TRANSFER OF SHARES: LAW AND

PROCEDURE- A CRITICAL STUDY WITH

REFERENCE TO THE JURISPRUDENTIAL
ISSUES

Submitted by - Gautam, R.No. 928 (Sem.–VII), B.A.LL.B. (H)

Submitted to :- Mrs. Nandita S. Jha (Faculty of Corporate Laws )

CHANAKYA NATIONAL LAW

UNIVERSITY
PATNA
==================================================================

Date of submission:- 12/11/2016

==================================================================
 ACKNOWLEDGEMENT

I am feeling highly elated to work on the project topic“TRANSFER OF SHARES: LAW AND
PROCEDURE- A CRITICAL STUDY WITH REFERENCE TO THE JURISPRUDENTIAL
ISSUES” under the guidance of my faculty of Corporate Law, Mrs. Nandita S. Jha. I am very
grateful to her for her exemplary guidance. I would like to enlighten my readers regarding this topic
and I hope I have tried my best to pave the way for bringing more luminosity to this topic.

I also want to thank all of my friends, without whose cooperation this project was not possible.
Apart from all these, I want to give special thanks to the librarian of my university who made every
relevant materials regarding to my topic available to me at the time of my busy research work and
gave me assistance. And at last I am very much obliged to the God who provided me the potential
for the rigorous research work.

At finally yet importantly I would like to thank my parents for the financial support.

-----------Thanking you
Gautam
C.N.L.U.
 DECLARATION

I hereby declare that the project work entitled “TRANSFER OF SHARES: LAW
AND PROCEDURE- A CRITICAL STUDY WITH REFERENCE TO THE
JURISPRUDENTIAL ISSUES” submitted to Chanakya National Law University,

Patna, is a record of an original work done by me under the guidance of Mrs.

Nandita S. Jha, Faculty-in-Charge (Corporate Laws), CNLU, Patna, and this
project work is submitted in the final fulfillment of the requirements for the
Project Work for Corporate Laws I (Semester VII), CNLU, Patna. The results
embodied in this project have not been submitted to any other University or
Institute for any purpose.

Date-12/11/2016 Gautam,
R.No. 928; CNLU, Patna
Table of Contents
Acknowledgement ............................................................................................................................... 2
Research Object ................................................................................................................................... 5
Methodology ........................................................................................................................................ 5
Source of Data ...................................................................................................................................... 5
Introduction .......................................................................................................................................... 6
Main Provisions Related To Transfer Of Share ............................................................................... 6
Shares & Jurisprudence: Critical Analysis........................................................................................... 9
Shares Importance In Public & Private Company ............................................................................. 10
TRANSFER OF SHARES In Public & Private Company ................................................................ 11
Procedure for effecting transfer of shares: ..................................................................................... 11
Basic Procedure for Transfer of Share in a Private Company ....................................................... 12
Basic Procedure for Transfer of Share in a Public Company ........................................................ 12
Conclusion ......................................................................................................................................... 14
Bibliography....................................................................................................................................... 15
 RESEARCH OBJECT

This project discusses Transfer of Shares and its Law and Procedure. The objective of the research
is to understand the transferability of shares through law and statutory provisions related to transfer
of share refrying various jurisprudential issues.

METHODOLOGY

The research methodology is doctrinal in nature.

SOURCE OF DATA

Library and Internet are main sources. Relevant statute, reports, books, case laws and research
articles have been referred.
 INTRODUCTION
When joint stock companies were established, the great object was that e shares should be capable
of being easily transferred." Accordingly, by Section 82 of the Companies Act, it is provided that
the shares or debentures or other interest of a member in a company shall be moveable property
capable of being transferred in the manner provided by the articles of the company. The regulations
of the company may impose fetters upon the right of transfer. But in the absence of restrictions in
the articles the shareholder has by virtue of the statute the right to transfer his share without the
consent of anybody to any transferee, even though he be a mans of straw, provided it is a bona fide
transaction in the sense that it is an out and out disposal of the property without retaining any
interest in the shares." A transfer made with the avowed object of escaping liability was held to be
valid in Discoverers Finance Corp Ltd,Re.1

MAIN PROVISIONS RELATED TO TRANSFER OF SHARE

1. Instrument for Transfer of Share is compulsory: Section 56 provides that a company shall
not register a transfer of shares of, the company, unless a proper transfer deed in Form SH.4 as
given in Rule 11 of Companies (Share Capital & Debentures) Rules 2014 duly stamped and
executed by or on behalf of the transferor and by or on behalf of the transferee and specifying
the name, address and occupation, if any, of the transferee, has been delivered to the company,
along with the certificate relating to the shares, or if no such certificate is in existence, along
with the letter of allotment of the shares.2

2. Time Period for deposit of Instrument for Transfer: An instrument of transfer of shares i.e.
Form SH.4 with the date of its execution specified thereon shall be delivered to the company within
sixty (60) days from the date of such execution by or on behalf of the transferor and by or on behalf
of the transferee.

3. Value of share transfer stamps to be affixed on the transfer deed: Stamp duty for transfer of
shares is 25 paise for every Rs. 100 or part thereof of the value of shares as per Notification No. SO
130(E), dated 28-01-2004 issued by the Ministry of Finance, Department of Revenue, New Delhi.

4. Time limit for issue of certificate on transfer (Section-56(4)): Every company, unless
prohibited by any provision of law or of any order of any Court, Tribunal or other authority, shall,

1
Barnicoal v Knight, (2004) 2 BCLC 464 (Ch D)(1840, Court of Chancery)
2
http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf/ last seen on 02/11/2016
within One month deliver, the certificates of all shares transferred after the application for the
registration of the transfer of any such shares, debentures or debenture stock received.

5. Private company shall restrict right to transfer its shares: Entire shareholding of a private
company may be owned by a family or other private group. Section 2(58)(i) of the Companies Act,
2013 provides that the Articles of private company shall restrict the right to transfer the company’s
shares.

6. Restriction on transfer in Private Company not applicable in certain cases: Restriction upon
transfer of shares is in private company are not applicable in the following cases:—
(i) on the right of a member to transfer his/her shares cannot be applicable in a case where the
shares are to be transferred to his/her representative(s).
(ii)in the event of death of a shareholder, legal representatives may require the registration of share
in the names of heirs, on whom the shares have been devolved.

7. Time Limit for Refusal of registration of Transfer: Provisions related to Refusal of

registration and appeal against refusal is given in Section 58 of the Companies Act, 2013. Power of
refusal to register transfer of shares is to be exercised by the company within thirty (30) days from
the date on which the instrument of transfer or the intimation of transfer, as the case may be is
delivered to the company.3

8. Time Limit for appeal against refusal to register Transfer by Private Company: As per
section 58(3), a transferee of shares may appeal to the Tribunal against the refusal within a period of
thirty (30) days from the date of receipt of the notice from the Company or in case no notice has
been sent by the company, within a period of sixty (60) days from the date on which the instrument
of transfer or the intimation of transmission, as the case may be, was delivered to the company.

9. Time Limit for appeal against refusal to register Transfer by Public Company: As per
section 58(4), a transferee of shares may, within a period of sixty (60) days of such refusal or where
no intimation has been received from the company, within ninety (90) days of the delivery of the
instrument of transfer or intimation of transmission, appeal to the Tribunal.

3
http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf/ last seen on 02/11/2016
10. Penalty for Non-compliance: Where any default is made in complying with the provisions
related to transfer of shares, the company shall be punishable with fine which shall not be less than
Rs. 25,000/- but which may extend to Rs. 5,00,000/- and every officer of the company who is in
default shall be punishable with fine which shall not be less than Rs. 10,000/- but which may extend
to Rs. 1,00,000/-
 SHARES & JURISPRUDENCE: CRITICAL ANALYSIS
Shares are units of ownership interest in a corporation or financial asset that provide for an equal
distribution in any profits, if any are declared, in the form of dividends. The two main types of
shares are common shares and preferred shares. Ownership is a complex juristic concept which has
its origin in the Ancient Roman Law. In Roman law ownership and possession were respectively
termed as ‘dominium’ and ‘possession’. The term dominium denotes absolute right to a thing while
possession implied only physical control over it. They gave more importance to ownership because
in their opinion it is more important to have absolute right over a thing than to have physical control
over it. The concept of ownership consists of a number of claims such as liberty, power and
immunity in regard to the thing owned. Ownership is thus a sum-total of possession, disposition and
destruction which includes the right to enjoy property by the owner. The owner has to side by side
abide by the rules and regulation of the country.
Similarly a shareholder having ownership over certain shares have certain rights. Shareholders of a
company have the right to transfer shares held by them in the company freely, except that, the board
may refuse to register a transfer of shares if they are not fully paid or where the transferee is not a
person approved by the board. A private limited company,however may , by its articles of
associations , restrict the transfer of shares and provide preemptive rights to its members for
purchasing shares proposed to be transferred by the transferee.4

4
Share holder right under companies act 2013, available at https://www.indiafilings.com/learn/shareholder-rights-
companies-act-2013/last seen 03/11/2016
 SHARES IMPORTANCE IN PUBLIC & PRIVATE COMPANY
Companies often issue shares to raise capital for operational and strategic reasons. Shares of public
companies trade on regulated stock exchanges, where investors can place buy and sell orders.
Shares are an integral part of the economy because they are a core component of most investment
portfolios. Investors can own shares directly or indirectly through mutual funds.5
Publicly traded companies are able to raise funds and capital through the sale (in the primary or
secondary market) of their securities, whether debt or equity. This is the reason publicly traded
corporations are important; prior to their existence, it was very difficult to obtain large amounts of
capital for private enterprises. The profit on stock or bonds is gained in form of dividend or capital
gain to the holders of such securities.The financial media and analysts will be able to access
additional information about the business.The owners are able to share risks by selling shares to the
public. If he holds 100% of the share, he will pay all the debt, however, if he holds 50%, he only
needs to pay 50% of the debt. It increases the asset liquidity and the company does not need to
depend on fund from the bank. It improves the transparency of company information by releasing
annual account report and transaction record. The company may be better known to the public,or
increase its popularity. If some shares are given to the managers, the conflicts between managers
and shareholders, the principal-agent problem, will be remitted.
Shareholders liability within a private limited company is limited only to the capital they originally
invest in the firm; consequently the personal assets of shareholders are protected. Following
company incorporation, private limited companies are able to raise funds by issuing shares in return
for cash. The overall face value of a company’s shares is known as the company’s “share capital,” it
signifies the investment of shareholders in a firm. Share capital is ultimately the portion of a
company’s equity that is gained when shares are traded for cash (or assets of an equivalent value).
The original number of shares for a company are issued during company registration and all
companies must have a minimum of one share. Many business-minded individuals do choose to
issue more shares for their firm subsequent to their company formation; this increases the
company’s share capital. Once shares have been issued, directors do have the ability to change the
rights associated with a particular class of shares – for example dividend or voting rights. Directors
are also able to decrease the share capital; however, this is far more troublesome.6

5
Importance of shares, available at http://finance.zacks.com/importance-shares-1133.html/last seen on 04/11/2016
6
Anonymous, available at http://wisteriaformations.co.uk/articles/2013/01/what-is-the-importance-of-share-capital-in-
a-company/ last seen on 04/11/2016
 TRANSFER OF SHARES IN PUBLIC & PRIVATE COMPANY
One of the most important features of a company is that its shares are transferable. Section 44
empowers every shareholder to transfer his shares in the manner laid down in the Articles and in
accordance with the various provisions of law. However, a private company is statutorily under
obligation to place certain restrictions on the right of its members to transfer shares. One of the most
common restrictions on transfer of shares in a private company is the "Pre-emption clause", which
states that the intending transferor must offer his shares to the existing members of the company,
before offering them to non-members, so long as a member can be found to purchase them at a fair
price to be determined in accordance with the Articles.7

PROCEDURE FOR EFFECTING TRANSFER OF SHARES:

Section 56 has laid down the following procedure for effecting transfer of shares:8

1. A company shall not register a transfer of securities of the company 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 an 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.

2. The instrument of transfer, as aforesaid, must have been delivered to the company within period
of sixty days from the date of execution.

3. The instrument of transfer must be accompanied by the certificate relating to the securities, or if
no such certificate is in existence, along with the letter of allotment of securities. However,
where the instrument of transfer has been lost or the instrument of transfer has not been
delivered within the prescribed period, the corn paw!, may register the transfer on such terms as
to indemnity as the Board may think fit.

4. The company shall, unless prohibited by any provision of law or any order of Court, Tribunal or
other authority, deliver the certificates within a period of one month from the date of receipt by
the company of the instrument of transfer.

7
G.K.Kapoor’s Company Law,219(Sanjay Dhamija,19th ed.,2016)
8
G.K.Kapoor’s Company Law,221(Sanjay Dhamija,19th ed.,2016)
BASIC PROCEDURE FOR TRANSFER OF SHARE IN A PRIVATE COMPANY

Generally articles contain the detailed provisions as regards the procedure for transfer of shares.
Usually following steps shall be followed by a private company to give effect to the transfer of
shares:—
• Transferor should give a notice in writing for his intention to transfer his share to the
company.
• The company in turn should notify to other members as regards the availability of shares
and the price at which such share would be available to them.
• Such price is generally determined by the directors or the auditors of the company.
• The company should also intimate to the members, the time limit within which they should
communicate their option to purchase shares on transfer.
• If none of the members comes forward to purchase shares then the shares can be transferred
to an outsider and the company will have no option, other than to accept the transfer.
• Get the Share transfer deed in form SH-4 duly executed both by the transferor and the
transferee.
• The transfer deed should bear stamps according to the Indian Stamp Act and Stamp Duty
Notification in force in the State concerned. The present rate of transfer of shares is 25 Paise
for every one hundred rupees of the value of shares or part thereof. Do not forget to cancel
the stamps affixed at the time or before signing of the transfer deed.
• The signatures of the transferor and the transferee in the share transfer deed must be
witnessed by a person giving his signature, name and address.
• Attach the relevant share certificate or allotment letter with the share transfer deed and
deliver the same to the company. The share transfer deed should be deposited with the
company within sixty (60) days from the date of such execution by or on behalf of the
transferor and by or on behalf of the transferee.
• After receipt of share transfer deed, board shall consider the same. If the documentation for
transfer of share is in order, board shall register the transfer by passing a resolution.

BASIC PROCEDURE FOR TRANSFER OF SHARE IN A PUBLIC COMPANY

Section 58(2) provides that the shares or debentures and any interest therein of a public company
shall be freely transferable. Usually following steps shall be followed by a private company to
give effect to the transfer of shares:—
• Get the Share transfer deed in form SH-4 duly executed both by the transferor and the
transferee.
• The transfer deed should bear stamps according to the Indian Stamp Act and Stamp Duty
Notification in force in the State concerned. The present rate of transfer of shares is 25 Paise
for every one hundred rupees of the value of shares or part thereof. Do not forget to cancel
the stamps affixed at the time or before signing of the transfer deed.
• The signatures of the transferor and the transferee in the share transfer deed must be
witnessed by a person giving his signature, name and address.
• Attach the relevant share certificate or allotment letter with the share transfer deed and
deliver the same to the company. The share transfer deed should be deposited with the
company within sixty (60) days from the date of such execution by or on behalf of the
transferor and by or on behalf of the transferee.
• After receipt of share transfer deed, board shall consider the same. If the documentation for
transfer of share is in order, board shall register the transfer by passing a resolution.
 CONCLUSION
Transfer of shares refers to the intentional transfer of title (rights as well as duties) to shares by one
person to another. There are two parties to transfer of shares, i.e. transferor and transferee. The
shares of the public company are freely transferable unless there is an express restriction provided
in the articles of association. However, the company can refuse the transfer of shares, if it has a
valid reason for the same. In the case of a private company, there is a restriction on the transfer
of shares subject to certain exceptions. Shares are units of ownership interest in a corporation or
financial asset that provide for an equal distribution in any profits, if any are declared, in the form of
dividends. The two main types of shares are common shares and preferred shares. Shareholders of a
company having ownership over shares have the right to transfer shares held by them in the
company freely, except that, the board may refuse to register a transfer of shares if they are not fully
paid or where the transferee is not a person approved by the board. Aforesaid provisions indicate
that the shares of a public limited company are movable property, freely transferable and this
transferability cannot be restrained even by the Articles of Association of the Company and is only
subject to the statutory checks as laid down under sub-section 3 of Sec. 111A. Thence, free
transferability of shares of public limited companies is assured with permission to place reasonable
restrictions on transferability.
 BIBLIOGRAPHY
STATUTE: -

 The Companies Act, 2013

 The Companies (Share Capital & Debentures) Rules 2014

BOOKS: -

 Avtar Singh, Company Law (English), Eastern Book Company, Edition 16, 2015

 Sanjay Dhamija, G. K. Kapoor, Company Law (English) 17th Edition, Taxmann

Publications Pvt Ltd

ONLINE SOURCES

 http://finance.zacks.com/importance-shares-1133.html
 http://wisteriaformations.co.uk/articles/2013/01/what-is-the-importance-of-share-capital-in-
a-company
 http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
 https://www.indiafilings.com/learn/shareholder-rights-companies-act-2013