share transfer audit

8/13/2019 Share Transfer Audit

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CHAP-14 SHARE TRANSFER AUDIT- DDCCM

EXAMINATION POINTS

INTRODUCTION

1. Transferability of shares is one of the most vital features of a

company limited by shares.2. Upon incorporation, a company acquires its own independent legalpersonality and distinct entity, and its shareholders acquire theright to hold and transfer their shares in the company.

3. Section 2 of the !ompanies "ct, 1#$% states that the shares shallbe movable property and transferable in the manner provided bythe articles of the company.

&. 't has, however, been consistently held by the !ourts that sub(ectto the restrictions imposed by the articles, a shareholder is free totransfer his shares to a person of his choice and that articlescannot impose unreasonable restrictions on the right to

transer! Also" the #irectors cannot #ecline to register atranser arbitraril$ or unreasonabl$!

NEED AND SCOPE

$. )egistration of transfer of shares, debentures and other securities isone of the area which has to be constantly monitored by the!ompany Secretary in a company . This is one area where theinvestors have interaction with the company and also (udge itsfunctioning. *y not caring or not paying proper attention to thewor+ connected with registration of transfers the company whether

manual or electronic transfer, will have disgruntled shareholders.aturally this will create a bad impression on them andconsequently the image of the company would suffer.

%. Un#er Section %&' o the Companies Act" %()* a compan$cannot register a transer unless proper instrument otranser #ul$ stampe# an# e+ecute# b$ or on behal o thetranseror an# b$ an# on behal o the transeree andspecifying the name, address and occupation, if any, of thetransferee is delivered to the !ompany with the certificate relatingto the security involved in transfer or where no certificate is ine-istence, alongwith the letter of allotment of the security

concerned.Section %&' re,uires that -here share transer orm is#eli.ere# to the /oar# it shoul# be #ul$ stampe#! It meansstamp o a#e,uate .alue shoul# be ai+e# an# cancelle#on transer #ee#!


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. The transer #ee# -ill ha.e to be in 0orm 1/ appen#e# tothe Companies 2Central 3o.ernment4s5 3eneral Rules an#0orms" %()*! 'f the transfer deed relates to transfer of shares it

should be stamped with date by the )egistrar of !ompanies or otherofficials authorised in this behalf by the !entral /overnment beforeanything is written on it.

Determination o .aluation o shares or ai+ing stamps on thetranser #ee#01-1't was held in Union o In#ia . 6ulu 7alle$ Transport 8t# ! 1#$that in case shares are not quoted, the value of the shares for thepurpose of stamp means the price that the shares would fetch at thetime of transfer or consideration agreed, whichever is higher.

Transer proce#ure not applicable un#er the #epositoriess$stem

Section 13 provides that the provisions of section 1 shall notapply to transfer of securities under the depositories system.

7ali#it$ o Transer Dee#

. The transfer deed so stamped is valid for lodgement in the case oa liste# compan$ -ithin %9 months of the date so stamped orirst closure o the register o members ater it is so #ate#:stampe#" -hiche.er is later!

#. 'n the case of an unliste# compan$it is valid for lodgement withintwo months of the date so stamped.

1. The #ate:stamping re,uirement is not applicable inrelation to transer #ee# e+ecute# or transer o#ebentures or other securities in a compan$.

11. Transfer 4eed duly e-ecuted for the registration of a transfer ofthe shares or other interest of a member in a company may besubmitted either by the transferor or by 5transferee6, together withthe relevant share certificates.

12. 7here the validity period of an instrument of transfer hase-pired namely, the instrument is be$on# %9 months rom the#ateof presentation to the prescribed authority or from the date ofboo+ closure whichever is later in case of shares of a listedcompany, and in other case 9 months rom the #ate opresentation, the holder may ma+e an application in 8orm ! to

;o-e.er" no transer #ut$ is applicable or transers o shares

in case o shares are in Demat orm!


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the )egistrar of companies requesting for e-tension in validity,alongwith requisite fee based on the nominal value of shares.

%

Transfer 4eed duly e-ecuted for the registration of a transfer of theshares or other interest of a member in a company may be submittedeither by the transferor or by the transferee together with the relevantshare certificates.

Time limit or issue o certiicate on transer 2Section:%%


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beneficial owner or a transferee of any securities see+s to havecustody of such securities, the depository shall inform the issueraccordingly.

Depositor$ is an organiation where the securities of theshareholders are held in electronic form at the request of theshareholder through the medium of a 4epository


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%%%A295 b$ Depositories Relate# 8a-s 2Amen#ment5 Act" %((12) o %((15B!

PROCEDURE 0OR EXTENSION O0 7A8IDIT O0 TRANS0ER DEED

1#. 7here the validity period of an instrument of transfer hase-pired, the holder may ma+e an application in 8orm ! to the)egistrar of !ompanies requesting for e-tension in the upto )s.$, and the fee is )s. 1 where the value e-ceeds )s. $.

The application shall be made to the )egistrar of !ompanies, wherethe registered office of the !ompany is situated or under whose(urisdiction the transferor or transferee resides. The )egistrar onsatisfaction of the cause shown in the application shall e-tend the

validity for a period of 3 days from the date of approval by the)egistrar.

't shoul# be note# that urther e+tension -ill not be pro.i#e#b$ the Registrar! Thereore" the transer #ee# shoul# belo#ge# -ith the compan$ -ithin thee-tended period only.

TRANS0ERA/I8IT O0 S;ARES IN A PRI7ATE COMPAN

9&! Pri.ate compan$ shall restrict right to transer its shares

>ntire shareholding of a private company may be owned by a family orother private group. Section 31iiia of the !ompanies "ct, 1#$%provides that the "rticles of a private company shall restrict the rightto transfer the company?s shares.

21. Restriction on transfer not applicable in certain cases)estriction upon transfer of shares is in private company are notapplicable in the following cases=@i on the right of a member to transfer hisAher shares cannot beapplicable in a case where the shares are to be transferred to hisAherrepresentatives.

ii in the event of death of a shareholder, legal representatives mayrequire the registration of share in the names of heirs, on whom theshares have been devolved.iii in respect of shares which are proposed to be issued on a rightsbasis, e-isting members would have a right to renounce shares li+elyto be allotted to them. 'f the e-isting shareholders renounce theirshares then these shares will be allotted to the renouncees for the firsttime and therefore no transfer of shares will ta+e place.


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9owever, a private company may, by articles, restrict the ?right of amember to renounce his shares? otherwise, it is not possible to restrictthe number of its members.NoteF Restriction shoul# not be in the orm o prohibition an#Restriction can onl$ be b$ the Articles o Association

Transer o shares in a public compan$

Section 111"2 provides that the shares or debentures and anyinterest therein of a public company shall be freely transferable.


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In the aoresai#" the instrument o transer ma$ not be inthe prescribe# orm!@ !hec+ whether transfer deed is duly stamped and e-ecuted both by

transferor and transferee.

7ali#it$ o unstampe#Gnon:cancelle# stampe# on transer#ee#

Section 1 requires that where share transfer form is delivered tothe *oard it should be duly stamped. 't means stamp of adequatevalue should be affi-ed and cancelled on transfer deed.

Strictly spea+ing, a company cannot accept a transfer deed forregistration unless share transfer stamps are affi-ed and the same arecancelled.

'f shares are held (ointly by two or more persons, the instrument oftransfer must be e-ecuted by all (oint holders. Splitting of (oint holdinginto individual shareholding will also require e-ecution of a sharetransfer deed. 'n such a case, all (oint holders shall sign a transferdeed as transferors and the respective individuals holders in whosefavour splitting is to be made, shall sign as transferees.

@ The signature o the transeror shoul# tall$ -ith thespecimen recor#e# -ith the compan$! 7here although the signatures are attested by otary


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@ 7here the instrument is e-ecuted by a person other than transferoror transferee named in instrument, on behalf of transferor or thetransferee, the document authorising the e+ecutant to e+ecute theinstrument o transer must be obtaine# b$ the compan$! 'f thetransferor is a body corporate, it should be ensured that a *oard

resolution of the transferor has been passed and proper authority hasbeen given by the *oard of directors to the person signing as thetransferor on behalf of the company.

@ The share transfer form must be complete as regards otherparticulars i.e. name, address, occupation etc. of transferee.

@ Share certificate or if no such certificate is in e-istence the letter ofallotment of shares shall be delivered alongwith the instrument. >veryinstrument of transfer should be presented to the prescribed authorityfor dating before anything is filled in or signed by the transferor.

@ Share transfer form must be presented in time limit for delivery ofinstrument, together with related certificates, in compliance withSection 1 of the !ompanies "ct, 1#$%.

H I the transeree is a compan$ then beore registering thetranser it shoul# be seen -ith reerence to the Ob?ects Clauseo the Memoran#um o Association o the compan$ concerne#-hether it is one o the ob?ects o the compan$ to [email protected] in the securities o other companies an# thein.estment is properl$ authorise# b$ the /oar# o #irectors

under Section 2#2 and, if applicable, under Section 32" of the!ompanies "ct, 1#$% and appropriate delegation has been given infavour of the person who has signed the transfer deed. 'n Eagat(it'ndustries :td. and others v. Fohan Fea+ins :td. and others 1##1 %!:" 22 !:* companies need not indicate occupation in the relevantcolumn of the transfer deed.

@ =here the application is ma#e b$ the transeror an# relatesto partl$ pai# up shares" chec@ -hether the compan$ has gi.en#ue notice o application to the transeree an# -hether thetransferee has raised ob?ection" i an$" -ithin t-o -ee@s romthe

date of receipt of the said notice.

@ 'f the signe# transer #ee# has been lost, the same stamp isaffi-ed on the written application, in which case, the *oard may, if itthin+s fit, register the transfer on suitable terms o in#emnit$.

@ !hec+ whether any restriction, isAwas at any time imposed on thetransfer of shares, whether by the "rticles or under any other law.


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@ Chec@ -hether the transeror an# transeree are bothentere# as beneicial o-ners in the recor#s o a #epositor$ in-hich case pro.isions o Section %&' #o not appl$.

@ !hec+ whether the transfer is in violation of provisions of S>*'Substantial Ac,uisition o Shares an# [email protected] Regulations"%((1!

@ 'f the company is a listed company and Shares Transfer "gents areprocessing the company6s share transfer wor+, chec+ whether theyhave followed the guidelines issued by various mar+et intermediariesincluding general norms for processing of documents, norms forprocessing of transfers and norms for ob(ection.

@ Chec@ -hether all the -or@ relate# to share registr$ in

terms o both ph$sical an# electronic orm is maintaine# b$the compan$ at a single point i.e. either in house by the companyor by a S>*' registered )egistrar and Transfer "gent.

@ Chec@ -hether uniorm gui#elines prescribe# b$ SE/I arefollowed by )egistrars to an 'ssue )T'AShare Transfer "gents ST"and companies for handling and processing of transfer documentsSE/I .i#e its circular No! % 29&&&:9&&%5 #ate# Ma$ &(" 9&&%has issue# uniorm gui#elines to be ollo-e# b$ RTIGSTA an#companies! These gui#elines ha.e been #i.i#e# into threepartsF

i /eneral norms for processing of documents. ii orms for processing of transfers. iii orms for ob(ection.4raft of the formats to be used have also been suggested in theseguidelines.All registere# RTIs an# STAs an# companies liste# on stoc@e+changes shoul# man#atoril$ ollo- these gui#elines an#ormats! These #irections are issue# pursuant to po-ersconerre# on SE/I un#er Section %%/ o SE/I Act" %((9!

'n addition to the above aspects, the following aspects are to be +ept

in mind while effecting transfers.9

membersG#ebenture hol#ers -hile con#ucting ShareTranser au#it

AnsF!hec+ whether a company has properly maintained its register ofmembers and register of debentureholders with respect to thefollowing aspects=


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@ 7hether the registers are maintained in the form prescribedunder the !ompanies 'ssue of Share !ertificates )ules, 1#% or asnear thereto as circumstances admit. @ 7hether the details of the transfers have been posted in theproper folios in the register of members. 'n case of transferee being a

new member whether new folio has been allotted to him. 'n case afterrecording the transfer the holding of a member becomes nil whetherthe folio has been properly closed.@ 7hether entries in the register are authenticated by the Secretary

or any other person authorised by the *oard.@ 7hether in case of a company having more than $ members aninde- of members is maintained.@ 7hether every change in the register of members has been

recorded in the inde- within 1& days.@ 7hether the declarations received under Section 1! have been

properly entered in the proper folio of the register of members.

9J! Processing o Di.i#en#sGInterest =arrants" consi#eringshare transer

The paramount requirement in the processing of dividendAinterestwarrants is to determine the persons entitled to the dividendAinterestas the case may be. 8or this purpose, under Section 1$& of the!ompanies "ct, 1#$%, companies are empowered to close the registerof membersAregister of debentureholders by giving days6 clear noticeby advertisement in some newspaper circulating in the district in whichthe registered office of the company is situate.

'n case of listed companies under the listing agreement companies arerequired to close the transfer boo+s only once in a year with referenceto the annual general meeting.8or all other purposes the stoc+ e-changes require fi-ation of recorddate./eore closing the transer boo@s or i+ing the recor# #ate theconcerne# stoc@ e+change shoul# be gi.en a notice at least J9#a$s in a#.ance!'n view of the above, in the case of listed companies while transferboo+s can be closed for the payment of dividendAfinal dividend, for allother purposes they can only fi- a record date.

>ven though Section 1$& of the !ompanies "ct, 1#$% is silent withregard to giving notice to members in regard to fi-ation of record date,it is necessary to publish notice in the same manner as is done forclosure of register of members so as to enable themembersAdebentureholders to lodge the transfer deed in time forgetting their entitlement."ll valid transfer deeds lodged with the company before the date ofcommencement of the closure of register of membersAregister of


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debentureholders or the record date should be given effect to and listof persons who are entitled for the dividendAinterest as the case maybe should be prepared.Separate ban@ing account shoul# be opene# or pa$ment o#i.i#en#Ginterest" as the case ma$ be! The #i.i#en#

-arrantsGinterest -arrants shoul# be got printe#" prepare#an# #ul$ signe#! It shoul# be @ept rea#$ or #eli.er$!As soon as the #i.i#en# is #eclare# at the general meeting the#i.i#en# -arrant shoul# be poste#! In the case o interest thesame shoul# be poste# imme#iatel$ ater it becomes #ue orpa$ment or e.en earlier but #ating the interest -arrant -iththe #ate on -hich the interest becomes #ue!In an$ case the #i.i#en# -arrants shoul# be sent to thepersons entitle# thereto -ithin ven though listing agreement is silentabout the interest warrant, the procedure set out above should equallyapply for payment of interest on debentures which are listed on stoc+e-changes." !ompany Secretary in


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7here it is found that the transferor6s signature on the transfer deedvaries, a company is not bound to accept the deed even if it has beenattested and the Finistry of 8inance, Stoc+ >-change 4ivision hasadvised companies that where there is a variation in the signature ofthe transferor, the company should send a notice to the transferor by

registered post informing him of the receipt of the deed purportedlysigned by him and that the company shall ta+e action to register thetransfer if the company does not receive any ob(ection from thetransferor within 21 days of the date of the said notice. This will helpcompanies not to delay action in bona fide cases.

Au#it or reconciliation o the total a#mitte# capital -ith boththe #epositories an# the total issue# an# liste# capital!7hile conducting share transfer audit of a company which has bothphysical and demat shares, the auditor has to chec+ 7hether companyshall have proper systems and procedures in place to verify that the

securities tendered for dematerialisation have not been dematerialisedearlier. 7hether they ascertain, reconcile daily and confirm to thedepositories that the total number of shares held in S4:, !4S: and inthe physical form tallies with the admitted, issued and listed capital ofthe issuer company.K%! =hat are the Saeguar#s to a##ress the concerns o theIn.estors on Transer o Securities in Dematerialie# Mo#eAnsF The concerns arising out of transfer of securities from the*eneficial Cwner *C "ccounts without proper authoriGation by theconcerned investor have been brought to the notice of S>*' by some'nvestors6 "ssociations.

Accor#ingl$ SE/I has #eci#e# to put in place the ollo-ingsaeguar#s to a##ress the concerns o the in.estors onelectronic transerF a The depositories shall give more emphasis on investor educationparticularly with regard to careful preservation of 4elivery 'nstructionSlip 4'S by the *Cs. The 4epositories may advise the *Cs not toleave Hblan+ or signedI 4'S with the 4epository


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receipt of such intimation, the 4< shall cancel the unused 4'S of thesaid boo+let.

e The 4


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Re,uirement o #ocumentsGe.i#ences or transmission oshares7here title to shares comes to vest in another person by operation oflaw, it is not necessary to e-ecute and submit transfer deed. " simpleapplication "ppendi- 2 to the company by a legal representative

alongwith the following necessary evidences is sufficient=@i !ertified copy of death certificateDii Succession certificateDiii


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the !:*. The respondent company contended that the petitioner hadinstituted a suit for partition claiming one third of the shares held byher parents and since that suit was filed prior in time the petitionercould not be allowed to prosecute parallel proceedings and thatmoreover she failed to produce either a will or probate or succession

certificate as ought by the !ompany. 4ismissing the petition it hasbeen held that granting the prayer in the petition without a successioncertificate while the partition suit was pending would amount to ta+inga decision on partition and such a decision cannot be ta+en by the !:*

CERTI0ICATION!ompanies are not required to get share transfer audit done butcompanies whether listed or not are required to file within two months

of the holding of the "nnual /eneral Feeting a list of members,debentureholders etc. once in si- years with the )egistrar of!ompanies alongwith the "nnual )eturn. 'n the case of listedcompanies the "nnual )eturn is required to be signed by a secretary inwholeBtime practice. Therefore, before signing the "nnual )eturn asabove !ompany Secretary in practice is required to e-amine thetransfer records to satisfy himself that the transfers have beenproperly registered and in case any request for registration of transferhas been refused, the company concerned has complied with therequirements of section 1 and section 111" of the !ompanies "ct.Cf course, it will not be practicable to verify each and every transfer

lodged with the company in case of medium siGed and big companies.Therefore, the !ompany Secretary in practice can ma+e a test chec+ ora random chec+ of the transfers.Also" in pursuance o Clause J12a5 o the 8isting Agreement" aliste# compan$ has to appoint a Compan$ Secretar$ as acompliance oicer -ho -ill be responsible or monitoring theshare transer process an# report to the compan$4s boar# ineach meeting!'t may be seen there from that one of the additional requirementsuggested is that a listed company should insist on the )T" to produce

to it a certificate from a


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Under subBclause c of clause 3, a listed company is required to issuecertificates within one month of the date of lodgement for transfer,subBdivision, consolidation, renewal, e-change or endorsement ofcallsAallotment monies. Thus, with regard to securities transferredgenerally, a listed company is required to transfer and issue the

relative certificate for securities within a period of one month from thedate of lodgement of transfer."lso clause % of listing agreement provides that the issuer will, if sorequired by the e-change, certify transfers against letters of allotment,certificates and balance receipts and in that event the company willpromptly ma+e on transfers an endorsement to the following effects=Hame of the 'ssuerKKKKKKKKKKKKKKKKKKK!ertificateA"llotment :etter o.KKKKKKKKKKK for the withinmentionedKKKKKKKKKK securities is deposited in the 'ssuer6s officeagainst his transfer o.KKKKKKK.Signatures of officialsKKKKKKKKKKKK

4ateKKKKKKKK.L"part from this various other clauses li+e !lause , , 1, 11, 12, 12",13, 1&, 1$, 1%, 1, 21, 23, 3&, & in the :isting "greement cover thegamut of Share Transfer.

The e-amination should not be confined only to duly completedtransfer deeds lodged with the company but it should also includetransfer lodged with the company which are deficient and are retainedby the company after ma+ing a reference or returned to the lodger forma+ing good the deficiency. Meeping in view the purpose for which thecertification has been stipulated, it is but proper that the verification

should cover all transfers lodged with the company whether they arefit for transfer or not. Transfer in respect of deficient transfer, return orreference to the lodger should also be done within a period of onemonth from the date of lodgement of transfer deeds. There should notbe any delay in this regard.Perio#icit$ o Certiication7hile the letter from S>*' to the Stoc+ >-changes ma+es no referenceto the periodicity of certification, the Fumbai Stoc+ >-change hasstipulated that such a certification should be given within one month ofthe close of each half of the financial year. 8urther the e-changes atFumbai,


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securities certificate duly endorsed or the lodger has been informed ofthe deficiencies where a transfer is not registered, within the period ofone month from the date of lodgement. Therefore, the !ompanySecretary should largely confine himself to the e-amination of onlythose boo+s, records and papers relating to receipt of transfer

documents and despatch of certificates or issue of letters pointing outthe deficiency, return of transfer instruments as the case may be."lmost all the information for the purpose will be available in securitiestransfer receipt register being maintained by the listed companies. 'fsuch a register is not maintained by the company, the !ompanySecretary may advise the company to maintain such a register eithermanually or by electronic process so that future certifications will befacilitated.

The Institute has suggeste# the ormat o the certiicate" acop$ o -hich is repro#uce# at Anne+ure A! This ormat hasbeen #e.ise# to gui#e the Practising Compan$ Secretariesconcerne# as to -hat the certiicate shoul# contain! APractising Compan$ Secretar$ is ree to amen# the same ora#opt the same #epen#ing upon the speciic circumstances inrelation to a compan$!"s regards return of transfer deeds the certificate need not containindividual details in regard to transfers returned or retained for ma+inggood deficiencies therein. 't would be enough if all such transfers aregrouped deficiencyBwise and listed in an "nne-ure to the return. The

deficiencies largely will fall under any one or more of the following= 1. 4eficiency in stamping 2. Transfer signature differs 3. )estraint order by competent authority on registration oftransfer &. onBapproval of transfers by a proper /overnment authority $. Transfers infringing the provisions of laws, rules or regulations %. Narious securities are sought to be transferred through a singleinstrument . Cthers specify.'t is possible that all completed transfers received upto the date of the

certificate have not been given effect to and the certificatesdespatched before that date. The certificate should, therefore, alsomention the number of transfers pending for registration.The


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">0U)> "

8ormat of !ertificate to be given by a

share transfer audit

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