What are the differences between the transfer and transmission of shares? What is the procedure for transferring shares? Do directors have the power to refuse to register the transfer of shares?

Question: What are the differences between the transfer and transmission of shares? What is the procedure for transferring shares? Do directors have the power to refuse to register the transfer of shares?

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Answer

Transfer of shares refers to the sale of ownership of a share from one person (the transferor) to another person (the transferee). This transfer of ownership is recorded in the books of the company, and the transferee becomes the new owner of the share with all the rights and responsibilities that come with it.

Transmission of shares, on the other hand, refers to the transfer of ownership of shares from one person to another in the event of the death of the original owner. This transfer is recorded in the books of the company, and the new owner becomes the registered holder of the shares, with all the rights and responsibilities that come with it.

The main differences between the transfer and transmission of shares are:

Nature of transfer: Transfer of shares is a voluntary transfer, where the transferor actively chooses to sell their shares to a transferee. Transmission of shares is an involuntary transfer, where ownership of shares is transferred from one person to another due to death.

Method of transfer: Transfer of shares is typically done through a sale agreement between the transferor and transferee. Transmission of shares is typically done by providing evidence of death and a valid will if one exists.

Legal Formalities: The transfer of shares requires the completion of specific legal formalities, including the execution of a transfer deed, payment of transfer fees, and stamp duty. Transmission of shares also requires the completion of specific legal formalities, including the submission of evidence of death, a valid will, and other relevant documents to the company.

Record-Keeping: The transfer of shares is recorded in the books of the company by updating the name of the registered holder. Transmission of shares is also recorded in the books of the company by updating the name of the registered holder.

Transfer and Transmission of shares are two different methods of transferring ownership of shares from one person to another. While both processes involve updating the books of the company to reflect the change in ownership, the transfer is a voluntary transfer resulting from a sale agreement, while the transmission is an involuntary transfer due to death.

Procedure for Transferring the Shares

The procedure for transferring shares in India, as per the Indian Companies Act 2013, is as follows:

Execution of a transfer deed: The transferor and transferee must execute a transfer deed, which is a legal document that transfers the ownership of the shares from the transferor to the transferee.

Payment of stamp duty: The transferor and transferee must pay the applicable stamp duty, as required by the Indian Stamp Act.

Submission of transfer forms: The transferor and transferee must submit the transfer forms, along with the transfer deed and other required documents, to the company or its registrar and transfer agent.

Approval by the Company: The company will review the transfer forms and other documents to ensure that all necessary formalities have been completed. If everything is in order, the company will approve the transfer.

Update of Company Records: The company will update its records to reflect the transfer of ownership of the shares, including updating the name of the registered holder.

Issue of New Share Certificates: The company will issue new share certificates in the name of the transferee, confirming the transfer of ownership of the shares.

Power of directors to reject a Transfer

Yes, directors of a company have the power to refuse to register the transfer of shares in certain circumstances. The power to register the transfer of shares is typically vested in the board of directors, who may refuse to register a transfer if they believe that the transfer is not in accordance with the company's articles of association or applicable laws and regulations.

However, the power to refuse to register the transfer of shares is subject to certain limitations, including the requirement to act in good faith, the duty to act in the best interests of the company, and the requirement to comply with the provisions of the applicable laws and regulations.

If a transfer is refused, the transferor or transferee may challenge the refusal in court, where the court will consider the circumstances of the case and determine whether the refusal was justified. If the court determines that the refusal was not justified, it may order the company to register the transfer.

The directors in a private company can refuse registration of the transfer of shares as per provisions in its articles of association. After exerting pre-emption rights, the transfer may be rejected only with a sufficient cause or in the interests of the company. Provisions regarding rejection are incorporated in the articles and any contractual agreements between the shareholders regarding transfer are not admissible.

In circumstances of refusal of transfer registration, a notice needs to be sent by the company to the transferor and transferee within thirty days of the date on which the instrument of transfer is received. The notice should state the reasons for refusal. Once the notice is received, the transferee may appeal to the tribunal within 30 days from the date of receipt of such notice.

The directors can refuse to register a transfer of shares only if they pass a resolution to that effect; just failing to approve a resolution owing to a deadlock is not a formal, active exercise of the right to decline, and the applicant will be allowed to be registered as a member of the company.

In M.J. Amirthalingam v. Gudiyatham Textiles Pvt. Ltd., C.P. No. 82 of 1969, the court held that the right to refuse transfer is a fiduciary and must be exercised in good faith. However, the Court will not interfere when the Board has rejected a transfer as per the interpretation of its articles but only step in where there is proof of bad faith.

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