Procedure for Transmission of Shares

     

In the light of the foregoing provisions in the Act and the model articles of association of a company as enshrined in Table A of Schedule I to the Companies Act, 2013, a company which receives an intimation about the demise or insolvency of a registered shareholder, is required to follow the procedure as detailed below for effecting registration of transmission of the shares at that point of time registered in the name of the deceased member:

Procedure for Transmission of Shares

1.   On receipt of the intimation about the death or lunacy or insolvency of a member, the company should write to the person who intimated the company about the death or lunacy or insolvency of the member, to enquire whether the deceased member had left a Will or there has been a proper order by a competent Court of law in the event of the member’s insolvency or lunacy, and whether the heirs of the deceased member had applied to a Court and obtained or would be applying to Court of law for the issue of a succession certificate.

2.  In the event of insolvency of a member, his shares vest in the Official Receiver, who may get himself registered as holder of the shares or dispose them of. He is also entitled to disclaim partly-paid shares or fully paid shares which are subject to charge, hypothecation or any other encumbrance.

3.   If shares are jointly held and one of the joint holders passes away, the company may transmit the shares in the name of the surviving holder. If there are more than one surviving holders, the company must insist on all of them jointly signing the application for such transmission. However, the course of action to be adopted by the company should be decided according to the provisions contained in its articles of association.

4.     It is important to note that in the case of transmission of shares in a company—

(i)   no formal instrument of transfer is required since the registered shareholder either does not exist to execute the share transfer form as transferor or for reasons of his incapacity to execute the instrument because of his lunacy or insolvency;

(ii) no share transfer stamps are required to be affixed on the application for transmission of shares because transmission is not transfer. Transfer is the result of free will of both the parties, whereas in the event of transmission of shares, only the transferee is present and the State or the law acts as the transferor of the shares, which is known as transfer by operation of law.

5.   The company must thoroughly check the application for transmission of shares with specific attention to the following:

(a)   Whether the application for transmission contains correct details of the deceased member, e.g., his name, address, occupation, father’s/ husband’s name, his shareholding and is accompanied by the relevant share certificates.

(b)      Whether the applicant has sent along with the application –

(i)     death certificate, along with a certified true copy, of the deceased member;

(ii)     succession certificate, if the deceased member has left no Will;

(iii) if the deceased member has left a Will, probate thereof or letter of administration;

(iv)     affidavit by the legal heir declaring his right in the shares; and

(v)  indemnity bond binding him and his heirs, assigns etc. to indemnify the company in the event of the company having to face any proceedings, incur some loss etc.

6.  If the application is accompanied by a succession certificate, the company should ensure that the particulars of heir(s) have(s) been correctly given in the certificate and the certificate contains details of the shares to which the applicant has staked his claim.

7.  The company must receive attested signature(s) of the applicant heir(s) duly certified by a competent person, e.g., a Magistrate, a Judge of a High Court, a Gazetted Officer, a Notary Public, an Oath Commissioner, a Bank Manager, or a member of a recognised stock exchange, for its record.

8.  If the succession certificate entitles more than one heir to the properties of the deceased member including the shares in the company, the company must register the shares in the joint names of all the heirs. However, if they want the shares to be registered in the name of one of them, then the company must obtain from the remaining heirs a letter of disclaimer on a non-judicial stamp paper of the value applicable in the State where the disclaimer is signed and executed, disclaiming their rights in the shares and entitling the said heir to have the shares transmitted and the transmission registered in his name. Alternatively, the shares must first be registered in the joint names of all the heirs and thereafter the disclaiming heirs may transfer their respective share in the shares under reference by means of a regular share transfer.

9.  After having ensured the above, the company secretary should place the application for transmission of the shares along with the relevant documents received therewith, before the Board of directors of the company or the Share Transfer/Transmission Committee, if there is one, for its consideration and approval.

10.   As soon as the transmission is approved by means of a resolution of the Board or the Committee, the secretary should enter the name(s) of the authorized heir(s) in the register of members of the company and send the share certificates to the registered members, after appropriately endorsing them in their names

Key Points Relating to Transmission of Shares

(i)     Transmission is devaluation of title by operation of law.

(ii)     No instrument of transfer (Transfer Deed) is necessary

(iii)   If there was any lien on the shares or any original liabilities, it would subsist even after transmission.

(iv)  A simple application with certain documents such as death certificate, succession certificate, probate etc, depending upon various circumstances may be sufficient for transmission.

(v) In case of joint holding, the survivor or survivors shall only be entitled for registration and the legal heir of the deceased member shall have no right or claims.

(vi)  Succession certificate is not required when probate or letter of administration is issued.

(vii)   Once succession certificate is granted, it provides full indemnity to the company to transmit the shares by operation of law.

(viii)     In case of amalgamation, no instrument of transfer is required to be executed.

(ix)   In case of shares of a private company, if company refuses to register transmission, notice of such intention within two months giving reasons must be sent by the company to the person sending intimation.

(x)  Remedies provided under section 58 are no longer applicable on listed/unlisted public company.

(xi)  Section 59 abrogates the right of the public company to refuse registration of transfer/ transmission of shares and debentures on any grounds.

(xii)  The companies, after registration of transfer, may approach the Tribunal for an order of rectification in case the transfer is in contravention of any of the provisions of the Companies Act, 2013 and any other Act.

Related Post :

Draft Board Resolution for Transmission of Shares

Format of Affidavit For Transmission of Shares

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