FORMATION OF COMPANIES , CAPITAL STRUCTURE AND CORPORATE

GOVERNANCE

PROCEDURAL REQUIREMENTS FOR TRANSFER AND TRANSMISSION OF

SHARES AND DEBENTURES
Submitted By.
Sapthami M
(JKP19006)
JSS Law College,
Mysuru

Submitted To.
Sri. Jagadish .A.T.
Assistant Prfessor
JSS Law College,
Mysuru

JSS LAW COLLEGE (AUTONOMOUS)

DEPARTMENT OF POST- GRADUATION
UNDER KARNATAKA STATE LAW UNIVERSITY, HUBLI
ASSIGNMENT WORK SUBMITTED TO PG DEPARTMENT OF LAW, JSS LC
MYSURU.
AS A PARTIAL FULLFILLMENT OF THE I SEMESTER LLM (BUSINESS
LAW)
2019-2020

1
 DECLARATION:

I, SAPTHAMI M, do hereby declare that this assignment work on “PROCEDURAL

REQUIREMENTS FOR TRANSFER AND TRANSMISSION OF SHARES AND
DEBENTURES ” is the assignment undertaken by me in partial fulfilment of requirement
for the master’s degree in law from JSS Law College (Autonomous), Mysuru under the
proficient guidance and erudite supervision of Sri. Jagadish A.T. Assistant Professor, JSS
Law College.

Place; Mysore
Date; 24 -04-2020 (SAPTHAMI M)

2
 CERTIFICATE

This is to certify that, this assignment titled “PROCEDURAL REQUIREMENTS FOR

TRANSFER AND TRANSMISSION OF SHARES AND DEBENTURES ” submitted to
JSS Law College (Autonomous), Mysuru is the bonafide work carried out by the student
under my guidance and supervision.

Place; Mysuru
Date; 24 -04-2020 (Asst. Professor)

3
INDEX
1. Procedural requirements for transfer and transmission of shares………............…5
Transfer of Securities……………………………………………………………...5
Persons involved in the Transfer of Shares………………………………………..5
Law stating about the Transfer of Shares…………………………………………5
Procedure for Transfer of Shares………………………………………………….6
Time Limits………………………………………………………………………..7
Penalties…………………………………………………………………………...8
Transmission of Securities………………………………………………………...8
Basic Procedure for the Transmission of Share…………………………………...8
Differences between Transfer of Shares and Transmission of Shares…............….9
Restrictions on transfer……………………………………………………………9
• Public Companies……………………………………………………………..9
• Private Companies…………………………………………………………...11
2. Buy-back of Securities…………………………………………………………...11
Definition………………………………………………………………………...11
Reasons for buy-back of shares………………………………………………….11
Modes of Buy-back………………………………………………………………12
Sources of buy-back……………………………………………………………...12
Conditions of buy-back…………………………………………………………..12
Process of Buyback………………………………………………………………14
Transfer of certain sum to Capital Redemption Reserve Account (CRR).............15
Restrictions on Buy-back of Securities in certain circumstances……..................15
3. Conclusion ………………………………………………………………………15
4. Bibliography …………………………………………………………………….17

4
PROCEDURAL REQUIREMENTS FOR TRANSFER AND TRANSMISSION OF
SHARES AND DEBENTURES
The Shares of an individual inside a company are transferable which facilitates
the company in acquiring permanent capital and liquidate investments into the
shareholders. But there are some constraints under which the securities are transferred.
They are transferable by the acts mentioned in the Articles of Association (AOA) of the
company under which the private companies are restricted. Here in this article, we will
see in detail the meaning, procedures for the transfer and transmission of securities, the
time limits, and its penalties.
Transfer of Securities
In Section 44 , Companies Act , 2013 it is provided that the shares or debentures
or other interest of a company shall be moveable property capable of being transferred in
the manner provided by the articles of the company. It is basically handing over the rights
and duties of a member of the company to any other person who wishes to become a
member of the company. It is a voluntary act of a member that is accompanied according
to the articles mentioned in the Articles Of Association of the company.
Persons involved in the Transfer of Shares
Legal Representatives in case of deceased or if the concerned person is insolvent.
Subscribers to the Memorandum
Transferor
Transferee
Listed or Unlisted Company
Law stating about the Transfer of Shares
According to Section 56 of the Companies Act, 2013[1], securities are movable
property and are transferred in a manner provides by the articles mentioned in the AOA
of the company. A Shareholder is free to transfer shares to a person of his own choice,
whereas shares in a Private Limited company are not freely transferable.
Rule 11 of Companies (Share Capital And Debentures) Rules, 2014 states about
instrument of transfer of securities
11. Instrument of transfer.

5
 An instrument of transfer of securities held in physical form shall be in Form
No.SH.4 and every instrument of transfer with the date of its execution specified
thereon shall be delivered to the company within sixty days from the date of such
execution.
In the case of a company not having share capital, provisions of sub-rule (1) shall
apply as if the references therein to securities were references instead to the
interest of the member in the company.
A company shall not register a transfer of partly paid shares, unless the company has
given a notice in Form No. SH.5 to the transferee and the transferee has given no
objection to the transfer within two weeks from the date of receipt of notice.
Procedure for Transfer of Shares
At first, the deeds which are transferred need to be obtained in the prescribed form
i.e., Form No SH-4.
There are some circumstances in which the instrument of transfer may not be in the
prescribed form. These are
Under Section 187 of the Companies Act, 2013, when a Director or nominee
transfers shares on behalf of another body incorporate.
In case, the Director or nominee transfers shares on behalf of a corporation
owned or controlled by the Central or state government.
Shares transferred by way of deposit for repayment of any loan or advance if
the deposit is made with any of the following banks:
State Bank Of India
Any Scheduled bank
Any other Banking Company
Financial Institution
Central Government
Any Corporation held by the Central or State Government.
State Government
Trustees.

6
 While for transferring of the Debentures, a standard format is used as the Instrument
of Share.
According to the provisions of the Companies Act, 2013, you need to get AOA in
case of shares, trust deed in case of Debentures where the transfer deed is
registered either by the transferor and the transferee.
According to the provisions of the Indian Stamp Act, the transfer deed should need to
have stamps. The present stamp duty rate of transfer of share is 25 paise for every
One Thousand rupees of the value of the share.
The Stamp deed on the transfer deed is checked whether it is canceled after the time
or before the signing of the transfer deed.
The person who has given his signature, name, and address as approval of transfer
must verify that the transferor and transferee have signed the share/ debentures
transfer deed.
The relevant share or debenture certificate or allotment letter, along with the transfer
deed, must be attached and sent to the company.
If the application made by the transferor is for partly paid shares, the company has to
notify the amount due on shares/ debentures of the transferee. In addition to this, a
no Objection Certificate is required within two weeks from the date of receipt.
The same value stamp is affixed on the written application if the signed transfer deed
has lost. Here, the Board may register the transfer on the grounds of indemnity.
In case the shares of the company are listed in a recognised stock exchange, then the
company cannot charge any fee for the registration of transfer of shares and
debentures.
Time Limits
There are certain time limits under which transfer and transmission of securities takes
place.
A company shall not register the transfer of securities of the company other than the
beneficial owners without a proper instrument of transfer. The time prescribed is
60 days from the date of execution.

7
 Application by the transferor: The transfer shall not be registered until the company
gives notice of the application to the transferor. Here, the transferee gives NOC
(No Objection Certificate) within two weeks from the receipt of the notice.
The Company has to deliver certificates of all securities allotted, transferred and
transmitted in the following cases within the following mentioned time limits:
Subscribers to Memorandum Within 2 months from the date of
incorporation
Allotment of any of its shares Within a period of 2 months from the
allotment date.
Intimation of transmission` Within a period of 1 month from the date of
receipt.
Allotment of Debenture Within a period of 6 months from the date of
allotment.
Penalties
There is a minimum plenty of Rs 25000 and a maximum of Rs 5 lakh in case of a
company. And For an officer the minimum amount is Rs 10000 and maximum of Rs 1
lakh.
Transmission of Securities
Transmission of Securities is quite different from the Transfer of Securities, but
many of us think these two terms as the same. Here, the shares are transferred to the
deceased and the official assignee of the insolvent. Transmission of shares is an
automatic process when the shareholder dies and immediately passes to the personal
representative or if a member is declared bankrupt.
Basic Procedure for the Transmission of Share
Following steps shall be followed for the transmission of shares
In the case of joint holding or legal heir, the survivor who wants transmission by
operation of law needs to file a simple application with the company. Relevant
documents such as Death certificate, succession Certificate, probate, etc. need to
be attached to the application.
Thereafter, the company records the information about the death certificate, and a
reference number of recording is given to the shareholder.

8
 After the documents are submitted, the company reviews these documents and
approve the transmission request in case the documents are in order.
In case the documents submitted with the transmission request are not in order, the
company shall communicate refusal to the concerned person within 30 days.
Before the death of the shareholder, the dividend declared will be payable to the legal
representative, and in case after the death of the shareholder, the dividend will be
paid to him only after the registration of his/her name.
Differences between Transfer of Shares and Transmission of Shares
Transfer of Shares and Transmission of Shares are often taken in a similar way
but there is difference between these two terms. Let’s see the Comparison Chart:
Comparison Basis Transfer of Shares Transmission of Shares

Definition Transfer of share voluntarily Transmission of shares takes

from one party to another. place by the operation of law in
case the member of the company
is not alive or has become
insolvent.
Reason for the It’s a voluntary decision of the In case if insolvency, death or
transfer or member of the company. inheritance of the member.
transmission
Initiated by Transferor or Transferee Legal heir or receiver

Liability The liabilities of transferor cease Original liability of shares

on the completion of transfer. continues to exist.
Restrictions on transfer
Public Company
Section 58 (2) of Companies Act, 2013 provides that the securities or other
interest of any member in a public company shall be 'freely transferable' (emphasis
supplied). Further, proviso to Section 58 (2) of Companies Act, 2013 provides that any
contract or arrangement between two or more persons in respect to transfer of securities
shall be enforceable as a 'contract'. The aforesaid provisions of Section 58 (2) of
Companies Act, 2013 are similar to the provisions of Section 111A (2) of the erstwhile

9
Companies Act, 1956, except the aforesaid proviso to Section 58 (2) of Companies Act,
2013.
In the erstwhile Companies Act, 1956, there were some debatable issues with
respect to the expression 'freely transferable'. However, in the matter of Messer Holdings
Limited vs. Shyam Madan Mohan Ruia & Others, the Hon'ble Bombay High Court held
that any contract or arrangement between two or more persons with respect to transfer of
securities can be enforced like any other contract and does not impede the free
transferability of shares at all. Therefore, the aforesaid proviso to Section 58(2) of the
Companies Act, 2013 has been incorporated in line with the aforesaid judgment of the
Bombay High Court.
In view of the above, any restriction on transfer of shares under the shareholders
agreement / consensual arrangement as executed amongst the shareholders shall be valid
and binding as a 'contract' inter-se the shareholders. If any public company is also being
made party to such shareholders agreement / consensual arrangement, then such contract
will also be enforceable against the public company like any other contract. In case of
breach of such contract by any party, the aggrieved party may avail such legal remedies
as available in case of 'breach of contract' including the specific performance of such
contract under the Specific Relief Act, 1963.
It is also important to analyse the expression 'freely transferable', which has not
been defined under Companies Act, 2013. The expression 'freely transferable' is a
mandate against the board of directors to register the transfer of the specified shares and
such expression should be given wider interpretation. Any consensual arrangement /
contract providing restriction on transfer of shares or providing pre-emptive rights
pertaining to transfer of shares should not be construed as violation of the expression
'freely transferable'. Had that not been the intention of the legislature, the proviso to
Section 58(2) of the Companies Act, 2013 would not have been specifically inserted and
appropriate restriction would have been placed in Companies Act, 2013 in relation to
transfer of shares in terms of consensual arrangement. However, such expression does not
in any way restrict the power of the board of directors of a public company to refuse the
registration of transfer of such shares on 'sufficient cause'.

10
 The board of directors, upon 'sufficient cause' being seen, may refuse to register
the transfer of shares. The words 'sufficient cause' in Section 58(4) takes within its ambit
not only those contingencies contemplated under sub-section (3) but also circumstances
and reasons other than which might require the company to refuse to register the transfer
of shares. Thus, there can be various reasons, though it is not possible to enumerate all of
them and may depend on the facts of each case, which would constitute 'sufficient cause'
for a company to refuse the registration of transfer of shares.
Private Company
In terms of the provisions of Companies Act,2013, a private company is required
to restrict the transfer of its shares through its articles of association ("AoA") [Section
2(68) of Companies Act, 2013]. Hence, any restriction on transfer of shares as agreed
under the shareholders agreement / consensual arrangement and duly incorporated in its
AoA shall be valid and binding on such a private company and may be enforced against
the shareholders of a private company. However, if a private company refuses to register
the transfer of any securities or interest of a member, whether in pursuance of any power
of the company under its AoA or otherwise, it is required to intimate the transferor and
transferee within the stipulated time period [Section 58 of Companies Act, 2013].
BUY-BACK OF SECURITIES
Definitions:-
Buy-back is the process by which Company buy-back it’s Shares from the
existing Shareholders usually at a price higher than the market price. When the Company
buy-back the Shares, the number of Shares outstanding in the market reduces/fall. It is the
option available to Shareholder to exit from the Company business. It is governed by
Section 68 of the Companies Act, 2013.
Reasons of Buy-back:-
To improve Earning per Share;
To use ideal cash;
To give confidence to the Shareholders at the time of falling price;
To increase promoters shareholding to reduce the chances of takeover;
To improve return on capital ,return on net-worth;
To return surplus cash to the Shareholder.

11
Modes of Buy-back:-
A Company may buy-back its Shares or other specified Securities by any of the
following method-
From the existing shareholders or other specified holders on a proportionate basis
through the tender offer;
From the open market through-
1. Book-Building process
2. Stock Exchange
Provided that no buy-back for fifteen percent or more of the paid up capital and
reserves of the Company can be made through open market.
From odd-lot holders.
Sources of Buy-back:-
A Company can purchase its own shares and other specified securities out of –
its free reserve; or
the securities premium account; or
the proceeds of the issue of any shares or other specified securities.
However, Buy-back of any kind of shares or other specified securities cannot be made
out of the proceeds of the earlier issue of same kind of shares or same kind of other
specified securities.
Conditions of Buy-back:-
As per Section 68 of the Companies Act, 2013 the conditions for Buy-back of shares
are-
Articles must authorise otherwise Amend the Article by passing Special Resolution in
General Meeting.
For buy-back we need to pass Special Resolution in General Meeting, but if the buy-
back is upto 10%, then a Resolution at Board Meeting need to be passed .
Maximum number of Shares that can be brought back in a financial year is twenty-
five percent of its paid up share capital.
Maximum amount of Shares that can be brought back in a financial year is twenty-
five percent of paid up share capital and free reserves (where paid up share capital

12
 includes equity share capital and preference share capital; & free reserves
includes securities premium).
Post buy-back debt-equity ratio cannot exceed 2:1.
Only fully paid up shares can be brought back in a financial year.
Company must declare its insolvency in Form SH-9 to Register of
Companies, signed by At least 2 Directors out of which one must be a
Managing Director, if any.
The notice of the meeting for which the Special Resolution is proposed to be passed
shall be accompanied by a explanatory statement stating-
1. a full and complete disclosure of all the material facts;
2. the necessity of buy-back;
3. theclassofsharesintendedtobeboughtback;
4. theamountinvestedunderthebuyback;
5. the time limit for completion of buyback;
The Company must maintain a Register of buy-back in Form SH-10.
Now, Submit Return of buy-back in Form SH-11 Annexed with Compliance
Certificate in Form SH-15, Signed by 2 Directors out of which
One must be a Managing Director, if any.
A Company should extinguish and physically destroy shares bought back within 7
days of completion of the buy-back.
Observe 6 months cooling period i.e. no fresh issue of share is allowed.
No offer of buy-back should be made by a company within a period of one year from
the date of the closure of the preceding offer of buy-back.
The buy-back should be completed within a period of one year from the date of
passing of Special Resolution or Board Resolution, as the case may be.
Regulation 4 of Securities And Exchange Board Of India (Buy Back Of
Securities) Regulations, 1998 says, Company may buy-back its own[shares or
other specified securities]
4. (1) A company may buy-back its [shares or other specified securities] by any
one of the following methods :—

13
 (a) from the existing [security-holders] on a proportionate basis through the tender
offer;
(b) from the open market through—
(i) book-building process,
(ii) stock exchange;
(c) from odd-lot holders:
[Provided that no offer of buy-back for fifteen per cent or more of the paid up
capital and free reserves of the company shall be made from the open market.]
(2) A company shall not buy-back its[shares or other specified securities] from
any person through negotiated deals, whether on or of the stock exchange or
through spot transactions or through any private arrangement.
(3) Any person or an insider shall not deal in securities of the company on the
basis of unpublished information relating to buy-back of [shares or other specified
securities] of the company.
[(4) A company shall not make any offer of buy-back within a period of one year
reckoned from the date of closure of the preceding offer of buy-back, if any.]
Process of Buyback

A buyback process starts with passing a resolution in the board of meeting or a

shareholders resolution through postal ballot which contains the specifics of the buy-back
offer and ends with a public announcement in a national daily on the successful
completion of the buy back. A broad process of buyback is as under:

14
Transfer of certain sum to Capital Redemption Reserve Account (CRR)
According to Section 69 of the Companies Act, 2013, where a Company brought
back shares out of free reserves or out of the securities premium account, then an amount
equal to the nominal value of the shares need to be transferred to the Capital Redemption
Reserve Account. Such transfer detailed to be disclosed in the Balance sheet.
The Capital Redemption Reserve account may be utilised for paying unissued
shares of the company to the members as fully paid bonus shares.
Restrictions on Buy-back of Securities in certain circumstances
According to Section 70 of the Companies Act, 2013, A Company should not
buy-back its securities or other specified securities , directly or indirectly
Through any subsidiary including its own subsidiaries; or
Through investment or group of investment Companies; or
When Company has defaulted in repayment of deposits or interest payable thereon, or
in redemption of debentures or preference shares or repayment of any term loan.
The prohibition is lifted if the default has been remedied and a period of 3 years has
elapsed after such default ceased to subsist.
When Company has defaulted in filing of Annual Return, declaration of dividend &
financial statement.
CONCLUSION
Transfer and transmission of Securities are two different things that are often
confused by the non-technical people. These are the ordinary course of transferring
property, but in the transmission of shares take place in case the member of the company
is not alive or has become insolvent. Moreover, the transfer of shares is more common
than the transmission of shares.
Thus, it can be concluded that Indian companies announce buyback in response to
undervaluation position of their stocks in capital markets and they are well supported by
availability of sufficient cash balance available for the same. Thus, on one hand, premium
offered in terms of buyback prices announced offers an exit opportunity for shareholders
and on the other hand, it offers an opportunity for the company to use its liquidity
position to extinguish its shares today and issue them again in future.

15
 It prevents takeovers and mergers thus preventing monopolisation and aiding the
survival of consumer sovereignty. On the other hand Buy back can help in manipulating
the records in flatting share prices Price-Earning Ratio, Earning per share, thus
misleading shareholders. Thus, knowledge of the impacts of Buy-back becomes vital and
every shareholder must reconsider all his views before purchasing the shares of
companies involved in the process of Buy- back.

16
BIBLIOGRAPHY
Books Referred
1. Avtar Singh, Company Law, Eastern Book Company, Lucknow.
Internet references
1.https://www.sebi.gov.in/sebi_data/commondocs/bback_p.pdf
2.http://www.vivro.net/blog/Buyback-of-Listed-Shares--An-Overview
3.https://corpbiz.io/learning/transfer-and-transmission-of-securities/
4. https://www.sebi.gov.in/sebi_data/attachdocs/apr-2017/1492085873402.pdf

17