• Subham Patro

Transfer & Transmission Of Shares - Section 56 Of Companies Act 2013

Updated: Oct 14

An image showing transfer and transmission of securities
Transfer and Transmission of Securities

What is Transfer of Shares? :

Transfer of shares means the voluntary handing over of the rights and possibly, the duties of a member (as represented in a share of the company) from a shareholder who wishes to not be a member in the company any more to a person who wishes of becoming a member. Thus, shares in a company are transferable like any other movable property in the absence of any expressed restrictions under the articles of the company.

What is Transmission of Shares? :

A transmission of interest in shares of a company, of a deceased member of the company, made by the legal representative of a deceased member shall be considered as transmission of shares by operation of law. This transmission will be registered by a company in the Register of Members.

Section 56 of the Companies Act 2013

Section 56 of the Companies Act 2013 states that:

1. A company shall not register a transfer of securities of the company, or the interest of a member in the company in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities:

Provided that where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit.

2. Nothing in sub-section (1 ) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.

3. Where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered, unless the company gives the notice of the application, in such manner as may be prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.

4. Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted—

a. within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;

b. within a period of two months from the date of allotment, in the 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 under sub-section (1 ) or, as the case may be, of the intimation of transmission under sub-section (2 ), in the case of a transfer or transmission of securities;

d. within a period of six months from the date of allotment in the case of any allotment of debenture:

Provided that 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.

5. The transfer of any security or other interest of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of the execution of the instrument of transfer.

6. Where any default is made in complying with the provisions of sub-sections (1 ) to (5 ), 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.

7. 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.

What is the Process of Transfer of Shares?

  • At first, the deeds which are transferred need to be obtained in the prescribed form i.e., SH-4.

  • There are some circumstances in which the instrument of transfer may not be in the prescribed form. These are:

  • Under Section 187 of the Companies Act, 2013, when a Director or nominee transfers shares on behalf of another body incorporate.

  • In case, the Director or nominee transfers shares on behalf of a corporation owned or controlled by the Central or state government.

  • Shares transferred by way of deposit for repayment of any loan or advance if the deposit is made with any of the following banks:

  • State Bank Of India

  • Any Scheduled bank

  • Any other Banking Company

  • Financial Institution

  • Central Government