Section 5

Articles.
1
5. (1) The articles of a company shall contain the regula-
tions for management of the company.

(2) The articles shall also contain such matters, as may be

prescribed:

Provided that nothing prescribed in this sub-section shall be

deemed to prevent a company from including such addi-
tional matters in its articles as may be considered necessary
for its management.

(3) The articles may contain provisions for entrenchment to

the effect that specified provisions of the articles may be
altered only if conditions or procedures as that are more
restrictive than those applicable in the case of a special reso-
lution, are met or complied with.

(4) The provisions for entrenchment referred to in sub-sec-

tion (3) shall only be made either on formation of a com-
pany, or by an amendment in the articles agreed to by all
the members of the company in the case of a private com-
pany and by a special resolution in the case of a public com-
pany.

(5) Where the articles contain provisions for entrenchment,

whether made on formation or by amendment, the com-
pany shall give notice to the Registrar of such provisions in
such form and manner as may be prescribed.

(6) The articles of a company shall be in respective forms

specified in Tables F, G, H, I and J in Schedule I as may be
applicable to such company.

(7) A company may adopt all or any of the regulations con-

tained in the model articles applicable to such company.

1. Enforced with effect from 1-4-2014.

1
(8) In case of any company, which is registered after the com-
mencement of this Act, in so far as the registered articles of
such company do not exclude or modify the regulations con-
tained in the model articles applicable to such company, those
regulations shall, so far as applicable, be the regulations of
that company in the same manner and to the extent as if
they were contained in the duly registered articles of the
company.

(9) Nothing in this section shall apply to the articles of a com-

pany registered under any previous company law unless
amended under this Act.

RELEVANT RULES : RULES 10 AND 11 OF THE COMPANIES (INCORPO-

RATION) RULES, 2014
Where articles contains entrenchment provisions
Rule 10 : Where the articles contain the provisions for entrenchment,
the company shall give notice to the Registrar of such provisions in
Form No. INC. 2 or Form No. INC. 7, as the case may be, along with the
fee as provided in the Companies (Registration Offices and Fees) Rules,
2014 at the time of incorporation of the company or in case of existing
companies, the same shall be filed in Form No. MGT. 14 within thirty
days from the date of entrenchment of the articles, as the case may be,
along with the fee as provided in the Companies (Registration Offices
and Fees) Rules, 2014.
Model articles
Rule 11 : The model articles as prescribed in Tables F, G, H, I and J of
Schedule I may be adopted by a company as may be applicable to the
case of the company, either in totality or otherwise.

2
 COMMENTS

5.1 Legislative History

5.1-1 Corresponding provisions of the 1956 Act
This section corresponds to sections 26, 27, 28 and 29 of the 1956 Act.
5.1-2 Comparative study : 2013 Act vis-a-vis the 1956 Act
The differences between the provisions of the 2013 Act and the 1956 Act
as regards Articles of Association are as under : —
POINTS OF SECTION 5 OF THE 2013 SECTIONS 26, 27, 28, 29 &
COMPARISON ACT SCH. I OF THE 1956 ACT
Whether compulsory Yes. Sections 5(1) and 7(1)(a) n Optional for a public com-
for every company to of the 2013 Act make it com- pany limited by shares.
have its articles? pulsory for every company to
have its own articles and file
n Compulsory for other com-
panies.
the same with ROC for regis-
tration.
Entrenchment provi- n The articles may contain Entrenchment provisions in ar-
sions provisions for entrench-
ment.
ticles not permitted under the
1956 Act.
n Provisions for entrench-
ment provide more restric-
tive conditions or proce-
dures than that applicable
to passing a special resolu-
tion for altering certain pro-
visions in the articles. [For
example, the articles could
mandate that certain pro-
visions in it can be altered
only if agreed to by all mem-
bers of the company in writ-
ing.]
n The entrenchment provi-
sions shall only be made
either :
u on formation of a com-
pany, or
u by an amendment in the
articles agreed to by all
the members of the
company in the case of a
private company and

3
POINTS OF SECTION 5 OF THE 2013 SECTIONS 26, 27, 28, 29 &
COMPARISON ACT SCH. I OF THE 1956 ACT
u by a special resolution
in the case of a public
company.
n The company shall give n No provisions on general
notice to the Registrar of principles
entrenchment provisions.
[See rule 10 of the Compa-
nies (Incorporation) Rules,
2014]
General principles re- n The articles of a company
garding the contents shall contain the regula-
of articles tions for the management
of the company.
n A company may adopt all
or any of the regulations
contained in the model ar-
ticles (Table F/G/H/I/J of
Schedule I to the 2013 Act)
applicable to such com-
pany.
n If duly registered articles
of a company registered af-
ter the commencement of
the 2013 Act do not exclude
or modify the regulations
contained in applicable
model articles, such regu-
lations shall apply as if they
were contained in the duly
registered articles of a com-
pany.
n The articles shall also con-
tain prescribed matters.
n However, the prescribed
matters shall not be deemed
to prevent a company from
including such additional
matters in its articles as may
be considered necessary for
its management.
Form of Articles of (i) The articles of a company (i) The articles of any com-
unlimited companies shall be in the respective pany, not being a company
and companies forms specified in Tables limited by shares, shall be in
limited by guarantee G, H, I and J in Schedule I such in Table C/Table D/
as may be applicable to Table E in Schedule I as
such company. The liberty may be applicable, or in a
to have articles “or in a Form as near thereto as cir-
Form as near thereto as cumstances admit.

4
 POINTS OF SECTION 5 OF THE 2013 SECTIONS 26, 27, 28, 29 &
COMPARISON ACT SCH.1 OF THE 1956 ACT
circumstances admit.”
which was available in the
1956 Act is no longer avail-
able in the 2013 Act.
(ii) A company may adopt all (ii) The company may include
or any of the regulations additional matters in its ar-
contained in the model ar- ticles in so far as they are
ticles applicable to such not inconsistent with the
company. Unlike the 1956 provisions contained in the
Act, the 2013 Act allows Form in any of the Tables
company limited by guar- C, D and E, adopted by the
antee/unlimited company company.
to modify or exclude the
regulations contained in
the applicable model ar-
ticles.

5.2 Overview of section 5

Section 5 -
Articles

Entrenchment Form of Articles Applicability

Contents of of section 5
Articles [Section provisions - & model
[Section 5(3) regulations - to existing
5(1)/(2)] companies
to (5)] [Section 5(6) to
[Para 5.4] [Para 5.5] (8)] [Para 5.6] [Section 5(9)]
[Para 5.3]

5.2-1 Whether compulsory for every company to have its articles?

Yes. Section 5(1) read with section 7(1)(a) of the 2013 Act make it compul-
sory for every company to have its own articles and file the same with
ROC for registration.
5.3 Applicability of section 5 of the Act to existing companies
[Section 5(9)]
The provisions of section 5 shall not apply to the articles of a company
registered under any previous company law unless the articles are
amended under this Act. [Section 5(9)]

5
5.4 Contents of articles [Section 5(1)/5(2)]
The following provisions of section 5 may be noted :
u The articles of a company shall contain regulations for the manage-
ment of the company.
u The articles shall also contain prescribed matters. However, the
prescribed matters shall not be deemed to prevent a company from
including such additional matters in its articles as may be considered
necessary for its management.
Rule 11 of the Companies (Incorporation) Rules, 2014 provides that the
model articles as prescribed in Tables F, G, H, I and J of Schedule I may be
adopted by a company as may be applicable to the case of the company,
either in totality or otherwise. (See para 5.6)
5.5 Entrenchment provisions in articles [Section 5(3)/5(4)/5(5)]
Section 5 provides as under :
u The articles may contain provisions for entrenchment to the effect
that specified provisions of the articles may be altered only if
conditions or procedures as that are more restrictive than those
applicable in the case of a special resolution, are met or complied
with.
u Provisions for entrenchment provide a more onerous procedure
than passing a special resolution for altering certain provisions in the
articles. [For example, the articles, could mandate that certain
provisions in it can be altered only if agreed to by all members of the
company in writing.]
u The entrenchment provisions shall only be made either :
n on formation of a company, or
n by an amendment in the articles agreed to by all the members
of the company in the case of a private company and by a special
resolution in the case of a public company.
u The company shall give notice to the Registrar of entrenchment
provisions in the prescribed forms. Rule 10 of the Companies (Incor-
poration) Rules, 2014 provides that where the articles contain the
provisions for entrenchment, the company shall give notice to the
Registrar of such provisions in Form No. INC. 2 or Form No. INC. 7,
as the case may be, along with the fee as provided in the Companies
(Registration Offices and Fees) Rules, 2014 at the time of incorpora-
tion of the company or in case of existing companies, the same shall
be filed in Form No. MGT. 14 within thirty days from the date of

6
 entrenchment of the articles, as the case may be, along with the fee
as provided in the Companies (Registration Offices and Fees) Rules,
2014.
The concept of ‘entrenchment’ has been borrowed from Constitutional
law.
Wikipedia explains entrenchment provisions as under:
“An entrenched clause or entrenchment clause of a basic law or constitution
is a provision which makes certain amendments either more difficult or im-
possible, i.e., inadmissible. It may require a form of super-majority, a referen-
dum submitted to the people, or the consent of another party.

** ** **

Entrenched clauses are, in some cases, justified as protecting the rights of a

minority from the dangers of majoritarianism or in other cases, the objective
may be to prevent amendments to the basic law or constitution which would
pervert the fundamental principles enshrined in it, in particular to prevent
the creation of a legalistic dictatorship…….”

In general, a company can change its articles of association by special

resolution. An entrenched provision is defined as a provision of a company’s
articles that may be amended or repealed only if conditions are met, or
procedures are complied with, that are more restrictive than those appli-
cable in the case of a special resolution. Entrenchment can be either
absolute or conditional. Absolute entrenchment means that certain provi-
sions in the Articles are unalterable except by an order of court/Tribunal.
Absolute entrenchment is not permitted by the 2013 Act. What the 2013 Act
permits is entrenchment of provisions in the articles on a conditional basis
that is certain provisions of articles can be altered only upon satisfaction
of certain conditions or compliance with specified procedures (for
example, with the approval of a greater majority of members than the
usual 75 per cent special resolution requirement). Such provisions can be
changed by either fulfilling the conditions, by agreement with all the
members or by a court order.
A restriction in the articles to the effect that a provision may not be
amended without the prior positive consent in writing of a specified
shareholder is an example of a provision for entrenchment. This kind of
clause may be inserted in articles of joint venture companies at the behest
of a co-venturer to protect his interest. Examples of provisions of articles
which can be entrenched by an entrenchment provision are :
(i) Provisions as to proportional representation (See section 163)
(ii) Power of shareholder/co-venturer/any person to nominate/
appoint directors on the Board of a company.

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5.6 Model articles for different types of companies [Section 5(6)
to (8)]
Section 5 provides as under :
u The articles of a company shall be in the respective forms specified
in Tables F, G, H, I and J in Schedule I as may be applicable to such
company as under:
Sr. Type of the company Form prescribed for Articles
No.

(i) Company Limited by Shares Table F [No such alteration in

Table F made by Central Govt.
shall apply to any company regis-
tered before the date of such al-
teration.-Proviso to section 467(1)]

(ii) Company limited by guara- Table G

ntee and having share
capital

(iii) Company limited by guara- Table H

ntee and not having share
capital

(iv) Unlimited company having Table I

share capital

(v) Unlimited company not Table J

having share capital

u A company may adopt all or any of the regulations contained in the

model articles applicable to such company. [Section 5(7)]
u Model articles to apply to companies registered after the commence-
ment of the 2013 Act if the articles of such companies do not exclude/
modify the provisions of model articles - In case of a company
registered after the commencement of this Act (2013 Act), in so far
as the registered articles do not exclude or modify the regulations
contained in the model articles applicable to such company, those
regulations shall, so far as may be applicable, be the regulations of
such company in the same manner and to the same extent as if they
were contained in duly registered articles of the company. [Section
5(8)]
5.7 Memorandum v. Articles
The distinction and inter-relationship between the Memorandum and the
Articles have been explained judicially as under :

8
 u Memorandum must prevail where its object is clear and articles
cannot nullify it. Except in respect of such matters as must by statute
be provided for by the memorandum, the memorandum and articles
must be read together at all events so far as may be necessary to
explain any ambiguity appearing in the terms of the memorandum
or to supplement it with any matter as to which the memorandum is
silent. But the memorandum must prevail where its object is clear
and the articles should not be so construed as to nullify a provision
in the memorandum. - Angostura Bitters v. Albert Kerr [1934] 4
Comp. Cas. 1 (PC)
Note : See also Ashbury Railway Carriage Co. v. Riche [1874] All. ER
Ext. 2219.
u Articles cannot alter or vary memorandum. There is an essential
difference between the memorandum and the articles. The memo-
randum contains the fundamental conditions upon which alone the
company is allowed to be incorporated. They are conditions intro-
duced for the benefit of the creditors, and the outside public, as well
as of the shareholders. The articles are the internal regulations of the
company. Thus, articles cannot alter or vary that which would be the
result of the memorandum standing alone. - Guiness v. Land Corpo-
ration of Ireland [1882] 22 Ch. D. 349
u Articles of association are drawn up for the purpose of internal
administration of the business and cannot supersede the objects as
set out in the memorandum of association. - Birds Investments Ltd.
v. CIT [1965] 35 Comp. Cas. 143 (Cal.)
5.8 The Articles of Association is a contract of incorporation
Where interest of company or shareholders or public is not affected, Court
has to go strictly by terms of articles of association to evaluate right of
board of directors in matter of admission of members, registration of trans-
fers and other like matters. The articles of association is a contract of
incorporation. The internal discipline for a voluntary organisation is a
matter to be preserved by the organisation itself by insisting upon strict
adherence to the terms of that contract. The Court may have power to
review the working of such terms of the contract when a complaint is
raised before it : that the power is being exercised in a malicious or arbi-
trary or oppressive or capricious manner or in a manner contrary to the
interests of the company or its shareholders. It is elementary that when
such a complaint is made, it has to be established by absolute proof and
by positive evidence. An averment, an allegation or an assertion will not
amount to absolute proof by positive evidence. Unless, one reaches that
degree of proof of oblique motives or collateral purposes vitiating the
action of a voluntary trade organisation in the matter of enlistment and

9
admission of members, the court shall not ordinarily intervene. - Mathew
Michael v. Tekoy (India) Ltd. [1990] 69 Comp. Cas. 145 (Ker.)

5.9 Scope of articles

Shareholders cannot among themselves enter into an agreement which is
contrary to or inconsistent with articles of association of company.Where
agreement between two brothers who equally hold 25 shares each out of
total 50 shares in a private company imposed additional restrictions on
members’ right to transfer their shares which were not stipulated in the
articles of association, the agreement was to be held not binding on the
company or its members. - V.B. Rangaraj v. V.B. Gopalakrishnan [1992] 73
Comp. Cas. 201 (SC)
Where under articles of association a director held his office during plea-
sure of Governor, he could be removed by Governor unless mala fides
were shown on part of Governor. Unless the exercise of pleasure was shown
to be mala fide or against public interest, the court could not interfere
with order nominating another person as a director of the board in the
place of the petitioner. - G. Karunakaran v. State of Kerala [1987] 61 Comp.
Cas. 334 (Ker.)
5.10 Interpretation/construction of articles
Articles of association are to be regarded as a business document. It should
be construed so as to give them reasonable business efficacy, where a
construction tending to that result is admissible on the language of the
article, in preference to a result, which would or might prove unworkable.
- Holmes v. Lord Keyes [1958] 2 All. ER 129 (CA). Articles of association of
a company being a business document, has to be interpreted strictly,
unless there are compelling circumstances to import into it a meaning
other than normal. - S.S. Rajakumar v. Perfect Castings (P.) Ltd. [1968] 38
Comp. Cas. 187 (Mad.)
5.11 Articles vis-à-vis bye-laws
Bye-laws of a company may be proved by other evidence. It is not neces-
sary for the proof of the bye-laws of the company that the original copy
of the bye-laws bearing any mark of approval of the committee be pro-
duced. - R.K. Dalmia v. Delhi Administration [1962] 32 Comp. Cas. 699
(SC)
The following points are noteworthy :
u Bye-laws cannot alter or modify articles of association. The bye-laws
must be consistent with the articles of association and cannot validly
alter or modify the said articles. If, on a fair construction of the
material articles of association, it appears that a dispute as to the

10
 existence of a contract itself was not intended to be referred to a
certain committee, no bye-law can validly confer jurisdiction to
entertain such disputes on that committee. - Shiv Omkar Maheshwari
v. Bansidhar Jagannath [1957] 27 Comp. Cas. 255 (Bom.)
u In construing articles of association Court must take into account all
relevant articles together with bye-laws. If the words used in the
relevant articles are ambiguous, an attempt should be made to adopt
such a construction of the said words as would avoid a conflict
between the articles and the bye-laws. But if the words used are clear
and unambiguous, then that meaning cannot be extended merely
because words of wider denotation may have been used in some of
the bye-laws. In the very nature of things, bye-laws are subordinate
to the articles of association, and indeed they are framed in order to
carry out the provisions contained in the articles themselves. - Shiv
Omkar Maheshwari v. Bansidhar Jagannath [1957] 27 Comp. Cas. 255
(Bom.)
5.12 Constructive knowledge of memorandum and articles
On Registration with the Registrar, the Memorandum and the Articles of
Association become “public documents” under section 399 of the 2013
Act. Hence, an outsider dealing with a company is presumed to have no-
tice (knowledge) of the contents of those documents [whether or not he
actually has knowledge). Lord Hatherley observed in Mahony v. East
Holyford Mining Co. (1875) L. R. 7. H. L. 869 as follows “But whether he
actually reads them or not it will be presumed that he has read them.
Every joint stock company has its memorandum and articles open to all
who are minded to have any dealings whatsoever with the Company and
those who so deal with them must be affected with notice of all that is
contained in these two documents”. Thus , any one dealing with the Com-
pany will be presumed to have read and understood properly, the Memo-
randum and the Articles, whether he has actually read and understood
them or not. This is the doctrine of constructive notice.
Where the Articles of Association required all deeds and documents of the
Company to be signed by the managing director, secretary and a working
director and a deed of mortgage was signed by a secretary and a working
director on behalf of the Company, it was held that the mortgage could
not be enforced as the illegality appeared on the face of the deed. There-
fore, the deed was invalid even though the plaintiff acted in good faith
and money was applied for the purpose of the Company. - Kotla Venkata-
swamy V. C. Rammurthi [1934] 4 Comp. Cas. 289.
By the operation of the doctrine of constructive notice every person deal-
ing with the company is treated as having actual or constructive know-

11
ledge of the contents of the memorandum.-Rajendra Nath Dutta v.
Shibendra Nath Mukherjee [1982] 52 Comp. Cas. 293 (Cal.)

5.12-1 Doctrine of constructive notice does not operate against a

company, but only in its favour
The doctrine of constructive notice operates against the person who has
failed to inquire, but does not operate in his favour. There is no positive
doctrine of constructive notice; it is a purely negative one. - Rama Corpn.
v. Proved Tin & Gen. Investments Ltd. [1952] 1 All ER 554
5.13 Doctrine of indoor management/Turquand’s rule
The Doctrine of Constructive Notice only means that the outsiders are
presumed to have read the Memorandum and Articles and to see that the
proposed dealing is not inconsistent therewith. They are not bound to do
more. The Doctrine of Constructive notice does not mean that outsiders
are deemed to have notice of the internal affairs of the Company. As far as
the internal proceedings of the Company are concerned, outsiders deal-
ing with the Company are entitled to assume that everything has been
done regularly. This is known as the Doctrine of Indoor Management. This
Doctrine was stated in Fountain v. Carmarthen Rly. Co. (1868) L. R. 5 Eq.
316 in the following words “If the directors have power and authority to
bind the Company but certain preliminaries are required to be gone
through on the part of the Company before that power can be duly exer-
cised, then the person contracting with the directors is not bound to see
that all these preliminaries have been observed. He is entitled to presume
that the directors are acting lawfully in what they do.” The Doctrine of
Indoor Management is also known as Turquand Rule or Rule in Turquand’s
case. This is because this rule was first laid down in the case of Royal
British Bank v. Turquand (1856) 6E & B. 327.
In Royal British Bank v. Turquand, the directors of a Co. issued a bond to
T. They had power under the Articles to issue such bond if they were
authorized by a resolution passed at a general meeting, No such resolu-
tion was passed by the Company. It was held that T could recover the
amount of bond from the Company on the ground that he was entitled to
assume that the resolution had been passed.
The scope of the rule in Royal British Bank v. Turquand (1856) 6 El. and Bl.
327 [1856] EngR 470; (119 ER 886) is identified by its other title, the
“indoor management” rule, a description used by Lord Hatherley in Mahony
v. East Holyford Mining Co. (1875) LR 7 HL 869, at p. 894. In its early
history, the rule may be seen as relieving those who dealt with companies
of the obligation to ensure that there had been no irregularities in the
internal management of the company in relation to such matters as the
holding of meetings and the passing of resolutions. This might include

12
elections and appointments to office, the presence of a quorum at meet-
ings and the execution of documents. In such cases, “if nothing has oc-
curred which is evidently contrary to the provisions of the registered docu-
ments, the outsider may assume the regularity of all matters internal to
the company and its organisation”: Sealy, Cases and Materials in Company
Law, 2nd ed. (1978), p 209. That is still the proper scope of the rule and it
was so seen by Lord Simonds in Morris v. Kanssen (1946) AC 459, when he
said, at p 474:
“The so-called rule in Turquand’s case is, I think, correctly stated in Halsbury’s
Laws of England, 2nd ed., Vol. V, at p 423: ‘But persons contracting with a
company and dealing in good faith may assume that acts within its constitu-
tion and powers have been properly and duly performed and are not bound
to inquire whether acts of internal management have been regular.’”

[See also Northside Developments Pty Ltd. v. Registrar-General [1990] HCA

32/(1990) 170 CLR 146 (28 June 1990)].
In order to establish a case which falls within the scope of the rule of
indoor management, it is essential that person who claims benefit of it
must (a) prove that he relied upon ostensible authority which he sets up,
and (b) must not have been put upon inquiry as to whether transaction
was in order. - J.C. Houghton Co. v. Northard Lowe & Wills Ltd. [1927] 1 KB
246 (CA)/Kredit Bank Cassel GmbH v. Schenkers Ltd. [1927] All ER 421
(CA)
5.13-1 Indoor management rule is no more than a presumption of fact
The indoor management rule is really a presumption of regularity. To use
the Latin maxim, omnia praesumuntur rite esse acta : Morris v. Kanssen
(1946) AC 459, at p 475. The presumption is no more than a presumption
of fact. Whence does it arise? It arises from the likelihood that a company
has given to its officers and agents the authority needed to carry on its
business and to act for its benefit within the limits of the authority which
officers and agents in their respective positions would ordinarily possess.
The presumption might reasonably be made when the officers or agents
of a company engage in a transaction for the purpose of a company’s
business or otherwise for the benefit of the company and the transaction
is one that officers or agents in their respective positions would ordinarily
be expected to have the company’s authority to undertake. In that situa-
tion, a party dealing with the company in good faith is entitled to presume
that the officers and agents had that authority: cf. Uxbridge Permanent
Benefit Building Society v. Pickard, at p 258. Being a presumption of fact,
the indoor management rule is displaced when the circumstances put on
inquiry the party seeking to rely on the rule. - Northside Developments Pty
Ltd. v. Registrar-General [1990] HCA 32; (1990) 170 CLR 146 (28 June 1990)

13
5.13-2 Indoor management rule operates only if the person purporting
to represent the company has actual or ostensible authority
The indoor management rule only has scope for operation if it can be
established independently that the person purporting to represent the com-
pany had actual or ostensible authority to enter into the transaction. The
rule is thus dependent upon the operation of normal agency principles; it
operates only where on ordinary principles the person purporting to act
on behalf of the company is acting within the scope of his actual or osten-
sible authority. But where the question is whether an officer of the com-
pany has authority to bind the company by his actions, the context moves
from one of indoor management to one of agency and the ordinary rules
of agency then come into play. The indoor management rule is in effect a
concession to the outsider in dealing with a company; it does not confer
authority on an officer of the company to enter into a contract where that
authority does not otherwise exist. Authority must actually exist to enter
into the transaction in question or it must be found in principles of agency,
as in the concept of ostensible authority. - Northside Developments Pty.
Ltd. v. Registrar-General [1990] HCA 32; (1990) 170 CLR 146 (28 June 1990)
An ordinary, individual director of a company has no ostensible

authority to bind the company. A managing director may have wide

powers, actual or ostensible - In Freeman and Lockyer v. Buckhurst Park

Properties (Mangal) Ltd. [1964] 2 QB 480 (U.K.) it was held that a person
who had assumed the powers of a managing director of a property com-
pany with the company’s approval, had apparent authority to engage
architects on the company’s behalf, this being within the ordinary ambit
of the authority of a managing director of a company of that kind. And
even ordinary directors may have quite significant functions entrusted to
them by the company, although usually these are of a more or less formal
nature, such as affixing the company seal to documents which the com-
pany requires to be executed: see Lennard’s Carrying Company Limited v.
Asiatic Petroleum Company Limited [1915] A.C. 705 (H.L.), at p 715. But
the position of director does not carry with it any ostensible authority to
act on behalf of the company. Directors can act only collectively as a board
and the function of an individual director is to participate in decisions of
the board. In the absence of some representation made by the company, a
director has no ostensible authority to bind it. - Northside Developments
Pty Ltd. v. Registrar-General [1990] HCA 32; (1990) 170 CLR 146 (28 June
1990)
The following judicial decisions are noteworthy :

u When a cheque issued by company is dishonoured, payee is expected

only to prove that person issuing cheque was incharge of company;
it is not reasonable to expect that payee should know whether
person, who signed cheque, was instructed to do so or whether he
had been deprived of his authority to do so when he actually signed

14
 cheque. - N. Rangachari v. Bharat Sanchar Nigam Ltd. [2007] 77 SCL
21 (SC)(Mag.)
u Persons dealing with the company are bound to read the registered
documents and to see that the proposed dealing is not inconsistent
therewith but they are not bound to do more. They need not enquire
into the regularity of the internal proceedings. So if there is a
managing director and authority in the articles for the directors to
delegate their powers to him, a person dealing with him may assume
that it is within the ordinary duties of a managing director. All he has
to see is that the managing director might have power to do what he
purports to do. - Varkey Souriar v. Keraleeya Banking Co. Ltd. [1957]
27 Comp. Cas. 591 (Ker.)
u If articles of association give a power, persons dealing with company,
though they are deemed to have notice of extent of power, are not
bound to inquire into what is called ‘indoor management’ of com-
pany to see whether power has been properly and regularly exer-
cised with all prescribed formalities. If they find an officer of the
company openly exercising an authority which the directors have
power to confer upon him, they are relieved from the duty of further
inquiry and are entitled to assume that the power has been regularly
and duly conferred. - British Thomson-Houston Co. Ltd. v. Federated
European Bank Ltd. [1932] All ER 448 (CA)
u Where a company, through their directors, holds out an officer of the
company as its agent for a particular purpose and ratifies his acts, it
cannot, afterwards dispute acts done by him within the scope of such
agency. - Wilson v. West Hartlepool Harbour & Railway Co. [1865] 34
LJ Ch. 241
u It would hardly be conducive to facility of business if outsiders were
compelled to search the register and find for themselves whether a
person who permitted to act as a director of the company for some
length of time was also its director de jure. - D. Pudumjee & Co. v. N.H.
Moos AIR 1926 Bom. 28
u When there are persons conducting the affairs of the company in a
manner which appears to be perfectly consonant with the articles of
association, then those so dealing with them, externally, are not to be
affected by any irregularities which may take place in the internal
management of the company. - William Augustus Mahony, Public
Officer of the National Bank Dublin v. Liquidator of the East Holyford
Mining Company Ltd. [1875] LR 7 HL 869
u In absence of a specific resolution authorising a managing director
to borrow on promissory notes, a promissory note executed by him
is binding on company. - P. Rangaswami Reddiar v. R. Krishnaswami
Reddiar [1973] 43 Comp. Cas. 232 (Mad.)

15
 u The lender who loaned money to the company on a promissory note
or a bill of exchange executed by the manager and the director after
having found on inquiry from the memorandum and the articles the
existence of such power to borrow, need not and could not, and was
not obliged, to look further into the internal management of the
company and embark on an investigation whether a particular
manager or director who was given such powers under the memo-
randum and the articles had nevertheless lost it or qualified or
limited it by an internal resolution contained in the internal minutes
book or resolution of the company’s directors and, if so, what were
the terms of such qualification or limitation. - Shri Kishan Rathi v.
Mondal Bros. & Co. (P.) Ltd. [1967] 37 Comp. Cas. 256 (Cal.)

5.13-3 If a person has ostensible authority to bind a company, company

is liable for contracts made by him
The following four conditions must be fulfilled to entitle a contractor to
enforce against a company a contract entered into on behalf of the com-
pany by an agent who has no actual authority to do so :
(i) that a representation that the agent had authority to enter on behalf
of the company into a contract of the kind sought to be enforced was
made to the contractor;
(ii) that such representation was made by a person or persons who had
‘actual’ authority to manage the business of the company either
generally or in respect of those matters to which the contract relates;
(iii) that he (the contractor) was induced by such representation to enter
into the contract that is, that he in fact relied upon it; and
(iv) that under its memorandum or articles of association the company
was not deprived of the capacity either to enter into a contract of the
kind sought to be enforced or to delegate authority to enter into a
contract of that kind to the agent. - Freeman & Lockyer (A Firm) v.
Buckhurst Park Properties (Mangal) Ltd. [1964] 34 Comp. Cas. 405
(CA)
Persons who see a person acting as managing director, are entitled to as-
sume that said person has usual authority of a managing director. Osten-
sible or apparent authority is the authority of an agent as it appears to
others. It often coincides with actual authority. Thus, when the board ap-
points one of their members to be managing director, they invest him not
only with implied authority, but also with ostensible authority to do all
such things as fall within the usual scope of that office. Other people who
see him acting as managing director are entitled to assume that he has the
usual authority of a managing director. But sometimes ostensible author-
ity exceeds actual authority. - Hely-Hutchinson v. Brayhead Ltd. [1967] 3
All ER 98 (CA)

16
5.13-4 A third party dealing with a director or a manager in good faith,
is protected even if director/manager exercises his power irregularly
Not only do the acts of the directors bind the company when done within
the scope of their authority, but also where the acts of the directors, how-
ever irregular, belong to a class of acts, which is authorised by the consti-
tution of the company. A company is bound by its dealings with strangers,
who act bona fide with the company; for a company is liable for all acts
done by its directors, even though unauthorised by it, provided such acts
are within the apparent authority of the directors and not ultra vires and
persons dealing bona fide with a managing director are entitled to assume
that he has all such powers as he purports to exercise, if they are powers
which according to the constitution of the company, a managing director
can have. All persons dealing with a company must ascertain the limita-
tions imposed by the articles of association, but they are not bound to
draw any direct or obvious inferences from the provisions they find there,
nor is there any obligation cast upon them to see that such directors are
properly appointed or that they have acted exactly in accordance with the
manner prescribed therein. The articles of association of the company
define the power of directors as between themselves and the company,
and unless there is anything in those articles limiting the powers of the
board of directors in carrying on the ordinary business of the corpora-
tion, a third party who deals with the directors or with the managers act-
ing under those powers, however, irregularly, is protected if he acts in
good faith in his dealing with them. - Ram Baran Singh v. Mufassil Bank
Ltd. AIR 1925 All. 206

5.13-5 Application of indoor management rule to loan transactions

If it is found that transaction of loan into which creditor is entering is not
barred by charter of company or its articles and could be entered into on
behalf of company by person negotiating it, then he is entitled to presume
that all formalities required in connection therewith have been complied
with. A creditor dealing with a trading company is required by law to be
conversant with the terms of its memorandum and articles of association
and no more. If the transaction in question is not barred by the charter of
the company and could be authorised by the passing of a resolution, such
an act is a mere formality. A bona fide creditor, in the absence of any
suspicious circumstances, is entitled to presume its existence. A transac-
tion entered into by the borrowing company under such circumstances,
cannot be defeated merely on the ground that no such resolution was in
fact passed. The passing of such a resolution is a mere matter of indoor or
internal management and its absence, under such circumstances, cannot
be used to defeat the just claim of a bona fide creditor. A creditor being an
outsider or a third party and an innocent stranger is entitled to proceed
on the assumption of its existence; and is not expected to know what hap-

17
pens within the doors that are closed to him. - Lakshmi Ratan Cotton Mills
Co. Ltd. v. J.K. Jute Mills Co. Ltd. [1957] 27 Comp. Cas. 660 (All.)
Lenders to a company should acquaint themselves with memorandum
and articles, but they cannot be expected to embark upon an investiga-
tion as to legality, propriety and regularity of acts of directors. It is no
doubt imperative that lenders to an incorporated company should acquaint
themselves with the memorandum and articles of the company. They can-
not be allowed to plead ignorance of the various limitations under the
constitution of the company. But to go still further and vest on the shoul-
ders of such parties a responsibility to delve deep into the ‘archives of the
company’ is incompatible with the ordinary terms of accepted mercantile
practice. When a person is held out as managing director with authority
to act for the board of a company and as such an office necessary in-
volves the exercise of a particular authority and incurrence of liabilities, a
normal presumption in favour of the third party arises that such exercise
of authority is lawful : any amount of reservation within the four walls of
the indoors of the company touching upon such authority cannot be of
any avail to the company vis-a-vis such strangers. - Official Liquidator,
Manasuba & Co. (P.) Ltd. v. Commissioner of Police [1968] 38 Comp. Cas.
884 (Mad.)
If a company has power to borrow generally for its purposes, lender is not
required to make inquiries as to purpose to which money may be applied.
Where articles of association give power to borrow generally for the pur-
poses of the company, it is clear that when money is being borrowed within
the limits of the borrowing as to amount, the person who lends the money
is not bound to inquire to what purpose the borrowing company is about
to apply the money so borrowed. He cannot look into affairs of the com-
pany and say ‘your purposes do not require it now; this borrowing is un-
necessary, you must show me exactly why you want it’. - Payne David &
Co. Ltd., In re [1904] 2 Ch. 608
Where, one of the directors of the lending company had acquired know-
ledge in his private capacity that the borrowing company was going to
apply the money to an unauthorised object, the question was whether this
knowledge could be imputed to the lending company. No such notice could
be imputed in law. In such a transaction, the lending company was not
bound to inquire as to the application of the money at all by the borrow-
ing company. That being so, it appeared that the knowledge independently
acquired by a director in his personal capacity in respect of a matter which
was irrelevant so far as lending company was concerned, was knowledge
which could not be imputed to the company, for it was knowledge of some-
thing which really did not concern the lending company as a matter of
law. Therefore, it was not the duty of the director to have told these facts
to the lending company, nor was it the duty of the lending company to

18
have inquired into that question. - Payne David & Co. Ltd., In re [1904] 2
Ch. 608
A lender can act on the board resolution delegating borrowing powers to
managing director. An authenticated copy of the resolution signed by the
managing director is sufficient evidence of delegation; no need to inspect
the company’s minute books to see whether resolution was passed. - C.K.
Siva Sankara Panicker v. Kerala Financial Corpn. [1980] 50 Comp. Cas.
817 (Ker.)
Money borrowed by a director with proper authorisation from board of
directors, is company’s liability, even if money is misappropriated by di-
rector. This will be so unless the lender was aware that the director would
abuse his authority and misappropriate the money. - V.K.R.S.T. Firm v.
Official Liquidator, Oriental Investment Trust Ltd. [1944] 14 Comp. Cas.
231 (Mad.)
Even where articles prohibit delegation of directors’ power to borrow, a
duly authorised agent, may borrow in an emergency, in interest of com-
pany, and this will be binding on company. Under sections 188 and 189 of
the Indian Contract Act an agent has very extensive powers in an emer-
gency to do such acts as are necessary for the purpose of protecting his
principal from loss and for carrying on the business. - Dehra Dun-Mussoorie
Electric Tramway Co. Ltd. (In Liquidation) v. Jagmandar Das [1931] 1 Comp.
Cas. 227 (All.)
5.13-6 Other judicial pronouncements
Note the following :
u In Country of Gloucester, Bank v. Rudry Merthyr Steam & House Coal
Colliery Co. [1895] 1 Ch. 629 the articles of company provided that the
directors could fix the quorum for their meeting. The quorum had
been fixed by them at three. A meeting of directors was attended by
only two of them. In the said meeting the secretary was authorised
to affix the seal of the company to a mortgage deed. The question was
whether the mortgage was invalid against the mortgagee who was
an outsider.
The Court held that persons dealing with joint stock companies are
bound to look at what one may call the outside position of the
company, that is to say, they must see that the acts which the
company is purporting to do, are acts within the general authority of
the company and if those public documents which every one has a
right to refer to, disclose an infirmity in their action, they take the
consequences of dealing with a joint stock company which has
apparently exceeded its authority. But, in this case, all the public
documents with which an outside person would be acquainted
would only show this; by some regulation of their own, i.e., indoor
management, they were capable of fixing any quorum. An outside

19
 person not knowing the internal regulation, when found a document
sealed with the common seal of the company and attested and signed
by two directors and the secretary, was entitled to assume that this
was the mode in which the company was authorised to execute an
instrument of this description. The mortgage was, therefore, valid.
u In Bigger Staff v. Rowatt’s Wharf Ltd. [1896] 2 Ch. 93 it was held that
what must a person look to when he deals with directors of a
company ? He must see whether according to the constitution of the
company, the directors could have the power which they are pur-
porting to exercise. It is settled law that where directors give a
security which according to the articles they might have power to
give, the person taking it is entitled to presume that they had the
power. Person dealing bona fide with a managing director is entitled
to assume that he has all such powers as he purports to exercise, if
they are powers which according to the constitution of the company
a managing director can have.
In the said case the articles enabled the directors to delegate to the
managing director all the powers of the board except in the matter
of bills of exchange. The managing director, who was not duly
appointed, hypothecated the debts due to the company as security
for advance raised for the company. The contention of the company
was that the managing director had no authority for this and,
therefore, the company was not bound.
The Court held that the articles enabled the directors to give to the
managing director all the powers of the directors except in the
matters of bills of exchange. Therefore, the persons dealing with him
must look to the articles and see that the managing director might
have the power to do what he purported to do and that was enough
for a person dealing with it bona fide. Accordingly, the company’s
contention could not be upheld.
u In Dewan Singh v. Minerva Films Ltd. [1959] 29 Comp. Cas. 263 (Punj.
& Har.) it was held that even where the directors exceed their powers
or infringe the restrictions imposed on them, the company may be
bound; for an outsider dealing with the company is only bound to see
that the transaction is apparently regular and consistent with the
articles. He need not go into internal matters, e.g., ascertain that a
particular resolution has been passed; that a particular meeting has
been duly held; or that particular formalities have been complied
with. He is entitled to presume omnia rite acta; but if he knows of the
irregularity, the case is different.
u In Sree Meenakshi Mills Ltd. v. Callianjee & Sons [1935] 5 Comp. Cas.
103 (Mad.) from the articles of association of a company the directors
were directed to execute an agreement of managing agency with a

20
 firm by affixing the seal of the company to the agreement which was
scheduled to the articles. Later, the firm resigned all connections
with the company. Between the date of registration of the company
and the date of resignation of the firm the moneys of the company
were deposited with a bank, and the firm drew moneys from the
bank for two purposes: (i) to pay themselves the remuneration
reserved by a scheduled agreement and (ii) to pay on behalf of the
company preliminary expenses incurred by the firm for the com-
pany. However, the agreement was never signed and sealed by the
directors. The question was whether the company could recover the
moneys paid by the bank to the firm either from the bank or from the
firm.
The Court held that though strangers to a company have construc-
tive notice of the memorandum and articles, they are entitled to
assume that the provisions therein contained have been complied
with by the officers of the company. Strangers to the company were
entitled to assume that the direction in the articles had been carried
out and that as a consequence the firm was entitled to act as
managing agent with the powers conferred by the scheduled agree-
ment. Therefore, the company could not recover from the bank the
moneys paid by it to the firm. Further, in the instant case, every body
connected with the company (i.e., the men whose knowledge could
be imputed to the company) knew that the firm was not the manag-
ing agent under any express contract, knew that the firm was acting
as managing agent, knew that the money was with the bank and
knew that expenses were being incurred and being paid by the firm
with the money of the company. All the moneys had been expended
in wages that would be perfectly proper had the scheduled contract
been sealed. Obviously, the directors could not be mistaken about
the fact that the scheduled agreement was not sealed. They must
have known that it was not, for they were the officers charged with
the duty of executing it. Therefore, the amount could not be recov-
ered from the firm.
5.14 Exceptions to doctrine of indoor management
In order to establish a case which falls within the scope of the rule of
indoor management, it is essential that person who claims benefit of it
must (a) prove that he relied upon ostensible authority which he sets up,
and (b) must not have been put upon inquiry as to whether transaction
was in order. - J.C. Houghton Co. v. Northard Lowe & Wills Ltd. [1927] 1 KB
246 (CA)/Kredit Bank Cassel GmbH v. Schenkers Ltd. [1927] All ER 421
(CA)
Thus, if a person dealing with a company is put on enquiry as to whether
the transaction is in order, he cannot avail of the protection of the rule of
indoor management.

21
It is not possible to give specific guidance as to the circumstances in which
the nature of a transaction will be such as to put a person dealing with a
company upon inquiry. So much depends upon the circumstances of the
particular case, notably the powers of the company (if relevant), the na-
ture of its business, the apparent relationship of the transaction to that
business and the actual or apparent authority of those acting or purport-
ing to act on behalf of the company. Much will also depend upon repre-
sentations about the transaction made by such persons, for the party deal-
ing with the company may often find protection in the principles of agency
or the doctrine of estoppel. - Northside Developments Pty Ltd. v. Registrar-
General [1990] HCA 32; (1990) 170 CLR 146 (28 June 1990)
Some of the exceptions as laid down in decided cases from time to time
are as under :
(a) When the person dealing with the company has notice, whether
actual or constructive, of the irregularity.
This exception is based on common sense and any other rule would
“encourage ignorance and condone dereliction of duty”. In T. R. Pratt
(Bombay) Ltd. v. E. D. Sassoon & Co. Ltd. AIR 1936 Bom. 62, Company
‘A’ lent money to Company B on a mortgage of its assets. The
procedure laid down in the Articles was not complied with. The
directors of the two companies were the same. It was held that the
lender had notice of the irregularity. Hence the mortgage was not
binding. In Devi Ditta Mal v Standard Bank of India AIR 1927 Lab. 797,
a transfer of shares was approved by 2 directors, one of these
directors was not validly appointed. The facts were known to the
transferor. The transfer was ineffective.
In Howard v. Patent Ivory Co. (1888) 38 Ch. D. 156, the directors of a
company could borrow in excess of £1000 only with approval of
shareholders in general meeting. The directors themselves lent in
excess of £1,000 without the approval of shareholders in general
meeting. It was held that the directors had notice of the irregularity.
Hence, the company was liable to them for only £1,000.
(b) Acts Outside the scope of apparent authority
If an officer of a Company contracts with a third party and if the act
of the officer is beyond the scope of his apparent authority, the
company is not bound. The plaintiff cannot claim the protection of
the indoor Management rule simply because under the Articles the
power to do the act could have been delegated to him. The plaintiff
can sue the company only if the power to act has in fact been
delegated to the officer with whom he entered into the contract.

22
 In Anand Bihari Lal v. Dinshaw & Co. AIR 1942 Oudh 417, the
plaintiff accepted a transfer of a Company’s property from its
accountant. It was held that the transfer was void as such a transac-
tion was apparently beyond the scope of the accountant’s authority.
The plaintiff should have seen the power of attorney executed by the
Company in favour of the accountant.
The Rule does not apply where person seeking to rely upon rule
knows (or must be taken to know) that matters relating to internal
management have not been complied with - Howard v. Patent Ivory
Mfg. Co. [1888] 38 Ch. D. 156.
(c) In case of directors
Benefit of rule of indoor management is not available to directors. It
is the duty of directors, and equally of those who purport to act as
directors, to look after the affairs of the company, to see that it acts
within its powers and that its transactions are regular and orderly. To
admit in their favour a presumption that that is rightly done which
they have themselves wrongly done is to encourage ignorance and
condone dereliction of duty. It may be that in some cases, a director
is not blameworthy in his unauthorised act. It may be that in such a
case some other remedy is open to him, either against the company
or against those by whose fraud he was led into this situation, but he
cannot invoke this rule and give validity to an otherwise invalid
transaction. His duty as a director is to know; his interest, when he
invokes the rule, is to disclaim knowledge. Such a conflict can be
resolved in only one way. A director is not for the purpose of the rule
in the same position as a stranger; then it is as immaterial how long
he has been a director, as it is whether he is an idle or diligent director
or a robust or sick director. - Morris v. Kanssen [1946] 16 Comp. Cas.
186 (HL)
(d) Where the person dealing with the company is put on inquiry
The sole director and principal shareholder of a company paid into
his own account cheques drawn in favour of the company. It was
held that the bank was put on inquiry, and it could not rely on
the ostensible authority of director. - A. L. Underwood v. Bank of
Liverpool. (1924) 1 K. B. 775.
A creditor will ordinarily be put on inquiry when his debtor offers as
security a guarantee given by a third party company whose business
is not ordinarily the giving of guarantees, for the execution of
guarantees and supporting securities for another’s liabilities, not
being for the purposes of a company’s business nor otherwise for its
benefit, is not ordinarily within the authority of the officers or agents
of the company. Of course, the circumstances may show that the

23
giving of such a guarantee and supporting security is for the company’s
benefit. For example, it may be for the benefit of solvent companies
within a group to guarantee the liabilities of a holding company in
order to benefit the guarantor companies as well as other members
of the group. In such a case, provided the creditor has been satisfied
that it is such a case, the apparently regular execution of a guarantee
and supporting security may be relied on pursuant to the indoor
management rule. Of course, the only but important consequence of
a creditor being put on inquiry is that, in the event that an apparently
regular guarantee turns out not to have been authorized by the
guarantor company, the guarantor company may show that it is not
bound. When a creditor is put on inquiry, he cannot rely on the
apparent regularity of execution of the instrument of guarantee and
the indoor management rule but must be satisfied that the relevant
officers and agents of the company had the company’s authority to
execute an instrument pledging the credit or assets of the company
to guarantee another’s debts. If the debtor is a director of the
company, the fact that the debtor vouches for the due execution of
the guarantee does not necessarily exhaust the inquiries which the
creditor is bound to make, for the debtor-director may not be
authorized to state the scope of his own or others’ authority to the
guarantee. However, where the giving of a guarantee by a company
to secure another’s debt is for the purposes of the company’s
business or where the circumstances are such that the company
represents that the guarantee is given for the purposes of its business
or for its benefit, and there are no other circumstances to put a party
on inquiry, the indoor management rule applies.
The position of a creditor who takes a company’s guarantee for
another’s debt may be summarised as follows :
If the guarantee is not executed in apparent conformity with the
formalities prescribed by the company’s constitution, the guarantee
is void. If the guarantee is executed in apparent conformity with
those formalities, the validity of the guarantee can be assumed if
(i) it is executed by officers or agents who would ordinarily be
expected to have authority to do so, (ii) the guarantee is given for the
purposes of the company’s business or otherwise for the company’s
benefit, and (iii) there are no circumstances which put the creditor
on inquiry as to the authority of those who executed the guarantee
to do so. If these conditions are not met, the creditor must satisfy
himself as to the authority of the persons who executed the guaran-
tee to do so. The inquiry must be made of the appropriate officers of
the company. The persons who executed the guarantee might, but
will not usually, have authority to satisfy the creditor’s inquiry. If the

24
 creditor, being put on inquiry, makes no inquiry or is not reasonably
satisfied as to the authority of the persons who executed the guaran-
tee to do so, the company is not estopped from repudiating the
guarantee for want of authority on the part of those who executed
it. If the creditor is not put on inquiry, he may assume that the
guarantee was executed with the company’s authority and, once he
acts on that assumption to his detriment, the company is estopped
from denying the validity of the execution of the guarantee. The
same consequence follows if the creditor, having inquired, is reason-
ably satisfied by the company’s response that those who executed
the guarantee had the company’s authority to do so. Where author-
ity to execute the guarantee depends upon an antecedent resolution
of the board, a creditor who is put on inquiry must be reasonably
satisfied that the resolution was duly passed. - Northside Develop-
ments Pty Ltd. v. Registrar-General [1990] HCA 32; (1990) 170 CLR
146 (28 June 1990)
(d) Where the outsider had not in fact read the documents
The rule cannot be invoked in favour of a person who did not in fact
read the Memorandum and the Articles and consequently did not act
in reliance of those documents. Slade J expressed this exception in
Rama Tin Corps. Ltd. v. Proved Tin & General Investments Ltd. (1952)
2 Q. B. 147/1 All ER in the following words :-
“The doctrine of Constructive notice of a Company’s registered docu-
ments such as its Memorandum of Association, its Articles of Associa-
tion, and its Special resolutions does not operate against a Company, but
only in its favour. The doctrine operates against the person who failed to
inquire”.

(e) Forgery
The rule of indoor Management applies only to irregularities that
might otherwise affect a genuine transaction. The rule does not apply
where a person relies on a forged document since nothing can
validate forgery. The company cannot be held liable for forgeries
committed by its officers.
Rule does not apply to obvious forgery; it does not apply to a case
where a person acting on behalf of a company exceeds any actual
authority given to him or exceeds any ostensible authority he
possesses. If the doctrine was really carried to its logical conclusion
it would be a very alarming thing for companies; for, anybody who
has the pen of a ready writer, need only sit down and write a bill of
exchange in the name of any company who had that article, and that
company would presumably be bound by the bill even though it was
forgery. Certainly the article cannot have that bearing. The doctrine

25
 cannot mean that, not merely the office boy, but anybody might
purport to sign on behalf of the company. The doctrine would apply
only in the case of the persons who, ordinarily, apart from the
articles, in their position in the company or elsewhere would be
acting within the scope of their apparent authority in signing a bill.
It depends of course, on the evidence as to the nature of the business
and as to the actual position occupied by the person. However, the
doctrine did not apply to cases where there is an obvious forgery. The
rule does not apply where a person acting on behalf of a company
exceeds any actual authority given to him or exceeds any ostensible
authority he possesses. - Kredit Bank Cassel GmbH v. Schenkers Ltd.
[1927] All ER 421 (CA)
Doctrine of indoor management does not apply to a forged docu-
ment relied upon by claimant. The doctrine applies only to irregulari-
ties that otherwise might affect a genuine transaction. It cannot
apply to a forgery. - Ruben v. Great Fingall Consolidated [1904-07] All
ER 460 (HL). In the said case, R, Secretary of company G, issued a
counterfeit share certificate, on which signatures of directors were
forged and seal of the company was fraudulently affixed. The
question was whether the company was liable for the fraud of its
secretary. It was held that forged certificate was a pure nullity.
However, company may be estopped from disclaiming document as
a forgery, if it has been put forward as genuine by an official acting
within his actual, usual or apparent authority-Naguneri Peace Memo-
rial Co-operative Urban Bank Ltd. v. Alamelu Ammal [1961] 31 Comp.
Cas. 705 (Mad.)
(f) Others - Notes the following :
u The doctrine of indoor management cannot apply where the
question is not one as to the scope of the power exercised by an
apparent agent of the company, but is in regard to the very
existence of the agency. - Varkey Souriar v. Keraleeya Banking
Co. Ltd. [1957] 27 Comp. Cas. 591 (Ker.)
u In Pacific Coast Coal Mines v. Arbuthnot [1917] AC 607 it was
held that where some act, such as the granting of an obligation
in the course of its business, is put by the constitution of a
company, within its power; and certain formalities of adminis-
tration are prescribed by the articles of association which for
domestic purposes regulate the duties of directors to the share-
holders, the mere failure to comply with a formality, such as a
proper appointment, or the presence of a quorum of directors,
will not affect a person dealing with the company from outside
and without knowledge of the irregularity. He is presumed to

26
 know the constitution of the company, but not what may or may
not have taken place within doors that are closed to him. But the
case stands quite otherwise when the act is one which has not,
by the constitution of the corporation, been put within its power
except on the fulfilment of a condition. In that event the persons
dealing with the corporation are bound to ascertain whether
the condition has been fulfilled.
In view of the exceptions discussed above, if the doctrine of indoor man-

agement is at all a silver lining, it is only a slender silver lining in a

very dark and dense cloud.

5.15 Articles have no statutory force

Articles of association constitutes a contract between shareholders and
governs internal management and administration of company; such ar-
ticles of association has no force of law. Therefore, any breach or viola-
tion thereof would not confer any right on the shareholders to invoke the
extraordinary jurisdiction of the High Court under article 226 of the Con-
stitution unless the petitioner is able to establish that there was any viola-
tion of the provisions of the Companies Act. - Hyder Ali Khan v. Registrar
of Companies [2001] 32 SCL 41 (AP)

27
 Section 56
Transfer and transmission of securities.
156. (1) A company shall not register a transfer of securities

of the company, or the interest of a member in the com-

pany in the case of a company having no share capital, other
than the transfer between persons both of whose names are
entered as holders of beneficial interest in the records of a
depository, unless a proper instrument of transfer, in such
form as may be prescribed, duly stamped, dated and
executed by or on behalf of the transferor and the trans-
feree and specifying the name, address and occupation, if
any, of the transferee has been delivered to the company by
the transferor or the transferee within a period of sixty days
from the date of execution, along with the certificate relat-
ing to the securities, or if no such certificate is in existence,
along with the letter of allotment of securities:

Provided that where the instrument of transfer has been

lost or the instrument of transfer has not been delivered
within the prescribed period, the company may register the
transfer on such terms as to indemnity as the Board may
think fit.

(2) Nothing in sub-section (1) shall prejudice the power of

the company to register, on receipt of an intimation of trans-
mission of any right to securities by operation of law from
any person to whom such right has been transmitted.

(3) Where an application is made by the transferor alone

and relates to partly paid shares, the transfer shall not be
registered, unless the company gives the notice of the appli-
cation, in such manner as may be prescribed, to the trans-
feree and the transferee gives no objection to the transfer
within two weeks from the receipt of notice.

1. Enforced with effect from 1-4-2014.

1
(4) Every company shall, unless prohibited by any provision
of law or any order of Court, Tribunal or other authority,
deliver the certificates of all securities allotted, transferred
or transmitted—

(a) within a period of two months from the date of incor-

poration, in the case of subscribers to the memoran-
dum;

(b) within a period of two months from the date of allot-

ment, in the case of any allotment of any of its shares;

(c) within a period of one month from the date of receipt

by the company of the instrument of transfer under
sub-section (1) or, as the case may be, of the intimation
of transmission under sub-section (2), in the case of a
transfer or transmission of securities;

(d) within a period of six months from the date of allot-

ment in the case of any allotment of debenture:

Provided that where the securities are dealt with in a

depository, the company shall intimate the details of allot-
ment of securities to depository immediately on allotment
of such securities.

(5) The transfer of any security or other interest of a

deceased person in a company made by his legal represen-
tative shall, even if the legal representative is not a holder
thereof, be valid as if he had been the holder at the time of
the execution of the instrument of transfer.

(6) Where any default is made in complying with the provi-

sions of sub-sections (1) to (5), the company shall be punish-
able with fine which shall not be less than twenty-five thou-
sand rupees but which may extend to five lakh rupees and
every officer of the company who is in default shall be pun-
ishable with fine which shall not be less than ten thousand
rupees but which may extend to one lakh rupees.

2
(7) Without prejudice to any liability under the Depositories
Act, 1996 (22 of 1996), where any depository or depository
participant, with an intention to defraud a person, has trans-
ferred shares, it shall be liable under section 447.

RELEVANT RULE : RULE 11 OF THE COMPANIES (SHARE CAPITAL

AND DEBENTURES) RULES, 2014
Instrument of transfer.
Rule 11 : (1) 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 com-
pany within sixty days from the date of such execution.

(2) 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 refer-
ences instead to the interest of the member in the company.

(3) 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.

COMMENTS

56.1 Legislative history

56.1-1 Corresponding provisions of the 1956 Act
This section corresponds to sections 108, 109, 110 and 113 of the 1956 Act.
56.1-2 Comparative study : 2013 Act vis-a-vis the 1956 Act
The following differences between the 2013 Act and the 1956 Act may be
noted:
u Hitherto, the 1956 Act provided no procedure or mechanism for
transfer of interest of a member in a company having no share
capital. Such interest is nevertheless transferable under the Transfer
of Property Act, 1882 (general law of transfer of property). Section
56(1) of the 2013 Act provides for transfer of such interest by
execution of proper instrument of transfer and delivery of such
instrument to the company within 60 days from the date of execu-
tion.

3
 Rule 11 of the Companies (Share Capital and Debentures) Rules,
2014 provides that an instrument of transfer shall be in Form No.
SH.4 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.
u Under the 1956 Act, CLB had powers to extend time-limits for
delivery of certificates of shares, debentures and debenture stocks
allotted or transferred by maximum 9 months on application made
by company to shareholders/debenture holders. Under the 2013
Act, there is no scope for such extension of time-limit.
u The power to direct rectification was conferred on the CLB by the
1956 Act. The 2013 Act has transferred these powers from the CLB
to the Tribunal.
56.2 Overview of section 56
Section 56 deals with:
u Procedure for transfer of securities by a company [Section 56(1)/
(3)] [Para 56.6]
u Procedure for transfer of other interest in a company not having
share capital [Section 56(1)] [Para 56.6]
u Transmission of securities [Section 56(2)] [Para 56.7]
u Time-bound delivery of certificates of securities to security holder
[Section 56(4)] [Para 56.8]
u Transfer of any security or other interest of a deceased person by his
legal representative [Section 56(5)] [Para 56.9]
u Transfer by depository or depository participant with intent to
defraud [Section 56(7)] [Para 56.11]
u Penal provisions [Section 56(6)] [Para 56.10]

56.3 ‘Transfer of shares’ - Connotation of

Transferring a share involves a series of steps; an agreement, execution of
deed, and finally registration; and word ‘transfer’ can mean whole of these
steps. Moreover, the ordinary meaning of ‘transfer’ is simply to hand over
or part with something. The shareholder who agrees to sell is parting with
something. The context must determine in what sense the word is used. -
Lyle & Scott Ltd. v. Scott’s Trustees [1960] 30 Comp. Cas. 30 (HL). Transfer

relates back to the date of execution of instrument of transfer - Howrah

Trading Co. Ltd. v. CIT [1959] 29 Comp. Cas. 282 (SC). When company

accepts a transfer, transfer relates back to date of execution of transfer

4
instrument between transferor and transferee - Killick Nixon Ltd. v.
Dhanraj Mills (P.) Ltd. [1983] 54 Comp. Cas. 432 (Bom.)

56.4 Transfer of shares vs. Registration of transfer of shares

The fields of operation of the provisions of the Transfer of Property Act
(transfer of shares) and the provisions of the Companies Act (registration
of transfer), are different. Where the requirements of the Transfer of Pro-
perty Act are completely met the right vests in the transferee/donee to
obtain the share certificates in accordance with the provisions of com-
pany law. Such a right is in itself ‘property’ and separable from the techni-
cal legal ownership of shares. The subsequent or full rights of ownership
would follow as a matter of course by compliance with provisions of Com-
pany Law. Transfer of Property Act cannot, however, enable the trans-
feree/donee to exercise the rights of a shareholder vis-a-vis the company,
until a transfer of shares is made in accordance with the Company Law.-
Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar [1975] 45 Comp.

Cas. 43 (SC). Thus, transfer of interest in shares is independent of require-

ment as to registration of transfer. There should first be a transfer pro-
perly made of shares which should then be presented along with the share
certificates to the board of directors either by the transferor or transferee
for change of registration in respect of them and, until such a change is
effected in the books of the company, the transferor will continue to be
the holder of the shares. Without an anterior transfer there can be no
question of applying for registration of it. - R. Subba Naidu v. CGT [1969]
73 ITR 794 (Mad.)/S. Sundaram Pillai v. P. Govindaswami [1987] 62 Comp.
Cas. 41 (Mad.).
There is a distinction between ‘the title to get on the register’ and ‘the full
property in shares in a company’. The first is acquired by mere delivery
with the required intention, of the share certificate and a blank form signed
by the transferor. The second is only obtained when the transferee, in
exercise of his right to become a shareholder, gets his name on the regis-
ter in place of the transferor. - Maneckji Pestonji Bharucha v. Wadilal
Sarabhai & Co. AIR 1926 PC 38/S. Sundaram Pillai v. Govindaswami [1987]

62 Comp. Cas. 41 (Mad.).

56.5 Shares in demat account - Transfer vs. Pledge
In JRY Investments (P.) Ltd. v. Deccan Leafine Services Ltd. [2004] 56 SCL
339/121 Comp. Cas. 12 (Bom.) the plaintiffs parted with certain shares in
dematerialised form in favour of defendant No. 1, in order to secure
repayment of a loan of proposed to be taken from defendant No. 1, but
defendant No. 1 did not give the loan and transferred the shares to other
defendants. The plaintiffs’ case was that, since no loan was taken, the

5
transfer of the shares in favour of the other defendants was void and,
therefore, the plaintiffs remained the owner of the shares. It was contended
that the plaintiffs had transferred the shares to defendant No. 1 with the
intention of creating security and since no title in the shares vested in
defendant No. 1, defendant No. 1 could not have transferred the shares.
The Court held that merely because the consideration failed, it could not
be said that the transfer of shares in favour of defendant No. 1 was not a
transfer. Further, after the plaintiffs transferred the shares in favour of
defendant No. 1 under the loan agreement, the shares were held with the
depository and defendant No. 1 had been shown as a beneficial owner in
the depository participant account. If the plaintiffs intended to transfer the
shares in favour of defendant No. 1 on account of the pledge, they could
have done so in the manner provided by Regulation 58 of the SEBI
Depositories and Participants Regulations, 1996, i.e., by making an applica-
tion to the depository through defendant No. 2 - depository participant,
whereupon the depository participant would have made a note that the
securities were available in the pledge in accordance with regulation 58(2).
In that case, the security would have been accepted by the depository as a
pledger and the record would have shown the plaintiffs as the pledger and
defendant No. 1 as pledgee. In view of the fact that the plaintiffs did not
follow the procedure provided by regulations for creating pledge, prima
facie the plaintiffs had not intended to create a pledge but intended to

transfer. Since the plaintiffs did not create a pledge and indeed transferred
title in the shares to defendant No. 1, it could not be said that the sale by
defendant No. 1 of the shares was sale by a person who was not an owner
thereof.
56.6 Conditions precedent to registration of transfer of securities
[Section 56(1)/56(3)]
Section 56(1) provides that a company shall not register a transfer of
securities of the company, or the interest of a member in the company in
the case of a company having no share capital, other than the transfer
between persons both of whose name are entered as holders of beneficial
interest in the records of a depository (see para 56.6-2), unless a proper
instrument of transfer has been delivered to the company by the trans-
feror or the transferee within 60 days from the date of execution.
MCA has clarified that it would not be in order for a company to effect
registration of a transfer of shares if the instrument of transfer has been
received by it after the specified period even though the delay may have
been caused by postal irregularity.

6
Transfer instrument may be sent to company by registered post. - Sadashiv
Shankar Dandige v. Gandhi Sewa Samaj Ltd. [1958] 28 Comp. Cas. 137

(Bom.)
The instrument of transfer so delivered should be:
(i) in prescribed form [Form No. SH.4]. Rule 11 of the Companies (Share
Capital and Debentures) Rules, 2014 provides that 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.
(ii) duly stamped,
(iii) dated,
(iv) executed by or on behalf of the transferor and the transferee
(v) specify the name, address and occupation of the transferee
(vi) along with the certificate relating to the securities, or if no such
certificate is in existence, along with the letter of allotment of
securities.
Where certificate is for larger number of shares out of which a small
number has been transferred, and certificate along with transfer form is
lodged with company, requirement of section 108 of the 1956 Act [corre-
sponding to section 56 of the 2013 Act] is complied with. The section is
mandatory is only to the extent that the company must have before it the
share transfer form duly executed and stamped along with the share
transfer certificate. It cannot be interpreted to mean that even when a
share certificate is there, though for a larger amount, there is non-
compliance of the section. The larger share certificate includes the shares
sought to be transferred and, as such, there would be full compliance of the
section if an application for transfer of a smaller number of shares is
accompanied by a share certificate relating to a larger number of shares.
- Kumar Exporters (P.) Ltd. v. Naini Oxygen Acetylene & Gas Ltd. [1985] 58
Comp. Cas. 97 (All.)
Articles II(19) to II(22) provides as under :
u (i) The instrument of transfer of any share in the company shall be
executed by or on behalf of both the transferor and transferee.
(ii) The transferor shall be deemed to remain a holder of the share
until the name of the transferee is entered in the register of members
in respect thereof.

7
 u The Board may, subject to the right of appeal conferred by section
58 decline to register—
(a) the transfer of a share, not being a fully paid share, to a person
of whom they do not approve; or
(b) any transfer of shares on which the company has a lien.
u The Board may decline to recognise any instrument of transfer
unless—
(a) The instrument of transfer is in the form as prescribed in rules
made under sub-section (1) of section 56;
(b) The instrument of transfer is accompanied by the certificate of
the shares to which it relates, and such other evidence as the
Board may reasonably require to show the right of the trans-
feror to make the transfer; and
(c) The instrument of transfer is in respect of only one class of
shares.
u On giving not less than seven days’ previous notice in accordance
with section 91 and rules made thereunder, the registration of
transfers may be suspended at such times and for such periods as the
Board may from time to time determine.
Such registration shall not be suspended for more than thirty days
at any one time or for more than forty-five days in the aggregate in
any year.
The words ‘shall not register’ are mandatory in character. The prohibition
against transfer without complying with the above provisions is emphasised
by the negative language. Negative words are clearly prohibitory and are
ordinarily used as a legislative device to make a statutory provision
imperative. - Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp. Cas.
185 (SC). It cannot be said that provisions contained in section 108 of the
1956 Act [corresponding to section 56 of the 2013 Act] are directory
because non-compliance of this section is not declared an offence.
Section 629A of the 1956 Act [corresponding to section 450 of the 2013
Act] prescribes the penalty where no specific penalty is provided elsewhere
in the Act. - P.V. Chandran v. Malabar & Pioneer Hosiery (P.) Ltd. [1990] 69
Comp. Cas. 164 (Ker.) The section provides that it shall not be lawful to
register a transfer of shares unless a proper instrument of transfer duly
stamped and executed by the transferor and the transferee has been de-
livered to the company. There are of course exceptions, e.g., when a Court
sale has been held. In that event Order XXI rule 80 of the Code of Civil
Procedure provides for the Judge or an officer of Court directed by him
signing the transfer instrument. - Madhava Ramachandra Kamath v. Canara
Banking Corpn. Ltd. [1941] 11 Comp. Cas. 78 (Mad.)

8
A separate application for registering the transferee is not required. Lodg-
ing the executed transfer deeds with the company is sufficient. This is
because the prescribed form for the transfer of shares itself shows on the
face of it that the transferees have agreed to become the members of the
company. Hence, all that is required is to lodge the transfer deeds or the
instruments. It is for this reason that it is not correct to say that the trans-
feree has to make an offer which requires to be accepted by the company.
It may be that as a result of the transferee becoming a member of the
company, a contractual relationship may come into existence between
the company and the member by virtue of section 36 of the 1956 Act
[corresponding to section 10 of the 2013 Act] with the articles of associa-
tion constituting the terms of the contract between the parties. But this
‘statutory’ contract has nothing to do with the contract of transfer of shares,
entered into between the transferor and the transferee. - Killick Nixon
Ltd. v. Dhanraj Mills (P.) Ltd. [1983] 54 Comp. Cas. 432 (Bom.)

A reading of section 108 of the 1956 Act [corresponding to section 56 of

the 2013 Act] shows that a company may not register transfer of shares if
it is not satisfied about the transfer and some of the possible grounds
could be that the instrument of transfer was not stamped, that it was not
executed by the transferor and the transferee and that the instrument of
transfer is not accompanied with the certificate relating to the shares.
This section does not say that if the share certificates still continue with
the transferor, the sale would be deemed to be void or if the transferee
does not sign the instrument of transfer, the transfer would be deemed to
be void. Further, it cannot be disputed that transfer of shares, and even of
immovable property, would be complete after the instrument of transfer
is executed, whether the price is paid at that time or is paid in part and
part agreed to be paid later or the whole consideration is agreed to be paid
later. In the second and third contingencies, the only source open to the
transferor would be to claim the balance sale price or the entire sale price,
as the case may be, but it cannot be held that the transfer would be void
or non-existent. As regards the payment of price of the shares, the appe-
llants could claim the balance sale price but the transfer would not be-
come void or non-existent. Therefore, there was substantial compliance
of section 108 of the 1956 Act [corresponding to section 56 of the 2013
Act] and the transfer of shares was valid. - Hoshiarpur Azad Transporters
(P.) Ltd. v. Hoshiarpur Express Transport Co. [1983] 54 Comp. Cas. 254 (Punj.

& Har.)
Where the board of directors in their meeting noticed that the transferor’s
signature was not affixed in the presence of witnesses, stamps were not
affixed on the transfer deeds, specimen signature of the transferee was
not obtained on the document and procedure laid down in Articles of
Association of the company was not followed and certain columns were

9
unfilled and they realized their mistake in registering the transfer which
had not complied with mandatory provisions of section 108 of the 1956
Act [corresponding to section 56(1) of the 2013 Act], it was always within
their inherent power to rectify such a mistake without an order from the
court [now NCLT]. - [Miss Aarti Mukund Pardhanani v.Mac Charles (India)
Ltd. [2011] 107 SCL 5 (Kar.)]

56.6-1 Lost instrument of transfer, effect of

Where the instrument of transfer has been lost or the instrument of trans-
fer has not been delivered within the prescribed period, the company may
register the transfer on such terms as to indemnity as the Board may
think fit. [Proviso to section 56(1)]. In other words, non-production of
instrument of transfer is excusable but not non-production of share cer-
tificate/letter of allotment. A transfer of shares cannot be registered with-
out production of share certificates - Union of India v. Kulu Valley Trans-
port Ltd. [1958] 28 Comp. Cas. 29 (Punj. & Har.)]

Section 108 of the 1956 Act [corresponding to section 56 of the 2013 Act]
only envisages the case where the instrument of transfer is lost. If, there-
fore, the share certificate or the allotment letter is also lost, then a dupli-
cate thereof will have to be obtained first. [MCA’s clarification : Company
News & Notes, July 1963 issue.] In case of a sale of shares by court, it is not

necessary that share scrips should be in possession of Court and that they
should be endorsed in favour of petitioner. - Hanuman Mills (P.) Ltd., In re
[1977] 47 Comp. Cas. 644 (All.)
In Kamlesh D. Shah v. Larsen & Toubro Ltd. [2011] 109 SCL 27/12
taxmann.com 483 (CLB) petitioner had purchased 650 shares of respon-
dent No. 1-company and paid consideration. However, transfer deeds duly
signed by transferor and transferee were lost and were not traceable. Out
of 650 shares, new transfer deeds for 229 shares were obtained from hold-
ers and for 421 shares, new transfer deeds could not be obtained. Peti-
tioner intimated respondent No. 1 - company about said loss and requested
it to put ‘stop transfer’ mark against 421 shares. Respondent intimated
petitioner that old share certificates were no longer valid as same had
been cancelled in pursuance of a scheme of arrangement approved by
High Court and new share certificate were issued to all registered share-
holders without surrendering of old share certificates. Petitioner filed
petition under section 111A of the 1956 Act before CLB. It was found that
some of shares were in physical form while some were in demat form. It
was held that on facts, it was to be presumed that petitioner purchased
shares and became owner of those shares. Since there was no adversary
claim in respect of shares in question, direction was to be issued to
respondent-company to rectify register of members by inserting name of

10
petitioner by deleting names of original shareholders, in respect of shares
held in physical form, after issuing notice to those shareholders. In respect
of demated shares depository was to be directed to issue notices to parties
in whose names shares were demated informing them regarding claim of
petitioner in respect of those shares and to take appropriate decision there-
after.
56.6-2 In case of demat shares
The above mandatory requirements [see para 56.6] for registration of trans-
fer (i.e., duly stamped and excecuted share transfer deed and related share
certificates/letter of allotment) are not applicable where both transferor
and transferee have demat accounts. - Finolex Industries Ltd. v. Anil
Ramchand Chhabria [2000] 26 SCL 233 (Bom.). The ratio of this decision

stands incorporated in section 56(1) by the use of the words “other than
the transfer between persons both of whose names are entered as holders
of beneficial interest in the records of a depository”.
56.6-3 Partly paid shares
Sub-section (3) of section 56 provides that where an application is made
by the transferor alone and relates to partly paid shares, the transfer shall
not be registered, unless the company gives the notice of the application,
in such manner as may be prescribed, to the transferee and the transferee
gives no objection to the transfer within two weeks from the receipt of
notice.
Rule 11(3) of the Companies (Share Capital and Debentures) Rules, 2014
provides that 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 trans-
feree and the transferee has given no objection to the transfer within
two weeks from the date of receipt of notice.

56.6-4 “Duly stamped” instrument of transfer

Where considering evidence produced by parties, High Court found that,
it had not been proved that respondent had paid higher price for shares
than those stated in transfer deeds, transfer deeds could not be termed as
not duly stamped - Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar [1990] 67
Comp. Cas. 518 (SC)
Where Government is transferee, transfer deed is not exempt from stamp

duty - Ordinarily and as a matter of law, in case of transfer of shares of a

company it is the vendor who is liable for stamp duty. Where the Govern-
ment is the transferee it cannot be said that the Government is liable for
paying the stamp duty simply because an instrument for transfer of shares
is to be executed both by the transferor and the transferee. That being so

11
where the Government is the transferee, case will not bring such a trans-
fer within the exemption from stamp duty under section 3 of the Indian
Stamp Act in respect of documents executed by the Government. - G.R.
Parry v. Union of India [1962] 32 Comp. Cas. 145 (Punj. & Har.)

Value of shares to be taken for purposes of stamp duty on transfer deeds is

the consideration actually paid or agreed to be paid. The phrase ‘value of

the shares’ cannot be read as ‘face value of the shares’. If that were the
intention of the Legislature, it could have been precisely expressed by
using a slightly different language. - Union of India v. Kulu Valley Trans-
port Ltd. [1958] 28 Comp. Cas. 29 (Punj.)

Expression ‘duly stamped’ - In order that stamp can be said to have been

fixed in accordance with law, it must be cancelled either by person who

affixes it or by person who executes instrument. - Coronation Tea Co. Ltd.,
In re [1962] 32 Comp. Cas. 568 (Cal.)/G.R. Parry v. Union of India [1962] 32

Comp. Cas. 145 (Punj.)/Kothari Industrial Corporation Ltd. v. Lazer Deter-

gents (P.) Ltd. [1994] 1 SCL 191 (Mad.)/Muniyamma v. Arathi Cine Enter-

prises Pvt. Ltd. [1993] 77 Comp. Cas. 97 (Kar.)/Mathrubhumi Printing &

Publishing Co. Ltd. v. Vardhaman Publishers Ltd. [1992] 73 Comp. Cas. 80

(Ker.). If adhesive stamp on transfer deed is not defaced, a fresh deed is to

be submitted. The company is not obliged to cancel the stamp before reg-
istering the transfer itself and even if the company deliberately has not
done that, no court can compel the company to effect the transfer of share
and rectify the register even though the adhesive stamps were not can-
celled at the time of execution of the document. - Nuddea Tea Co. Ltd. v.
Asok Kumar Saha [1988] 64 Comp. Cas. 775 (Cal.). An insufficiently stamped

transfer form cannot be ruled out of consideration if penalty in terms of

proviso to section 35 of Stamp Act is agreed to be paid - Yamuna Das
Kanoujia v. Behar Engineers & Contractors Ltd. [1944] 14 Comp. Cas.163

(Pat.). It is not necessary that stamps be affixed before transfer deed is

executed. They are to be affixed before delivery. - Prafulla Kumar Rout v.
Orient Engg. Works (P.) Ltd. [1986] 60 Comp. Cas. 65 (Ori.). An instrument

of transfer of shares requires to be stamped, and stamps cancelled by

transferor; rectification of register cannot be made in absence of such
duly stamped instrument - Union of India v. Kulu Valley Transport Ltd.
[1958] 28 Comp. Cas. 29 (Punj.).
Collector may impound an instrument of transfer of shares which is

not duly stamped, but he cannot call upon company to pay proper stamp

duty - There is no provision in the Companies Act or in the Stamp Act,

which would make the company liable for payment of the proper stamp
duty. The liability to pay stamp duty with regard to instrument of transfer
is upon the executant. - Jagdish Mills Ltd., In re [1954] 24 Comp. Cas. 241
(Bom.)

12
56.6-5 Instrument of transfer should be executed by or on behalf of the
transferor and the transferee
The section does not speak of any execution by the company. - Coronation
Tea Co. Ltd., In re [1962] 32 Comp. Cas. 568 (Cal.). When shares are

acquired from the Tax Recovery Officer, he is competent to execute the

document of sale. - Swadeshi Polytex Ltd. v. Swadeshi Mining & Manufac-
turing Co. Ltd. [1987] 62 Comp. Cas. 683 (All.)

56.6-6 Date of transfer

Transfer relates back to the date of execution of instrument of transfer -
Howrah Trading Co. Ltd. v. CIT [1959] 29 Comp. Cas. 282 (SC). When com-

pany accepts a transfer, transfer relates back to date of execution of trans-

fer instrument between transferor and transferee - Killick Nixon Ltd. v.
Dhanraj Mills (P.) Ltd. [1983] 54 Comp. Cas. 432 (Bom.)

56.6-7 Registration of transfer of shares executed by transferor by way

of gift after death of transferor
In Aneesh Seigell v. Siemens India Ltd. [2011] 109 SCL 34/12 taxmann.com
489 (CLB) petitioner’s grandfather, B, was holding certain shares in
respondent No. 1 company. He transferred those shares to petitioner.
After ‘B’s death, petitioner filed an application making a request to re-
spondents to transfer shares gifted in his name. Respondents rejected said
application holding that it was necessary to obtain legal documents such
as probate, letters of administration or succession certificate in respect of
estate of ‘B’ to enable respondent No. 1 company to transfer shares in
name of petitioner. It was held that once the transferor signs the transfer
form, in a bona fide manner, and in due compliance with the provisions of
law, all the rights will accrue to the transferee. In the instant case, the
petitioner complied with all the requirements as contemplated under sec-
tion 108 of the 1956 Act for transfer of shares. Having signed the share
transfer form by both the parties in a bona fide manner and in perfect
state of mind, transfer of shares could not be withheld on the ground that
the transferor died subsequently. Moreover, section 108 of the 1956 Act
[corresponding to section 56 of the 2013 Act] does not bar the same. There-
fore, insistence on the legal documents for the purpose of transfer of shares
by the respondents could not be justified.
56.6-8 Secretarial Standards
See Para 56.7-3A.
56.7 Transmission of shares [Section 56(2)]
The above requirements of section 56(1) [See para 56.6 above] do not
prejudice the power of the company to register, on receipt of an intima-
tion of transmission of any right to securities by operation of law from
any person to whom such right has been transmitted.

13
56.7-1 “Transmission” - Connotation of
The word “transmission” means devolution of title to shares otherwise
than by transfer. On transmission of shares, the person to whom the shares
are transmitted becomes the registered shareholder of the company and
is entitled to all rights and subject to all liabilities attached to the shares. In
case the deceased held shares in more than one company, the legal heir(s)/
Nominee has to correspond with each of the companies by submitting
relevant documents, alongwith the share certificates to effect transmis-
sion of shares.
In case of dematerialised holdings, the formalities for transmission of all
securities can be completed by submitting the documents required by the
Depository Participant. [SS-6 issued by ICSI]
‘Transmission’ has been used in section 111 of the 1956 Act [correspond-
ing to section 56 of the 2013 Act] in contradistinction to word ‘transfer’;
‘transmission’ is referable to devolution of title by operation of law which
may be by succession or by testamentary transfer while term ‘transfer’
has been used to mean inter vivos transfer. Inter vivos transfer is a trans-
fer from one living person to another. It is a transfer of property during
the lifetime of the owner and it is to be distinguished from testamentary
transfer of succession where the property passes on death. - Hemendra
Prasad Barooah v. Bahadur Tea Co. (P.) Ltd. [1991] 70 Comp. Cas. 792

(Gauhati)
The word ‘transfer’ as it is used in section 108 of the 1956 Act [correspond-
ing to section 56 of the 2013 Act] certainly refers to a transfer between
persons pursuant to a voluntary act. The term ‘transmission’, on the other
hand, is limited to involuntary acts such as in the case of inheritance. The
award of an arbitrator under the Arbitration and Conciliation Act, 1996
would fall within the ambit of transmission by operation of law and the
transfer, in such cases, is not based upon the volition of the parties but by
operation of law. Accordingly, it is not necessary for the board of direc-
tors of the company to require a transfer form to be executed by the par-
ties before effecting the transfer in its register of members - Dinesh
Nagindas Shah v. Pankaj Aluminium Industries (P.) Ltd. [2010] 102 SCL

161 (Bom.)
Transfer and transmission are quite distinct from each other. The former
is based upon the act of parties; the latter is the result of the operation of
law. In the case of a transmission of shares, they continue to be subject to
the original liabilities, and if there was any lien on the shares for any sums
due, the lien would subsist, notwithstanding the devolution of the shares.
- Thenappa Chettiar v. Indian Overseas Bank Ltd. [1943] 13 Comp. Cas. 202
(Mad.)
56.7-1a Transmission by operation of law takes place instantaneously -
Transmission takes place from one point to another instantaneously with-
out let or hindrance, as in the case of transmission of radio waves and

14
electric signals, etc. Thus, transmission of shares, must mean that upon
the death of the last holder of shares, in law, there is an instantaneous
transfer of ownership to the heirs of the last holder and the property therein
must vest in heirs from the moment of death onwards. This would happen
by virtue of operation of law of succession. To complete the formalities of
law, it may be necessary in certain cases to apply for succession certifi-
cate or letters of administration, but the property must be deemed to have
vested not on the date of grant of succession certificate or the letters of
administration, but the succession certificate or the letters of administra-
tion only recognise the pre-existing change of ownership from the deceased
holder to the heirs, which occurs at the moment of death. This position,
that ownership of property rights vis-a-vis the shares held by the deceased
is transferred to the heirs of a deceased holder is recognised by necessary
intendment by the proviso to section 108 of the 1956 Act [corresponding
to section 56(2) of the 2013 Act]. It says that nothing in this section shall
prejudice any power of the company to register as shareholder or deben-
ture-holder any person to whom the right to any shares in, or debentures
of, the company has been transmitted by operation of law. This exception
is carved out against the requirement of the section, which requires that
shares of a company are not to be transferred to another person without
an instrument of transfer postulated by that section. Clearly, there is a
difference between transfer of a share, which is a voluntary act of a share-
holder, to another person, and the transmission of a share to an heir by
operation of law. - Mrs. Margaret T. Desor v. Worldwide Agencies (P.) Ltd.
[1989] 66 Comp. Cas. 5 (Delhi)
56.7-2 Secretarial Standards
Under the 1956 Act ICSI issued Secretarial Standard on ‘Transmission of
Shares’ (SS-6). Relevant extracts of same are given below :
The word “transmission” means devolution of title to Shares otherwise than
by transfer.
On transmission of Shares, the person to whom the Shares are transmitted
becomes the registered shareholder of the company and is entitled to all rights
and subject to all liabilities attached to the Shares.
In case the deceased held Shares in more than one company, the legal heir(s)/
Nominee has to correspond with each of the companies by submitting rel-
evant documents, alongwith the share certificates to effect transmission of
Shares.
In case of dematerialised holdings, the formalities for transmission of all se-
curities can be completed by submitting the documents required by the De-
pository Participant.
Scope
This Standard applies to Transmission of Shares held by individual share-
holders in physical mode.

15
Definitions
“Administrator” means a person appointed by competent authority to
administer the estate of a deceased person when there is no Executor.
“Executor” means a person to whom the execution of the last will of a
deceased person is, by the appointment of the deceased, confided.
“Heir” means any person who is entitled to succeed the property of a
deceased under applicable laws.
“Intestate” means the deceased had not made a testamentary disposition of
property.
“Legal Representative” means a person who in law represents the estate or
interests of another person.
“Minor” means any person subject to the Indian Majority Act, 1875 who has
not attained his majority within the meaning of that Act, and any other per-
son who has not completed the age of eighteen years.
“Nominee” means an individual named in accordance with the Act by a
shareholder(s) whose Shares should vest in such an individual on the death
of the shareholder(s) and that individual need not be a legal heir.
“Probate” means the copy of the Will certified under the seal of a Court of
competent jurisdiction with grant of administration to the estate of the
deceased.
“Shares” include debentures.
“Transmission” means passing of property in Shares, other than by way of
transfer, by operation of law consequent to the death or insolvency of the
member.
“Will” means the legal declaration in writing of the intention of a person with
respect to his property which he desires to be carried into effect after his
death.
Secretarial Standards
Transmission of Shares should be effected by the company on receipt of
intimation of death of a Member and on production of necessary documents,
such as—
(i) Death certificate;
(ii) Request for transmission signed by the legal heir(s)/Legal Representa-
tives/claimant(s) with their specimen signature(s);
(iii) Succession Certificate or Letter of Administration or Probate of Will;
(iv) Original share certificate(s);
(v) Orders of the Court or of competent authority, if applicable;
(vi) Permission under the Foreign Exchange Management Act, 1999, if
applicable.

16
The company may require documentary evidence to prove the identity of
the legal heir or other claimants, such as PAN Card, Passport, Ration Card,
Voter’s Identity Card, etc.
The documentation required for effecting transmission of other securities
including fixed deposits would remain the same.
To facilitate transmission of Shares in appropriate cases, the company may
waive production of certain documents, such as Probate or Letter of Admin-
istration or Succession Certificate. However, in such cases, the company may
insist on a suitable Indemnity and affidavit.
Nomination assumes significance in transmission. The company should main-
tain particulars of the Nominee in a separate register and confirm to the
shareholder of having noted the nomination. It is recommended that this
information is also recorded in the Register of Members with cross-refer-
ence to the register maintained for recording nomination.
In case the Nominee is a Minor, on death of the shareholder during the
minority of the Nominee, the Shares should be transmitted to the Minor un-
der the guardianship as mentioned in the nomination form till the Minor
attains majority; however, the beneficial interest will be with the Minor.
In case the Shares were held by a lunatic or insolvent, the company may
insist on an order of a Court of competent jurisdiction declaring such person
to be of unsound mind or insolvent and appointing a Legal Representative or
Administrator as the case may be to deal with his estate.
If the Articles of the company provide otherwise, it shall override the prin-
ciples of the Standard.
1. Transmission of shares held singly
With nomination
1.1 Where a sole shareholder who has appointed a Nominee dies, the
company should on receipt of written notice signed by the Nominee
accompanied by the certificate evidencing the death of the shareholder
and the original share certificates, register the Shares in the name of the
Nominee within a period of 30 days.
1.2 Where a sole shareholder who has appointed a Nominee dies, the
company should on receipt of written notice signed by the Nominee
accompanied by the certificate evidencing the death of the shareholder
and the original share certificates with duly executed transfer deed,
register the Shares in the name of any other person elected by him,
within a period of 30 days.
The Nominee has the option to elect either to register himself as the holder
of the Shares of the deceased or transfer the Shares to any other person. For
this purpose, the Nominee should give notice of his intention.
All limitations, restrictions and provisions of the Act relating to transfer of
Shares will apply.

17
Without nomination
1.3 Where a sole shareholder who has not appointed a Nominee dies leaving
a Will, the company should on receipt of written request from the
Executor or beneficiary named in the Will accompanied by the certifi-
cate evidencing the death of the shareholder and the Probated Will,
register the Shares in the names of those persons who are entitled to the
Shares as per the Will within a period of 30 days.
The Board may at its discretion waive the requirement of probating the
Will on production of other satisfactory evidence about the genuineness
of the Will.
1.4 Where a sole shareholder who has not appointed a Nominee, dies
intestate, the company should on receipt of written request from the
legal heir, accompanied by the certificate evidencing the death of the
shareholder and the Succession Certificate or Letter of Administration,
register the Shares in the name of the legal heir within a period of 30
days.
In case the transmission is requested in favour of one or more but not all
the legal heirs, the company may require a No Objection Certificate
relinquishing their right on the said Shares or Deed of Relinquishment
from other legal heir(s) for such transmission.
1.5 Where a sole shareholder who has not appointed a Nominee dies
intestate, the company should on receipt of written request from the
legal heir, accompanied by the certificate evidencing the death of the
shareholder and the Succession Certificate or Letter of Administration
together with duly executed transfer deed, register the Shares in the
name of any other person elected by him, within a period of 30 days.
The legal heir has the option to register himself as the holder of the
Shares of the deceased or transfer the Shares to any other person.
2. Transmission of shares held jointly
With nomination
2.1 Where Shares are held in joint names and where such holders have
together appointed a Nominee, the company should on receipt of written
notice signed by the Nominee accompanied by the certificates evidenc-
ing death of all the joint shareholders, register the Shares in the name of
the Nominee within a period of 30 days.
2.2 Where Shares are held in joint names and where such holders have
together appointed a Nominee, the company should on receipt of written
notice signed by the Nominee accompanied by the certificate evidencing
the death of all the joint shareholders, register the Shares in the name of
any other person elected by him, within a period of 30 days.
Where joint holders have jointly appointed a Nominee, Shares shall vest
in the Nominee, only in the event of death of all the joint holders.

18
 Where Shares are held in joint names, on death of any of the holders, the
company should on receipt of written request from the survivor(s)
accompanied by the certificate evidencing the death of the shareholder,
register the Shares in the name of the survivor(s). In such a case the
remaining holders are entitled to vary the nomination.
Without nomination
2.3 Where Shares are held in joint names and no Nominee has been
appointed, on death of the last shareholder who has left a Will, the
company should on receipt of written request from the Executor or
beneficiary named in the Will, accompanied by the certificate evidenc-
ing the death of the shareholder and the Probated Will, register the
Shares in the names of those persons who are entitled to the Shares as
per the Will within a period of 30 days.
The Board may at its discretion waive the requirement of probating the
Will on production of other satisfactory evidence about the genuineness
of the Will.
The legal heir has the option to register himself as the holder of the
Shares of the deceased or transfer the Shares to any other person.
2.4 Where Shares were held in joint names and the last of the surviving
shareholders died intestate without appointing a Nominee, the company
should on receipt of written request from his legal heir accompanied by
the certificate evidencing the death of the shareholder and the Succes-
sion Certificate or Letter of Administration, register the Shares in the
name of the legal heir within a period of 30 days.
2.5 Where Shares were held in joint names and the last of the surviving
shareholders died intestate without appointing a Nominee, the company
should on receipt of written request from his legal heir accompanied by
the certificate evidencing the death of the shareholder and the Succes-
sion Certificate or Letter of Administration, together with duly executed
transfer deed, register the Shares in the name of any other person
elected by him, within a period of 30 days.
2.6 Where Shares are held in joint names and all the shareholders die
simultaneously and no Nominee has been appointed, but the first holder
has left a Will, the company should on receipt of written request from the
Executor or beneficiary named in the Will, accompanied by the certifi-
cate evidencing the death of the shareholders and the Probated Will,
register the Shares in the names of those persons who are entitled to the
Shares as per the Will within a period of 30 days.
2.7 Where Shares are held in joint names and all the shareholders die
simultaneously intestate and without appointing a Nominee, the com-
pany should on receipt of written request from any of the legal heirs of
the first named shareholder accompanied by the certificate evidencing

19
 the death of all the shareholders and the Succession Certificate or Letter
of Administration, register the Shares in the name of the legal heirs of the
first named shareholder within a period of 30 days.
In the case of Shares held jointly, the Articles of the company recognize
the first named person as the shareholder for the purpose of receiving
notice and other benefits, in the absence of any document to the
contrary.
The legal heir has the option to register himself as the holder of the
Shares of the deceased or transfer the Shares to any other person.
3. Other requirements
3.1 On transmission, share certificates shall be endorsed in the name(s) of
the person(s) to whom the Shares are transmitted.
Where the claimant for transmission of Shares of the deceased share-
holder, is unable to produce the original share certificates, the company
should issue duplicate share certificates after complying with the proce-
dure.
3.2 Every company should maintain a register containing particulars of all
transmissions.
The Register maintained for recording Transmission should be placed
before the Board to authorize registration of transmission. In token of
approval, the Chairman of the Board should date and initial at the end
of the last entry in the Register for each set of approvals.
The Company Secretary or any other authorised person should make
necessary changes in the Register of Members.
3.3 The register and records pertaining to transmission should be preserved
permanently and kept in the custody of the secretary of the company or
any other person authorized by the Board for the purpose.
Detailed reference pertaining to this Register has been made in the
Secretarial Standard on Registers and Records (SS-4).
56.7-3 Secretarial Standards on Register of transfer/transmission of
shares/debentures
Under the 1956 Act, ICSI issued Secretarial Standards on Returns and
Records (SS-4). Relevant extracts are given below :
23. Register of transfer of shares
23.1 Maintenance
23.1-1 Every company should, from the date of its registration, maintain a
register of share transfers and enter therein particulars of every share trans-
ferred.

20
23.1-2 The register should contain the following particulars: transfer serial
number; date of lodgement of transfer deed; total number of shares to be
transferred; consideration; transferor’s name and folio number; certificate
number(s), distinctive numbers; transferee’s name and folio number, address,
occupation, father’s/husband’s name; value of stamp duty paid; date of
Board/committee resolution approving transfer; new certificate number, if
any; date of dispatch of the certificate(s).
23.2 Inspection
23.2-1 The register is not open for inspection.
23.3 Authentication
23.3-1 Entries in the register should be authenticated by the secretary of the
company or by any other person authorized by the Board for the purpose, by
appending his signature to each entry.
23.4 Preservation
23.4-1 The register should be preserved permanently and should be kept in
the custody of the secretary of the company or any other person authorized
by the Board for the purpose.
24. Register of transmission of shares
24.1 Maintenance
24.1-1 Every company should, from the date of its registration, maintain a
register of transmission of shares and enter therein particulars of every share
transmitted.
24.1-2 The register should contain the following particulars: transmission
number; date of lodgement of application; total number of shares; in respect
of the registered holder: folio number, name, number of shares, certificate
number(s), distinctive numbers; in respect of applicant(s): folio number, name,
address, occupation, father’s/husband’s name; date of Board/committee reso-
lution approving transmission; new certificate number, if any; date of dis-
patch of the certificate.
24.2 Inspection
24.2-1 The register is not open for inspection.
24.3 Authentication
24.3-1 Entries in the register should be authenticated by the secretary of the
company or by any other person authorized by the Board for the purpose, by
appending his signature to each entry.
24.4 Preservation
24.4-1 The register should be preserved permanently and should be kept in
the custody of the secretary of the company or any other person authorized
by the Board for the purpose.

21
25. Register of transfer of debentures
25.1 Maintenance
25.1-1 Every company that allots debentures should maintain a register of
debenture transfers and enter therein particulars of every debenture trans-
ferred.
25.1-2 The register should contain the following particulars: transfer serial
number; date of lodgement of transfer application; total number of deben-
tures; consideration; transferor’s name and folio number, number of deben-
tures, certificate number(s), distinctive numbers; transferee’s name and folio
number, address, occupation, father’s/husband’s name; date of Board/com-
mittee resolution approving transfer; new certificate number, if any; date of
dispatch of the certificate.
25.2 Inspection
25.2-1 The register is not open for inspection.
25.3 Authentication
25.3-1 Entries in the register should be authenticated by the secretary of the
company or by any other person authorized by the Board for the purpose, by
appending his signature to each entry.
25.4 Preservation
25.4-1 The register should be preserved permanently and should be kept in
the custody of the secretary of the company or any other person authorized
by the Board for the purpose.
26. Register of transmission of debentures
26.1 Maintenance
26.1-1 Every company that allots debentures should maintain a register of
transmission of debentures and enter therein particulars of every debenture
transmitted.
26.1-2 The register should contain the following particulars: transmission
number; date of lodgement of application; total number of debentures; in
respect of the registered holder: folio number, name, number of debentures,
certificate number(s), distinctive numbers; in respect of applicant(s); folio
number, name, address, occupation, father’s/husband’s name; date of Board/
committee resolution approving transmission; new certificate number, if any;
date of dispatch of the certificate.
26.2 Inspection
26.2-1 The register is not open for inspection.
26.3 Authentication
26.3-1 Entries in the register should be authenticated by the secretary of the
company or by any other person authorized by the Board for the purpose, by
appending his signature to each entry.

22
 26.4 Preservation
26.4-1 The register should be preserved permanently and should be kept in
the custody of the secretary of the company or any other person authorized
by the Board for the purpose.
56.7-4 Provisions of Table F of Schedule I regarding transmission
Regulations II(23) to (26) of Table F of Schedule I contains the following
provisions relating to transmission of shares :
u On the death of a member, the survivor or survivors where the
member was a joint holder, and his nominee or nominees or legal
representatives where he was a sole holder, shall be the only persons
recognised by the company as having any title to his interest in the
shares. This provision shall not release the estate of a deceased joint
holder from any liability in respect of any share which had been
jointly held by him with other persons. [Article II(23) of Table F of
Schedule I]
u Any person becoming entitled to a share in consequence of the death
or insolvency of a member may, upon such evidence being produced
as may from time to time properly be required by the Board and
subject as hereinafter provided, elect, either—(a) to be registered
himself as holder of the share; or (b) to make such transfer of the
share as the deceased or insolvent member could have made.
The Board shall, in either case, have the same right to decline or
suspend registration as it would have had, if the deceased or insol-
vent member had transferred the share before his death or insol-
vency. [Article II (24) of Table F of Schedule I]
u If the person so becoming entitled shall elect to be registered as
holder of the share himself, he shall deliver or send to the company
a notice in writing signed by him stating that he so elects. If the person
aforesaid shall elect to transfer the share, he shall testify his election
by executing a transfer of the share. All the limitations, restrictions
and provisions of these regulations relating to the right to transfer
and the registration of transfers of shares shall be applicable to any
such notice or transfer as aforesaid as if the death or insolvency of
the member had not occurred and the notice or transfer were a
transfer signed by that member. [Article II (25) of Table F of Schedule I]
u A person becoming entitled to a share by reason of the death or
insolvency of the holder shall be entitled to the same dividends and
other advantages to which he would be entitled if he were the

23
 registered holder of the share, except that he shall not, before being
registered as a member in respect of the share, be entitled in respect
of it to exercise any right conferred by membership in relation to
meetings of the company. The Board may, at any time, give notice
requiring any such person to elect either to be registered himself or
to transfer the share, and if the notice is not complied with within
ninety days, the Board may thereafter withhold payment of all
dividends, bonuses or other moneys payable in respect of the share,
until the requirements of the notice have been complied with. [Article
II(26) of Table F of Schedule I]
56.7-5 Transmission in case of a One Person Company
The following provisions of Table F of Schedule I in this regard may be
noted:
(i) on the death of the sole member, the person nominated by such
member shall be the person recognised by the company as having
title to all the shares of the member;
(ii) the nominee on becoming entitled to such shares in case of the
member’s death shall be informed of such event by the Board of the
company;
(iii) such nominee shall be entitled to the same dividends and other rights
and liabilities to which such sole member of the company was
entitled or liable;
(iv) on becoming member, such nominee shall nominate any other
person with the prior written consent of such person who, shall in the
event of the death of the member, become the member of the
company. [Article II(27) of Table F of Schedule I]
56.7-6 No need to submit transfer form (instrument of transfer) in cases
of transmission
Where title to the share has passed by operation of law, no further for-
malities have to be completed. Neither a duly stamped instrument of trans-
fer nor an application in writing itself bearing the requisite stamp is neces-
sary as ‘in a transmission of shares’ by operation of law by succession or
inheritance, there can be no instrument of transfer. - Kamalabai (Smt.) v.
Vithal Prasad Co. (P.) Ltd. [1993] 77 Comp. Cas. 231 (Kar.)

Where title to shares comes to vest in another person by operation of law,

it is not necessary to submit transfer form. Section 108 of the 1956 Act
[corresponding to section 56 of the 2013 Act] which provides that a com-

24
pany cannot register a transfer except on production of an instrument of
transfer, but that presupposes a transfer by act of parties. The wording of
the second proviso to section 108(1) of the 1956 Act [corresponding to
section 56(2) of the 2013 Act] clearly shows that the above requirements
(registration only on the production of instrument of transfer) shall not
prejudice any power of the company to register as shareholder any per-
son in whom the right to any shares in the company has been transmitted
by operation of law. - Life Insurance Corpn. of India v. Bokaro & Ramgur
Ltd. [1966] 36 Comp. Cas. 490 (Delhi)

Procedure provided under sections 108 to 111 of the 1956 Act [correspond-
ing to section 59 of the 2013 Act] is not applicable to transmission of shares
by order of a court. When a person has become the owner of shares as a
result of a Court auction, he is entitled to be recorded as a member of the
company, and if the company, without any sufficient cause, refuses to
record him as a member, he can maintain an application under section
155 of the 1956 Act [corresponding to section 59 of the 2013 Act] - Hanuman
Mills (P.) Ltd., In re [1977] 47 Comp. Cas. 644 (All.)

Where there is a transfer by operation of law, one cannot bring in con-

cepts like administrator de son tort, etc. - Kalyani Sundaram v. Shardlow
India Ltd. [1990] 67 Comp. Cas. 306 (Mad.)

The grant of the succession certificate under section 370 of the Indian
Succession Act, specifying the debts and the securities, empowers the per-
son to whom it is granted, not merely to receive the interest or the divi-
dends on the securities, but also to negotiate or transfer them. - Thenappa
Chettiar v. Indian Overseas Bank Ltd. [1943] 13 Comp. Cas. 202 (Mad.)

56.7-7 Succession certificate to be insisted by public Cos. for register-

ing transmission of shares
Any person claiming right over any money or any monies or any of that
kind by virtue of heirship, necessarily the said person ought to file the
succession certificate to prove the same. In Ms. Vidya Primlani v. ITC Ltd.
[2011] 109 SCL 41/12 taxmann.com 488 (CLB) it was held that respon-
dent was public limited company; thereby a presumption could not be
invoked to state that the family background of the petitioner was within
the knowledge of the company. It was also not known whether the affida-
vits and relinquishment deed said to have been given by the other legal
heir were given by them or not, because they had not been made parties
to this proceeding. Besides this, no public advertisement was also given
relating to instant petition claiming entitlement over the shares excluding

25
other legal heirs. Since it was not a closely held company, the lenient view
of giving exemption of filing succession certificate could not be taken into
consideration. In view of the same, the petitioner was required to file suc-
cession certificate by impleading her brother, sister and daughter of one
of the heirs of her parents to prove her entitlement to the shares of the
registered holder within the reasonable time from the date of receipt of
this order.
56.8 Time-limit for delivery of security certificates [Section 56(4)]
Every company shall, unless prohibited by any provision of law or any
order of Court, Tribunal or other authority, deliver the certificates of all
securities allotted, transferred or transmitted within the time-limits as per
the table below:
Situation Time-limit for delivery of certificates of securi-
ties (Section 56 of the 2013 Act)
Allotment to subscribers to Within two months from the date of incorpora-
the memorandum tion
Any allotment of any of its Within two months from the date of allotment
shares (other than to subs-
cribers to the memorandum)
A transfer or transmission Within one month from the date of receipt by
of securities the company of the instrument of transfer or,
as the case may be, of the intimation of trans-
mission
Any allotment of debenture Within six months from the date of allotment
Where the securities are dealt with in a depository, the company shall
intimate the details of allotment of securities to depository immediately
on allotment of such securities.
Article II(2) and (3) of Table F of Schedule I provides as under :
“2. (i) Every person whose name is entered as a member in the register of
members shall be entitled to receive within two months after incorporation,
in case of subscribers to the memorandum or after allotment or within one
month after the application for the registration of transfer or transmission
or within such other period as the conditions of issue shall be provided,—
(a) one certificate for all his shares without payment of any charges; or
(b) several certificates, each for one or more of his shares, upon payment of
twenty rupees for each certificate after the first.

26
 (ii) Every certificate shall be under the seal and shall specify the shares to
which it relates and the amount paid-up thereon.
(iii) In respect of any share or shares held jointly by several persons, the
company shall not be bound to issue more than one certificate, and delivery
of a certificate for a share to one of several joint holders shall be sufficient
delivery to all such holders.
3. (i) If any share certificate be worn out, defaced, mutilated or torn or if
there be no further space on the back for endorsement of transfer, then
upon production and surrender thereof to the company, a new certificate
may be issued in lieu thereof, and if any certificate is lost or destroyed then
upon proof thereof to the satisfaction of the company and on execution of
such indemnity as the company deem adequate, a new certificate in lieu
thereof shall be given. Every certificate under this Article shall be issued on
payment of twenty rupees for each certificate.
(ii) The provisions of Articles (2) and (3) shall mutatis mutandis apply to
debentures of the company.”
In view of prescription of new Securities Transfer Form as per Form
SH-4 with effect from 1-4-2014, the companies and other stakeholders
have sought clarity with regard to Share Transfer Forms executed before
1st April, 2014 as per earlier Form 7B but which are yet to be accepted/
registered by companies.
MCA has clarified that since transaction relating to transfer of shares is a
contract between two or more persons/shareholders, any share transfer
form executed before 1-4-2014 and submitted to the company concerned
within the period prescribed under relevant section of the Companies Act,
1956 needs to be accepted by the companies for registration of transfers.
In case any such share transfer form, executed prior to 1-4-2014, is not
submitted within the prescribed period under the Companies Act, 1956, the
concerned company may get itself satisfied suitably with regard to justifi-
cation of delay in submission etc. In case a company decides not to accept
the share transfer form, it shall convey the reasons for such non-accep-
tance within time provided under section 56(4)(c) of the 2013 Act. - Circular
No. 19/2014, dated 12-6-2014.

Note the following judicial pronouncements regarding maintainability of

complaint for non-delivery of share/debenture certificate within the stipu-
lated time-limit :
u A transferee who is not an existing shareholder cannot file a com-
plaint under section 113(2) of the 1956 Act [corresponding to sec-
tion 56 of the 2013 Act] - Registrar of Companies v. Rajshree Sugar
& Chemicals Ltd. [2000] 25 SCL 510 (SC)

27
u Registrar of Companies can maintain a complaint under section 113
of the 1956 Act [corresponding to section 56 of the 2013 Act] since
RoC is ‘Person aggrieved’ - In Registrar of Companies v. Rajshree
Sugar and Chemicals Ltd. [2000] 101 Comp. Cas. 271 (SC) - Ritesh

Exports Ltd. v. Registrar of Companies [2006] 65 SCL 397 (AP).

u Registrar of Companies would be a person aggrieved of an offence

under Act, as he has been assigned a statutory duty to ensure com-
pliance of provisions of Act and also in view of provisions contained
in section 621(1) of the 1956 Act [corresponding to section 439 of
the 2013 Act], whereunder he is one of persons on whose complaint
Court can take cognizance of such an offence. - Sanjay Suri v. State
[2010] 102 SCL 1 (Delhi)
u Criminal liability of ordinary directors would arise only in respect
of company which has no managing director or whole time director
or manager, and where particular directors are not specified to be
liable by company. - Smt. G. Vijayalakshmi v. SEBI [2000] 25 SCL
183 (AP)
u On complaint for failure of company to issue share certificates sum-
mons may be served on company through its chairman. - Dhirubhai
H. Ambani v. Sonia Sethi [2001] 106 Comp. Cas. 486 (MP)

u Where despite legal notice, defendant-company neither issued share

certificates nor refunded share application money received from
plaintiffs, decree was to be issued in favour of plaintiffs for amount
along with interest from date of payment to defendant-company till
date of realization at the rate of 24 per cent per annum in favour of
plaintiffs. -Vinod Krishan Khanna v. Neha Export Ltd. [2003] 42 SCL
22 (Delhi)
u The complaint against the petitioner-company alleging that share
certificates sent to it for transfer were not returned to the
respondent/complainant but to another person, was taken cogni-
zance of by the Magistrate. The Company contended that certifi-
cate was mistakenly sent to another person of same name because
in the transfer forms the respondent and said another person had
not given their father’s names. It was held that the action of the
petitioner-company appeared to be a bona fide one. The only mis-
take which had been committed was that the staff of the company
had not been careful in not dispatching the share certificates on the
address given by the petitioner. The limitation prescribed under sec-

28
 tion 113 of the 1956 Act [corresponding to section 56 of the 2013
Act] having expired, the petitioner should make a payment of com-
pensation, dividends as well as rights or bonus, if any, for relevant
period. However, the criminal proceedings against the company
would be unwarranted. - BPL Sanyo Technologies Ltd. v. Rahul
Agrawal [1995] 5 SCL 59 (Raj.)

u Where respondent had purchased shares of company and forwarded

same, even though company had not registered shares in
respondent’s name, complaint by respondent under section 113 of
the 1956 Act [corresponding to section 56 of the 2013 Act] was main-
tainable. - Federal Bank Ltd. v. Smt. Sarala Devi Rathi [1997] 88 Comp.
Cas. 323 (Raj.)
56.9 Transfer by legal representative of a deceased person
[Section 56(5)]
The transfer of any security or other interest of a deceased person in a
company made by his legal representative shall be valid as if he had been
the holder at the time of execution of the transfer even if the legal repre-
sentative is not himself a holder at the time of the execution of the instru-
ment of transfer.
The following provisions of Table F of Schedule I may be noted :
u Any person becoming entitled to a share in consequence of the death
or insolvency of a member may, upon such evidence being produced
as may from time to time properly be required by the Board and
subject as hereinafter provided, elect, either—(a) to be registered
himself as holder of the share; or (b) to make such transfer of the
share as the deceased or insolvent member could have made.
u The Board shall, in either case, have the same right to decline or
suspend registration as it would have had, if the deceased or insol-
vent member had transferred the share before his death or insol-
vency. [Article II (24) of Table F of Schedule I]
u If the person so becoming entitled shall elect to be registered as
holder of the share himself, he shall deliver or send to the company
a notice in writing signed by him stating that he so elects. If the person
aforesaid shall elect to transfer the share, he shall testify his election
by executing a transfer of the share. All the limitations, restrictions
and provisions of these regulations relating to the right to transfer
and the registration of transfers of shares shall be applicable to any

29
 such notice or transfer as aforesaid as if the death or insolvency of
the member had not occurred and the notice or transfer were a
transfer signed by that member. [Article II (25) of Table F of Schedule I]
56.10 Penal Provisions
Section 56(6) provides that where any default is made in complying with
the above provisions:
u the company shall be punishable with fine which shall not be less
than ` 25,000 but which may extend to ` 5,00,000; and
u every officer of the company who is in default shall be punishable
with fine which shall not be less than ` 10,000 but which may extend
to ` 1,00,000.
56.11 Where a depository/depository participant with intent to
defraud a person has transferred shares [Section 56(7)]
Where a depository/depository participant with intent to defraud a per-
son has transferred shares the depository/depository participant shall be
liable for action under section 447 of the 2013 Act. This liability is without
prejudice to any liability under the Depositories Act, 1996.
56.12 Validity of transfer of shares
Note the following judicial pronouncements:
u A contract for the transfer of shares which has been attached, is void.
The legal maxim a pactis privatorum publico juri non derogatur
means that where private agreements expressly or by implication
are forbidden by statute, no Court can lend its assistance to give it
effect. Under Order XXI, rule 46 of the Code of Civil Procedure if
shares in the capital of a corporation are to be attached, the attach-
ment shall be made by a written order prohibiting the person in
whose name the share may be standing, from transferring the same.
The company by registering the transfer of shares was obviously
permitting the transfer and such action on the part of the company
being in violation of the prohibition, was contrary to law. - Mannalal
Khetan v. Kedar Nath Khetan [1977] 47 Comp. Cas. 185 (SC)

u Where transfer is made without consideration and transfer deed is

executed some days after transfer, the plea, even if it was true, could
not result in vitiating the transfers nor could it justify the refusal on
part of the company to register the transfers. - Sadashiv Shankar
Dandige v. Gandhi Sewa Samaj Ltd. [1958] 28 Comp. Cas. 137 (Bom.)

30
u Where articles of association of a company required unanimous
approval of directors for transfer of shares, transfer of shares would
be valid only if they are unanimously approved by board of directors.
Registration of transfer of shares based on decision of the Board in
its meeting in which one of the directors was missing, cannot be said
to be unanimous decision of director. - Tarlok Chand Khanna v. Raj
Kumar Kapoor [1983] 54 Comp. Cas. 12 (Delhi)

u If articles require consent of all shareholders to transfer of shares of

any one of them, that consent must be given by each individual
shareholder. - Bhubaneshwar Singh v. Kanthal India Ltd. [1986] 59
Comp. Cas. 46 (Cal.)
u Irregularity, if any, of the meeting for want of notice to all the
directors does not invalidate a transfer duly made. - Peninsular Life
Assurance Co., In re [1936] 6 Comp. Cas. 32 (Bom.)

u Even where articles required that an intending seller of shares must

first make offer to existing members, no offer need be made to an
existing non-resident member company if it violates FERA. -
Bhubaneshwar Singh v. Kanthal India Ltd. [1986] 59 Comp. Cas. 46

(Cal.)
u Validity of a transfer executed after commencement of winding up -

As between transferor and transferee, a transfer of shares executed

after the commencement of winding up is valid, whether it was
executed in performance of a contract made before or after that
time - H.L. Seth v. Wearwell Cycle Co. (India) Ltd. [1988] 64 Comp. Cas.
497 (Delhi)
u Implications of section 338 of the 2013 Act - Law which makes

transfer of shares and alteration in status of members (after com-

mencement of winding up) void operates for benefit of company and
its creditors and not for benefit of any third party - H.L. Seth v.
Wearwell Cycle Co. (India) Ltd. (In Liquidation) [1988] 64 Comp. Cas.

497 (Delhi)
u Where according to contract between company and shareholders
shares in name of a person other than shareholder could only be
submitted if shareholder would in writing informed company about
transfer of shares, it would be against rules and hazardous to
transfer shares in name of any other person without written consent
of original shareholders - Khushal Jain v. Sidharth Tubes Ltd. [2005]
57 SCL 380 (MP)
u A compulsory transfer of shares by virtue of provision in Article of
Association of company, must be in interest of company and not for
benefit of some of shareholders, even if they are majority sharehold-

31
 ers. - Gothami Solvent Oils Ltd. v. Smt. Mallina Bharathi Rao [2001]
31 SCL 178 (AP)
u If transfer form is in order, it is not for company to question title of
transferee. - MM. Anandaram v. Mysore Lachia Setty & Sons (P.) Ltd.
[1985] 58 Comp. Cas. 162 (Kar.)
u As between two persons claiming title to their shares in a company,
which shares are registered in the name of a third party, the prior
right prevails, unless the claimant second in point of time can show
that, as between himself and the company, before the company
received notice of the claim of the first claimant, he has been clothed
with the full position of a shareholder; or, at any rate, that all the
formalities have been complied with or that nothing more than some
mere ministerial act, which, as between him and the second claim-
ant, which the company could not refuse to do forthwith, is required,
so that, as between himself and the company, he may be stayed to
have a present, absolute and unconditional right to have the transfer
registered before the company was informed of the existence of a
better title. - Moore v. North Western Bank [1891] 2 Ch. 599 (Ch.D)
u Where a receiver holds the scrips and the transfer forms, it is not
open to the persons in whose names the shares originally stood to
exercise rights of ownership in respect thereof or to transfer their
ownership to anyone else. - Mannalal Khetan v. Kedar Nath Khetan
[1977] 47 Comp. Cas. 185 (SC)
u As long as there is no unreasonable delay on the part of a company
in registering a transfer of shares, the transferee whose name has not
yet been entered in the company’s register cannot claim that divi-
dends declared after the transfer but before the registration of
transfer should be paid over to him. - Sonewala v. Lahore Electric
Supply Co. Ltd. [1935] 5 Comp. Cas. 357 (Lahore)

u Permission of RBI under section 29(1)(b) of FERA for purchase of

shares can be given ex post facto. The Reserve Bank of India has the
power or authority to give ex post facto permission under section
29(1)(b) of the Foreign Exchange Regulation Act for the purchase of
shares in India by a company not incorporated in India and such
permission does not necessarily have to be a ‘previous’ permission. -
Life Insurance Corpn. of India v. Escorts Ltd. [1986] 59 Comp. Cas. 548

(SC)
u Failure of registered shareholder is not collecting dividend or
encashing dividend warrant cannot be a relevant consideration in
dealing with an application for transfer of shares by the company.
This is so particularly having regard to the fact that even according
to the company, the registered shareholder was alive and was still a

32
 member. It prima facie appears that this is an irrelevant consider-
ation for the board of directors in exercising their powers of refusal
to transfer the shares. - Pradip Kumar Sarkar v. Luxmi Tea Co. Ltd.
[1990] 67 Comp. Cas. 491 (Cal.)
u If matter falls within private law field, Court will have no jurisdiction-
where director of debtor company under loan agreement had given
an undertaking that without prior approval of creditor, they would
not transfer shares and shares would be transferred to members of
their families and not to strangers, but subsequently creditor grant
its approval for transfer of shares to strangers, court could not issue
a mandamus to creditor to stop transfer of shares to be effected by
debtor company - D. Sasidharan v. Sipcot [1992] 73 Comp. Cas. 44
(Mad.)
u Where there was an immediate and unconditional transfer of shares
with stipulation for determination of consideration for transfer to be
mutually agreed on in future, it could not be said that agreement for
transfer of shares was conditional on determination of price of
shares. - M.S. Madhusoodhanan v. Kerala Kaumudi (P.) Ltd. [2003] 46
SCL 695 (SC)
u Where in a case of acquiring shares from Tax Recovery Officer if
Central Government wants additional information not mentioned in
the prescribed form, it does not mean that Form is incomplete and
in such a case limitation period of sixty days will not be postponed.
The shares were under attachment and sale in lieu of arrears of
income-tax and wealth-tax dues and were to be sold by the Tax
Recovery Officer. None of the paragraphs of prescribed form re-
quires the disclosure of the names or other particulars of the owners
of the shares. Since the above information was not required to be
furnished in the original application for approval, it could not consti-
tute a deficiency. If the Central Government requires any additional
information, it can always be furnished, as it was done in the present
case promptly. However, since there was no deficiency in the appli-
cation there was no question of extending the period of sixty days. -
Swadeshi Polytex Ltd. v. Swadeshi Mining & Manufacturing Co. Ltd.

[1987] 62 Comp. Cas. 683 (All.)

u In Smt. Claude-Lila Parulekar v. Sakal Papers (P.) Ltd. [2005] 59 SCL
414/124 Comp. Cas. 685 (SC) it was held that compliance with
provisions of section 108 of the 1956 Act is mandatory. Therefore,
requirement of execution of transfer by each of joint shareholders
cannot be met by execution of transfer by one of shareholders, even
though between shareholders, inter se, there is an agreement that
one shareholder can sign on behalf of other shareholders.

33
u Thus, where instrument of transfer had been improperly executed,
insofar as it had been signed by only three out of four executors, it
was not lawful for the company to register transfer.
u In Dr. Mrs. Banoo J. Coyajee v. Shanta Genevieve Pommeret Parulekar
[1995] 84 Comp. Cas. 534 (Bom.) the articles of the company provided
that in event any member of company desired to transfer his shares,
he would be bound to offer same either to founder or to his wife [the
petitioner herein] or their nominee at the price fixed by the auditors
of the company. The founder of the company held certain shares in
company which after his death, were held in trust by four executors,
according to his will. The petitioner was one of the executors of the
trust. The executors proposed to sell said shares and offered them to
the petitioner. As the petitioner did not agree to purchase shares at
price fixed by auditors of company, executors sold said shares to
other person at higher price. The petitioner challenged transfer of
shares contending that as the fourth transferor had not signed the
transfer forms, these transfers were bad, in law, and ought not have
been registered. The Court held that that in view of the terms of the
said will, read with the deeds of trust referred to therein, the trustees,
for the purpose of selling these shares and for conducting any other
business, were entitled to act by a majority. The trustees had,
therefore, the power to sell these shares on the basis of a decision
taken by the majority of trustees. The trustees had also passed a
resolution authorising any one of them to execute the transfer forms
for the purposes of implementing their resolution to sell the said
shares. It was, therefore, not necessary for all the trustees to sign the
transfer forms. Under the resolution of the trustees/executors, any
one of the executors was entitled to sign the transfer forms. Hence,
the three executors who had signed the transfer forms had done so
as transferor in valid exercise of the power under the said resolution.
At the highest, the only defect was that they had not stated that they
had signed the transfer forms on behalf of all the executors or in
exercise of their authority under the said resolution. This was, at the
highest, only an irregularity which could be easily corrected by the
transferors. In these circumstances, it would be futile to invalidate
the registration of transfer of these shares.
u In John Tinson & Co. (P.) Ltd. v. Mrs. Surjeet Malhan [1997] 88 Comp.
Cas. 750 (SC) the first respondent M was holding certain shares of the
appellant company and the second respondent, her husband, was
also holding certain shares. There was an agreement between the
second respondent and R for the transfer of the said shares. The
shares were entrusted to R with a blank transfer form and it was

34
 agreed that subsequent transactions were to be completed. Thereaf-
ter disputes arose between them. On a suit by the respondents for
permanent mandatory injunction the High Court granted relief. On
appeal, to the Supreme Court, R contended that M had admitted in
her evidence that her husband had delivered her shares to him and
that she never objected to the transfer and that, therefore, there was
an implied consent to the transfer of her shares in favour of him. R
also contended that though the transfers by the second respondent
in favour of R were not registered with the previous consent of the
board of directors, there was a completed transaction. The respon-
dents contended that the shares were not registered with the consent
of board of directors as required under Article of Association of the
company. The Court held that there should be consensus ad idem for
a concluded contract and it is seen that section 25(1) of the Contract
Act contemplates that when a transfer is without consideration, it is
a void contract. It was an admitted position that there was no
concluded contract between M and R. The acquiescence did not
amount to consent unless she expressly authorized her husband to
transfer her shares. It was an admitted position that she had not
given authority by any letter in writing or otherwise to her husband
to transfer her shares in favour of R. It was not even the case of R that
second respondent had been authorized to entrust those shares and
blank transfer forms to R. Under these circumstances, without any
specific authority by the owner of the shares, i.e. M, in favour of any
third party, including her husband, he got no right to transfer her
shares; nor did R get any right and title in the shares held by M.
As regards the transfer of shares held by second respondent, it is a
well-settled legal position that the articles of association of a private
company are a contract between the parties. Clause (8) of the articles
of association of the company read that ‘no transfer of any share in
the capital of the company shall be made or registered without the
previous sanction of the directors …’ It was an admitted position that
no previous sanction had been obtained from the directors for
transfer of the shares held by the second respondent. The concept of
previous sanction of the directors indicated that there should have
been a written resolution accepting the transfer from the second
respondent in favour of R and such previous sanction should have
preceded the handing over of the shares. In this case, such an action
was not done and, therefore, even the transfer of the shares held by
second respondent in favour of the appellant was not valid in law.
u In K.P. Antony v. Thandiyode Plantations (P.) Ltd. [1987] 62 Comp. Cas.
553 (Ker.) it was held that the question of compliance with the

35
 provisions of section 108 will arise only if it is found that the
petitioner has title to the shares in question.
u In Shanta Genevieve Pommeret v. Sakal Papers (P.) Ltd. [1990] 69
Comp. Cas. 65 (Bom.), though four persons were shown as transferors
of shares, yet only three had signed the share transfer form and
fourth had not authorised the others to sign on his behalf, it was held
that transfer of shares was not valid.
u In Dove Investments (P.) Ltd. v. Gujarat Industrial Inv. Corpn. [2006]
66 SCL 89/129 Comp. Cas. 929 (SC) the appellant took a loan from
respondent No. 1. By way of security, respondent Nos. 2 to 4 pledged
certain shares in favour of respondent No. 1. As there was delay in
repayment of said loan, respondent No. 1 lodged shares certificates
pledged by respondent Nos. 2 to 4 along with the share transfer forms
with the appellant for transferring the shares in its name. As there
was delay on part of respondent No. 1 in compliance of the requisite
formalities as envisaged under section 108 of the 1956 Act, the
appellant did not effect registration in respect of part of shares.
Respondent No. 1 filed an application before the CLB contending
that the said shares were fully transferable and conduct of the
appellant in not effecting transfer was mala fide and without suffi-
cient cause. The CLB allowed the application directing the appellant
to register the transfer of said shares in name of respondent No. 1.
The appeal filed by the appellant under section 10F was dismissed by
the High Court. The Supreme Court held that section 108(1) of the
1956 Act prohibits registration of transfer of shares except on
production of the instrument of transfer and unless the conditions
precedent therefor are complied with a company may refuse to
register shares for various reasons. In the instant case, however, the
shares being freely transferable, refusal for transfer could be made
only on limited grounds. Some such grounds may be that the
transfer is mala fide or transferee is not a bona fide investor or
transfer is not permissible in terms of one or the other provisions of
the Articles of Association or the same is otherwise prohibited, in law,
e.g., sub-section (3) of section 22A of the Securities Contracts (Regu-

lation) Act, 1956. The appellants did not state as to how they would
be prejudiced by the act of the respondent No. 1 in not filing the
application for registration of transfer of shares within the pre-
scribed period. The appellants had, indisputably, filed suits. In the
plaint filed by the appellant, it was categorically stated that, even
though it could not have an objection on the transfer, yet it was
concerned about the value at which the respondent was attempting
to transfer the equity shares in its favour. On their own saying, thus,

36
 they were not prejudiced. In fact, they had no objection in registering
the shares. The only objection was with regard to the value thereof.
It was also not in dispute that they had, in fact, registered certain
pledged shares, although they were also presented after a period of
two months without any demur whatsoever. The appellants, there-
fore, might be held to have waived their right. The pledge of shares
was not in dispute.
Further, the fact that the appellant had taken a loan, was also not in
dispute. Furthermore, by reason of the impugned judgment, no
injustice, as such, had been done to the appellant and in that view of
the matter, the Supreme Court, in exercise of its jurisdiction under
article 136 of the Constitution, might not interfere with the impugned
order, even if it may be lawful to do so.
56.12A Right of shareholder to transfer shares
Note the following judicial pronouncements :
u Companies are not like other partnerships, but they are partnerships
from which members can retire at once, and free themselves from
responsibility at any time they please by going into the market and
disposing of and transferring their shares without the consent of
directors, or shareholders, or anybody, provided only it is a bona fide
transaction which means that it should be an out and out disposal of
the shares, without retaining any interest in them. If it is desired by
the company that such unlimited power of assignment shall not exist,
then a clause is inserted in the articles, by which the directors have
power to refuse transfer of shares. Thus, unless restricted by articles,
a shareholder has an absolute right to dispose of his shares - Smith
Knight & Co., In re [1868] 4 Ch. App. 20

u In South Indian Bank Ltd. v. Joseph Michael [1978] 48 Comp. Cas. 368
(Ker.)/Moodie v. W & J Shepherd Ltd. [1949] 2 All ER 1044/Smith &
Fawcelt Ltd., In re [1942] 1 Ch 30 it was held that a shareholder has,

subject to the articles of association, the right to transfer his shares.

Restrictions can be legitimately imposed on such right, but such
restrictions must be explicitly stated in the articles of association. The
right, if it is to be cut down, must be cut down with satisfactory
clarity. It certainly does not mean that articles, if appropriately
framed, cannot be allowed to cut down the right of transfer to any
extent which the articles on their true construction permit.
u In Ganesh Flour Mills Co. Ltd. v. T.P. Khaitan [1986] 60 Comp. Cas. 28
(Delhi) it was held that the distinction between a private limited
company and public limited company is marked and real. In the case
of the former, a family or other private group can confine the

37
 shareholdings to themselves. In the case of a public limited company,
however, when the public at large is invited to subscribe to the
shares, and the benefit thereof is availed of by the company, it cannot
still claim to retain the complexion of being the bastion or domain of
a limited group where any intrusion by outsiders in the form of
acquisition of shares is resisted. The Company Court cannot look on
patronisingly at the tendency displayed by managements of the
companies or their shareholders to set at nought the too well-
recognised concept of transferability of shares inherent in the com-
pany law and accepted all over the world. A public company cannot
be relegated to the position of a personal or family affair. If they want
to enjoy that privilege, they are at liberty to operate individually and
form firms. In that case, there is no question of their availing of the
benefit of limited liability appurtenant to a limited company. If,
however, recourse to incorporation of a company is resorted to, then
the personal or family interest becomes foreign and wholly irrel-
evant. The position has then to be singularly looked at from the angle
of rights and duties of a shareholder. The shareholding of such
person, whether large or small, is always subject to the incidence of
transfer. No curbs or letters can be entertained or imposed in order
to protect the vested interest or to perpetrate the hold of individuals
or families over the affairs.
Where a company refused to register the transfer of shares on the
ground that the transferee group would be owning about 6 per cent
shares in the company, and would thus be able to have substantial
say in the management and since the transferee group was also
interested in a rival business, there was every likelihood of the affairs
of the company being run to its detriment and to the benefit of the
rival business, and that the motive behind the transfer was to capture
the company and take over its management, but the transfer was
ordered by the Company Law Board, the company’s application
against the order was dismissed by the Court holding that an incident
of any public limited company is that its shares are open to transfer
to any person who may like to purchase them. A public company
cannot be treated for good as the vested hold of the persons who
once happened to be the shareholders.
u In Berry and Stewart v. Tottenham Hotspur Football & Athletic Co.
[1935] 5 Comp. Cas. 472 (Ch. D.) the articles of company A gave
discretion to the directors to refuse to register the transfer and in this
they were not bound to specify any grounds. The petitioner, a non-
member, whose application for registration of transfer of shares in
his name had been refused by the directors sought to serve inter-
rogatories on the directors and his contention was that the article

38
 bound only the members and not those who were not yet members.
The court held that the article applied to a person who was applying
to be registered, because it specified the conditions upon which he
was to be registered. The directors were to register the shares on
those terms. But if the directors declined to register, then he came in
and asked to be registered under the article, and as the article
provided that they were not bound to specify the grounds, it seemed
that the directors were just as much entitled to rely upon the article
in the case of non-members as in the case of members.
56.13 Transfer in violation of pre-emptive rights
Transfer of shares by a shareholder to an outsider, in denial of pre-emptive
right of any other shareholder to buy such share, is not void ab initio,
rather such a violation would make transaction voidable and can be inter-
fered with by Court at option of aggrieved shareholder. If an individual
shareholder can have the right to waive his pre-emptive right to buy shares,
it logically and as a corollary, follows that the shareholders, in general too,
can take a collective decision to sell shares outside the company. Such a
decision cannot be said to be ultra vires, for when the shareholders can
waive their right to buy shares, the logical effect would be that such a
decision is within the competence of the company and such a decision
cannot be said to be ultra vires. When a decision is not ultra vires or mala
fide or fraudulent, the decision cannot be interfered with unless the deci-

sion is, as embodied in sections 397 and 398 of the 1956 Act [correspond-
ing to section 241 of the 2013 Act], against the interest of the company, or
against public interest, or oppressive to minority shareholders.
Directors of a company may, in a given case, be correct in allowing trans-
fer of share to an outsider by rejecting pre-emptive right of another share-
holder to buy such share, if such a decision is not contrary to conditions
embodied in Articles of Association or if such a decision of directors
subserves public interest. For even a private company, in the light of the
provisions of sections 397 and 398 of the 1956 Act [corresponding to sec-
tion 241 of the 2013 Act], is required to adhere to the requirements of
public interest, irrespective of the fact as to whether the Articles of Asso-
ciation specifically mentioned or not the freedom to allow sale of shares
to an outsider as an act, which can be done in the public interest by the
board of directors. - Radhabari Tea Co. (P.) Ltd. v. Mridul Kumar
Bhattacharjee [2010] 100 SCL 239 (Gauhati)

In Shanta Genevieve Pommeret v. Sakal Papers (P.) Ltd. [1990] 69 Comp.

Cas. 65 (Bom.) it was held that where members of a private company were
given pre-emptive rights under articles to purchase shares proposed to be
transferred, it was held that shares could not be transferred to others till the
pre-emption came to an end.

39
56.14 Gift of shares
Where shares are gifted by delivery under a proper instrument of gift and
prescribed share transfer form is duly signed by transferor, gift of title to
shares is complete, even though transfer of shares in books of company
has not yet been registered. Section 122 of the Transfer of Property Act
defines a ‘gift’. Its substantial requirements are (i) the donor must transfer
‘property’, which is the subject-matter of the gift, voluntarily and without
consideration; and (ii) the donee must accept it during the lifetime of the
donor or while the donor’s competence to give exists. Section 123 of the
Transfer of Property Act prescribed the mode of transfer by gift. It lays
down that ‘the transfer may be effected either by registered instrument
signed by the donor and attested by at least two witnesses or by delivery.’
No special mode of delivery is specified. On the other hand, it is indicated
that the delivery ‘may be made in the same way as the goods sold are
delivered’. If the requirements of both sections 122 and 123 of the Trans-
fer of Property Act are completely met, it would vest the right in the donee
to obtain the share certificates in accordance with the provisions of the
company law. Such a right is in itself ‘property’ and separable from the
technical legal ownership of the shares. The subsequent or ‘full rights of
ownership’ of shares would follow as a matter of course by compliance
with the provisions of company law. In other words, a transfer of ‘pro-
perty’ rights in shares, recognised by the Transfer of Property Act, may be
antecedent to the actual vesting of all or the full rights of ownership of
shares and exercise of the rights of shareholders in accordance with the
provisions of the company law. - Vasudev Ramchandra Shelat v. Pranlal
Jayanand Thakar [1975] 45 Comp. Cas. 43 (SC)

Where share certificate along with transfer forms is handed over to

donee by donor, gift is complete and donee is entitled to have shares reg-
istered in his name. Although the transferee would not be regarded as a
shareholder by the company until the transfer was recorded in the books
of the company, nonetheless, in the eye of law, it was the transferee who
was the owner of the shares and the gift was completed by the delivery of
the share certificates along with the blank transfer form duly signed by
the transferor. The transferee had acquired a complete legal right to have
the shares registered in her name. The transferor did all that he could do
to make the gift complete. The only step that was left out was registration
of the transfer. It has to be remembered that what a company registers
under section 108 of the 1956 Act [corresponding to section 56 of the 2013
Act] is ‘a transfer of shares’. In other words, the transfer must precede
registration. It may have been the wish of the transferor that the transfer
will not be registered in the name of the plaintiff during his lifetime, but
that will not prevent the transfer from being valid and effective. - Sheila
Devi Chamria v. Tara Chand Saraogi [1986] 60 Comp. Cas. 735 (Cal.)

40
When a testator has done everything that lies in his power to divest him-
self of his rights in preference shares, completion of legal title by registra-
tion can only be act of a third party which does not affect efficacy of gift
of shares inter vivos - Midland Bank Executor & Trustee Co. Ltd. v. Bose
[1949] Ch. 78 (Ch. D.)
56.15 Pledge of shares held in the form of share certificates
A transfer of title is not necessary to create a pledge, simple delivery of
possession being enough.-Kanhaiyalal Jhanwar v. Pandit Shirali & Co. [1953]
23 Comp. Cas. 399 (Cal.). When a person delivers a share certificate to
another to be held by latter as security for debt due to him, a pledge is
created which he can enforce. But unless the pledgee at the time of the
deposit secures a deed of transfer which he can use in case of necessity or
obtains one from his debtor at a later stage, he must have recourse to the
Court when he wishes to enforce his security. There is nothing to prevent
a pledgee suing on the debt and asking the Court to sell the goods for him.
If the goods happen to be shares, the Court can confer a full title on the
buyer by following the procedure laid down in Order XXI, rule 80 of the
Code of Civil Procedure. - Kunhunni Elaya Nayar v. P.N. Krishna Pattar
[1942] 12 Comp. Cas. 180 (Mad.)
Even where shares are pledged to a third party and constructive delivery
is made by transferor/seller unequivocally expressing his intention in
writing to pledgee to hand over shares to purchaser after receiving mon-
ies due and payable, purchaser cannot compel company to register trans-
fer without complying with prescribed guidelines and norms set in sec-
tion 108 of the 1956 Act [corresponding to section 56 of the 2013 Act].
Under the Sale of Goods Act ‘goods’ include ‘stock and shares’. Therefore,
if shares can be transferred by issuing a document whereby the seller
purports to assert his title to the goods and authorises the buyer to receive
such goods represented thereby may be from a third party - it will operate
as a valid delivery of such goods. Issuance of the blank transfer forms is
one of the accredited methods under the law of merchants by which shares
can be transferred by one to the other. Transfer of the interest in the shares
from the transferor to the transferee is independent of the requirement of
its registration for the purposes of the Companies Act, as, without an ante-
rior transfer, there can be no question of applying for registration of it. In
all such matters, the guiding principle is whether the transferor, as donor
or as seller, has done everything in his power to divest himself of title to
his shares. The only fact that certain formalities have to be gone into
under the provisions of the Companies Act so as to vest a further market-
able title in such shares in the purchaser would not be a bar to conclude
that there has not been a valid transfer of title under the normal law of
the State by the holder of the shares to the purchaser of such shares. One

41
could get a title to get on the register by mere delivery of the shares with
a required intention of the share certificate and blank form signed by the
transferor, and acquire full property in the shares in the company by get-
ting his name in the register of the company in the place of the transferor.
Such a division or dichotomy of rights in shares is a well recognised one
and the right, which the transferee acquires by acquiring the title in the
shares in the normal mercantile form by delivery accompanied by a blank
transfer form, vests in him an enforceable right therein so long as there is
nothing in the articles of association which prevent such transactions. The
delivery which is thought of and referred to in such situations is such
delivery as the goods are capable of. In a case, where the shares are pledged,
the only manner in which delivery of such goods is possible, is construc-
tive delivery. Such constructive delivery can only be by the transferor
unequivocally expressing an intention in writing to the pledgee to hand
over the shares to the purchaser after receiving the monies due and pay-
able to him and contemporaneously putting the transferee or purchaser
on notice of his having so expressed himself. However, the purchasers
cannot compel the company to substitute their names and cause an amend-
ment in the register of members by reason of themselves having secured
a right to enter into such a register. The provisions contained in section
108 of the 1956 Act [corresponding to section 56 of the 2013 Act] are man-
datory and say that such transfer ought not to be registered except on
compliance with the prescribed guidelines and norms set in that section. -
A.M.P. Arunachalam v. A.R. Krishnamurthy [1979] 49 Comp. Cas. 662 (Mad.)

56.16 Blank transfer of shares

The normal mode of transfer as appears from the documents themselves
and the evidence is as follows. The transfer and power of attorney are
signed by the registered shareholder whose name appears on the face of
the certificate, and his signature is attested by a witness. The name of the
transferee is filled in and the documents are taken to the office of the
company; the certificates are surrendered and cancelled, and a new
certificate is issued to the transferee whose name has been entered on the
register. According to a practice which has extensively prevailed and has
been recognised and acted upon by the company, the transferor signs the
transfer and power of attorney without filling in the names of the trans-
feree and attorney; and these blank transfers readily pass on the market
from hand to hand by delivery only until the documents reach the hands
of some holder who desires to be registered. His name is then filled in by
himself or on his behalf. The documents are then left with the company, the
certificates are cancelled, the transferee is registered, and new certificates
in his name are issued in the manner already described. The plain legal
effect of this recognised practice is, that the transferor who executes in

42
blank confers on the holder of the documents for the time being an
authority to fill in the name of the transferee; and each successive holder
for the time being, when the documents pass through several hands, passes
on this authority. The holders must of course be bona fide holders for value
without notice. Having regard to the practice proved and the condition in
which these documents are when they pass from hand to hand, the right
principle to adopt with reference to them is to hold that where the transfers
are duly signed by the registered holders of the shares, each prior holder
confers upon the bona fide holders for value of the certificates for the time
being an authority to fill in the name of the transferee and is estopped from
denying such authority.
The principles of American law do not differ in any way, or at least in any
material respect, from those by which an English Court would be guided
in similar circumstances when the endorsed transfer has been duly
executed by the registered owner of the shares the name of the transferee
being left blank, delivery of the certificate in that condition by him, or by
his authority, transmits his title to the shares both legal and equitable. The
person to whom it is delivered can effectually transfer his interest by
handing his certificate to another and the document may thus pass from
over hand to hand until it comes into the possession of a holder who thinks
fit to insert his own name as transferee and to present the document to the
company for the purpose of having his name entered in the register of
shareholders and obtaining a new certificate in his own favour - Colonial
Bank v. Hepworth [1887] 36 Ch.D. 36

Person to whom share scrips and transfers in blank as to name of trans-

feree and date of transfer are given, has authority of transferor to fill up
these blanks. As the transfer would not be complete in law unless these
blanks were filled up, the transferee must be deemed to have been
authorised by the transferor to fill up the blanks.- Kanhaiyalal Jhanwar v.
Pandit Shirali & Co. [1953] 23 Comp. Cas. 399 (Cal.). Ordinarily, a sale of

shares becomes complete and binding on the parties when scrips with
respect to those shares are handed over to the purchaser along with blank
transfer deeds signed by the seller. Price may be paid at the time or agreed
to be subsequently paid. The parties may also agree that the price shall be
fixed by the purchaser himself and paid after such fixation. - Union of
India v. Kulu Valley Transport Ltd. [1958] 28 Comp. Cas. 29 (Punj.)

Holder of share certificates with blank transfer form, does not get pro-
perty in shares, but only a legal and equitable title. Delivery of the share
certificates with the transfers executed in blank passes not the property in
the shares but a title, legal and equitable, which will enable the holder to
vest himself with the shares without the risk of his right being defeated by
the registered owner or any other person deriving title from the regis-
tered owner. - Fazal D. Allana v. Mangaldas M. Pakvasa AIR 1918 Bom. 303.

43
A transferee of shares under blank transfer form whose name is not reg-
istered in books of company cannot exercise any rights as a shareholder
against company. When once the transfer is completed and recognised by
the company it relates back to the time when the transfer was first made.
It thus follows that so long as the plaintiffs have not filled their name as
the transferee they only remain the holder without intending to become
the transferee and cannot exercise any rights as a shareholder against the
company. - Travancore Electro Chemical Industries Ltd. v. Alagappa Tex-
tiles (Cochin) Ltd. [1972] 42 Comp. Cas. 569 (Ker.)

Transfers in blank could be filled up by transferee even after death of

transferor. The transferee in cases of transfers in blank has the right to fill
in the necessary particulars including his own name as transferee even
after the death of the original transferor. If it were otherwise, the vast
amount of business done by means of blank transfers would have to cease,
because it would be quite impossible in many cases to ascertain without
much trouble and inconvenience whether the original transferor was alive
or not. - Bengal Silk Mills Co., In re [1942] 12 Comp. Cas. 206 (Cal.)
A custodian of shares is not an agent of shareholder, even if shareholder
has executed a blank transfer - Benares Bank Ltd. v. Prem & Co. [1937] 7
Comp. Cas. 116 (All.). In the said case the husband of S had deposited certain
shares belonging to his wife S, along with transfers in blank executed by S,
with the bank as security for overdraft. The bank sought to enforce the
charge. The contention of S was that the shares had been handed over by
the husband merely for safe custody and that he had no authority of any
kind to pledge them or deposit them or deal with them in any way. The bank
invoked illustration (b) to section 237 of the Indian Contract Act which
reads as under :
‘A entrusts B with negotiable instruments endorsed in blank, B sells them to
C in violation of private orders from A. The sale is good.’
The court held that there was no relationship of principal and agent existing
between the husband and S. A custodian of goods for safe custody is a
bailee of the goods and is not an agent of the true owner for the purposes
of dealing with the goods. In the illustration, the person receiving the
negotiable instruments endorsed in blank is of course an agent of the
person who hands them over to him. Unless the relationship of principal
and agent is proved to exist between the parties, section 237 can have no
application. As there was no such relationship in this case the husband had
no right whatsoever to deal with these shares and the bank could obtain no
title whatsoever qua them.
56.17 Transferor and transferee of shares
On the transfer of shares, the transferee becomes the owner of the benefi-
cial interest though the legal title continues with the transferor notwith-

44
standing that the transferor has already parted with his interest in the
shares. The relationship of trustee and a cestui que trust is established and
the transferor is bound to comply with all the reasonable directions that
the transferee may give. He also becomes a trustee of the dividends as
also of the right to vote. The right of the transferee ‘to get on the register’
must be exercised with due diligence and principle of equity which makes
the transferor a constructive trustee does not extend to a case where a
transferee takes no active interest ‘to get on the register’.- Life Insurance
Corpn. of India v. Escorts Ltd. [1986] 59 Comp. Cas. 548 (SC). As between

transferee of shares and company no equity exists until transfer of shares

is registered; equities exist only between transferee and transferor. The
transferee can call upon the transferor to attend the meeting, vote
according to his directions, sign documents in relation to the issuance of
fresh capital, call for emergent meetings and, inter alia, also compel the
transferor to pay such dividend as he may have received. But these rights
though they, no doubt, clothe the transferee with an equitable ownership,
are not sufficient to make the transferee a full owner, since the legal inter-
est vis-a-vis the company still outstands in the transferor; so much so, that
the company credits the dividends only to the transferor and so calls upon
him to make payment of any unpaid capital, which may be needed. -
Howrah Trading Co. Ltd. v. CIT [1959] 29 Comp. Cas. 282 (SC)

Principle of equity cannot be extended to cases where transferee has not

taken active steps to get his name registered as a member on register of
company with due diligence and in the meantime certain other privileges
or opportunities arise for purchase of new shares in consequence of own-
ership of shares already acquired. The benefit obtained by a transferor as
a constructive trustee in respect of the share sold by him cannot be
retained by him and must go to the beneficiary, but that cannot compel
him to make himself liable for the obligations attaching to the new issues
of shares and to make an application for the new issue by making the
necessary payments, unless specially instructed to do so by the benefi-
ciary. The trustee can very well say to any request made by the cestui que
trust for the acquisition of new shares that he is not prepared to put his

name on the register of members for any additional shares, particularly

when the acquisition of new shares involves him in further liabilities. The
relationship of constructive trustee and cestui que trust created on prin-
ciples of equity cannot be extended ad infinitum in respect of all future
acquisitions of rights annexed to the shares sold which acquisitions may
involve not only rights but liabilities and obligations which the construc-
tive trustee may not be prepared to undertake, and in this situation the
cestui que trust may not be able to get all the benefits of the fresh incident

annexed to the ownership of the shares that he had purchased. He himself

may be blamable for the loss that he may have thus to suffer by his not

45
having made an application in time for getting himself registered on the
register of members and for not having taken proper steps in law for get-
ting his transfer recognised by the company if the request made by him
has already been refused by the company. - R. Mathalone v. Bombay Life
Assurance Co. Ltd. [1954] 24 Comp. Cas. 1 (SC)

The following judicial pronouncements are also noteworthy :

u Where name of transferee of shares has not been registered in
company’s books-registered shareholder, i.e., transferor, continues
to be liable as a contributory - Collector of Sabarkantha v. Shankarlal
Kalidas Patel [1960] 30 Comp. Cas. 491 (Bom.)

u When a transferor makes a transfer, he makes an implied represen-

tation that transfer shall be registered by company in name of trans-
feree in place of transferor. If the company refuses to register the
transfer for no fault or default of the transferee, the transferor, by
reason of the share continuing to stand in his name, shall, in cases
where he has received consideration for the transfer, be treated as
trustee for the transferee and bound to act in accordance with his
directions and for his benefit in respect of the share, unless the trans-
feree rescinds the contract and seeks to recover his money on a
consideration which has failed. - D.I. Lal v. S. Ganguli [1990] 68 Comp.
Cas. 576 (Delhi)
u It is not duty of vendor to get transfer of shares registered with
company, if directors refuse to register transfer. In a contract for
the sale/purchase of shares made on the stock exchange there is no
such implied condition that the vendor contracts that the vendee or
his nominee shall be accepted by the company. The vendor has ful-
filled his responsibility when he has handed over to the purchaser
the transfer and certificates in proper form and has done nothing to
prevent the registration of the purchaser. - London Founders Asso-
ciation Ltd. & Palmer v. Clarke [1986-90] All ER Rep. 192 (CA)

u If a transferor prevents registration of transfer, he is liable for dam-

ages - to be measured by the difference between (a) the ultimate
value at the time when the transferee got the dominion of the shares,
and (b) the value at the time when the shares ought to have been
registered. - Hooper v. Herts [1904-06] All ER Rep. 849 (CA)
u There is no provision of law which makes it essential that the trans-
feror should be a party to a proceeding in which the transferee
requires a company to accept a transfer deed and register the shares
in his name. In fact, the normal procedure in this behalf is to give
notice to the transferor, and if no reply is received objecting to the
transfer, to accept the transfer as genuine. - Sadashiv Shankar
Dandige v. Gandhi Sewa Samaj Ltd. [1958] 28 Comp. Cas. 137 (Bom.)

46
u As between the transferor of shares and the transferee there is no
doubt that certain obligations exist. The transferor must be deemed
to be the trustee of all monies received by him from the company
on account of dividends, etc., on behalf of the transferee, but as
long as his name continues to remain on the registers of the com-
pany, he must be treated as holding the shares, and, as between him
and the company, the company cannot raise the plea that he has
parted with his interest in the shares and cannot be treated as a
shareholder. Therefore, until the registers of the company are
altered and the name of the transferee is entered as a new share-
holder, the old shareholder or the transferor continues to be
entitled to deal with the company in all matters relating to the
shares. - Jagatjit Distilling & Allied Industries Ltd. v. Shiv Ram Batta
[1962] 32 Comp. Cas. 117 (Punj. & Har.)
u As against the transferee the transferor holds the shares as a trustee
so long as the transferee’s name is not registered as the holder of
those shares. As between them, all the incidents that flow from that
relationship have to be adhered to. But, for the purposes of the
company and its dealings, the transferor continues to be the legal
owner of the shares so long as his name stands as the holder thereof
in the company’s register of members. Till the name of the purchaser
is registered as the holder of those shares, the company ordinarily
shall not recognise the rights of the purchaser or take any notice of
them. The person who executes a transfer form in blank in favour of
a specified individual remains liable to the company for payment of
call money until and unless the transfer is accepted by the company
and the name of the transferee is brought on the register. The
company is not concerned with the person in whose favour the
transfer form is executed or who pays the consideration for the
transfer. - Jagatjit Distilling & Allied Industries Ltd. v. Shiv Ram
Nanak Chand [1958] 28 Comp. Cas. 262 (Pepsu)

u A transfer of shares as such though complete inter se between

transferor and transferee, shall have to get recognition of company
concerned in its books without which there cannot be any participa-
tion by transferee in affairs of company as transferor continues to
exist as holder of shares - Chowgule Matrix Hobs Ltd. v. Chowgule &
Co. (Hind) Pvt. Ltd. [2003] 115 Comp. Cas. 222 (AP). In the said case the

defendant No. 1 which was a member of the plaintiff-company, sold

some of its shares to defendant Nos. 2 and 3, under an instrument of
transfer which was lodged with the plaintiff. However, the plaintiff
did not register the transfer in its books. Against the non-registration
of the transfer, neither of the defendants had carried the matter in
appeal to the Company Law Board. Further, the plaintiff-company

47
 paid the dividends to defendant No. 1 for the entire shares. Defen-
dant Nos. 1 and 3 filed suit and obtained interim orders against the
annual general body meeting. The plaintiff then approached the
court for a declaration that defendant No. 1 no longer hold the sold
shares and consequent injunction to restrain him from acting as a
member to the said extent on the ground that there was a concluded
contract of transfer, even though the same was not registered with
the plaintiff. The claim of the defendants was that in between
themselves there was no dispute nor any clash of interest. The
plaintiff having not registered the transfer, could not take advantage
of its own lapse and insist that there was a concluded contract of
transfer. Further, by making payment of dividends and showing
defendant No. 1 as holder of all shares, it did not lie in the mouth of
the plaintiff to seek indulgence.
u The court held that the transfer as such though complete inter se the
transferor and the transferee, shall have to get the recognition of the
company concerned by way of registration in its books without
which there cannot be any participation by the transferee in the
affairs of the company as the transferor continues to exist as the
holder of the shares. In instant case there was a clear inaction on the
part of both the parties, i.e., the plaintiff itself not acting upon the
transfer instrument submitted before it - to register it or reject - and
the defendants viz., the transferor and the transferee keeping silent
on the inaction of the plaintiff-company in registering the transfer in
its records, without availing of the remedy available to them under
the Act. Thus both the parties had passively allowed the things to
come to that situation. The defendants were responsible for not
taking steps for the registration with the intervention of the Com-
pany Law Board and then they came out with a defence that there
was no dispute among themselves. Apart from the legalities involved,
there was no consistency in the stand of the plaintiff and in its actions.
Admittedly, it did not act on the transfer documents filed with it for
registration and yet sought approval from the court by treating it as
a concluded contract. Yet, it paid the dividends to defendant No. 1 on
the entire shares and showed it as holder of all these shares. In the
circumstances of the case, the plaintiff failed to make out a prima
facie case for either of the reliefs. Equally, it could not be said that

the defendants were right in their action in not availing of the appeal
against the inaction of the plaintiff in registering the transfer. There-
fore, it would suffice in the interest of justice to observe that no
injunction was to be granted and no receiver was to be appointed in
respect of those shares.
u Under regulation 18 of Table A in the First Schedule to the 1913 Act
the transferor shall be deemed to remain holder of the share until the

48
 name of the transferee is entered in the register of members in
respect thereof. The right to transfer may be subject to conditions.
Pending registration the transferee has only an equitable right to the
shares transferred to him. He does not become the legal owner until
his name is entered in the register in respect of shares transferred to
him. Delay in registration involves danger to the transferee, for some
prior equity may come to light. In order to become a legal owner of
the shares it is not enough to merely hold physical possession of the
share certificate, but it is necessary to have the name entered in the
register of members and also on the share certificate - Jaluram
Bhikulal Firm of Itwara v. CIT [1953] 23 Comp. Cas. 103 (Nag.).

u Where, as between transferor and transferee all formalities have

been gone through concerning transfer of shares, transferee

acquires title to shares, even if transfer is not registered in company’s

books - CIT v. M. Ramaswamy [1985] 57 Comp. Cas. 7 (Mad.). In the

said case R, the shareholder sold certain shares to K, and the transfer
forms duly signed by him along with share certificates were handed
over to K who sought registration of the transfer in the books of the
company. The company had not refused to recognise the transfer,
but the transfer had not been recorded in the company’s books
because the registers were not immediately available. The question
was whether the transfer of shares could be said to be complete so
as to enable the purchasers to acquire title to the shares. The court
held that the Supreme Court had clearly laid down in Vasudev
Ramchandra Shelat v. Pranlal Jayanand Thakur [1975] 45 Comp.

Cas. 43 that where, as between the transferor and the transferee, all
formalities have been gone through, such as the execution of a
document of transfer and the physical handing over of the shares by
the transferor to the transferee, the shares should be taken to have
been transferred to the transferee, though until the transfer of
shares is registered in the company’s books in accordance with the
company law, the transfer could not enable the transferee to exercise
rights of a shareholder vis-a-vis the company. In view of this decision
it could not be said that till the shares were actually registered by the
company in the name of the transferee, the transferee could not be
taken to have acquired certain equitable rights in relation to his
shares and that he could not be taken to have become the transferee
of the shares. Accordingly, the transfer of shares was complete in the
instant case.
u When an instrument of transfer duly stamped and executed by the
transferor and the transferee is delivered to the company along with
the concerned share certificate, and when the transfer is registered
in the books, the transferee gets full title for the purposes of sections

49
 108 to 112 of the 1956 Act. Even in cases where the company refuses
to register a transfer, the transferee becomes owner of the shares in
equity, with a right to claim dividends from the transferor when they
are declared by the company, and also a right to give directions to the
transferor as to how he should vote at the meetings of members. -
K.N. Narayanan v. ITO [1984] 55 Comp. Cas. 182 (Ker.)

u As a constructive trustee transferor of shares is required to carry out

all just demands of beneficiary.
There is no distinction between the rights of a member and the rights
of a shareholder. A company recognises only its members as its
shareholders and confers on them certain rights. A peculiar situation
can, however, arise in the case of a member who has transferred his
shareholding to another person.
In this context it is necessary to examine the nature of the relation-
ship between (1) the transferor on the one hand and the transferee
of shares on the other hand, (2) the company on the one hand and the
transferor on the other hand as also, (3) the company on the one hand
and the transferee on the other hand. If one examines the relation-
ship between the transferor and the transferee, it is now well
established, that the transferor is in the position of a constructive
trustee who holds the shares which have been sold for the benefit of
the transferee. As such constructive trustee he is required to carry
out all the just demands of the beneficiary. Basically a constructive
trustee is required to carry out all just and reasonable requests of the
beneficiary. Insofar as the rights pertaining to the property in the
shares are concerned, there can be no doubt that all demands
pertaining to the exercise of these rights would ordinarily be consi-
dered as just demands, though there may be special circumstances
in a given case which may make the demands made by a beneficiary
unreasonable, e.g., if a trustee is required to spend a large amount of
money out of his own pocket in order to carry out the directions of
the beneficiary. Broadly speaking, however, all the rights which are
given to member under the Companies Act are rights given to him in
his capacity as a shareholder of the company. These rights enable
him to participate in the working of the company as its shareholder.
It is possible to say that the trustee can be asked by the beneficiary
to exercise on his behalf not merely all rights and privileges attached
to the shares but also conferred on the trustee by virtue of his being
a shareholder so long as a trustee is not thereby asked to assume
additional obligations or burdens, to spend any money from his own
pocket or is put to any hardship. Thus, as a constructive trustee the
transferor of shares is required to carry out all the just demands of

50
 the beneficiary. - Killick Nixon Ltd. v. Bank of India [1985] 57 Comp.
Cas. 831 (Bom.)
u If a share with transferee for valuable consideration indicates that
it is fully paid up, it is for those who say that it is not fully paid up to
prove that transferee has notice of non-payment. It would paralyse
the whole of the dealings with shares in companies, if a share being
dealt with in the ordinary course of business, dealt with in the mar-
ket with the representation upon it, by the company, that the whole
amount of the share was paid, the person who so took it was to be
obliged to disregard the assertion of the company, and, before he
could obtain a title, must go and satisfy himself that the assertion
was true, and that money had been actually paid. In the first place,
as a matter of business, the affairs of mankind could not be con-
ducted if that were necessary, but in the next place, even if such a
person had minded to make the investigation, he would be abso-
lutely without the means of making it - it would be impossible for
him to obtain accurate information as to whether this state of things
was true or not. - Burkinshaw v. Nicolls [1866-78] 3 AC 1004 (HL)
u Having registered a transfer and issued a certificate to transferee

company cannot subsequently deny that he was a shareholder : share

certificate operates as estoppel against the company. In Bahia and San

Francisco Railway Co., In re [1868] 3 QB 584 (Ch. D) the company
acted on a transfer form and registered S as a member giving him a
certificate under its seal that he was the holder of the shares. In fact,
the transfer form was forged. S sold the shares to B through stock
exchange, who was then put on the register. Later, the forgery was
discovered. The question was whether B who had purchased the
shares for value was entitled to recover the value of shares from the
company. It was held that by issuing the share certificate to S, a
statement of fact was made by the company that S was the owner of
the particular shares. The company knew that persons wanting to
purchase such shares might act on that statement. It is the company
who are to keep and look after the register and they are the only
persons who have control over it, and they can refuse to register a
person until he shows that he is legally entitled. Having therefore put
the name of S upon the register and granted him a certificate, the
company was estopped after that statement had been acted upon,
and could not deny that S was the legal holder of the particular
shares which had been transferred to B. B was, therefore, entitled to
recover the value of shares from the company.

51
 u Shares are ‘goods’ and purchaser of shares acquires no better title
than vendor himself had. Share certificates are movable property
and are, therefore, ‘goods’. No seller can give to the buyer of goods
a better title than he himself has except in cases falling within the
exceptions to that section. Accordingly purchaser of shares acquires
no better title than vendor himself had. - Fazal D. Allana v. Mangaldas
AIR 1918 Bom. 303
56.18 Requirements of listing agreement (applicable to listed
companies)
Clause 7 of the Listing Agreement requires that on production of the
necessary documents by shareholders or by members of the Exchange, the
Company will make on transfers an endorsement to the effect that the
Power of Attorney or Probate or Letters of Administration or Death
Certificate or Certificate of the Controller of Estate Duty or similar other
document has been duly exhibited to and registered by the Company.
Clause 8 requires that the Company will not make any charge—
(a) for registration of transfers of its shares and debentures;
(b) for sub-division and consolidation of share and debenture certifi-
cates and for sub-division of Letters of Allotment and Split, Consoli-
dation, Renewal and Pucca Transfer Receipts into denominations
corresponding to the market unit of trading;
(c) for sub-division of renounceable Letters of Right;
(d) for issue of new certificates in replacement of those which are old,
decrepit or worn out, or where the cages on the reverse of recording
transfers have been fully utilised;
(e) for registration of any Power of Attorney, Probate, Letters of Admin-
istration or similar other documents.
Clause 9 requires that the Company will not charge any fees exceeding
those which may be agreed upon with the Exchange—
(a) for issue of new certificates in replacement of those that are torn,
defaced, lost or destroyed;
(b) for sub-division and consolidation of share and debenture certifi-
cates and for sub-division of Letters of Allotment and Split, Consoli-
dation, Renewal and Pucca Transfer Receipts into denominations
other than those fixed for the market units of trading.
Clause 10 requires that the Company will promptly verify the signatures of
shareholders on Allotment Letters, Split, Consolidation, Renewal, Transfer
and any other Temporary Receipts and transfer deeds when so required by
the shareholders or a member of the Exchange or by the Stock Exchange
Clearing House.

52
Clause 11 requires that the Company will entertain applications for regis-
tering transfers of its securities when—
(a) the instrument of transfer is in any usual or common form approved
by the Exchange; and
(b) the transfer deeds are properly executed and accompanied either by
certificates or by Letters of Allotment, Pucca Transfer Receipts or
Split, Consolidation or Renewal Receipts duly discharged either by
the registered holders or, in the case of Split, Consolidation and
Renewal Receipts, by the members of the Exchange or an official of
the Stock Exchange Clearing House as provided herein.
Clause 12 requires that on lodgement of the proper documents, the
Company agrees that it will register transfers of its securities in the name
of the transferee except—
(a) when the transferee is, in exceptional circumstances, not approved
by the Directors in accordance with the provisions contained in the
Articles of Association of the Company, in which event the President
of the Exchange will be taken into confidence, when so required, as
to the reasons for such rejection;
(b) when any statutory prohibition or any attachment or prohibitory
order of a competent authority restrains the Company from trans-
ferring the securities out of the name of the transferor;
(c) when the transferor objects to the transfer provided he serves on the
Company within a reasonable time a prohibitory order of a Court of
competent jurisdiction.
Clause 12A(1) requires that when proper documents are lodged for trans-
fer and there are no material defects in the documents except minor
difference in signature of the transferor(s),
(i) then the company will promptly sent to the first transferor an
intimation of the aforesaid defect in the documents and inform the
transferor that objection, if any, of the transferor supported by valid
proof, is not lodged with the company within fifteen days of receipt
of the company’s letter, then the securities will be transferred;
(ii) if the objection from the transferor with supporting documents is not
received within the stipulated period, the company shall transfer the
securities provided the company does not suspect fraud or forge in
the matter.
When the signature of transferor(s) is attested by a person authorised by
the Department of Company Affairs, u/s 108(1A) of the Companies Act,
1956, then it shall not refuse to transfer the securities on the ground of

53
signature difference unless it has reason to believe that a forgery or fraud
is involved. [Clause 12A(2)]
In respect of transfer of shares where the company has not effected
transfer of shares within one month or where the company has failed to
communicate to the transferee any valid objection to the transfer within
the stipulated time period of one month, the company shall compensate the
aggrieved party for the opportunity losses caused during the period of the
delay. [Clause 12A(3)]
Any claim, difference or dispute arising out of clause 12A(3) may be
referred to and decided by arbitration as provided in the Bye-Laws and
Regulations of the Exchange. The issuer further agrees to actively partici-
pate in any arbitral proceeding so initiated and comply with the arbitration
award. [Clause 12A(4)]
In addition, the company keeping in view the provisions of section 206A of
the 2013 Act and section 27 of the Securities Contracts (Regulation) Act,
1956, provide all benefits (i.e., bonus shares, rights shares, dividend) which
accrued to the investor during the intervening period on account of such
delay.
Clause 13 requires that the Company will promptly notify the Exchange of
any attachment or prohibitory orders restraining the Company from
transferring securities out of the names of the registered holders and
furnish to the Exchange particulars of the number of securities so affected,
the distinctive numbers of such securities and the names of the registered
holders thereof.
Clause 14 provides that if, in view of the volume of the business in the listed
securities of the company, the Exchange so requires, the Company will
arrange to maintain—
(a) a transfer register in the City of Mumbai on which all securities of the
Company that are listed on the Exchange would be directly transfer-
able; or
(b) a registry office or some other suitable office satisfactory to the
Exchange within the Fort Area of the City of Mumbai, which will
receive and redeliver all securities there tendered for the purpose of
transfer, sub-division, consolidation or renewal.
Clause 34(b) provides that the company will not decline to register or
acknowledge any transfer of shares on the ground of the transferor being
either alone or jointly with any other person or persons indebted to the
Company on any account whatsoever.

54
Clause 47 provides that the company agrees —
(a) to appoint the Company Secretary to act as Compliance Officer who
will be responsible for monitoring the share transfer process and
report to the Company’s Board in each meeting. The compliance
officer will directly liaise with the authorities such as SEBI, Stock
Exchanges, Registrar of Companies, etc., and investors with respect
to implementation of various clauses, rules, regulations and other
directives of such authorities and investor service and complaints of
related matter;
(b) to undertake a due diligence survey to ascertain whether the Regis-
trars and Share Transfer Agent/s (RTA) and/or In-house Share
Transfer facility, as the case may be, are sufficiently equipped with
infrastructure facilities such as adequate manpower, computer
hardware and software, office space, documents handling facility,
etc., to serve the shareholders;
(c) that it will ensure that the RTA and/or the In-house Share Transfer
facility, as the case may be, produces a certificate from a practising
Company Secretary within one month of the end of each half of the
financial year, certifying that all certificates have been issued within
one month of the date of lodgement for transfer, sub-division,
consolidation, renewal, exchange or endorsement of calls/allotment
monies and a copy of the same shall be made available to the
Exchange within 24 hours of the receipt of the certificate by the
Company;
(d) to furnish to the Exchange both by way of floppy disks and printed
details, within 48 hours of its getting information regarding loss of
share certificates and issue of the duplicate certificates;
(e) to maintain copies of Memorandum of Understanding entered into
with the RTA setting out their mutual responsibilities, at the Regis-
tered Office of the Company for public inspection and the company
further agrees to submit within 48 hours a copy of the same to the
Exchange for its records;
(f) to designate an e-mail ID of the grievance redressal division/compli-
ance officer exclusively for the purpose of registering complaints by
investors. The company shall display the e-mail ID and other relevant
details prominently on their websites and in the various materials/
pamphlets/advertisement campaigns initiated by them for creating
investor awareness.

55
56.19 SEBI’s uniform good/bad delivery norms [vide SEBI’s
Master Circular No. CIR/MRD/DP/17/2014, dated 20-5-2014]
Transfer Deeds

No. Description Good/Bad

1. Transfer Deeds in the prescribed form and printed with the words GOOD
“For the ................................... Stock Exchange.”
Stock Exchange emblem may or may not be printed. Month and
year of printing may or may not be put on the reverse of the Transfer
Deed.
2. Mutilated Transfer Deed with the signatures of the transferor, BAD
witness, Directors and officer of the Company/distinctive num-
bers/any material portion badly torn overwritten, or defaced.
Typical Cases :
(A) Material portion defined here only pertains to the material
portions at the time of delivery and not prospective one. For a buyer
Consideration column, Specimen signature column, Name, Ad-
dress, Occupation will also be the material portion.
Material portion includes of transferor’s name and signature, com-
pany name, folio no., certificate number, distinctive nos., number of
shares, name and signature of the transferee, specimen signature of
transferee.
(B) Transfer Deed torn in the prospective material portion
u Torn and pasted with self-adhesive tape on which the GOOD
required details can filled in without any difficulty.
u Transfer Deed torn in non-material portion and held toge- GOOD
ther by a transparent tape.
u Transfer Deed torn end-to-end in any angle. BAD
3. Transfer Deeds with correction in the material portion like, GOOD if
erasure, overwriting, alteration or crossing out by transferor/ properly
Authorised Signatory. authenticated
under the full
signatures of
the transferors.
Transfer Deeds with correction in the material portion like, era- Good if
sure, overwriting, alteration or crossing out in material portion. properly
Undernoted corrections/alterations are not considered in mate- authentica-
rial portion. ted under the
full signatures
of all the
transferor(s).

(A) Minor spelling mistake in the following fields are valid without Good.
the transfer’s authorisation provided the word can be properly
identified :
(a) Name of the company.
(b) Number of shares in words.
(c) Names of the Shareholders

56
No. Description Good/Bad
Illustration Good Bad
Telco Teelco Tisco
Fifty Feefty feefteen
Ramesh Rameesh Rajesh
(B) Erasure, overwriting, alteration or crossing out in one or two Good.
character in folio numbers.
(C) Erasure, overwriting, alteration or crossing out in one or two Good if
character of “Distinctive Numbers”. certificate
number does
not contain any
erasure,
overwriting,
alteration,or
crossing out.
(D) Erasure, overwriting, alteration or crossing out in one or two Good if
character of “Certificate Numbers”. distinctive
number does
not contain any
erasure,
alteration or
crossing out.
(E) Erasure, overwriting, alteration or crossing out in Number of Good if
Shares in figure. Numbers in
words does not
contain any
erasure,
overwriting,
alteration or
crossing out.
(F) Erasure, overwriting, alteration or crossing out in Number of Good if
Shares in figures. Numbers of
Erasure, overwriting, alteration or crossing out in one or two Shares of
character in “Numbers of Shares” in words. figures
does not
contain any
erasure,
overwriting,
alteration or
crossing out.
(G) List of certificate numbers and distinctive numbers attached Good
to transfer deed signed by all transferors.
4. If the name of the transferor (s) in the share certificate & the BAD
name in the transfer deed(s) differs materially.
Differences of the following type (vice versa)
(A) Addition or Deletion of 1 or 2 alphabets GOOD
(B) Krishna Chandra Chelura - C C Krishna BAD
(C) Corporation - Corpn/Corp. GOOD
(D) Ashok Gupta - Gupta Ashok GOOD

57
No. Description Good/Bad
5. Transfer Deeds signed as ‘Choonilal’ whereas in share certificate GOOD
the name is spelt as ‘Chunilal’.
Other than any apparent difference in seller’s signature must be BAD
accepted.
In case of apparent difference like S Rao signing as David GOOD
In case S Rao signing as Subhash since the first letter of the
signature matches with the initial.
6. Transferor’s signature in English, Hindi or any one of the GOOD
Scheduled languages in India.
Assamese, Bengali, Gujarati, Hindi, Kannada, Kashmiri, Malayalam,
Marathi, Oriya, Punjabi, Sanskrit, Tamil, Telugu and Urdu - as per
Constitution of India - English Schedule (Articles 314 (I) and 451).
7. Signature of the Transferor is in an Indian language other than GOOD
the Scheduled languages of India or when the Transferor has
affixed his thumb impression. If attested by any person authorised
to attest signatures under the Seal/Stamp of his office.
8. Transfer Deeds in respect of joint holdings signed by all the joint GOOD
holders in any order :
Provided the signatures are against the relative names filled up in
the Transfer Deed.
9. Transfer Deeds without the name of the Company, name(s) of BAD
Transferor(s), Folio No., share certificate No., Distinctive No. and
number of shares being written.
10. In one lot with one Transfer Deed name on one certificate read- GOOD
ing as “Ramesh C Talati” an on another certificate as “Ramesh
Chunilal Talati” but Register Folios same on both.
In one lot, separate transfer deeds are required for each regis- GOOD
tered folio.
If the transferor’s name is identical and folios are different and GOOD
there is only one transfer deed.
11. In one lot with one Transfer Deed names on different certificates GOOD
reading as Ramesh Chunilal Talati and Talati Ramesh Chunilal but
Register Folio is same.
12. Income Tax Authority or Collector signs as Transferor. (Number GOOD
and Date of the relative Order necessary).
13. Instead of Executor’s signature, his Agent’s Signature is put on GOOD
the Transfer Deed. (Number and Date of Registration of Poser of
Attorney necessary).
14. Executor’s signature without his rubber stamp. (Number and GOOD
Date of Registration of Power of Attorney necessary).
15. In the case of Units transfer deed in the name of a Minor and GOOD
signed by natural Guardian. (In the case of Court Guardian, a court
order is required).

58
No. Description Good/Bad
Shares cannot be held in the name of a Minor unless accom- GOOD - if
panied by Court Order granting permission for sales/purchase accompa-
which is beneficial to the Minor. nied by the
relevant Court
Order for sale.
16. Transfer Deeds signed by an individual against whom insolvency BAD
proceedings are pending.
u Unless the transfer deed is duly certified and countersigned GOOD
by the Official Assignee.
17. Transfer deeds signed under Power of Attorney where the power BAD
given is subject to conditions.
u Transfer deed signed by Director of the Company and GOOD
Under board Resolution not mentioned on the front or the
reverse of the transfer deed.
(Stamp of introducing member is not required to be affixed
on the reverse of the transfer deed)
Transfer deed signed by an authorised signatory under GOOD only
Power of Attorney . if P A regn.
No. date
signature and
stamp of the
introducing
Member is
mentioned on
the reverse of
the Transfer
Deed.

u Transfer deed signed by an authorised signatory of a cus- GOOD

todian and the P A registration No. is mentioned on face or the
reverse of the transfer deed.
(Stamp of introducing member is not required to be affixed
on the reverse of the transfer deed)
u Where the transfer deeds are signed by an authorised GOOD
signatory under a Board Resolution and the stamp UNDER
BOARD RESOLUTION is mentioned on the face or the
reverse of the transfer deed.
(Stamp of introducing member is not required to be affixed
on the reverse of the transfer deed)
18. Transfer Deed signed by a custodian on behalf of a client
u In the signature column the custodian does not put the BAD
stamp as ‘Constituted Attorney’ on behalf of the transferor.
u Transfer Deed signed by a Custodian on behalf of the client GOOD
and in the signature column it puts the stamp “By Constituted
Attorney to the transferor” with the P/A number given on the

59
No. Description Good/Bad
reverse of the TD with the stamp and signature of the
custodian.
The abovementioned details entered on the face of the TD and GOOD
not mentioned on the reverse of the TD
19. Shares sold by FIIs and transfer deed signed by a Custodian on GOOD
behalf of the FII.
(Copy of RBI approval is not required to be attached with each
market lot).
20. In case of GDR,
u photocopies of the RBI approval attached to the deliveries ; GOOD
OR
u if RBI approval number and date is mentioned on the GOOD
transfer deed and attested by the introducing member.
21. Consideration amount and date of execution of the transfer deeds BAD
are filled in.
22. Transfer Deeds signed by or on behalf of a Company against BAD
which liquidation proceedings are pending.
u Unless the Transfer Deed is certified and countersigned by GOOD
the Liquidators.
23. The name of the delivering broker with his SEBI Registration BAD
number and date not mentioned at the back of the Transfer Deed.
In case the shares are delivered to the Clearing House by the GOOD
Custodian and the Transfer deed bears the stamp of Custodian
along with the Clearing Number of the Broker on whose behalf the
shares are delivered.
The date should be the pay-in date/delivery date only.
24. Shares held by a TRUST and Signed on the Transfer Deed as BAD
‘NAME OF TRUST - PROPRIETOR’.
TD signed as ‘NAME OF TRUST - TRUSTEE’. BAD
Shares held in the name of a trust, if accompanied by a copy of GOOD
the resolution or the relevant portion of the trust deed authorising
the trustees to transact in securities on behalf of the trust.
25. If shares held are duly registered by the company in the name of GOOD
the HUF (Shares held by HUF and signed by KARTA).

26. Transferor’s signature witnessed by a person but his full name GOOD
not give (as long as the name and address of the witness are perfectly
legible).
27. Witness’s name, address and signature is in a language other than GOOD
English specified by the Ministry of Finance.
Assamese, Bengali, Gujarati, Hindi, Kannada, Kashmiri, Malaya- BAD
lam, Marathi, Oriya, Punjabi, Sanskrit, Tamil, Telugu and Urdu - as
per Constitution of India - English Schedule (Articles 314(I) and 451).

60
No. Description Good/Bad
If signed in a language other than specified by the Ministry of
Finance.
28. Attestation stamp in any one of the Scheduled languages in India, GOOD
Indian languages :
Assamese, Bengali, Gujarati, Hindi, Kannada, Kashmiri, Malayalam,
Marathi, Oriya, Punjabi, Sanskrit, Tamil, Telugu and Urdu - as per
Constitution of India - English Schedule (Articles 314(I) and 451).
29. Transferor’s signature attested by a Bank official
u only the designation mentioned. BAD
u If the name, Designation of the attesting authority signing GOOD
alongwith the complete address is given
30. Attestation by Gram Panchayat or a Surpanch or Village Magis- GOOD
trate or Village Munsiff under his seal.
31. Signature attested by any person authorised to attest signatures GOOD
with his full name and address with the Official Seal/Stamp of his
office.
32. Transferor’s signature is attested by a Notary Public. (The nece- GOOD
ssary seal, rubber stamp, adhesive stamps as prescribed for such
attestation should be affixed in cases where Notary attestation is
required i.e. In cases where Rectification of objections is required
due to signature differences).
33. Transfer Deed is signed by the transferor
u signature is clearly of a name different than the name of BAD
the transferor.
u If signature is same for two different shareholders under BAD
two different Transfer Deeds.
34. Marketable lot with more than five transfer deeds. BAD
Upto five transfer deeds used to make a marketable lot. GOOD
35. New shares which are issued on pro rata basis and old shares GOOD
standing in the folio and name of same transferor and accompanied
by one transfer deed for a marketable lot. (The new share dividend
declared for the previous year i.e. the old new compensatory value
(ONCV) would be payable on the entire market lot).
36. Company’s name has been changed but it has not been corrected GOOD
on the share certificate.
37. Abbreviated name of a Company filled up in the transfer deed. GOOD
If from the abbreviated name the identity of the company can be
ascertained. The name of the Company should be identifiable, e.g.
TELCO, TISCO, L&T, etc.
38. Exact position of TDS to be attached on top of the certificate. TD
should be placed on the top of the share certificate.
39. Transferor and witness is the same. BAD

61
No. Description Good/Bad
40. Transfer Deed in the prescribed form and name of a particular GOOD
Stock Exchange filled in or not.
41. Transfer Deed not in the prescribed form. BAD
42. Witness and attesting authority identical. GOOD
43. Transfer Deeds bearing signatures of witnesses, the address of the GOOD
witness being in a different city or town or Centre other than that of
Transferor or Transferee.
44. Prescribed Authority (ROC) seal overlapping and stamped twice. GOOD
Even if the signature of the Registrar of Companies is partly printed
and the date stamp is also partly printed but both the signature and
the date should be apparent.
45. The Endorsement of the Prescribed Authority (e.g. Registrar of GOOD
Companies) bears the same date as the date from which the Register
of Members of the Company is closed.
46. If the Endorsement of the Prescribed Authority (e.g. Registrar of Good
Companies) bears a date prior to the date of issue of share certificate
or the date of allotment of shares :
Provided the Endorsement of the Prescribed Authority bears a date
of or after the date from which the Register of Members of the
Company closed last.
47. Transfer Deed endorsed by the Prescribed Authority on a date Bad
prior to closure of the Register of Members of the Company
delivered after the date of closure of Register of Members.
48. Transfer Deeds accompanying debenture certificates or any other Good
permissible listed security (other than equity) whether date-stamped
by the Prescribed Authority or not :
Provided for the convertible portion a separate date-stamped Trans-
fer Deed is delivered.
49. Transferor’s signature on the transfer deed with the date on GOOD
which he has signed.
50. Witness is a Non-Resident and the address given is of a foreign GOOD
country.
51. Distinctive numbers range “To” partly filled in the transfer deed, GOOD
e.g. 4589201 - 300 etc.
52. In the case of mutual funds , the ROC stamp and signature are GOOD
missing (except in case of Schemes of Unit Trust of India).
53. Certificates with multiple folios per market lot attached to sepa- GOOD
rate transfer deed (subject to guideline No. 35 above).
54. Logo of the Stock Exchange on the reverse of the transfer deed GOOD
missing.
55. Attestation of the transferor’s signature is not mandatory. GOOD
except in the case where the transfer has been returned by the
company due to SIGNATURE DIFFERENCE.

62
 No. Description Good/Bad
56. Units issued with the terms ‘either or survivor’, if signed by all GOOD
holders
If signed by any one of the holders GOOD
57. Transferor’s signature on the transfer deed is facsimile signature GOOD
for Registered Custodians.
58. Certified Transfer Deed : Good
Provided the name and address of the Transferor the distinctive
numbers of the shares covered by the Transfer Deed and date of
certification are given.
59. Any erasure or alteration in the Certified Transfer Deed. Good
When authenticated by an authorised signatory of the Company.
60. Certified Transfer Deeds and share certificates delivered in part Good
for bargains in market trading unit.
61. In case of shares under lock in-period, if the transfer deed date is GOOD
prior to the lock-in period last date but the date of introduction into
the market is after the last date of lock-in period.
If the transfer deed date is prior to the lock-in period last date and BAD
the date of introduction into the market is before the last date of
lock-in period.
62. Some companies allot record numbers for shares issued by them GOOD
apart from distinctive number ranges. For these shares, if record
number is filled up along with distinctive number ranges on the
transfer deed.
If only the record number has been filled up instead of distinctive BAD
number ranges on the transfer deed.
62A Transfer deeds (dated July 1, 1997 and thereafter) bearing rubber BAD
stamps on the reverse thereof other than those of members of the
stock exchanges/clearing house/clearing corporations, SEBI regis-
tered sub-brokers and Remisiers registered with the stock ex-
changes.

Share Certificates
No. Description Good/Bad
63. Name of the company or emblem is not readable in the common GOOD.
seal or there is no common seal on the share certificate.
64. The last date for payment of call has expired and the call has not BAD
been paid or if the call has been paid, the necessary Call Report has
not been attached.
The call payment receipt with the stamp of the Bank before or on GOOD
the due date if attached to the securities is good delivery for three
months from the last date of call payment or next book closure
announced by the company whichever is later.

63
No. Description Good/Bad
All call payment receipts after due date must be endorsed as GOOD
“cheque/draft realised” by the Bank/co./Registrars.
65. All securities with stickers issued by the companies in lieu of GOOD
endorsement.
66. If call money paid but not endorsed on share certificate even BAD
after the book closure but transfers affected after the call payment
date.
67. If the final call is endorsed but the initial or the initial and the GOOD
second call not endorsed (i.e. if marked “FULLY PAID”).
68. In case of fully convertible debentures, after the debentures have GOOD
been converted into equity, if the call money endorsement has been
done only for the equity portion and not for the debenture portion.
69. Call paid endorsements made by the Company with the call GOOD
amount, date of payment and signature of the Authorised Signatory
with or without the Rubber Stamp of the Company.
70. In the case of partly paid shares, when a call has been made but BAD
not paid and delivery effected during the period of ten days before
the last date fixed for payment.
If the call receipts are attached to the documents. GOOD
71. Application Receipts and Call money receipts not bearing bank BAD
stamps and payment details.
72. Any significant correction, erasure, overwriting, crossing out or BAD
alteration in the quantity of shares, in the last registered holders
name or in any material particulars on the share certificate.
Unless the Authorised Signatory who has signed on the certificate, GOOD
authenticates the correction Or the correction is initialled and
authenticated by any other officer under the Company’s rubber
stamp.
73. Certificates badly torn as is not to be in deliverable condition or BAD
share certificate torn through and through or badly torn as to
obliterate or render illegible or create the impression of cancelling
the numbers or directors or other signature or the date or any other
particulars or if it is written upon or damaged or mutilated by
advertisements, printing, rubber stamp or otherwise or if a material
part of the certificate be torn out or cut off.
74. Share certificates defaced or mutilated in portion: BAD
The following will be considered as material portion in the case of
share certificate:
(i) Share certificate torn end to end and pasted with transpa- BAD
rent self-adhesive tape.
(ii) Where shares have been transferred to a new holder and if GOOD
torn at the original holders name portion.
(iii) Folio number and name overwritten in one or two charac- GOOD
ters and not authenticated by the authorised signatory.

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No. Description Good/Bad
(iv) If the share certificate is torn at the company name portion GOOD
but is decipherable.
(v) Corrections in transfer Number or Date of transfers, if GOOD
legible and not authenticated.
(vi) Share Certificates with bar codes not concealing any mate-
rial information. GOOD
75. If the name of the Company has been disfigured in the body of BAD
the share certificate so as to affect it materially.
If the name of the company is identifiable. GOOD
76. Certificates in the case of UNITS discharged by the transferor BAD
for purpose of repurchase and then cancelled by him and initialled.
77. Share certificate contains one name but the transfer deed consists BAD
of two signatures.
If both the signatures on the transfer deed are identical in nature GOOD
or can be identified as signature of the same person. If the transferor
has signed twice but has struck off the 2nd signature.
78. Share certificate contains name of one transferor but transfer BAD
deed contains two names and signature respectively.
79. Preferential/promoters quota shares under lock-in period delive- BAD
red which are not transferable.
80. Share certificate issued without the signature of Secretary/ BAD
Authorised signatory.
If the shares are transferred subsequently and the authorised GOOD
signatory has signed against such transfer.
81. Signature missing in the initial column but signed by Authorised GOOD
signatory in the required column on the reverse of the certificate.
82. Endorsement effected on the reverse of the certificate and struck GOOD sub-
off and again endorsed. ject to proper
authentica-
tion by the
Company by
putting a round
stamp of the
Company.
83. Certificate with company’s old registered office crossed out and GOOD
new address stamped without authentication.
84. Certificate without mentioning the place of issue. GOOD
85. Revenue stamp affixed on the certificate concealing any material GOOD
portion of the certificate:
Provided any material portion like lock-in period date, NRI details
are not affected.
86. Revenue stamps affixed/impressed by the Company on the share GOOD
certificate has come off.

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 No. Description Good/Bad
87. Any alteration or erasure or correction without initials in the GOOD
transfer endorsement on the back of the share certificate as for
example made in the year 1960 and subsequently the shares have
again been transferred by the Company, say in 1961.
88. Share certificates with irrelevant or extraneous rubber stamp or GOOD
writings on the scrip:
Provided the rubber stamp or the writings does not affect any
material portion of the scrip.
89. Increase or decrease of the Capital and if the certificate does not GOOD
carry the endorsement on the face of the certificate.
90. Absence of holder’s discharge on the Letter of Allotment. GOOD
91. Share Certificate and Transfer Deed not attached together. BAD
92. Shares standing in the name of Non-Resident Individuals: GOOD
Provided the declaration stamp as per the RBI guideline is affixed
and countersigned by the introducing member.
93. Name of the holder printed in two lines which looks like joint GOOD
holding or one line of address printed and looking like second
holder.
94. Lock in period mentioned in the certificate, without specific date BAD
of release of lock in.
95. Shares issued in the name of Sole Proprietor/Partnership firm BAD
signed by the Proprietor/Partner.
Units/debentures issued in the name of Sole Proprietor/partner-
ship firm signed by the Proprietor/partner.
96. In case the shares of a company are not pari passu with the exist- GOOD
ing equity shares of the company in two financial years then new
share dividend declared for the previous year i.e. the old new
compensatory value (ONCV) for two years has to be paid. The full
dividend declared will have to be paid (interim + final).

Miscellaneous
No. Description
97* Validity period of Company Objection by the last buying broker to be notified to the
Exchange/Introducing Broker is 12 months from the date of the objection memo. In all
other pending cases of company objections bearing a date prior to July 16, 1996, the
validity period will be as per rules – of the respective exchanges – as existing prior to July
16, 1996.
98 Objections must be accompanied with Share Certificates.

*It has come to the notice of SEBI that there is a conflicting interpretation of clause 97 and clause
100 of uniform norms for Good/Bad delivery with respect to validity period of company objection
memos. Keeping in view the above and as discussed with representatives of the Stock Exchanges,
in such cases the provisions of clause 97 will prevail.

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 No. Description
99 Shares lodged for transfer after book closure (but before one year from the date of date
stamping the transfer deed) are returned under objection can be lodged as company
objection.
100* Where the shares have been duly transferred by the company in the name of the
transferee, and thereafter the company sends a letter informing transferee that the
shares have been transferred based on fraudulent documents, such cases can be lodged
as company objection subject to the following conditions and procedure :
u In cases where the company has transferred certificates which are fake and later
sends a letter informing that the shares have been transferred on fraudulent
certificates, such cases will NOT be treated as company objections and the
company will be responsible for the transfer.
u In cases where the shares are under stop transfer, stay order, non-transferable
(lock-in period) or shares are partly paid and the company has transferred the
shares and later sends a letter informing that the shares have been transferred
on fraudulent documents, such cases will NOT be treated as company objections
and the company will be responsible for the transfer.
u In cases where the certificates are genuine but the transfer deed is forged (i.e. the
company has transferred the shares in good faith) the shares can be accepted as
company objection. In such cases the company should necessarily enclose the
copies of both sides of the transfer deeds based on which shares were transferred
by the company in favour of the holder and which later on has been found to be
based on forged documents, and all subsequent transfers thereafter along with
the objection.
Procedure :
(In order to simplify the understanding of the procedure, the following illustration has
been used:
A —> B —> C —> D —> X —> Y —> Z
The shares were first sold through ‘A’ in the market. After passing through ‘B’ and ‘C’
the shares were lodged by ‘D’ to the company for transfer. After receiving the shares
duly transferred from the company in his name ‘D’ sold the shares in the market. These
shares after passing through ‘X’ and ‘Y’ are finally sent by ‘Z’ to the company for transfer
in his/her name. After receiving the shares from the company duly transferred in his
name, ‘Z’ has received a letter from the company stating that the shares transferred in
the name of ‘D’ were based on fraudulent documents.
u ‘Z’ will report the objection along with the company objection against ‘D’.
u ‘D’ will rectify/replace the shares within 21 days as per the BDC procedures.
u ‘D’ may in turn lodge the bad delivery for rectification through the BDC against
‘A’.
The validity period of reporting such cases will be 36 months from the date of latest
transfer by the company (in the above example 36 months from the date the shares were
transferred in the name of ‘Z’).
The company will also furnish copies of both sides of transfer deed based on which
shares were transferred in favour of ‘Z’ and ‘D’ along with the objection memo.
101 In case of joint holding, and in event of death of any of the holders, transfer can take
place on the basis of death certificate accompanying the transfer deed only for a period
of two years from the date of the death or ensuing book closure, whichever is later.

*It has come to the notice of SEBI that there is a conflicting interpretation of clause 97 and clause
100 of uniform norms for Good/Bad delivery with respect to validity period of company objection
memos. Keeping in view the above and as discussed with representatives of the Stock Exchanges,
in such cases the provisions of clause 97 will prevail.

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No. Description
The Introducing member of a recognised stock exchange may certify/attest copy of the
death certificate and also issue an identity certificate in case where the name of the
deceased on the share certificate is not identical with the name on the death certificate
- GOOD
102 While rectifying objections due to signature differences, a fresh signature by the
transferor (if the same transfer deed is re-submitted) alongwith attestation is manda-
tory. Fresh transfer deed is mandatory if objection is rectified after book closure date.
103 In case Rights/Bonus shares tendered as corporate benefits are reported as bad
delivery, if it is odd lot, the value of shares based on the rate prevalent on the day of
reporting bad delivery will be paid.
104 Rectification/replacement of transfer deed under objection should be in market lot
only (even if transfer deed under objection is submitted in non-market lot).
105 If Jumbo transfer deed is submitted as company objection, original transfer deeds need
not be returned by the receiving member.
106 When documents are returned under signature difference, the transfer deed can be
attested by the introducing member. If the introducing member is a corporate, the
Director or authorised signatory can attest the transfer deed, under his company’s
stamp, with SEBI Registration Number.
107 For reporting as company objections, the transferee portion of the transfer deed should
be duly filled in.
108 For reporting as company objection, the following documents are required:
A If they are returned as objection from the company due to the above reason:
u company objection memo stating that the shares are fake/forged
u copies of both sides of the transfer deeds
u copies of both sides of the share certificates
B Otherwise one of the following documents are required:
u public notice given by the company/registrar
u notification from any stock exchange
u letter of intimation from the company to stock exchange.

109 For reporting missing/lost/stolen shares as objection the following documents are
required :
A. If they are returned as objection from the company due to above reason:
u company objection memo stating that the shares are missing/lost/stolen
accompanied by a copy of Court Order or FIR or copy of acknowledged
police complaint
u copies of both sides of the transfer deeds
u copies of both sides of the share certificates
B. Otherwise one of the following documents are required :
u public notice given by the company/registrar
u notification from any stock exchange
u letter of intimation from the company to stock exchange
In cases where duplicate shares have been issued to a third party under
the provisions of section 108(1A) of the Companies Act the company should
also provide the name and address of the third party to whom the duplicate shares have
been issued along with the date of request for duplicate shares by the third party.

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No. Description
110 Attestation is required where signature of transferor is in an Indian language other than
the Scheduled languages in India or when the transferor has affixed his thumb
impression (guideline No. 7) In other cases, attestation is compulsory only when shares
come under objection due to signature difference. Hence, guideline Nos. 28, 29, 30, 31
& 32 apply only to transfer deeds which come under objection due to signature
difference.

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