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 legal personality and distinct entity, and its shareholders acquire the right to hold and transfer their shares in the company. 3. Section 2 of the !ompanies "ct, 1#$% states that the shares shall be movable property and transferable in the manner provided by the articles of the company. &. 't has, however, been consistently held by the !ourts that sub(ect to the restrictions imposed by the articles, a shareholder is free to transfer his shares to a person of his choice and that articles cannot impose unreasonable restrictions on the right to trans er! Also" the #irectors cannot #ecline to register a trans er arbitraril$ or unreasonabl$! NEED AND SCOPE $. )egistration of transfer of shares, debentures and other securities is one of the area which has to be constantly monitored by the !ompany Secretary in a company . This is one area where the investors have interaction with the company and also (udge its functioning. *y not caring or not paying proper attention to the wor+ connected with registration of transfers the company whether manual or electronic transfer, will have disgruntled shareholders. ,aturally this will create a bad impression on them and consequently the image of the company would suffer. %. Un#er Section %&' o the Companies Act" %()* a compan$ cannot register a trans er unless proper instrument o trans er #ul$ stampe# an# e+ecute# b$ or on behal o the trans eror an# b$ an# on behal o the trans eree and specifying the name, address and occupation, if any, of the transferee is delivered to the !ompany with the certificate relating to the security involved in transfer or where no certificate is in e-istence, alongwith the letter of allotment of the security concerned. Section %&' re,uires that -here share trans er orm is #eli.ere# to the /oar# it shoul# be #ul$ stampe#! It means stamp o a#e,uate .alue shoul# be a i+e# an# cancelle# on trans er #ee#!

CHAP-14 SHARE TRANSFER AUDIT- DDCCM

.. The trans er #ee# -ill ha.e to be in 0orm 1/ appen#e# to the 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 other officials authorised in this behalf by the !entral /overnment before anything is written on it. Determination o .aluation o shares or a i+ing stamps on the trans er #ee# 01-1 't was held in Union o In#ia . 6ulu 7alle$ Transport 8t#! 11#$ 2 that in case shares are not quoted, the value of the shares for the purpose of stamp means the price that the shares would fetch at the time of transfer or consideration agreed, whichever is higher. ;o-e.er" no trans er #ut$ is applicable or trans ers o shares in case o shares are in Demat orm! Trans er proce#ure not applicable un#er the #epositories s$stem Section 13 132 provides that the provisions of section 13 shall not apply to transfer of securities under the depositories system. 7ali#it$ o Trans er Dee# . The transfer deed so stamped is valid for lodgement in the case o a liste# compan$ -ithin %9 months of the date so stamped or irst closure o the register o members a ter it is so #ate#: stampe#" -hiche.er is later! #. 'n the case of an unliste# compan$ it is valid for lodgement within two months of the date so stamped. 13. The #ate:stamping re,uirement is not applicable in relation to trans er #ee# e+ecute# or trans er o #ebentures or other securities in a compan$. 11. Transfer 4eed duly e-ecuted for the registration of a transfer of the shares or other interest of a member in a company may be submitted either by the transferor or by 5transferee6, together with the relevant share certificates. 12. 7here the validity period of an instrument of transfer has e-pired namely, the instrument is be$on# %9 months rom the #ate of presentation to the prescribed authority or from the date of boo+ closure whichever is later in case of shares of a listed company, and in other case 9 months rom the #ate o presentation, the holder may ma+e an application in 8orm .! to

CHAP-14 SHARE TRANSFER AUDIT- DDCCM the )egistrar of companies requesting for e-tension in validity, alongwith requisite fee based on the nominal value of shares. %<! Submission o instrument or trans er to the Compan$ Transfer 4eed duly e-ecuted for the registration of a transfer of the shares or other interest of a member in a company may be submitted either by the transferor or by the transferee together with the relevant share certificates.

Time limit or issue o certi icate on trans er

2Section:%%<5

1&. Under Section 113 of the !ompanies "ct, a company is required to deliver the certificate within three months after the allotment of any of its securities and within two months after the application for registration of transfer of any such securities. 1$. 9owever, this period for issue of certificates for debentures may be e-tended by the !ompany :aw *oard;, on an application being made to it in this behalf by the company to a further period of not e-ceeding nine months where it is satisfied that it is not possible for the company to deliver such certificates within the said periods. 1%. /enerally, the practice is to send the certificate to the person who lodged the transfer in question with the company or as per the instructions at the time of lodgement of the transfer deed for registration. =ithin a perio# o one month in case o a liste# companies 1.. Also see >agat?it In#ustries 8t#! an# others .! Mohan Mea@in 8t#! an# others 2%((%5 * C8A 99 2C8/5! =hile the perio# o t-o months -ill generall$ be applicable to companies or return o certi icates relating to a securit$ a ter registration o trans er o the securit$" in the case o liste# compan$ this perio# has been curtaile# to one month b$ .irtue o a pro.ision in the listing agreement -hereun#er companies ha.e agree# to return the certi icates -ithin one month o the #ate o lo#gement or trans er A.i#e Clause <2c2 of the listing agreementB! 18. 7here the securities are dealt within a depository, the company is required to intimate the details of allotment of securities to depository immediately on allotment of such securities and every depository shall on receipt of intimation from a participant, register the transfer of securities in the name of the transferee. 'n case the

CHAP-14 SHARE TRANSFER AUDIT- DDCCM beneficial owner or a transferee of any securities see+s to have custody of such securities, the depository shall inform the issuer accordingly. Depositor$ is an organiCation where the securities of shareholders are held in electronic form at the request of shareholder through the medium of a 4epository <articipant. 'n following article we are going to learn more about depository depository participant. the the the and

Depository Participant (DP): is the representative or agent of the investor in the depository system providing the link between the Company and investor through the Depository

4efinition of 4epository= 4epository means a company formed and registered under the companies act, 1#$% and it has been granted a certificate of registration under section 1211"2 of S>*' "ct, 1##2. Two 4epositories are regulated in 'ndia= 1. 2. ,ational Securities 4epository limited 1,S4:2 The !entral 4epository Services 1'ndia2 :imited 1!4S2

Along with the Depositories Act, 1996 a new Sub-section (14) was added to Section 111 of the Co panies Act, 19!6 b" which Section 111 was ade applicable onl" to a pri#ate co pan"$ At the sa e ti e Section %%A of Securities Contracts (&egulation) Act, 19!6 was repealed$ 'nstead a new Section 111A was inserted in the Co panies Act, 19!6, which pro#ided that(

112 The said section is applicable to a company other than a private company. 122 'f a transfer of shares has been made wrongly, the !ompany :aw *oard; may order rectification of the register of members and debentureholders. 132 The shares and debentures of a public company are freely transferable. 7here a company refuses to register a transfer within two months of deposit of the instrument of transfer, the trans eree ma$ appeal to the Compan$ 8a- /oar#D or #irecting the Compan$ to register the trans er AThis -as a##e# to Section

CHAP-14 SHARE TRANSFER AUDIT- DDCCM %%%A295 b$ Depositories Relate# 8a-s 2Amen#ment5 Act" %((1 2) o %((15B!

PROCEDURE 0OR EXTENSION O0 7A8IDITE O0 TRANS0ER DEED 1#. 7here the validity period of an instrument of transfer has e-pired, the holder may ma+e an application in 8orm .! to the )egistrar of !ompanies requesting for e-tension in the upto )s. $,333 and the fee is )s. 133 where the value e-ceeds )s. $333. The application shall be made to the )egistrar of !ompanies, where the registered office of the !ompany is situated or under whose (urisdiction the transferor or transferee resides. The )egistrar on satisfaction of the cause shown in the application shall e-tend the validity for a period of 33 days from the date of approval by the )egistrar. 't shoul# be note# that urther e+tension -ill not be pro.i#e# b$ the Registrar! There ore" the trans er #ee# shoul# be lo#ge# -ith the compan$ -ithin the e-tended period only. TRANS0ERA/I8ITE O0 S;ARES IN A PRI7ATE COMPANE 9&! Pri.ate compan$ shall restrict right to trans er its shares

>ntire shareholding of a private company may be owned by a family or other private group. Section 31121iii21a2 of the !ompanies "ct, 1#$% provides that the "rticles of a private company shall restrict the right to transfer the company?s shares. 21. Restriction on transfer not applicable in certain cases )estriction upon transfer of shares is in private company are not applicable in the following cases=@ 1i2 on the right of a member to transfer hisAher shares cannot be applicable in a case where the shares are to be transferred to hisAher representative1s2. 1ii2 in the event of death of a shareholder, legal representatives may require the registration of share in the names of heirs, on whom the shares have been devolved. 1iii2 in respect of shares which are proposed to be issued on a rights basis, e-isting members would have a right to renounce shares li+ely to be allotted to them. 'f the e-isting shareholders renounce their shares then these shares will be allotted to the renouncees for the first time and therefore no transfer of shares will ta+e place.

CHAP-14 SHARE TRANSFER AUDIT- DDCCM 9owever, a private company may, by articles, restrict the ?right of a member to renounce his shares? otherwise, it is not possible to restrict the number of its members. NoteF Restriction shoul# not be in the orm o prohibition an# Restriction can onl$ be b$ the Articles o Association

Trans er o shares in a public compan$ Section 111"122 provides that the shares or debentures and any interest therein of a public company shall be freely transferable. <rovided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the !ompany :aw *oardA Tribunal and it shall direct such company to register the transfer of shares. APPRAISA8 O0 S;ARE TRANS0ER =OR6 22. The auditor is required to chec+ the following aspects while conducting share transfer audit. @ <roper instrument should have been submitted to the company. >-ecution and delivery of share transfer form is an essential preB requisite without which a company cannot register a transfer. The prescribed 8orm .* should be duly endorsed by the )C!. 'n case of a company where shares are listed with CT! >-change of 'ndia, the instrument of transfer should be in 8orm .**. The share transfer form may be lodged either by transferor or by transferee. 7eri $ -hether the trans er alls -ithin the pur.ie- o the ollo-ing casesF 1i2 share transferred by a director or nominee on behalf of another body corporate under Section &#122 and 132D 1ii2 shares transferred by a director or nominee on behalf of a corporation owned or controlled by the !entral or State /overnmentD 1iii2 shares transferred by way of deposit as a security for repayment of any loan or advance if they are made with any of these= 1a2 State *an+ of 'ndia or 1b2 any scheduled ban+ or 1c2 any ban+ing company or 1d2 financial institution or 1e2 !entral /overnment or 1f2 State /overnment 1g2 any corporation owned or controlled by the !entral or State /overnmentD or 1iv2 trustees who have filed the declarationsD 1v2 transfer of debentures.

CHAP-14 SHARE TRANSFER AUDIT- DDCCM In the a oresai#" the instrument o trans er ma$ not be in the 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 trans er #ee# Section 13 requires that where share transfer form is delivered to the *oard it should be duly stamped. 't means stamp of adequate value should be affi-ed and cancelled on transfer deed. Strictly spea+ing, a company cannot accept a transfer deed for registration unless share transfer stamps are affi-ed and the same are cancelled. 'f shares are held (ointly by two or more persons, the instrument of transfer must be e-ecuted by all (oint holders. Splitting of (oint holding into individual shareholding will also require e-ecution of a share transfer deed. 'n such a case, all (oint holders shall sign a transfer deed as transferors and the respective individuals holders in whose favour splitting is to be made, shall sign as transferees. @ The signature o the trans eror shoul# tall$ -ith the specimen recor#e# -ith the compan$! 7here although the signatures are attested by ,otary <ublic, the same do not tally or the signatures have not been properly attested, the companies are advised to satisfy themselves where there is doubtAapprehension about the genuineness of signatures by ma+ing a reference to the transferor. 9owever, a company cannot escape liability where attestation is done negligently. The signatures of the transferor in the shareAdebenture transfer form must be witnessed by other person, giving his name, signature and address. Di erence in the signature o trans eror 't is common cause for refusal of transfer of shares due to the change or difference in the signature1s2 of the transferor in the transfer deeds with the specimen signatures available in the records of the company. /enerally, the signature1s2 of the members changes after a period of time, and it creates a lot of time and burden on the company as well as the transferee. To avoid these situation, it is advisable to provide an option to the members for furnishing fresh specimen signatures for the records of the company.

CHAP-14 SHARE TRANSFER AUDIT- DDCCM @ 7here the instrument is e-ecuted by a person other than transferor or transferee named in instrument, on behalf of transferor or the transferee, the document authorising the e+ecutant to e+ecute the instrument o trans er must be obtaine# b$ the compan$! 'f the transferor is a body corporate, it should be ensured that a *oard resolution of the transferor has been passed and proper authority has been given by the *oard of directors to the person signing as the transferor on behalf of the company. @ The share transfer form must be complete as regards other particulars i.e. name, address, occupation etc. of transferee. @ Share certificate or if no such certificate is in e-istence the letter of allotment of shares shall be delivered alongwith the instrument. >very instrument of transfer should be presented to the prescribed authority for dating before anything is filled in or signed by the transferor. @ Share transfer form must be presented in time limit for delivery of instrument, together with related certificates, in compliance with Section 13 of the !ompanies "ct, 1#$%. H I the trans eree is a compan$ then be ore registering the trans er it shoul# be seen -ith re erence to the Ob?ects Clause o the Memoran#um o Association o the compan$ concerne# -hether it is one o the ob?ects o the compan$ to ma@e in.estments in the securities o other companies an# the in.estment is properl$ authorise# b$ the /oar# o #irectors under Section 2#2 and, if applicable, under Section 3.2" of the !ompanies "ct, 1#$% and appropriate delegation has been given in favour of the person who has signed the transfer deed. 'n Eagat(it 'ndustries :td. and others v. Fohan Fea+ins :td. and others 11##12 % !:" 22 1!:*2 companies need not indicate occupation in the relevant column of the transfer deed. @ =here the application is ma#e b$ the trans eror an# relates to partl$ pai# up shares" chec@ -hether the compan$ has gi.en #ue notice o application to the trans eree an# -hether the transferee has raised ob?ection" i an$" -ithin t-o -ee@s rom the date of receipt of the said notice. @ 'f the signe# trans er #ee# has been lost, the same stamp is affi-ed on the written application, in which case, the *oard may, if it thin+s fit, register the transfer on suitable terms o in#emnit$. @ !hec+ whether any restriction, isAwas at any time imposed on the transfer of shares, whether by the "rticles or under any other law.

CHAP-14 SHARE TRANSFER AUDIT- DDCCM

@ Chec@ -hether the trans eror an# trans eree are both entere# as bene icial o-ners in the recor#s o a #epositor$ in -hich case pro.isions o Section %&' #o not appl$. @ !hec+ whether the transfer is in violation of provisions of S>*' 1Substantial Ac,uisition o Shares an# Ta@eo.ers5 Regulations" %((1! @ 'f the company is a listed company and Shares Transfer "gents are processing the company6s share transfer wor+, chec+ whether they have followed the guidelines issued by various mar+et intermediaries including general norms for processing of documents, norms for processing of transfers and norms for ob(ection. @ Chec@ -hether all the -or@ relate# to share registr$ in terms o both ph$sical an# electronic orm is maintaine# b$ the compan$ at a single poin t i.e. either in house by the company or by a S>*' registered )egistrar and Transfer "gent. @ Chec@ -hether uni orm gui#elines prescribe# b$ SE/I are followed by )egistrars to an 'ssue 1)T'2AShare Transfer "gents 1ST"2 and companies for handling and processing of transfer documents SE/I .i#e its circular No! % 29&&&:9&&%5 #ate# Ma$ &(" 9&&% has issue# uni orm gui#elines to be ollo-e# b$ RTIGSTA an# companies! These gui#elines ha.e been #i.i#e# into three partsF 1i2 /eneral norms for processing of documents. 1ii2 ,orms for processing of transfers. 1iii2 ,orms for ob(ection. 4raft of the formats to be used have also been suggested in these guidelines. 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-ers con erre# 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<! =hat are the chec@ points in the scrutin$ o register o membersG#ebenture hol#ers -hile con#ucting Share Trans er au#itI AnsF !hec+ whether a company has properly maintained its register of members and register of debentureholders with respect to the following aspects=

CHAP-14 SHARE TRANSFER AUDIT- DDCCM @ 7hether the registers are maintained in the form prescribed under the !ompanies 1'ssue of Share !ertificates2 )ules, 1#%3 or as near thereto as circumstances admit. @ 7hether the details of the transfers have been posted in the proper folios in the register of members. 'n case of transferee being a new member whether new folio has been allotted to him. 'n case after recording the transfer the holding of a member becomes nil whether the 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 $3 members an inde- of members is maintained. @ 7hether every change in the register of members has been recorded in the inde- within 1& days. @ 7hether the declarations received under Section 1 .! have been properly entered in the proper folio of the register of members. 9J! Processing o Di.i#en#sGInterest =arrants" consi#ering share trans er The paramount requirement in the processing of dividendAinterest warrants is to determine the persons entitled to the dividendAinterest as the case may be. 8or this purpose, under Section 1$& of the !ompanies "ct, 1#$%, companies are empowered to close the register of membersAregister of debentureholders by giving . days6 clear notice by advertisement in some newspaper circulating in the district in which the registered office of the company is situate. 'n case of listed companies under the listing agreement companies are required to close the transfer boo+s only once in a year with reference to the annual general meeting. 8or all other purposes the stoc+ e-changes require fi-ation of record date. /e ore closing the trans er boo@s or i+ing the recor# #ate the concerne# stoc@ e+change shoul# be gi.en a notice at least J9 #a$s in a#.ance! 'n view of the above, in the case of listed companies while transfer boo+s can be closed for the payment of dividendAfinal dividend, for all other purposes they can only fi- a record date. >ven though Section 1$& of the !ompanies "ct, 1#$% is silent with regard 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 for closure of register of members so as to enable the membersAdebentureholders to lodge the transfer deed in time for getting their entitlement. "ll valid transfer deeds lodged with the company before the date of commencement of the closure of register of membersAregister of

CHAP-14 SHARE TRANSFER AUDIT- DDCCM debentureholders or the record date should be given effect to and list of persons who are entitled for the dividendAinterest as the case may be 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$! As soon as the #i.i#en# is #eclare# at the general meeting the #i.i#en# -arrant shoul# be poste#! In the case o interest the same shoul# be poste# imme#iatel$ a ter it becomes #ue or pa$ment or e.en earlier but #ating the interest -arrant -ith the #ate on -hich the interest becomes #ue! In an$ case the #i.i#en# -arrants shoul# be sent to the persons entitle# thereto -ithin <& #a$s o the #eclaration o the #i.i#en# 2Section 9&15! Under the listing agreement listed companies are required to intimate the stoc+ e-change at least 21 days in advance of the date on and from which date the dividend will be payable. :isted companies are also required to issue dividend warrants payable at par at such centres as may be agreed to between the stoc+ e-change and the company. >ven though listing agreement is silent about the interest warrant, the procedure set out above should equally apply for payment of interest on debentures which are listed on stoc+ e-changes. " !ompany Secretary in <ractice should while appraising the processing of dividend and interest warrants +eep the foregoing aspects in mind and ensure that they are scrupulously followed by companies. Despatch o Notice" Annual Report" 8etter o O er Service of documents on members by a company is governed by Section $3 of the !ompanies "ct, 1#$% whereunder a document may be served by a company on any member either personally or by sending it by post to his registered address or if he has no registered address in 'ndia, to the address, if any, within 'ndia supplied by him to the company for giving of notices to him. 't would be seen that strictly spea+ing, it is not necessary to send any document to a member under certificate of posting or by registered post. *ut if any member desires that a particular document should be sent to him under certificate of posting or by registered post or registered post ac+nowledgement due, he is required to deposit with the company a sum sufficient to defray the e-penses in which event service of the said document will be deemed to be effected only if it is made in the manner desired by the member. Signature 7eri ication on Trans er Dee#

CHAP-14 SHARE TRANSFER AUDIT- DDCCM 7here it is found that the transferor6s signature on the transfer deed varies, a company is not bound to accept the deed even if it has been attested and the Finistry of 8inance, Stoc+ >-change 4ivision has advised companies that where there is a variation in the signature of the transferor, the company should send a notice to the transferor by registered post informing him of the receipt of the deed purportedly signed by him and that the company shall ta+e action to register the transfer if the company does not receive any ob(ection from the transferor within 21 days of the date of the said notice. This will help companies not to delay action in bona fide cases. Au#it or reconciliation o the total a#mitte# capital -ith both the #epositories an# the total issue# an# liste# capital! 7hile conducting share transfer audit of a company which has both physical and demat shares, the auditor has to chec+ 7hether company shall have proper systems and procedures in place to verify that the securities tendered for dematerialisation have not been dematerialised earlier. 7hether they ascertain, reconcile daily and confirm to the depositories that the total number of shares held in ,S4:, !4S: and in the physical form tallies with the admitted, issued and listed capital of the issuer company. K%! =hat are the Sa eguar#s to a##ress the concerns o the In.estors on Trans er o Securities in DematerialiCe# Mo#eI AnsF The concerns arising out of transfer of securities from the *eneficial Cwner 1*C2 "ccounts without proper authoriGation by the concerned 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-ing sa eguar#s to a##ress the concerns o the in.estors on electronic trans erF 1a2 The depositories shall give more emphasis on investor education particularly with regard to careful preservation of 4elivery 'nstruction Slip 14'S2 by the *Cs. The 4epositories may advise the *Cs not to leave Hblan+ or signedI 4'S with the 4epository <articipants 14<s2 or any other personAentity. 1b2 The 4<s shall not accept preBsigned 4'S with blan+ columns from the *C1s2. 1c2 The 4<s shall issue only one 4'S boo+let containing not more than 23 slips for individual account holders and not more than 133 slips for nonBindividual account holders, at a time. 1d2 'f the 4'S boo+let is lostAstolenAnot traceable by the *C, the same must be intimated to the 4< immediately by the *C in writing. Cn

CHAP-14 SHARE TRANSFER AUDIT- DDCCM receipt of such intimation, the 4< shall cancel the unused 4'S of the said boo+let. 1e2 The 4<s can issue subsequent 4'S boo+let to a *C only after the *C has used not less than .$ per cent of the slips contained in the previous 4'S boo+let. The 4< shall also ensure that a new 4'S boo+let is issued only on the strength of the 4'S instruction request slip 1contained in the previous boo+let2 duly complete in all respects, unless the request for fresh boo+let is due to loss, etc., as referred to in clause 1d2 above. 1f2 The 4<s shall not issue more than 13 loose 4'S to one accountB holder in a financial year 1"pril to Farch2. The loose 4'S can be issued only if the *C1s2 come in person and sign the loose 4'S in the presence of an authorised 4< official. 1g2 The 4<s shall put in place appropriate chec+s and balances with regard to verification of signatures of the *Cs while processing the 4'S. 1h2 The 4<s shall cross chec+ with the *Cs under e-ceptional circumstances before acting upon the 4'S. 1i2 The 4<s shall mandatorily verify with a *C before acting upon the 4'S, in case of an account which remained inactive i.e., where no debit transaction had ta+en place for a continuous period of % months, whenever all the 'S', balances in that account 1irrespective of the number of 'S',s2 are transferred at a time. 9owever, in case of active accounts, such verification may be made mandatory only if the *C account has $ or more 'S',s and all such 'S', balances are transferred at a time. The authoriGed official of the 4< verifying such transactions with the *C, shall recor-1d the details of the process, date, time, etc., of the verification on the instruction slip under his signature.

TRANSMISSION O0 S;ARES
Transmission o shares " transmission of shares or other interest in a company of a deceased member thereof made by the legal representative of a deceased member of the company shall be considered as transmission of shares by operation of law and will be registered by a company in the )egister of Fembers. E+ecution o trans er #ee# not re,uire# in case o transmission o shares Transmission shall be sub?ect to the liabilities" i an$ 'n the case of a transmission of shares, shares continue to be sub(ect to the original liabilities, and if there was any lien on the shares for any sums due, the lien would subsist, notwithstanding the devaluation of the shares.

CHAP-14 SHARE TRANSFER AUDIT- DDCCM Re,uirement o #ocumentsGe.i#ences or transmission o shares 7here title to shares comes to vest in another person by operation of law, it is not necessary to e-ecute and submit transfer deed. " simple application 1"ppendi- 22 to the company by a legal representative alongwith the following necessary evidences is sufficient=@ 1i2 !ertified copy of death certificateD 1ii2 Succession certificateD 1iii2 <robateD 1iv2 Specimen signature of the successor. No re,uirement o consi#eration an# pa$ment o stamp #ut$ Since the transmission is by operation of law, neither consideration for transfer nor stamp duty is required on instruments for transmission. Transposition of shares J when there is a change in the order of names in which physical shares are held (ointly in the names of two or more shareholders. Subir Roy v. P.R Productions (P) Ltd [(2006) 70 S L ( L!)" !onsequent upon demise of the petitioner6s father, who held some shares in the respondent !ompany, he obtained succession certificate and applied to the !ompany for transferring those shares in his name. 9owever, the !ompany informed him that his father had incurred certain debts to the !ompany beyond the value of the shares and as such after obtaining a legal advise it would transmit the same. Subsequently, though the petitioner was informed that the directors had approved the said transmission, the !ompany failed to deliver the share certificates duly transmitted in his name. The petitioner, therefore, filed petition see+ing for direction to the !ompany to transmit shares in his name. The !ompany contended that without clearing the dues of his father the petitioner could not see+ for transmission of the shares. )e(ecting the ob(ection, the !:* held that since, there was prima facie evidence that the transmission of shares had already been approved, the !ompany cannot refuse to send the share certificates to the petitioner and directed the !ompany to register the transmission of the impugned shares in the name of the petitioner. #i$ari%a &upta v. 'sla (nsulated )ires P. Ltd. [(2006) 1*+ o,p as 7- ( L!)" The petitioner sought registration of one third of the shares held by her late father and mother collectively in her name by filing a petition with

CHAP-14 SHARE TRANSFER AUDIT- DDCCM the !:*. The respondent company contended that the petitioner had instituted a suit for partition claiming one third of the shares held by her parents and since that suit was filed prior in time the petitioner could not be allowed to prosecute parallel proceedings and that moreover she failed to produce either a will or probate or succession certificate as ought by the !ompany. 4ismissing the petition it has been held that granting the prayer in the petition without a succession certificate while the partition suit was pending would amount to ta+ing a decision on partition and such a decision cannot be ta+en by the !:*

CERTI0ICATION !ompanies are not required to get share transfer audit done but companies 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 listed companies the "nnual )eturn is required to be signed by a secretary in wholeBtime practice. Therefore, before signing the "nnual )eturn as above !ompany Secretary in practice is required to e-amine the transfer records to satisfy himself that the transfers have been properly registered and in case any request for registration of transfer has been refused, the company concerned has complied with the requirements of section 13 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+ or a random chec+ of the transfers. Also" in pursuance o Clause J12a5 o the 8isting Agreement" a liste# compan$ has to appoint a Compan$ Secretar$ as a compliance o icer -ho -ill be responsible or monitoring the share trans er process an# report to the compan$4s boar# in each meeting! 't may be seen there from that one of the additional requirement suggested is that a listed company should insist on the )T" to produce to it a certificate from a <ractising !ompany Secretary that all transfers have been completed within the stipulated time. Salient Pro.isions in the listing agreement !lauses 31c2 and % of the :isting "greement mainly deal with the sub(ect matter of the certification.

CHAP-14 SHARE TRANSFER AUDIT- DDCCM Under subBclause 1c2 of clause 3, a listed company is required to issue certificates within one month of the date of lodgement for transfer, subBdivision, consolidation, renewal, e-change or endorsement of callsAallotment monies. Thus, with regard to securities transferred generally, a listed company is required to transfer and issue the relative certificate for securities within a period of one month from the date of lodgement of transfer. "lso clause % of listing agreement provides that the issuer will, if so required by the e-change, certify transfers against letters of allotment, certificates and balance receipts and in that event the company will promptly ma+e on transfers an endorsement to the following effects= H,ame of the 'ssuerKKKKKKKKKKKKKKKKKKK !ertificateA"llotment :etter ,o.KKKKKKKKKKK for the within mentionedKKKKKKKKKK securities is deposited in the 'ssuer6s office against his transfer ,o.KKKKKKK. Signature1s2 of official1s2KKKKKKKKKKKK 4ateKKKKKKKK.L "part from this various other clauses li+e !lause ., , 13, 11, 12, 12", 13, 1&, 1$, 1%, 1., 21, 23, 3&, &. in the :isting "greement cover the gamut of Share Transfer. The e-amination should not be confined only to duly completed transfer deeds lodged with the company but it should also include transfer lodged with the company which are deficient and are retained by the company after ma+ing a reference or returned to the lodger for ma+ing good the deficiency. Meeping in view the purpose for which the certification has been stipulated, it is but proper that the verification should cover all transfers lodged with the company whether they are fit for transfer or not. Transfer in respect of deficient transfer, return or reference to the lodger should also be done within a period of one month from the date of lodgement of transfer deeds. There should not be any delay in this regard. Perio#icit$ o Certi ication 7hile the letter from S>*' to the Stoc+ >-changes ma+es no reference to the periodicity of certification, the Fumbai Stoc+ >-change has stipulated that such a certification should be given within one month of the close of each half of the financial year. 8urther the e-changes at Fumbai, <une, !alcutta and Uttar <radesh 1Manpur2 has stipulated that the certificate given by the <ractising !ompany Secretary should be sent to it within 2& hours of its receipt by the listed company. E+tent o E+amination 8or the purpose of the certification, it would not be necessary for a !ompany Secretary to e-amine whether the transfer deed has been properly registered by the listed company, it is enough if he verifies that the transfer deed in relation to securities lodged with the listed company has been dealt with by it either by despatching the relative

CHAP-14 SHARE TRANSFER AUDIT- DDCCM securities certificate duly endorsed or the lodger has been informed of the deficiencies where a transfer is not registered, within the period of one month from the date of lodgement. Therefore, the !ompany Secretary should largely confine himself to the e-amination of only those boo+s, records and papers relating to receipt of transfer documents and despatch of certificates or issue of letters pointing out the deficiency, return of transfer instruments as the case may be. "lmost all the information for the purpose will be available in securities transfer receipt register being maintained by the listed companies. 'f such a register is not maintained by the company, the !ompany Secretary may advise the company to maintain such a register either manually or by electronic process so that future certifications will be facilitated.

The Institute has suggeste# the ormat o the certi icate" a cop$ o -hich is repro#uce# at Anne+ure A! This ormat has been #e.ise# to gui#e the Practising Compan$ Secretaries concerne# as to -hat the certi icate shoul# contain! A Practising Compan$ Secretar$ is ree to amen# the same or a#opt the same #epen#ing upon the speci ic circumstances in relation to a compan$! "s regards return of transfer deeds the certificate need not contain individual details in regard to transfers returned or retained for ma+ing good deficiencies therein. 't would be enough if all such transfers are grouped 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 of transfer &. ,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 single instrument .. Cthers 1specify2. 't is possible that all completed transfers received upto the date of the certificate have not been given effect to and the certificates despatched before that date. The certificate should, therefore, also mention the number of transfers pending for registration. The <ractising !ompany Secretary should in respect of share certificates issued on consolidation, subBdivision or duplicate share certificates e-amine the records maintained by the company under the !ompanies 1issue of Share !ertificates2 )ules, 1#%# before issuing the certification.

CHAP-14 SHARE TRANSFER AUDIT- DDCCM

",,>0U)> " 8ormat of !ertificate to be given by a <ractising !ompany Secretary 'A7e; have e-amined the relevant boo+s and records ofKKKKKK:td. 1!ompany2 produced before meAus for the purpose of issuing the !ertificate under subBclauseKKKKKof clauseKKKKof the :isting "greement with theKKKKKStoc+ >-change and based on myAour; such e-amination as well as information and e-planations furnished to meAus; which to the best of myAour; +nowledge and belief were necessary for the purposes of myAour; certification. 'A7e; hereby certify that in myAour; opinion and according to the best of myAour; information and belief the company has, in relation to the half year 1year2 endedKKKKKKdelivered all certificates within the period stipulated under the :isting "greement from the date of lodgement for transfer, subBdivision consolidation, renewal, e-change or endorsement of callsA allotment monies. ;1Stri+e out whichever is not applicable2.