33398122 Transfer of Share as Per Indian Company Law

8/3/2019 33398122 Transfer of Share as Per Indian Company Law

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PRESENTATION ON

SHARE TRANSFERS THROUGHDEPOSITORY SYSTEM

Dr.V.K.JainM.Com., M.Phil., LL.M. Ph.D. (Tax), F.C.S.

Recipient of Best Teacher Award from RTM Nagpur University

Email: [email protected]

CHAIRMAN NAGPUR CHAPTER OF INSTITUTE OF COMPANY

SECRETARIES OF INDIA


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Transfer of Shares(Sections 108 to 112)

What you should know?

Right to transfer shares

Procedure of transfer of shares

When can company refuse transfer of shares

Forged transfer and blank transfer

Transmission of shares

Transfer of shares under the depositories system


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Shares of a company are freely transferable subject tothe restrictions contained in the Companies Act, any

other statutes and the provisions of the Memorandum

and Articles of Association of the company (section 82).

However, in case of private company, by its verydefinition, there has to be restrictions on the transfer of

shares.

But in the case of a listed company / unlisted publiccompany, after the enactment of Depositories Act,

1996, the securities have become freely transferable.

Even the Board of Directors cannot refuse transfer of

shares on any ground.

RIGHT TO TRANSFER SHARES


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3- WAY MODE OF TRANSFER

PHYSICAL MODERestricted transfers for private Company

Un-Restricted transfers for un-listed public

Company

DEMATERIALISED e-MODE OF TRANSFERIN CASE OFLISTED PUBLIC COMPANIES


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Procedure of transfer of shares

SHARE TRANSFER PROCEDURE

Obtain prescribed share transfer form (Form No. 7B)

with the presentation date

q

Fill up the share transfer formq

Get the deed signed by transferor and transferee, duly

witnessed and attested

q

Attach the share certificate with the deed and affixshare transfer stamps and cancel it

q

Deliver the deed and the certificate to the company with

an application for transfer within the prescribed time

q


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The company gives notice to the transferee in the case

of partly paid up sharesq

The company board considers the application and

orders for, or refuses, registration

q

If transfer is refused, the company notifies the transferor

and the transferee, Returns the documents

q

When transfer is in order, the transferee is registered as

member and the share certificate is sent to him afterendorsement of title


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When can company refuse transfer

of shares

A) In case of a public companylisted or unlisted

(Sec. 111A).-

-Shares are freely transferable;- Company cannot refuse transfer.

Appeal to CLB within 2 months.

Rectification of register of members

B) In case of private company Sec. 111

-Board resolution and notice of refusal

-First Remedy - Appeal to CLB

-Second Remedy - Appeal for Rectification of register of

members. [Sec. 111(4)].


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Transmission of shares may be referred to as the

involuntary transfer of shares. It takes place in the eventof death or insolvency of a shareholder.

-Nature of Act

-Consideration

-Instrument of transfer

-Stamp Duty

-Liability of the transferor

-Transfer during lock-in period


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Investors

Clearing Corp.

Brokers

Insvestors

Fin.Inst

NBFC

Participants(DP)

Shareholder

Issuer(Company)

Depository

DEPOSITORY


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DepositoryDepository

A depository is a company having networth of Rs. 100 crores

and registered with SEBI.

It provides for transfer of shares through book entry form

without physical movement of scrips.

It maintains accounts of the investors in electronic form andprovides for settlement of trades of securities held in the

depository.


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The system of depositories have revolutionized stock

markets.

The most single important development in the Indian Capital

Market in the last decade is the emergence of the Depositories

System.

A depository is a company where securities of investors are

held in electronic accounts.

Just as the banks holds money, in the same way a depository

holds securities.

A depository in India, must have a net worth of 100 crores

and must obtain a certificate of commencement of business

from SEBI.


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NATIONAL SECURITIES DEPOSITORY LTD. - (NSDL)

& BANK - an analogy

NSDL vs. Bank

Holds securities in accounts Holds funds in accounts

Transfers securities between Transfers funds between

accounts accounts

Transfers without handling Transfers without handling

securities money

Safekeeping of securities Safekeeping of money


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CONSTITUENTS

There are four constituents in the depositories system:

The depository

The depository participants

The beneficial owner

The issuer


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The depository: The depository holds the securities of the

investors in the form of electronic book entries(dematerialized form). It maintains ownership records of

securities and effects transfer ownership through book

entry.

The depository participant: The depository cannot deal

with millions of investors directly. It appoints agents called

depository participants who open and maintain accounts.

It is similar to the branch of a bank. You can open account

in any branch of a bank.


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Beneficial owner: By fiction of law, the depository is

registered owner of the securities held with it with the limited

purpose of effecting transfer of ownership at the behest ofthe owner. The name of the depository appears in the

records of the issuer as registered owner of securities. The

name of actual owner appears in the records of the

depository as beneficial owner.The beneficial owner has all the rights and liabilities

associated with the securities. The owner of securities

intending to avail of depository services opens an account

with a depository through a depository participant (DP). The

securities are transferred from one account to another

through book entry only on the instructions of the beneficial

owner.

The issuer: It is the company which issues the security.


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MODELS OF DEPOSITORY

There are two models of depository Immobilization and

dematerialization. In the immobilization model, physical scripsare held in the depository vaults, supporting the book entry

records kept on the computer. It means storage of scrips in

the vaults of the depository so that the physical movement of

scrips is frozen. In contrast, in dematerialization, there is no

physical scrip in existence and the scrips are held in

dematerialized form (electronic form). India has adopted

dematerialization model of depository system.


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DEPOSITORY ISSUER /R&TAGENT

DEPOSITORYPARTICIPANT

CLEARINGCORPORATION

CLEARINGMEMBER

STOCK

EXCHANGE

TRADING

MEMBER INVESTOR


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WHY DEPOSITORY?

The depository system was introduced to eliminate the ills

associated with paper based securities system such as

delay in transfer, bad delivery, theft, fake and forge shares

etc. Before the introduction of the depository system the

following problems were faced by the investors and thecompanies :

Forged and fake share certificates

Bad deliveries

Loss of certificates in transit

Mutilation of certificates

Delays in transfer

Long settlement cycles

Mismatch of signatures

Delay in refund and remission of dividend interest etc.


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BENEFITS OF A DEPOSITORY

Eliminates bad deliveries

IMPROVES LIQUIDITY:- Immediate transfer of sharesLow cost of public Issue

No stamp duty in case of transferwithin the depository.

Eliminates the scope of theft, forgery etc. risks associated with

physical form.

Entitles the transferee to all rights immediately and settlement

of transaction.


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BENEFITS OF A DEPOSITORY

Reduction in handling large volumes of paper

Reduction in transaction cost

Convenient method of consolidation of

folios/accounts

Holding investments in equity, debt

instruments and Government securities in a

single account


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KEY CONCEPTS OF DEPOSITORY

Depository facilitates paperless trading and electronic book

entry transfer of securities. The following are its key concepts :

Principle of FREE TRANSFERABILITY of shares.

Concept of FUNGIBILITY of shares

Concept of DEMATERIALISATION

Concept of REMATERIALISATION

Demat or Dematerialisation: is the process of transferring

physical scrips into computerized ledger A/c maintained by

Depository. Demat securities are in fungible form i.e. they do

not carry distinctive numbers.


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Dematerialisation : It is the process of conversion of

physical scrips into electronic book entry form. It results

in elimination of paper certificates.

3NSDL

(depository) Depository Participant

Registrar Investor

1

7

6

2

5

4


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In dematerialisation process, investor surrenders defaced

certificates along with Dematerialisation Request Form to the

depository participant.

Depository participant intimates NSDL of the request

through the system.

Depository participant submits the certificates to the

registrar.

Registrar confirms the dematerialisation request from NSDL.

After dematerialising certificates, registrar updates accounts

and informs NSDL of the completion of dematerialisation.NSDL updates its accounts and informs the depository

participant.

Depository participant updates its accounts and informs

investor.


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Fungible Shares: Under a depository, shares do not havedistinctive numbers, this means that shares, like currency are

fungible meaning exchangeable for any other. Share certificates

shall become interchangeable. Investor will not get the same

share certificates bearing same distinctive numbers which they

surrendered at the time of entry into depository

Rematerialisation: The conversion of dematerialised holdingsback into certificates is called rematerialisation. If the investor

wishes to get back his securities in physical form, all he has to

do is to request his depository participant for rematerialisation of

the same by filing up Rematerialisation Request Form.

Depository Participant will then forward the request to thedepository after verifying that the investor has necessary

balances. Depository, in turn will intimate the registrar who will

print the certificates and dispatch the same to the investor. The

entire process of rematerialisation usually takes a maximum of

30 days.


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FACILITIES OFFERED BY DEPOSITORY

Functions : The functions of depository include accountopening, dematerialisation, rematerialisation, settlement and

clearing, pledge and hypothecation etc. Depository

participant is the key player in the system who acts as an

agent of the depository and is in fact the customer interface

of depository. It opens the accounts of the investors,

facilities dematerialisation, settles trades and effectscorporate actions.


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FACILITIES OFFERED BY DEPOSITORY

Depository also provides electronic credit in new issued

wherein investor opens an account with the depository

participant, submits application with depository giving DP-Id

and client-Id, the registrar uploads list of allottees to the

depository and depository credits allottee account with

depository participant (DP). The refunds, if any, are sent by

registrar as usual in any public issue. The following facilitiesare offered by a depository:


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Dematerialisation i.e., converting physical certificates to

electronic form;

Rematerialisation i.e., conversion of securities in demat form

into physical certificates;

Facilitating repurchase/redemption of units of mutual funds;

Electronic settlement of trades in stock exchanges

connected to depository;

Pledging/hypothecation of dematerialised securities against

loan;

Electronic credit of securities allotted in public issued, rights

issue;


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Receipt of non-cash corporate benefits such as bonus,

in electronic form;

Freezing of demat accounts, so that the debits from theaccount are not permitted;

Nomination facility for demat accounts;

Services related to change of address;

Effecting transmission of securities;

Instructions to your DP over Internet through SPEED-e

facility.

Account monitoring facility over Internet for clearingmembers through SPEED facility;

Other facilities viz. Holding debt instruments in the

same account, availing stock lending/borrowing facility

etc.


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HOW TO TRADE IN ELECTRONIC SHARES?

Buying and selling shares in the electronic form is just like buying

and selling physical shares, the only difference is trading insecurities in the electronic form is simpler and safer.

If investor wish to sell his shares, he places an order with his broker

and instruct his depository participant by way of a deliveryinstruction (which is a cheque like instrument) to debit his account

with the number of shares sold by him.

When he buys shares he must inform his broker about his

depository account number so that the shares bought by him arecredited into his account and instruct his participant by way of

Receipt instruction to receive credit in his account.


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Payment for electronic shares either bought or sold is made

in the same way as in the case of physical securities. The

shares thus bought are transferred in the investors name

the very next day of pay out. No formalities of filling transfer

deeds, affixing share transfer stamps and applying to thecompany for registering the shares in investors name are

required to be observed as in case of physical transfer of

securities.


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Initial offer to be in demat form in certain cases (Section

68B) Section 68B provides that every listed public company,

making initial public offer of any security for a sum of rupees

ten crores or more, shall issue the same only in dematerialised

form by complying with the requisite provisions of the

Depositories Act, 1996 (22 of 1996) and the regulations made

thereunder.

IPO to be compulsorily graded:According to the

amendment in April 2007 in SEBI (Disclosure and Investor

Protection) Guidelines, 2000 Grading of all IPOs has become

mandatory. The grading shall be done by credit rating

agencies, registered with SEBI. It shall be mandatory to obtaingrading from at least one credit rating agency. The Issuer shall

be required to disclose all the grades obtained by it for its IPO

in the prospectus, abriged prospectus, issue advertisements

and all other places where the issuer is advertising for the IPO.


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EFFECTS OF DEPOSITORY SYSTEM ON

COMPANIES ACT

Sec. 83 Shares shall cease to have distinctive numbers.

Sec. 41 The beneficial owner specified in the register maintained by the

depository shall be deemed to be the member of the company.

Sec.152A The register and index of beneficial owners maintained by the

depository shall be deemed to be the register and index of

members and debenture holders.

Sec. 113 No share certificate shall be issued to the shareholder when shares

are issued in dematerialized form. Also, where shares are

transferred in dematerialized form, the transferee shall not beissued a share certificate.

However, where the shares are required to be issued in

dematerialized form, the company shall immediately, after

allotment, intimate the details of allotment to the depository.


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EFFECTS OF DEPOSITORY SYSTEM ON

COMPANIES ACT

Sec. 108 The provisions relating to production of transfer deed along with

share certificate for effecting the transfer of shares shall not applywhere the shares are held in dematerialized from. In other words,

no transfer deed is required to be executed where shares are held

in depository system.


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7.14 NOMINATION OF SHARES

/DEBENTURES/DEPOSITS (section 109A,

109B)

1. For what can nomination be made?

Nomination can be made for:

(i) shares(ii) debentures and

(iii) fixed deposits

2. Who can make nominations?

3. Who cannot be a nominee?

4. How to make a nomination

5. Rights of nominee holder

6. When does nomination stand rescinded?

7. Valid Discharge by company

Documents

33398122 Transfer of Share as Per Indian Company Law