Share Certificates, Transfer and Transmission of Shares

Understand Share Certificates, Transfer and Transmission

Key rules to remember

Certificate as evidence (S.46(1))

Valid certificate = common seal (if any) OR 2 directors OR 1 director + Company Secretary (where appointed) → prima facie evidence of title

Prima facie, not conclusive.

Duplicate certificate (S.46(2))

Lost or destroyed → on proof; defaced, mutilated or torn → on surrender

Issue with intent to defraud: fine of 5 to 10 times face value, or ₹10 crores if higher.

Demat shares (S.46(4))

Depository record = prima facie evidence of beneficial owner's interest

No paper certificate needed.

Instrument of transfer (S.56(1))

Proper instrument, stamped, dated, executed by transferor and transferee, delivered within 60 days of execution, with certificate or letter of allotment

Does not apply to transfers between persons both holding beneficial interest in a depository. If lost or late, the Board may register on indemnity terms.

Partly paid shares (S.56(3))

Transferor alone applies → notice to transferee → no objection within 2 weeks

Transfer cannot be registered without that.

Delivery of certificates (S.56(4))

Subscribers: 2 months from incorporation | Allotment of shares: 2 months | Transfer or transmission: 1 month from receipt | Debentures: 6 months from allotment

Count from the date stated for each case.

Penalty (S.56(6))

Default in S.56(1) to (5) → penalty of ₹50,000 on the company and every officer in default

Penalty, not imprisonment.

Private company refusal (S.58(1))

Notice with reasons to transferor and transferee within 30 days of delivery

Applies to private company limited by shares.

Appeal to Tribunal (S.58(3) and (4))

Private: within 30 days of notice, or 60 days from delivery if no notice | Public: within 60 days of refusal, or 90 days from delivery if no intimation

Public company: if it without sufficient cause refuses to register the transfer within 30 days of delivery, the transferee may appeal within 60 days of refusal, or within 90 days from delivery if no intimation has been received.

Tribunal order (S.58(5) and (6))

Dismiss, or direct registration within 10 days, or direct rectification plus damages | Contravention: imprisonment 1 to 3 years and fine ₹1 lakh to ₹5 lakhs

Learn both the order options and the punishment.

How to solve Share Certificates, Transfer and Transmission questions

1. 1Identify what is being asked: certificate, duplicate, demat, transfer, transmission or refusal.
2. 2Classify the event: voluntary (transfer) or by operation of law (transmission).
3. 3Note the company type: private company limited by shares or public company. Section 58 differs.
4. 4Pick the section: S.46 for certificates, S.56 for transfer and transmission, S.58 for refusal and appeal.
5. 5Apply the exact period from the facts: 60 days, 30 days, 1 month, 2 months, 2 weeks, 90 days. Count carefully.
6. 6Check conditions such as a proper instrument, stamping, partly paid shares or a lost instrument.
7. 7State the conclusion: whether the registration or refusal is valid, and the remedy or penalty available.
8. 8Write in provision, facts, conclusion form.

Quickest way: Section and clock method

Common mistakes in Share Certificates, Transfer and Transmission

• Saying a share certificate is conclusive proof of title.

  Students treat the certificate as final proof.

  Fix: Write 'prima facie evidence' as in S.46(1). It can be rebutted.

• Mixing up transfer and transmission.

  Both change the registered holder.

  Fix: Transfer is voluntary and needs an instrument. Transmission is by operation of law, such as death, and needs only intimation.

• Applying the private company 30-day notice rule to public companies.

  Section 58 sub-sections are read together.

  Fix: S.58(1) is for private companies limited by shares. S.58(2) says public company securities are freely transferable.

• Giving the wrong appeal period.

  There are four periods: 30, 60, 60 and 90 days.

  Fix: Private: 30 days from notice, else 60 from delivery. Public: 60 days from refusal, else 90 from delivery.

• Wrongly allowing a duplicate for a torn certificate without surrender.

  Students remember only 'lost or torn'.

  Fix: Lost or destroyed needs proof. Defaced, mutilated or torn needs surrender to the company.

• Forgetting the notice step for partly paid shares.

  Students focus on the main instrument rules.

  Fix: If only the transferor applies for partly paid shares, the company must notify the transferee, who has two weeks to object.

Worked examples