Transfer and transmission of shares, judicial intervention and rights of shareholders

1. Transfer and transmission distinguished

• Transfer is the voluntary act of a member, by an instrument of transfer, in favour of another; it is usually for consideration.
• Transmission occurs by operation of law, on the death, insolvency or lunacy of a member; the shares pass to the legal representative, the official assignee or receiver, on proof of title (succession certificate, probate, or order). No instrument of transfer is needed, and no stamp duty.
• The transferor's liability for unpaid calls ends on registration of the transfer, subject to liability as a past member for one year in a winding up; on transmission, the deceased's estate remains liable.

2. Procedure for transfer: section 56

Except for transfers between beneficial owners within a depository (which are effected electronically), the company shall not register a transfer unless a proper instrument of transfer, in the prescribed form, duly stamped, dated and executed by or on behalf of both transferor and transferee, and specifying the transferee's name, address and occupation, is delivered to the company within sixty days of execution, together with the share certificate or letter of allotment (section 56(1)). Where the instrument is lost or delivered late, the Board may register on terms as to indemnity. On an application by the transferor alone for partly paid shares, the transferee must be given notice and may object within two weeks (section 56(3)). The company must deliver the certificate within one month of receiving the instrument of transfer or intimation of transmission (section 56(4)(c)). Default attracts a penalty of fifty thousand rupees (section 56(6), as substituted in 2020). Under SEBI rules, shares of listed companies can now be transferred only in demat form.

The share certificate, issued under the seal if any or signed by two directors or a director and the company secretary, is prima facie evidence of title (section 46(1)). The company may be estopped from denying the title stated in a certificate it issued to a person who relied on it. But a forged transfer is a nullity; it passes no title, the true owner remains a member and may have his name restored, and a certificate issued on a forged transfer binds the company only in favour of a bona fide purchaser who relied on it, who may claim damages, not the shares. A certificate forged by the secretary does not bind the company at all: Ruben v. Great Fingall (1906).

3. Restrictions in private companies

The articles of a private company must restrict the right to transfer (section 2(68)). The usual forms are a right of pre-emption in favour of existing members and a discretion in the directors to refuse registration. Such a discretion must be exercised bona fide in the interests of the company and not for a collateral purpose. A restriction binds only if it is in the articles. In V.B. Rangaraj v. V.B. Gopalakrishnan, 1991 INSC 317, (1992) 1 SCC 160, a family agreement that shares would stay within each branch was not in the articles, and the Court held it did not bind the company or the shareholders as a restriction on transfer.

In a public company, the proviso to section 58(2) adds that a contract between two or more persons in respect of the transfer of securities is enforceable as a contract. Pre-emption agreements between shareholders of a public company are therefore valid between the parties, though the company's duty to register remains.

4. Refusal to register and appeal: section 58

Private company (section 58(1), (3)): if a private company refuses, under its articles or otherwise, to register a transfer or transmission, it must send notice of refusal with reasons to the transferor and transferee within thirty days of the instrument being delivered. The transferee may appeal to the Tribunal within thirty days of receiving the notice, or within sixty days of delivery of the instrument if no notice was sent.

Public company (section 58(4)): if it refuses without sufficient cause to register within thirty days, the transferee may appeal to the Tribunal within sixty days of the refusal, or within ninety days of delivery of the instrument if no intimation was received. Sufficient cause will usually be confined to a defect in the instrument, a breach of law (for example FEMA or SEBI takeover rules), or a valid order restraining transfer.

Orders of the Tribunal (section 58(5)): dismiss the appeal, or direct that the transfer or transmission be registered within ten days, or direct rectification of the register and payment of damages. Contravention of the Tribunal's order is punishable with imprisonment of one to three years and fine of one to five lakh rupees (section 58(6)).

5. Rectification of the register: section 59

If a person's name is entered in or omitted from the register without sufficient cause, or there is default or unnecessary delay in recording that a person has become or ceased to be a member, the person aggrieved, any member or the company may apply to the Tribunal for rectification (section 59(1)). The Tribunal may dismiss the application or direct registration within ten days or rectification of the register or of the depository's records, with damages (section 59(2)). Where a transfer contravenes the SEBI Act, the Securities Contracts (Regulation) Act, the Companies Act or any other law, the Tribunal may, on the application of the depository, company, participant, holder or SEBI, direct it to be set right (section 59(4)).

The jurisdiction is summary. In Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers (P) Ltd., 1998 INSC 347, (1998) 7 SCC 105, decided under section 155 of the 1956 Act, the Court held that the company court must decide whether the dispute is really one for rectification; where it is, the jurisdiction is exclusive, but complicated questions of title that are not genuinely about rectification may be left to the civil court. Under the 2013 Act the same questions go to the Tribunal, and section 430 bars the civil court from matters the Tribunal is empowered to determine.

6. Rights and privileges of shareholders

• To receive notice of, attend and vote at general meetings (sections 101, 47), to appoint a proxy (section 105) and to demand a poll (section 109).
• To receive dividends when declared (section 123) and bonus and rights shares (sections 62, 63).
• To transfer shares, subject to the articles (sections 44, 56, 58).
• To receive copies of the memorandum, articles and financial statements (sections 17, 136), and to inspect registers and minutes of general meetings (sections 94, 119).
• To requisition an EGM (section 100) and to circulate members' resolutions (section 111).
• To participate in the appointment and removal of directors and auditors.
• To apply to the Tribunal for relief against oppression and mismanagement (section 241) and to join a class action (section 245).
• To petition for winding up as a contributory (section 272) and to share in surplus assets on winding up.

How this is examined

January 2026 asked “Explain the circumstances as regards to judicial or quasi-judicial intervention in transfer of shares” for 10 marks. Answer with: transfer and transmission distinguished; procedure under section 56; restrictions in private companies with V.B. Rangaraj; refusal and appeal under section 58 for private and public companies separately with their time limits; rectification under section 59 with Ammonia Supplies; and the bar on civil courts in section 430. A short note on “rights of shareholders” is answered from part 6.