Companies Act Section 56 — Transfer and transmission of securities
CHAPTER IV SHARE CAPITAL AND DEBENTURES
Commercial / Corporate
Summary
Sub-section (1) sets the general rule for registering a transfer of securities. A company cannot register a transfer unless a proper instrument of transfer, in the prescribed form, is duly stamped, dated, and signed by or on behalf of both the transferor and the transferee. This document must also state the name, address, and occupation (if any) of the transferee, and it must be delivered to the company within sixty days from the date of execution, along with the certificate for the securities or, if no certificate exists, the letter of allotment. This rule does not apply to transfers between two persons whose names are both recorded as beneficial holders in a depository's records.
The proviso to sub-section (1) allows an exception. If the instrument of transfer has been lost, or if it was not delivered within the sixty-day period, the company may still register the transfer, but only on such terms of indemnity as the Board considers appropriate.
Sub-section (2) clarifies that the rule in sub-section (1) does not stop a company from registering a transfer when it receives an intimation that a right to securities has been transmitted by operation of law, such as through inheritance or a court order.
Sub-section (3) deals with a transfer application made by the transferor alone for partly paid shares. In such a case, the transfer cannot be registered unless the company gives notice of the application to the transferee in the prescribed manner, and the transferee raises no objection within two weeks of receiving that notice.
Sub-section (4) requires every company to deliver certificates for all securities that are allotted, transferred, or transmitted, unless a law or an order from a Court, Tribunal, or other authority prohibits it. Under clause (a), certificates must be delivered within two months from the date of incorporation for subscribers to the memorandum. Under clause (b), certificates must be delivered within two months from the date of allotment for any allotment of shares. Under clause (c), certificates must be delivered within one month from the date the company receives the instrument of transfer under sub-section (1) or the intimation of transmission under sub-section (2), for a transfer or transmission of securities. Under clause (d), certificates must be delivered within six months from the date of allotment for any allotment of debentures.
The proviso to sub-section (4) adds that where securities are dealt with in a depository, the company must intimate the details of the allotment of securities to the depository immediately upon allotment.
Sub-section (5) states that a transfer of any security or other interest of a deceased person in a company, made by the deceased person's legal representative, is valid even if the legal representative is not the holder of that security or interest, as long as the transfer is executed as if the legal representative had been the holder at the time of execution.
Sub-section (6) provides that if there is any default in complying with the provisions of sub-sections (1) to (5), the company and every officer of the company who is in default will be liable to a penalty of fifty thousand rupees.
Sub-section (7) states that, without affecting any liability under the Depositories Act, 1996, if any depository or depository participant transfers shares with an intention to defraud a person, it will be liable under section 447.
Official Text
(1) A company shall not register a transfer of securities of the company, or the interest of a member in the company in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities:
Provided that where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit.
(2) 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.
(3) Where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered, unless the company gives the notice of the application, in such manner as may be prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.
(4) Every company shall, 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—
(a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;
(b) within a period of two months from the date of allotment, in the case of any allotment of any of its shares;
(c) 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;
(d) within a period of six months from the date of allotment in the case of any allotment of debenture:
Provided that where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.
(5) The transfer of any security or other interest of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of the execution of the instrument of transfer. 1[
(6) Where any default is made in complying with the provisions of sub-sections
(1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.]
(7) Without prejudice to any liability under the Depositories Act, 1996 (22 of 1996), where any depository or depository participant, with an intention to defraud a person, has transferred shares, it shall be liable under section 447.