share transfer audit.doc

8/14/2019 share transfer audit.doc

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SHARE TRANSFER AUDIT

Section 82 of the Companies Act, 195 states that the sha!es sha"" #e mo$a#"e

p!ope!t% an& t!ansfe!a#"e in the manne! p!o$i&e& #% the a!tic"es of the compan%' It

has, ho(e$e!, #een consistent"% he"& #% the Co)!ts that s)#*ect to the !est!ictions

impose& #% the a!tic"es, a sha!eho"&e! is f!ee to t!ansfe! his sha!es to a pe!son of hischoice an& that a!tic"es cannot impose )n!easona#"e !est!ictions on the !i+ht to

t!ansfe!'

A"so, the &i!ecto!s cannot &ec"ine to !e+iste! a t!ansfe! a!#it!a!i"% o! )n!easona#"%

1' State the p!o$isions !e+a!&in+ !e+ist!ation fo! T!ansfe! of

sha!es

ANS- Registration of Share TransferSection 1.8 of the Companies Act, 195 !e+)"ates the !e+ist!ation of t!ansfe! of

sha!es in a compan%' S)#/section 01 "a%s &o(n that a compan% sha"" not !e+iste!

t!ansfe! of its sha!es )n"ess a p!ope! inst!)ment of t!ansfe! &)"% stampe& an&eec)te& #% o! on #eha"f of the t!ansfe!o! an& #% o! on #eha"f of the t!ansfe!ee an&

specif%in+ the name, a&&!ess an& occ)pation, 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.

The stamp duty under article 62 (a), Schedule to the ndian Stamp !ct, on the transfer

of shares in a company, for every one hundred rupees or part thereof of the mar"et value

of shares has been #aise fifty$e since st %une, &'6 vide overnment *otification *o.S+

&'(-) dated &6th arch,&'6.

Cance""ation of Sha!e T!ansfe! Stamps is m)st fo! Re+ist!ation of T!ansfe!

The share transfer stamps so affixed on a share transfer form are re/uired to be cancelled

either at the time of affixing them or at the time of execution of the deed by thetransferee. The t!ansfe!ee m)st ma3e s)!e that #efo!e "o&+ement of the t!ansfe! (ith

the compan%, he m)st cance" the stamps #% c!ossin+ them on thei! face' *o such

cancellation of stamps is re/uired in case share are in dematerialised form.

Affiin+ Sha!e T!ansfe! Stamps on a Sepa!ate Sheet of 4ape! Attache& to the Sha!e

T!ansfe! Fo!m

0hen the number of share transfer stamps to be affixed on a share transfer form is large

it is practically impossible to affix all the stamps on the share transfer form. n such a

situation, the share transfer form, with which a separate sheet of paper with share

transfer stamps of appropriate value having been affixed, is permanently attached, should

be treated as duly stamped under the Stamp !ct 1 n re. athrubhumi #rinting #ublishing3o. 4td. (&''&) 5 34! 6 (7er.)

oss of D)"% Eec)te& Sha!e T!ansfe! Fo!m

8owever, according to the first proviso to Section &9, where an application in writing has

been made to the company by the transferee and bearing the share transfer stamps of

appropriate value re/uired for an instrument of transfer and it is proved to the satisfaction

of the :oard of directors that the instrument of transfer signed by or on behalf of the

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transferor and by or on behalf of the transferee has been lost, the :oard of directors of

the company may register the transfer on such terms as to indemnity as it may thin" fit.

Si+nat)!e of T!ansfe!o! not Ta""%in+ (ith Those in Reco!&

;uite often signatures of transferors on the share transfer forms do not tally with those

available in the record of the company, which is /uite possible by afflux of time. oreover,

most people do not "eep their specimen signatures in their own records and with thepassage of time their signature undergo changes. n such a situation if the signature on a

share transfer form is attested by an authorised person specified in the form itself, the

company cannot refuse to register transfer of the shares on the ground that the signature

of the transferor do not tally with that on the record of the company. This has been

clarified by the department of 3ompany !ffairs vide circular *o.


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must have been lodged with the company along with a certified copy of the

memorandum of association of the buying company and a certified copy of

the :oard resolution authorising a director or the other person who has

signed the share transfer form on behalf of the company as transferee. The

company must a"so ens)!e that the memo!an&)m of association of the#)%in+ compan% contains an o#*ects c"a)se a)tho!isin+ the compan% to

in$est in the sha!es of othe! companies.

4e!io& &)!in+ (hich a T!ansfe! m)st #e Re+iste!e&

The 3ompanies !ct allows two monthsC time within which the share transfer

should be registered, but the listing agreement of the stoc" exchanges

re/uire that all transfers must be registered (ithin one month f!om the

&ate of "o&+ement' The!efo!e, if the sha!es of the compan% a!e "iste&

on one o! mo!e !eco+nise& stoc3 echan+es, the compan% m)st ma3e

s)!e that the !e+ist!ation of t!ansfe! of sha!es m)st #e comp"ete& inthi!t% &a%s't means that the 3ertificate of Securities duly registered on

transfer should be delivered or despatched within thirty days. ! certificate

to this effect is re/uired to be placed before the meeting of the :oard of

directors of the listed company.

Re+ist!ation of T!ansfe! of Sha!es in the Name of 7ino!

! minor, being incapable of contracting, cannot become a member of a

company in his own name. 8is name may be entered in the register of

members of the company through a guardian. +n registration of transfer of

shares in a minorCs name, it has to be made sure that the shares are fully

paid and the name of the minor is entered in the register of members of the

company through his guardian. 8owever, a minor, on attaining maDority, may

opt to become a member or transfer his shares to any other person

Un&e! Section 11 of the Companies Act, a compan% is !e)i!e& to

&e"i$e! the ce!tificate (ithin th!ee months afte! the a""otment of an% of

its sec)!ities an& (ithin t(o months afte! the app"ication fo!

!e+ist!ation of t!ansfe! of an% s)ch sec)!ities.

8owever, this period for issue of certificates for debentures may be

extended by the 3ompany a( :oa!&;, on an app"ication #ein+ ma&e to it

in this #eha"f #% the compan% to a f)!the! pe!io& of not ecee&in+ nine

months (he!e it is satisfie& that it is not possi#"e fo! the compan% to

&e"i$e! s)ch ce!tificates (ithin the sai& pe!io&s. enerally, the practice is

to send the certificate to the person who lodged the transfer in /uestion

with the company or as per the instructions at the time of lodgement of the

transfer deed for registration. !lso see


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othe!s $' 7ohan 7ea3in t&' an& othe!s 01991 CA 22 0C:' 0hile

the period of two months will generally be applicable to companies for return

of certificates relating to a security after registration of transfer of the

security, in the case of "iste& compan% this pe!io& has #een c)!tai"e& to

one month #% $i!t)e of a p!o$ision in the "istin+ a+!eement (he!e)n&e!companies ha$e a+!ee& to !et)!n the ce!tificates (ithin one month of

the &ate of "o&+ement fo! t!ansfe! =$i&e C"ause


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securities of other companies and the investment is properly authorised by the :oard of

directors under Section 2'2 and, if applicable, under Section


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' Distin+)ish #et(een an% t(o of the fo""o(in+ -

0ii Sha!et!ansfe! a)&itE an& Cstat)to!% a)&it

Ans(e! 0#0ii

Begistration of transfer of shares is one area where investors have interaction with the

company and also Dudge its functioning. ! company cannot register a transfer unless a

proper instrument of transfer duly stamped and executed both by the transferor andtransferee is delivered to the company within the time limit laid down in Section &9 of the

3ompanies !ct, &'56. S-: has laid down guidelines to be followed by the listed companies

in the matter of processing of transfers and norms for obDection to transfer the shares.

Sha!e t!ansfe! a)&it in$o"$es chec3in+ of a"" the sai& Acts an& +)i&e"ines an& the sai&

(o!3 can #e pe!fo!me& #% a sec!eta!ia"auditor who need not be a statutory auditor.

>n the othe! han& stat)to!% a)&it can on"% #e pe!fo!me& #% a stat)to!% a)&ito!

appointe& #% the compan% in the general meeting as provided in Section 22 of the

3ompanies !ct, &'56. The statutory auditor has to submit his report to the shareholders of

the company in the manner provided in Section 22 of the !ct.

$. %istinguish between any two of the following &ii! 'Transposition of shares( and 'transmission of shares(.

Ans(e! 0#0ii

T!ansposition

n the case of Doint1shareholders, one or more of them may re/uire the company to alter or

rearrange the serial order of their names in the register of members of the company. n

this process, there will be need for effecting conse/uential changes in the share

certificates issued to them. f the company provides in its articles that the senior1most

among the Doint1holders will be recognised for all purposes li"e service of notice, a copy of

balance sheet, profit and loss account, voting at a meeting etc., the re/uest of transposition

may be duly considered and approved by the :oard or other authorised officer of the

company. Since no transfer of any interest in the shares ta"es place on such transposition,

the /uestion of insisting on filling transfer deed with the company, may not arise.

Transposition does not also re/uire stamp duty.

T!ansmission

ITransmission by operation of lawC is not a transfer. t refers to those cases where a person

ac/uires an interest in property by operation of any provision of law, such as by right of

inheritance or succession or by reason of the insolvency or lunacy of the shareholder or by

purchase in a 3ourt1sale, while a transfer is effected by act of parties. This is "nown as

transmission or transfer by operation of law, or involuntary assignment. Thus, transmission

of shares ta"es place when the registered shareholder dies or is adDudicated as an

insolvent, or if the shareholder is a company, it goes into li/uidation.

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