Transfer and Transmission of Securities: Key Provisions and Procedures under the Companies Act, 2013

The Companies Act, 2013 provides a structured framework to govern the transfer and transmission of securities, ensuring transparency and protecting shareholder rights. This article outlines the key provisions, conditions, and penalties associated with these processes, along with practical insights into their implementation.

---

Transfer of Securities

Conditions for Transfer

A company shall not register a transfer of securities unless:

1. A proper instrument of transfer, duly stamped, dated, and executed by or on behalf of both the transferor and transferee, is delivered.
2. The transfer is made within 60 days of execution.
3. The instrument is submitted along with the relevant security certificate or, if unavailable, the letter of allotment.

Lost or Late Instrument of Transfer

If the instrument of transfer is lost or presented beyond the prescribed period, the company may register the transfer on terms of indemnity as deemed fit by the Board.

Partly Paid-Up Shares

For partly paid shares:

• If the transferor applies for the transfer without the transferee’s consent, the company must notify the transferee.
• The transfer will only proceed if the transferee raises no objection within two weeks of receiving the notice.

---

Time Limits for Delivery of Certificates

Companies must deliver security certificates within the following timelines, unless restricted by law or an authority order:

1. Subscribers to the Memorandum: Within 2 months of incorporation.
2. Allotment of Shares: Within 2 months of allotment.
3. Transfer or Transmission: Within 1 month of receipt of the instrument of transfer.
4. Debenture Allotment: Within 6 months of allotment.

---

Transmission of Securities

Transfer by Legal Representatives (Section 56)

The transfer of securities by a deceased shareholder’s legal representative is valid, even if the representative is not a registered holder at the time of the transfer.

Nomination-Based Transmission (Section 72)

If a shareholder has nominated a person, the company must transfer the securities to the nominee upon the shareholder's death.

• The company’s responsibility ends after the transfer.
• Any dispute over the nomination will be resolved by the courts.

Transmission Without an Instrument of Transfer

Unlike transfers, transmission occurs automatically by operation of law in events such as death, insolvency, or mental incapacitation of the shareholder.

---

Penalties for Default

1. Section 56 Compliance:

   • Failure to comply attracts a penalty of ?50,000 for the company and every defaulting officer.

2. Personation of Shareholders (Section 57):

   • Punishable by imprisonment of 1–3 years and a fine ranging from ?1 lakh to ?5 lakh.

---

Refusal of Registration and Appeal Mechanisms

Private Companies (Section 58(1))

• Registration of transfer or transmission must comply with the company’s Articles of Association.
• If refused, the company must notify the transferor and transferee within 30 days.
• The transferee may appeal to the Tribunal within:
  • 30 days of receiving the notice, or
  • 60 days if no notice is issued.

Public Companies

• Shares in public companies are freely transferable.
• If refused, the transferee can appeal to the Tribunal within:
  • 60 days of refusal, or
  • 90 days if no notice is issued.

Tribunal’s Powers

The Tribunal may order the registration of transfer or transmission after hearing the parties. The company must implement the order within 10 days of receipt.

---

Rectification of the Register of Members

The register of members may be rectified if:

1. A person’s name is entered or omitted without sufficient cause.
2. There is a delay or default in recording a member's status.

The aggrieved person, a member, or the company may apply to the Tribunal or a competent court for rectification.

---

Offences and Compoundability

Failure to comply with Tribunal orders may result in:

• Imprisonment of 1–3 years.
• A fine of Rs 1 lakh to Rs 5 lakh.

Note: These violations are non-compoundable.

---

Conclusion

The provisions under the Companies Act, 2013, balance shareholder rights with corporate governance by ensuring procedural adherence in the transfer and transmission of securities. The structured timelines, penalties, and safeguards—combined with the Tribunal’s authority—uphold transparency and legal compliance. These mechanisms foster equity and accountability in managing securities ownership transitions.

"Unlock the Potential of Legal Expertise with LegalMantra.net - Your Trusted Legal Consultancy Partner”

Article Compiled by:-

~Neel Lakhtariya

(LegalMantra.net Team)

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.

Print