BY CS A RENGARAJANCOMPANY SECRETARY

PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY JOINT VENTURE

TRANSACTION RELATING IN A CHANGE OF SHARE OWNERSHIP

Transfer of shares is a voluntary act of members and it is the method of transferring the ownership rights of the shares from one person to another.

CONTRACT TO SELL THE SHARES EITHER BY DELIVERY OF A SHARE

WARRANT OR EXECUTION OF A SHARE TRANSFER ENTRY OF TRANSFEREE’S NAME IN THE

REGISTER OF MEMBERS

The word 'transfer' is an act of the parties by which title to property is transferred from one person to another. The word 'transmission' is referable to devaluation of title by operation of law. It may be by succession or by testamentary transfer.

"private company" 5[means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles,-] 

(a) restricts the right to transfer its shares, if any;  (b) limits the number of its members to fifty not including-  (i) persons who are in the employment of the company,

and   (ii) persons who, having been formerly in the employment

of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and

  (c) prohibits any invitation to the public to subscribe for

any shares in, or debentures of, the company;  6[(d) prohibits any invitation or acceptance of deposits from

persons other than its members, directors or their relatives

RESTRICTION FOR TRANSFERING SHARES OF PRIVATE LIMITED COMPANY

Transfer Vs Transmission

Transfer 1) By deliberate act 2 Requires execution of formal instrument of transfer 3. There must be adequate consideration.4) Stamp duty is payable

Transmission 1) By operation of law 2) Requires an evidence showing the legal entitlement. 3) There is no consideration 4) Stamp duty is not payable.

SECTION 82 SAYS SHARES ARE MOVABLE AND TRANSFERABLE AS PER THE PROVISIONS CONTAINED IN THE ARTICLES OF ASSOCIATION OF THE COMPANY

Section 108 requires that where share transfer form is delivered to the Board it should be duly stamped. It means stamp of adequate value should be affixed and cancelled on transfer deed.

The provisions of section 108 of the Companies Act are mandatory, according to which a company shall not register a transfer of shares unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor has been delivered to the company along with the certificates relating to the shares. In the present case, with reference to the shares mentioned in Lists A, B and C, the instruments were not duly stamped, as the stamps thereon were not cancelled as required by the provisions of the Indian Stamp Act which are also mandatory. According to section 12 of the Indian Stamp Act, if the stamp is not cancelled at or about the time of execution of the instrument, the instrument shall be deemed to be unstamped

Section 108 provides that a company shall not register a transfer of shares of, the company, unless a proper transfer deed in Form 7B as given in the Companies (Central Government's) General Rules and Forms, 1956 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, alongwith the certificate relating to the shares, or if no such certificate is in existence, alongwith the letter of allotment of the shares:

Absolute restriction on the right of transfer, contained in the Articles, shall be ultra-virus the Act. Usually the Articles empower the directors to reject transfer of shares on the following grounds:(a) where partly paid up shares are to be transferred to a pauper or a minor;(b) where the transferee is person of unsound mind;(c) where a call is unpaid against the shares to be transferred;(d) where the company has a lien on the shares because the transferor is indebted to it;(e) where there is a personal animosity between the directors and the proposed transferee or the transferee would harass the management;(f) where the instrument of transfer contains some apparent irregularity, e.g., not signed or stamped properly

Splitting of Joint Holdings of SharesIf the joint shareholders want splitting of their joint holding of shares and registering them in their individual names, they have to follow the procedure prescribed for transfer of shares.An instrument of transfer properly stamped and completed is necessary for registering the transfer in each case, as converting a joint holding into a separate holding is essentially a transfer from joint ownership into individual ownership.The instrument of transfer will have to be executed by all the joint holders as transferors and by the individual in whose name the shares are to be registered as the transferee.

Right To Dividend to be held in abeyance pending Registration of Transfer of SharesWith a view to protect the investors a new Section 206A has been inserted in the Companies (Amendment) Act, 1988. This new Section provides that in case of share transfers pending registration, the dividend accruing on such shares shall be transferred to the "Unpaid Dividend Account" (referred in Section 205A) unless the transferor authorises the company in writing to pay the same to the transferee specified in such instrument of transfer. The company shall also keep in abeyance in relation to such shares the offer of "right shares" and issue of fully paid bonus shares until the transfer is registered

if a private company refuses, on any ground not stated in the restrictions contained in its Articles of Association, to register the transfer of any shares, the transferor or transferee may prefer an appeal to the CLB against the refusal. Appeal to be filed within 2 months of refusal accompanied by petition with prescribed fee

On examination, if found, CLB direct the company to register the shares and allot bonus/right issue if any within 10 days receipt of the order

Default in executing the CLB order penalty imposes on company and every defaulting officer a sum of Rs.10000

In Mathrubhumi Printing and Publishing Co. Ltd. v. Vardhaman Publishers Ltd. [1992] 73 Comp Cas 80, the Kerala High Court rendered a similar judgment. That was a case in which the adhesive stamps on the instruments of transfer of shares had not been cancelled at the time of execution but only at the time of lodgement with the company, and the court held that the board of directors of the company was justified in rejecting the request of the transferees to have their names entered in the register. Reliance was placed on Mannalal Khetan's case

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

Not less than Seven days notice previous notice by advt in newspapers where registered office situate to close register of members and debentures for any period or periods aggregate of 45 days but one time 30 days

Shorter notice or excess or continuous of the limits, every officer who is default is shall be punishable with fine of Rs.5000 per day for everyday register is closed

In the case of listed company, at any time before the date on which the register of members is closed, in accordance with law, for the first time after the date of the presentation of the prescribed form to the prescribed authority under clause (a) of section 108(1A) or within twelve months from the date of such presentation, whichever is later.

In any other case, within two months from the date of such presentation

i) Obtain the transfer deed Form 7B, endorsed by the prescribed authority. (ii) For transferring debentures, the instrument of transfer need not be in the prescribed

Form 7B but this Form can be used, being convenient to do so. (iii) Get the transfer deed duly executed both by the transferor and the transferee or on

their behalf in accordance with sections 108 and 109 of the Act and the Articles of Association, in case of shares, and also in accordance with trust deed in the case of debentures.

(iv) 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. (v) See that the stamps affixed on the transfer deed are cancelled at the time or before signing of the transfer deed. (vi) The signatures of the transferor and the transferee in the share/debenture transfer deed must be witnessed by a person giving his signature, name and address. (vii) Attach the relevant share or debenture certificate or allotment letter with the transfer deed and deliver the same to the company. The share transfer deed should be deposited with the company within the time limits

Transposition means change in order of names. This action does not require a transfer deed. A letter requesting for transposition signed by all the shareholders should be sent with the Share Certificate(s). Transposition can be done only on the entire holding in a single folio. Transposition of part holdings is not permitted

(viii) Where the application is made by the transferor and relates to partly paid-up shares, the company has to give due notice of the amount due on

shares/debentures to the transferee and the transferee shall raise objection, if any within two weeks from the date of receipt of the said notice.

(ix) If signed transfer deed has been lost, affix the same stamp on a written application.

In such case, the Board may, if it thinks fit to do so, register the transfer on suchterms of indemnity as it thinks fit.

(x) If the shares of the company are listed on a recognized Stock Exchange, then the company cannot charge any fee for registration of transfers of shares and debentures.

ExemptionsThe restrictions contained in Section 108A (except sub-section 2 thereof) shall not apply to the transfer of any shares to, and the restrictions contained in Sections 108B to 108D shall not apply to the transfer of any shares by -(a) Any Government company;(b) Any corporation established by or under any Central Act, and(c) Any financial institution

Certification of TransferWhen a company certifies on the instrument of transfer that the relative share certificate of the shares proposed to be transferred, has been lodged with it, it is called 'certificate of transfer.' Certification of transfer is necessary when there is a part disposal of shares or there are multiple purchasers.The company issues only 1 share certificate for the whole lot of shares standing in the name of 1 person.

Sub section 3 of Section 108 provides that provision of Section 108 shall not apply to transfer of securities under Depository system

The Depositories Act, 1996 inserted a new Section, namely, Section 111A in the Companies Act. This Section, as amended by the Depositories Related Laws (Amendment) Act, 1997, provides as follows:1. The shares and debentures of a public company, whether listed or not, shall be freely transferable.2. The Board of Directors of the company or the concerned 'depository' does not have discretion to refuse or withhold transfer of any security.3. The transfer has to be effected by the company mmediately as soon as it receives instrument of transfer, if the securities are outside the depository mode.4. When securities are in the depository mode the transfer shall be effected by the depository automatically on the receipt of the intimation appropriate form from the 'participants'

• No bad deliveries; • Immediate transfer of shares; • No stamp duty on transfer of shares; • Handling of large volumes of paper

greatly reduced; • Eliminates risks associated with physical

certificates such as loss, theft, mutilation, forgery etc;

• Reduction in transaction cost.

ARTICLES PROVIDES CLAUSE FOR DEMATERILISATION OF SHARES ( IF NOT AMEND THE ARTICLES)

AGREEMENT WITH DEPOSITORIES, NSDL AND CDSL AFTER BOARD APPROVAL

ELECTRONIC CONNECTIVITY EITHER IN HOUSE OR THROUGH REGISTRAR

IN CASE OF REGISTRAR, TRIPARTIE AGREEMENT TO BE ENTERED

AFTER ADMIT IN DEPOSITORIES, ISIN (UNIQUE NO WILL BE GIVEN)

AFTER ELECTRONIC CONNECTIVITY, DEPOSITORIES WILL INFORM NAME AND ISIN TO THE PARTICIPANT

COMPANY SHOULD INFORM TO ALL STOCK EXCHANGES WHERE IT HAS GOT LISTING THAT THEY ARE ELIGIBLE FOR DEMATERILISATION

SHAREHOLDERS ALSO INFORMED ABOUT DEMATERILISATION FORM EITHER BY ADVT OR THROUGH ANNUAL REPORT

In order to dematerialise the Physical Share Certificates, an investor will have to first open an account called as Demat A/c or Security A/c with any of the DP of his choice.   2. Obtain the Account No. from his DP. 3. Obtain the Dematerialised Request Form (DRF) from his DP.  4. This DRF, together with the Share Certificates desired to be dematerialised is to be submitted to DP.

  5.

5. The DP upon receipt of the shares and the DRF, will issue an acknowledgement and will send an electronic request to the Company/Registrars and Transfer Agents of the Company through the Depository for confirmation of demat.  6. DP, then issues an acknowledgement to the investor and afterwards follows the following procedure:

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(a) Defaces the Share Certificates by putting a rubber stamp "Surrendered for Dematerialisation" and by punching two holes on the name of the company on the Share Certificate.

(b) Generates a Demat Request Number (DRN) through his Depository Participant Module (DPM) and fills the same in DRF at the appropriate place.

(

c) Sends an electronic communication to Depository viz. NSDL or CDSL, as the case may be, to the effect that so many shares of this company (Identified by ISIN) have been received for dematerialisation.

(d) Sends the DRF and Share Certificates to the company by courier. The role of DP comes to an end with this but he must send a reminder in case credit of shares is not received in demat account of investors within a month.

The depository electronically downloads the particulars of demat request, received from DP and sends to the electronic Registrar of the company so that these shares could be dematerialized. Ultimately, the company or its RTA, as the case may be, receives two kinds of communications:

(a) DRF and Physical Share Certificates from DP.

(b) Electronic Download of Demat Request from depository through electronic Registrar.

If the shares are held in Joint names, only the deceased shareholder's name is deleted. For this a copy of death certificate of deceased registered shareholder duly attested by competent authority (magistrate, Notary Public, Government of India or managers of any Scheduled Bank) is to be sent along with the share certificate to  the Bank or to our Registrar for effecting transmission.   In case of a single shareholder and where nominee has been appointed, the shares will be transmitted in favour of the nominee on execution of an indemnity cum affidavit. The duly executed indemnity cum affidavit, a copy of death certificate of deceased registered shareholder duly attested by competent authority (magistrate, Notary Public, Government of India or managers of any Scheduled Bank) along with the original share certificate is to be sent to the Bank or to our Registrar for effecting transmission.   

In case the deceased shareholder has died intestate and no nomination was made then the  transmission of the shares will be effected only on complying with the required procedures in this regard.  For this the legal heirs are required to execute the following:a. Title Claim Formb. Affidavit sworn in by the claimantsc. No Objection Certificate from other heirs in favour of person claiming the     title to shares.d. Surety Forme. IndemnityThe aforesaid documents, a copy of death certificate of deceased registered shareholder duly attested by competent authority (magistrate, Notary Public, Government of India or managers of any Scheduled Bank) and the original share certificate is to be sent to the Bank or to our Registrar for effecting transmission

If X and/or Y desire to sell/transfer all or any part of their shares in the new company, they shall first offer such shares to the other, if only one of them seeks to sell/transfer their shares. In the event that neither wants to buy the shares offered by the other within 20 days of the offer being made or both want to sell simultaneously, they shall offer the shares to Z. In the event that Z does not want to buy the shares within 20 days of the offer being made to him, they shall offer the shares to a third party.

If Z desires to sell or transfer all or any part of his shares in the new company, he shall first offer such shares to X and Y in proportion to their shareholding in the company.

If X and/or Y decline to accept such a first offer in whole or in part, within 30 days from the making of the offer, then Z may offer the shares thus declined to his family members/relatives or other third parties at the same priceThe price for sale/transfer of shares will be arrived at by valuing the shares. The valuation of the shares will be done by an independent valuer to be appointed by the Board of Directors of the new company.

desirous of continuing the company independently has an option to purchase the shares owned by the other party within 5 days from the date of notice of termination or otherwise, at a priceto be calculated in accordance the relevant paragraph stated above

An offer for transfer of shares provided in this Article shall be made in writing setting forth the number of shares to be transferred, time of transfer, price of the shares as determined by the valuer, and other conditions, if any. In case of termination of this Agreement, any party desirous of continuing the company independently has an option to purchase the shares owned by the other party within 5 days from the date of notice of termination or otherwise, at a price to be calculated in accordance the relevant paragraph stated above

Any sale/transfer between/or to X and Y will be subject if applicable, to such terms, conditions and price as approved by the Government of India/Reserve Bank of India.

In order to prevent a major shareholder from leaving immediately, the

shareholders agreement can provide for a lock-in period. A sample clause is as follows: Restriction Against Transfer. None of the parties shall

transfer or otherwise dispose of [as defined in Section 16(c)] all or any Shares

[other than to an affiliate {as defined in Section 16(d)}] during the first four

(4) years of the term of this Agreement. Thereafter, none of the parties shall transfer or otherwise dispose of all or any Shares without the written consent of 75% of the outstanding Shares

of the Corporation, except as otherwise expressly provided in Section 2.

Transfer By  NRI to NRI-- No aproval /intimation (PROI)Person resident out of India(Not being a NRI/OCB)  To

 PROI/ NRI---No approval / intimation NRI/OCB To PROI--Approval Not required if the total holding by PROI

does not exceed the sectorial cap as per FDI guidelines.If exceed Prior approval of FIPB/SIA/CCEA is required.However reporting is must to RBI as per FEMA regulation/Transfer or issue of share by a person Resident Out of India. 

NRI ( Indian origin) or an OCB ( Oversease corporate body of which at least 60% shareholder are such NRI/Indian origin).understand the defination & defference between NR ,NRI & OCB.

However the transaction may fall in the ambit of Tax law since the assets is situated in India.Valuation of share will be done strictly as per earstwhile CCI gudelines with joint reference to Company law for issue of share in discount/premium.

 

Transfer of shares of Public limited company

Companies Act, 1956-Freely transferable

Companies B ill – Freely transferable however

Contract or arrangement betweent two or more persons in respect of transfer of securities shall be enforceable as a contract

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