Free Transferability of Securities

INTRODUCTION

According to section 58(2)[1], the securities or other interest of any part in a public company should be freely transferable. The Board of directors of a Company or the concerned safe has no caution to refuse or withhold transfer of any security.[2] The transfer must be affected by the company/depository consequently and immediately.[3]

In any case, provision to section 58(2)[4] states that any contract or course of action between at least two persons in respect of transfer of securities should be enforceable as a contract. It is currently be contractually agree on terms, for example, right of first refusal, call along, call alternative, right of first, offer put choice, and so on in the shareholder agreements/ investment agreements, on account case of a public company as well. These terms would now be binding on the investors. In this way, private arrangements or contracts between at least two people would be enforceable contracts. [5]

TRANSMISSION OF SECURITIES

 As indicated by Section 56(2),[6] a company might have power to enlist on receipt of an intimation of transmission of any right to securities by operation of law from any individual to whom such right has been transmitted.[7]

MCA GENERAL CIRCULAR NO. 19/2014

The matter has been inspected and it is illuminated that since transaction identifying with transfer of shares is a contract between at least two persons /shareholders, any share exchange before 1st April, 2014 and submitted to the company worried inside the period prescribed under relevant section of the Companies Act 1956 should be acknowledged by companies for registration of transfers.[8] In that case that any such share transfer form, executed before 1st April, 2014, is not submitted inside the recommended period under the Companies Act 1956, the concerned company may get itself fulfilled reasonably as to justification of deferral in submission and so forth on the off chance that an organization chooses not to acknowledge the share exchange shapes.[9] It might pass on explanations behind such rejection inside time gave under area 56(4) (c) of the Act.[10]

The Ministry of Corporate Affairs has issues clarification vide general circuitous no. 19/2014, seeing Share Transfer Form as indicated by Form SH-4 executed before 1st April, 2014: in context of arrangement of new Securities Transfer Form as indicated by Form SH-4 with effect from first April, 2014, the organizations and different partners have searched for respect concerning Share Transfer Forms executed before first April, 2014 as per earlier Form 7B however which are yet to be accepted /registered by companies.[11]

REGISTRATION OF PARTLY PAID UP SHARES – NOTICE TO THE TRANSFEREE

As stated under section 56(3), where an application is made by the transferor alone and identifies with partly paid shares, the transfer might not be enlisted, unless the company gives the notice of the application, in such way as might be recommended, to the transferee and the transferee gives no complaint to the exchange inside two weeks from the receipt of notice.

RULE 11(3) OF COMPANIES (SHARE CAPITAL AND DEBENTURES) RULES, 2014

A company should not enlist an exchange of mostly paid shares, unless the organization has given a notice in Form No. SH.5 to the transferee and the transferee has given no protest to the exchange inside two weeks from the date of receipt of notice.

TIME LIMIT FOR DELIVERY OF CERTIFICATES

 Section 56(4)(3) states “that every company, 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, within a period of one month from the date of receipt by the company of the instrument of transfer or as the case may be of the intimation of transmission, in case of transfer or transmission of shares”[12]

PUNISHMENT FOR PERSONATING OF SHAREHOLDERS 

Where any person misleadingly personates a proprietor of any share or interest in a company, or of any share warrant or coupon issued in compatibility of this Act and

(i) in this way gets or endeavors to get any such share or intrigue or any such share warrant or coupon, or

(ii) Gets or endeavor to get any cash because of any such proprietor,

He might be culpable with detainment for a term which should not be short of what one year but rather which may stretch out to 3 years and with fine which should not be short of what one lakh rupees but rather which may reach out to 5 lakh rupees.[13]

 

[1] Without prejudice to sub-section (1), the securities or other interest of any member in a public company shall be freely transferable:

Provided that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.

[2] Section 58 of Companies Act, 2013, , https://www.lawnotes.in/Section_58_of_Companies_Act,_2013 (last visited Apr 14, 2017).

[3] TRANSFER AND TRANSMISSION OF SECURITIES, TRANSFER AND TRANSMISSION OF SECURITIES (2013), https://aishmghrana.me/2013/10/01/transfer-and-transmission-of-securities/ (last visited Apr 14, 2017).

[4] Supra note 1.

[5] CS Ankur Garg, Procedure for Transfer of Shares under Companies Act, 2013 – See more at: http://taxguru.in/company-law/procedure-transfer-shares-companies-act-2013.html#sthash.u39RumGM.dpuf (2014), http://taxguru.in/company-law/procedure-transfer-shares-companies-act-2013.html (last visited Apr 14, 2017).

[6] Companies Act, 2013, , http://www.advocatekhoj.com/library/bareacts/companies2013/56.php?Title=Companies%20Act,%202013&STitle=Transfer%20and%20transmission%20of%20securities (last visited Apr 14, 2017).

[7]    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.

[8] How to transfer shares in India under Companies Act, 2013?, , https://blog.ipleaders.in/transfer-shares-india-under-companies-act-2013/ (last visited Apr 14, 2017).

[9] Companies Act 2013, Companies Act 2013 (2016), http://www.companiesact.org/2016/04/section-56-of-companies-act-2013.html (last visited Apr 14, 2017).

[10]  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.

[11] Companies Act, 2013, Section 56 – Bare Act, Companies Act, 2013, Section 56 – Bare Act, https://www.legalcrystal.com/act/62435/companies-act-2013-section-56 (last visited Apr 14, 2017).

[12] Procedure for Transfer & Transmission of Securities, , http://www.kcp.co.in/downloads/investor/shareholders-information/procedure-for-transfer-transmission-of-securities.pdf (last visited Apr 14, 2017).

[13] Supra note 12.

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