate or allotment letter with the
 transfer deed and deliver the same to the company. The share transfer deed should
 be deposited with the company within the time limits

22.  Transposition means change in order of names.
This action does not require a transfer deed. A
letter requesting for transposition signed by all
the shareholders should be sent with the Share
Certificate(s). Transposition can be done only
on the entire holding in a single folio.
Transposition of part holdings is not permitted

23.  (viii) Where the application is made by the transferor and relates to
partly paid-up shares, the company has to give due notice of the
amount due on
 shares/debentures to the transferee and the transferee shall raise
objection, if any within two weeks from the date of receipt of the
said notice.
 (ix) If signed transfer deed has been lost, affix the same stamp on a
written application.
 In such case, the Board may, if it thinks fit to do so, register the
transfer on suchterms of indemnity as it thinks fit.
 (x) If the shares of the company are listed on a recognized Stock
Exchange, then the company cannot charge any fee for registration
of transfers of shares and debentures.

24.  Exemptions
The restrictions contained in Section 108A (except sub-
section 2 thereof) shall not apply to the transfer of any
shares to, and the restrictions contained in Sections
108B to 108D shall not apply to the transfer of any
shares by -
(a) Any Government company;
(b) Any corporation established by or under any
Central Act, and
(c) Any financial institution

25.  Certification of Transfer
When a company certifies on the instrument of transfer
that the relative share certificate of the shares proposed
to be transferred, has been lodged with it, it is called
'certificate of transfer.' Certification of transfer is
necessary when there is a part disposal of shares or
there are multiple purchasers.
The company issues only 1 share certificate for the
whole lot of shares standing in the name of 1 person.

26.  Sub section 3 of Section 108 provides that
provision of Section 108 shall not apply to
transfer of securities under Depository system

27.  The Depositories Act, 1996 inserted a new Section, namely,
Section 111A in the Companies Act. This Section, as amended by
the Depositories Related Laws (Amendment) Act, 1997, provides
as follows:
1. The shares and debentures of a public company, whether listed
or not, shall be freely transferable.
2. The Board of Directors of the company or the concerned
'depository' does not have discretion to refuse or withhold
transfer of any security.
3. The transfer has to be effected by the company mmediately as
soon as it receives instrument of transfer, if the securities are
outside the depository mode.
4. When securities are in the depository mode the transfer shall be
effected by the depository automatically on the receipt of the
intimation appropriate form from the 'participants'

28. • No bad deliveries;
• Immediate transfer of shares;
• No stamp duty on transfer of shares;
• Handling of large volumes of paper greatly
reduced;
• Eliminates risks associated with physical
certificates such as loss, theft, mutilation,
forgery etc;
• Reduction in transaction cost.

29.  ARTICLES PROVIDES CLAUSE FOR
DEMATERILISATION OF SHARES ( IF NOT AMEND
THE ARTICLES)
 AGREEMENT WITH DEPOSITORIES, NSDL AND
CDSL AFTER BOARD APPROVAL
 ELECTRONIC CONNECTIVITY EITHER IN HOUSE
OR THROUGH REGISTRAR
 IN CASE OF REGISTRAR, TRIPARTIE AGREEMENT
TO BE ENTERED
 AFTER ADMIT IN DEPOSITORIES, ISIN (UNIQUE
NO WILL BE GIVEN)

30.  AFTER ELECTRONIC CONNECTIVITY,
DEPOSITORIES WILL INFORM NAME AND
ISIN TO THE PARTICIPANT
 COMPANY SHOULD INFORM TO ALL
STOCK EXCHANGES WHERE IT HAS GOT
LISTING THAT THEY ARE ELIGIBLE FOR
DEMATERILISATION
 SHAREHOLDERS ALSO INFORMED ABOUT
DEMATERILISATION FORM EITHER BY
ADVT OR THROUGH ANNUAL REPORT

31.  In order to dematerialise the Physical Share
Certificates, an investor will have to first open an
account called as Demat A/c or Security A/c with any
of the DP of his choice.
2. Obtain the Account No. from his DP.
3. Obtain the Dematerialised Request Form (DRF) from
his DP.
4. This DRF, together with the Share Certificates
desired to be dematerialised is to be submitted to DP.

5.


32.  5. The DP upon receipt of the shares and the DRF,
will issue an acknowledgement and will send an
electronic request to the Company/Registrars and
Transfer Agents of the Company through the
Depository for confirmation of demat.
6. DP, then issues an acknowledgement to the
investor and afterwards follows the following
procedure:
.

33.  (a) Defaces the Share Certificates by putting a
rubber stamp "Surrendered for
Dematerialisation" and by punching two holes
on the name of the company on the Share
Certificate.
 (b) Generates a Demat Request Number (DRN)
through his Depository Participant Module
(DPM) and fills the same in DRF at the
appropriate place.
 (

34.  c) Sends an electronic communication to
Depository viz. NSDL or CDSL, as the case
may be, to the effect that so many shares of this
company (Identified by ISIN) have been
received for dematerialisation.
 (d) Sends the DRF and Share Certificates to the
company by courier. The role of DP comes to
an end with this but he must send a reminder
in case credit of shares is not received in demat
account of investors within a month.

35.  The depository electronically downloads the
particulars of demat request, received from DP
and sends to the electronic Registrar of the
company so that these shares could be
dematerialized. Ultimately, the company or its
RTA, as the case may be, receives two kinds of
communications:
 (a) DRF and Physical Share Certificates from DP.
 (b) Electronic Download of Demat Request from
depository through electronic Registrar.

36.  If the shares are held in Joint names, only the deceased
shareholder's name is deleted. For this a copy of death certificate
of deceased registered shareholder duly attested by competent
authority (magistrate, Notary Public, Government of India or
managers of any Scheduled Bank) is to be sent along with the
share certificate to the Bank or to our Registrar for effecting
transmission.
In case of a single shareholder and where nominee has been
appointed, the shares will be transmitted in favour of the nominee
on execution of an indemnity cum affidavit. The duly executed
indemnity cum affidavit, a copy of death certificate of deceased
registered shareholder duly attested by competent authority
(magistrate, Notary Public, Government of India or managers of
any Scheduled Bank) along with the original share certificate is to
be sent to the Bank or to our Registrar for effecting transmission.

37.  In case the deceased shareholder has died intestate and no
nomination was made then the transmission of the shares will be
effected only on complying with the required procedures in this
regard. For this the legal heirs are required to execute the
following:
a. Title Claim Form
b. Affidavit sworn in by the claimants
c. No Objection Certificate from other heirs in favour of person
claiming the title to shares.
d. Surety Form
e. Indemnity
The aforesaid documents, a copy of death certificate of deceased
registered shareholder duly attested by competent authority
(magistrate, Notary Public, Government of India or managers of
any Scheduled Bank) and the original share certificate is to be sent
to the Bank or to our Registrar for effecting transmission

38.  If X and/or Y desire to sell/transfer all or any part of
their shares in the new company, they shall first offer
such shares to the other, if only one of them seeks to
sell/transfer their shares. In the event that neither
wants to buy the shares offered by the other within 20
days of the offer being made or both want to sell
simultaneously, they shall offer the shares to Z. In the
event that Z does not want to buy the shares within 20
days of the offer being made to him, they shall offer the
shares to a third party.

39.  If Z desires to sell or transfer all or any part of his shares in the
new company, he shall first offer such shares to X and Y in
proportion to their shareholding in the company.
 If X and/or Y decline to accept such a first offer in whole or in
part, within 30 days from the making of the offer, then Z may
offer the shares thus declined to his family members/relatives or
other third parties at the same priceThe price for sale/transfer of
shares will be arrived at by valuing the shares. The valuation of
the shares will be done by an independent valuer to be appointed
by the Board of Directors of the new company.
 desirous of continuing the company independently has an option
to purchase the shares owned by the other party within 5 days
from the date of notice of termination or otherwise, at a priceto be
calculated in accordance the relevant paragraph stated above

40.  An offer for transfer of shares provided in this Article shall be
made in writing setting forth the number of shares to be
transferred, time of transfer, price of the shares as determined by
the valuer, and other conditions, if any. In case of termination of
this Agreement, any party desirous of continuing the company
independently has an option to purchase the shares owned by the
other party within 5 days from the date of notice of termination or
otherwise, at a price to be calculated in accordance the relevant
paragraph stated above
 Any sale/transfer between/or to X and Y will be subject if
applicable, to such terms, conditions and price as approved by the
Government of India/Reserve Bank of India.

41.  In order to prevent a major shareholder from leaving
immediately, the
 shareholders agreement can provide for a lock-in period.
 A sample clause is as follows:
 Restriction Against Transfer. None of the parties shall transfer or
otherwise
 dispose of [as defined in Section 16(c)] all or any Shares [other
than to an
 affiliate {as defined in Section 16(d)}] during the first four (4) years
of the term of this Agreement. Thereafter, none of the parties shall
transfer or otherwise dispose of all or any Shares without the
written consent of 75% of the outstanding Shares
 of the Corporation, except as otherwise expressly provided in
Section 2.

42.  Transfer By
 NRI to NRI-- No aproval /intimation
 (PROI)Person resident out of India(Not being a NRI/OCB) To PROI/ NRI---
No approval / intimation
 NRI/OCB To PROI--Approval Not required if the total holding by PROI does
not exceed the sectorial cap as per FDI guidelines.If exceed Prior approval of
FIPB/SIA/CCEA is required.However reporting is must to RBI as per FEMA
regulation/Transfer or issue of share by a person Resident Out of India.
 NRI ( Indian origin) or an OCB ( Oversease corporate body of which at least
60% shareholder are such NRI/Indian origin).understand the defination &
defference between NR ,NRI & OCB.
 However the transaction may fall in the ambit of Tax law since the assets is
situated in India.Valuation of share will be done strictly as per earstwhile CCI
gudelines with joint reference to Company law for issue of share in discount/
premium.


43.  Transfer of shares of Public limited company
 Companies Act, 1956-Freely transferable
 Companies B ill – Freely transferable however
 Contract or arrangement betweent two or more
persons in respect of transfer of securities shall
be enforceable as a contract

44.  THANK
YOU