Share transfer

Through Section 82, the Companies Act, 1956 approves that the shares, debentures or other interests of any member in a Company are movable properties. Hence, shares in a Company are freely transferable. However, a private Company can restrict the transfer of its shares by its articles. The ownership of movable goods may transferred by delivery of possession. However, it is not possible in the case of shares. This is because of the provisions in Section 36 of Companies Act, 1956. This Section establishes a contractual relationship between the Company and its members. Thus, an instrument of transfer comes into picture. Article 19 and 20 of Table A deals with share transfer and article 20 gives a model share transfer form (form 7B). Share transfer is regulated by 1. Sections 108 to 111 of Companies Act, 1956; 2. Securities Contract (Regulation) Act, 1956; 3. Form 7B (The Companies (Central Government’s)General Rules and Forms, 1956) 4. Foreign exchange Management Act, 1999. 5. Form 7BB for Companies listed on OTCEI and Section 25 Companies (this form is prescribed by MCA vide file no: 1/19/92 CLV dated 26-05-1995) Form 7B This form is prescribed in the Companies (Central Government’s) General Rules and Forms, 1956. This form, before making any entry, should be presented to the prescribed authority, who shall endorse/stamp the date on it. Usually Registrar of Companies is the prescribed authority. In the available form 7B, the seal with date shown at the top is the indication of the date of presentation of the prescribed authority. The validity of this form is time barred one. The validity starts from the date of endorsement/stamp by the prescribed authority. Duly completed and stamped form together with share certificates should be presented from the date of presentation to the Company for registration i. Within 12 months for a listed Company; and ii. Within 2 months,  in all other cases. Stamp duty v  Transfer of shares attract stamp duty under the Indian Stamp Act, 1899. v  Only Central Government can levy stamp duty on share transfer. v  25 paise for Rs. 100/-(this is vide notification No. S.O. 130(E) dated 28-1-2004. Before that, it was 50 paise for every 100 rupee). v  The stamp duty is calculated on the selling/market price, not on face value. v  In every state, the stamp duty for share transfer is same. v  Stamps marked, as ‘share transfer’ only are valid for this purpose. v  Revenue stamps cannot be used. v  Article 62(b) of Schedule I of the Indian Stamp Act governs the stamp duty payable on transfer of debentures. v  Stamp duty payable on transfer of debentures varies from state to state. v  The stamps must be cancelled before or at the time of execution. v  Normally transferor is liable to pay the stamp duty. Procedure for share transfer Transferor or transferee may make application to the Company for transfer of shares or debentures. Companies Act, 1956 prescribes certain requirements for share transfer. 1. An instrument of transfer in the prescribed form (form 77B) 2. It should be duly stamped; 3. Execute the instrument by both the transferor and transferee. 4. Submit the Share certificates in original. Important  terms Blank Transfer Sometimes a transferor signs the instrument of transfer and hands over the same, along with share certificate, to a transferee. Transferee could either fill his own name as transferee or transfer it further to another person. It is known as blank transfer and law recognizes it. Vasudev Ramachandra Shelat v. Pranlal Thaker (1974) (SC) Certification of transfer, Section-112 Certification means a statement by the Company that certain documents pertaining to the shares to be transferred have been deposited with the Company. If a person intends to transfer smaller number of shares than shown in the share certificate deposited for transfer, he can make use of certification and transfer the remaining shares on that basis. Thus certification facilitates the sale of smaller number of shares in case the share certificates is for a larger number of shares. Kumar exportes v. Naini Oxygen Acetylene & gas Limited(1985) Certain case laws A Company by mistake or otherwise registers a transfer which should have been refused because of insufficient or un cancelled stamps, or because of the instrument being unstamped, it should point out the error to the transferee within such time ( within one year from the date of execution) that the transferee can have matters rectified through the orders of collector. Afterwards it would too late. Kothari Industrial corporation Limited v. Lazor Detergents Private Limited (1994) The Board of Directors are not persons to impound(lock away/hold) or regularize an instrument of transfer which is not stamped. They have no authority under Section 33 and 42 of the Indian Stamp Act. Mathrubhumi Company Limited v. Vardhaman Publishers Limited (1992) As long as the transferor’s name continues to be on the register of members of the Company, he is treated as holding the shares and till such time he is entitled to deal with the Company in all matters relating to the shares Jagajit Distilling & Allied Industries Limited v. Shiv Ram Batta (1962) Shares in a Company are goods according to Section 2(7) of the Sale of Goods Act, and therefore, the buyer of shares cannot have a better title than the seller. Fazal D. Allana v. Mangaldas (1918) It is the duty of the transferor  to get the shares registered in the name of he transferee, if the directors refuse to register the transfer. London Founders Association Limited v. Clarke (1886-90) Documents which are not duly stamped or where stamps are not cancelled should be returned to the persons lodging them pointing out the errors so as to enable them to rectify the error. Federal Bank Limited v. Smt. Sarala Devi Rathi(1997) There is nothing in law to prevent minors acquiring or holding shares in a joint stock Company if they are properly represented and act by lawful guardians. Diwan Singh v. Minerva Films Limited ( 1958) Affixing stamps on separate sheet of paper and attaching it to the transfer application or cancellation of stamps by drawing a line  across the stamp was not improper and would not invalidate the said application Vardhaman Publishers Limited v. Mathrubhumi Printing and Publishing Company Limited (1990) Transfer of shares to a body Corporate Where a Company is a transferee, the following documents are required to be submitted along with transfer deed. 1. A certified true copy of the Board resolution and Power of Attorney authorizing the signatory of the instrument of transfer to execute the instruments; 2. A certified true copy of a Board resolution passed under Section 292(1)(d) of Companies Act, 1956; and 3. A certified true copy of the Memorandum and Articles of Association of the Company. updation Stamp duty  is payable on initial issue of security, even if, it is issued in demat form. No stamp duty is payable for transfer of shares or debentures through depository. Stamp duty is not payable for dematerialisation of securities. Rematerialisation attracts stamp duty as issue of duplicate share certificate. No stamp duty is payable for inter depository transfer.