Membership, Transfer and Transmission – CA Inter Law Notes

Membership, Transfer and Transmission – CA Inter Law Notes is designed strictly as per the latest syllabus and exam pattern.

Membership, Transfer and Transmission – CA Inter Law Notes

Member:
Definition of Member – Section 2(55)

Section 2(55) of Companies Act, 2013 states that ‘Member’, in relation to a company means:
Subscriber to Memorandum who has agreed to become member of company and on its registration, his name is entered into Register of members.
Every person who has agreed in writing to become member and whose name is entered into Register of members.
Every person holding shares of company and whose name is entered as beneficial owner in record of depository.

Analysis of Definition

Following two elements must be present to acquire membership of a company:
An agreement to become a member; and
Entry of the name of the person so agreeing, in the Register of members of the company.
Person must be capable to enter into contract with company.
Bearer of share warrant is not member of company.

Distinguish Between Member and Shareholder

Matter	Member	Shareholder
Meaning	A person whose name is entered in the Register of members of a company, is the registered member of the company.	The person who owns the shares of a company is known as shareholder.
Definition	Companies Act, 2013 defines ‘Member’ under Section 2(55).	Shareholder is not defined under the Companies Act, 2013.
Holder of Share Warrant	The holder of share warrant is not a member.	The holder of share warrant is a shareholder.
Company	Every company must have a minimum number of members.	The company limited by shares can have shareholders.
Holder of Share Warrant	The holder of share warrant is not a member.	The holder of share warrant is a shareholder.
Company	Every company must have a minimum number of members.	The company limited by shares can have shareholders.
Holder of Share Warrant	The holder of share warrant is not a member.	The holder of share warrant is a shareholder.
Memorandum	The person who signs the Memorandum of Association with the company becomes a member.	After signing the Memorandum, a person can be a shareholder only when the shares are allotted to him.

Modes of Acquiring Membership:
A person can become member in following ways :

By Subscribing to MOA

The subscribers to Memorandum are deemed to have agreed to become members.
Their names must be entered in Register of Members.
Practically, they also agree to subscribe to certain shares in the company, while subscribing to the memorandum and hence are also shareholders.

By Agreement in Writing

Every other person who has agreed in writing to become a member of the company, and whose name is entered into the register of members of the company become members.
Thus, a shareholder is not a ‘member’ unless his name is entered in the register of members of the company.
A person can become member of company by an agreement in writing in following ways:
- By transfer of shares
- By transmission of shares
- By estoppel

By transfer of shares
A person can become a member by acquiring shares from an existing member and by having the transfer of shares registered in the books of the company, Le. by getting his name entered in the register of members of the company.

By Transmission of shares

On death of member his legal representative or nominee can apply for transmission of shares in his name.
Legal representative or nominee becomes member of company when shares are transmitted and registered in his name.

By Estoppel
A person is deemed to be a member of a company, if he allows his name, without sufficient cause, to be on the register of members of the company or otherwise holds himself out or allows himself to be held out as a member.

By Holding Shares as Bene-ficial Owner in the Records of Depository

In case of demat shares, all shares are in name of depository. Company has no record of persons who hold shares in demat form.
Once shares are dematerialized, name of the person is removed from records of the company as a member.
However, the person has all rights of a member including that of dividend, voting, bonus shares etc.
Hence, it is provided that every person who holds equity share capital of company and whose name is entered as beneficial owner in the records of depository, shall be deemed to be a member of the company.
In such case, he does not apply to company ‘in writing’ but is still a member.

Other Methods
By surrender of warrant
On surrender of share warrant, name of person is entered into Register of member and he is considered as member of company.

On conversion of debenture into equity
When the fully convertible or partly convertible debenture is converted into equity and name of person is entered into Register of members, he becomes member of company.

Who Can Become Member?
Individual Member
Individual person can be a member, if he is capable to enter into contract.

Joint Holding

Group of persons can be a member jointly for shares.
When group of persons become member share are held jointly.
When shares are held in joint names, they shall be treated as ‘single member’ to decide number of members of private company.
In respect of shares jointly held by several persons, delivery of certificate to one of several joint holders shall be sufficient deliverv to all such shareholders.

Regulation 2 of Table F.

Joint holders of share shall be jointly and severally liable to pay all calls made on shares. – Regulation 15 of Table F.
In the case of joint holders, the vote of senior who tenders a vote, whether in person or by proxy, shall be accepted.

Regulation 52 of Table F.

In the case of joint shareholders, the cheque or warrant of dividend should be sent to the holder first named in the register of members.
Notice of meeting should be sent to first named person in case of joint holding.
Bonus and right shares are issued in the name of all joint holders.
In case of joint holding, all members attending will be counted for quorum.
Joint holders must sign jointly transfer form.

Company and Body Corporate

Any incorporated body which has separate legal personality can be a member. Thus, a company registered under the Companies Act can be member.
Section 8 company can be a member of another company, if authorised by its MOA.

Government
Government of India can become a member and shares are held in name of President of India. Similarly, as a State Government can hold shares in the name of Governor.

Trade Union
Trade Union registered under Trade Union Act is ‘person’ and can become ‘member’.

Society

Cooperative Society registered under the Co-operative Societies Act or the society registered under the Multi-State Co-operative Societies Act, are ‘persons’ and can become ‘members’.
A Society registered under the Societies Act cannot be member of company. However, Society registered under Co-operative Societies Act is a corporate body and can hold shares in its own name.

Hindu Undivided Family (HUF)

An HUF cannot be member of a company.
Karta of HUF can be member of company.

Tryst
A trust is not a legal person’ and therefore cannot be a member of company.

Partnership Firm

Partnership firm is not legal person and therefore cannot be a member of company.
However, firm can be a member of section 8 Company.

Foreigner or NRI
A foreigner or NRI can be member of Indian Company subject to provision of the Foreign Exchange Management Act, 1999.

Limited Liability Partnership (LLP)
LLP being corporate body can be member of company.

Minor

Minor is incapable to enter into contract and therefore he cannot become member of company.
A minor cannot subscribe to Memorandum of the company.
If allotment is made to minor wrongly, company can repudiate or cancel the allotment, but must repay all moneys received from such minor.
Minor can be member through guardian. A guardian can enter into contract on behalf of minor for minor’s benefit. Such contract is valid, if it is for benefit of a minor. He can ‘apply in writing’ on behalf of minor. Hence, shares can be registered in name of minor indicating the name of guardian representing the minor. Such contract will not be personally binding on minor, but minor’s property may be held liable.
Fully paid up shares can be transferred to minor. In case of transfer of partly paid up shares to minor, transferor is liable to pay future call even if he is ignorant about minority. If the company knows of his minority, it may refuse to register shares in name of minor unless transfer was made through the guardian.

Palaniappa vs. Official Liquidator
If an application is made by father as guardian of his minor child and the company registers the shares in the name of the minor child, both the minor and the guardian cannot be placed on the list of contributories at the time of winding up.

Global Deposit Receipt Holder (GDR)

GDR holder is holding receipt and therefore not treated as member of company.
A holder of GDR may become a member of the company only on transfer or redemption of the GDR into underlying equity shares.

Pawnee
Pawnee cannot be treated as the holder of shares pledged in his favour.

Cessation of Membership:

A person ceases to be member of company when his name is removed from Register of Members.
Membership of a person is terminated, i.e. a person ceases to be a member by one of the following modes.

Transfer
When a member transfers his shares to another person and it is registered by company in the name of transferee. Name of transferor is removed from Register of members and he ceases to be member of company.

Transmission
On death of member, his heir or legal representative becomes a member.

Insolvent
When member is declared as an insolvent and shares are transmitted in name of Official Receiver, he ceases to be member of company.

Surrender

On surrender of shares, membership is terminated.
Surrender of shares requires acceptance on part of Board.

Forfeiture
On valid forfeiture of shares, membership is ceased.

Lien
When company exercising its right of lien on shares, sells them, membership is ceased.

Buy-back
When company buvs-back its shares, person ceases to be member of company.

Redemption
On redemption of preference shares, person ceases to be member of company.

Conversion of Warrant
On conversion of shares into warrant, person ceases to be member of company.

Expulsion

On expulsion, person ceases to be member of company.
Any provision in Articles of public company which authorises its Board of Directors for expulsion of membership is against provision of Companies Act as it takes away rights of member forcefully.
It was held in the case of Bajaj Auto Ltd. vs. Firodia that provision in Articles for expulsion of member is opposed to the fundamental principle of the Companies Act and ultra vires the company.

Irregular Allotment
When irregular allotment is avoided by allottee, he ceases to be member of company.

Winding up

Person ceases to be member of company under winding up, when liquidator disclaims the shares.
Person ceases to be member when company is dissolved.

Purchase of Shares by order
Person ceases to be member of company when his shares are purchased pursuant to order under section 242 of the Companies Act, 2013.

Rights of Members:
Rights of members can be divided as under:

Individual rights
Group rights

Individual Rights
Members of a company enjoy certain rights in their individual capacity, which thcv can enforce individually.
Individual rights available to members are as under:

To receive the share certificates, on allotment or transfer of shares
To have his name entered on register of members
To sell or transfer shares if he desires, subject to Articles
To receive copies of Annual Report, Financial Statements, and the Auditor’s Report
To obtain copies of Memorandum, Articles on request and on payment of fees.
To receive notice of General Meetings with explanatory statement.
To vote in postal ballot
To participate and vote in General Meetings of members either personally or through proxies
To inspect record of proxies, Register of members, Register of directors shareholding auditors’ report kept for inspection at AGM
To inspect Register of charges, copy of instrument creating charges, Register of investment in shares and securities not held in company’s name, copy of trust deed, Register of members, debenture holders and indexes (rights also to debenture holders)
To inspect the minute books of the General Meetings.

Liabilities of Members
Members of company has following liabilities:

To take shares (if allotted within due time and if it is as per the Act)
To pay call money or pay due amount on shares
To abide by decision of majority when they are acting bona fide
To contribute to the assets of company in the case of winding up when the shares held are partly paid up.

Voting Rights – Section 47
Members have voting right as per following provisions:

Voting Rights of Equity Share-holders
Equity shareholders have right to vote on every resolution placed before meeting.

On show of hand
Every equity shareholder has one vote when voting is carried out by way of show of hand.

On poll
Every equity shareholder has proportionate vote (in proportion to his shares in paid up equity capital) when voting is carried out bv way of poll.

Voting Rights of Preference Share-holders

Preference shareholders have right to vote on resolution which affect their right.
For example, they have right to vote on winding up and capital reduction resolution.

Voting Sights of Differential Equity holder
Differential voting equity shareholders have voting right as per terms and conditions of issue of shares.

Important Note:
Section 47 is not applicable to following companies where MOA or AOA provide so:

Private company
IFSC public company
In case of Nidhi Company, no member shall exercise voting rights on poll in excess of 5 %,.of total voting rights of equity shareholders.
Voting rights of member at General Meeting are subject to restrictions on voting rights as contained in section 188(1) of Companies Act, 2013.

Variation of Shareholders’ Right – Section 48
Variation Allowed

Variation of shareholders’ right is allowed: a If AOA or MOA permits such variation; or
Variation is not prohibited by terms of issue of shares of class.

Provisions
The rights attached to any class of shares can be varied with:

Consent of holders of at least 75% of issued shares of that class; or
Special Resolution passed at the separate meeting of that class.

Important Note:

Special Resolution shall be passed through postal ballot in case of listed company.
If variation affects the rights of the holders of other class of shares, simultaneously obtain consent from them.
In case of preference shares, rights conferred by statute cannot be varied.

Cancellation of Variation
Requirement

Holders of 10% of issued shares of class who did not consent to variation may apply to the Tribunal.
Application should be made within 21 days from passing resolution.

Procedure

Application is filed by dissenting holders to Tribunal.
Application contains names, addresses and number of shares held by each of them.
The Tribunal will hear parties and decide.
Decision of the Tribunal is binding to all parties.
Decision of the Tribunal is filed with Registrar within 30 days.

Provisions Relating To Transfer of Securities:
Right of Share-holders to Transfer Shares
Section 56 of the Companies Act, 2013 empowers every shareholder to transfer his shares as per the provisions of the Articles and the Companies Act.

Transferability of Shares of Private Company

Articles of private company may include reasonable restriction on transfer of shares.
One of the most common restrictions on transfer of shares in a private company is the ‘Pre-emption clause’, which states that the intending transferor must offer his shares to the existing members of the company, before offering them to non-members, so long as a member can be found to purchase them at a fair price to be determined in accordance with the Articles.

Transferability of Shares of Public Company

Shares of public company is freely transferable.
Freely transferable means Board of directors are required to transfer it, if all conditions prescribed under Articles and Act are complied with.
In the case of public company also, there may be some restrictions on the right of members to transfer shares.
Regulation 20 of Table F provides that the Board of directors may refuse to register the transfer of partly paid shares to a person of whom they do not approve. Further, the Board of directors may refuse to register the transfer of any share on which the company has a lien.

Mathrubhumi Printing and Publishing Co. Ltd. vs. Vardhaman Publishers Ltd.
Right of a shareholder to transfer his share is always subj ect to provisions in Articles of Association.

Procedure For Transfer Of Securities – Section 56
Execution of Instrument of Transfer
Applicability

This procedure for transfer of securities is applicable when securities are in physical form.
A proper instrument of transfer shall be executed.

Transfer Form

Instrument of transfer is executed in Form SH-4.
It is also known as ‘Transfer Deed’
Transfer deed is not required for:
- Transfer of bonds issued by Government Company
- Transfer of security held in name of nominee of Government
- Transmission of security by nomination, will, succession, Court order or order of arbitration.

Execution and Signature

Instrument of transfer form shall be signed by both parties, i.e., transferor and transferee.
In case of securities arc held in joint names, the transfer form must be signed by all of them, unless a specific authorization is made in favour of any of them.
Stamp duty is paid on transfer of securities by way of adhesive stamps. It should be duly cancelled at the time of execution of the document.

Deposit of Transfer Form
Deposit by whom?
Duly executed instrument of transfer form shall be deposited at registered office of company either by the transferor or the transferee.

Deposit with Share certificate
It shall be delivered to the company along with the share certificate or letter of allotment.

Time limit
It shall be delivered to the company within period of 60 days from date of execution.

Board Approval

The share transfer must be authorised by Board or Committee by passing resolution.
The Board or Committee can approve transfers by circular resolution also.

Issue Certificate to Transferee
Every company is required to register transfer or transmission of security and deliver certificate within 1 month.

Transfer of Partly Paid up Shares

Company shall issue notice to transferee, if application for transfer of partly paid up shares is made by transferor.
Notice to transferee is given in Form SH-5.
Transferee can raise objection within 2 weeks from receipt of notice.
Company shall proceed to transfer shares, if objection is not raised by transferee.

Transfer of Shares where Transfer Form is Lost
In case the transfer deed is lost, company may register the transfer of shares after obtaining indemnity as the Board may deem fit.

Transfer in case of Demat

The provisions of section 56 are not applicable to transfer where transferee and transferor are entered as beneficial owners in records of depository.
Dematerialized securities can be transferred by recording entries in a depository.

Power To Refuse Registration of Transfer of Securities And Appeal Against Refusal – Section 58
Provisions for Refusal to Transfer or Transmission

Company can refuse to transfer or transmit securities by giving notice in writing to
- Transferor; and
- Transferee.
Notice shall contain reason for refusal.

By Private Company

Private company can refuse to transfer or transmit securities within 30 days from date of submission of transfer form.
It can refuse to transfer or transmit securities as per the provisions of its Articles.

By Public Company

Public company can refuse to transfer securities within 30 days from date of submission of transfer form.
It can refuse to transfer or transmit securities for sufficient reason. Examples of valid refusal to transfer of shares by company:
Improper transfer deed
If there is stay order granted by the Court/Tribunal.
Transfer is in violation of SEBI Takeover Code or any other law
If shares are subject to lock in and there is endorsement on certificate
Transfer of shares in case of private company is not as per AOA.

Appeal Against Refusal to Transfer or Transmit
Private company

Transferee may appeal to the Tribunal against such refusal within the period of 30 days from date of refusal.
Where notice of refusal is not received, transferee can appeal within 60 days from the date on which the instrument of transfer was delivered to the company.

Public company

Transferee may appeal to the Tribunal against such refusal within the period of 60 days from date of refusal.
Where notice of refusal is not received, transferee can appeal within 90 days from the date on which the instrument of transfer was delivered to the company.

Remedy by Tribunal

The Tribunal after hearing the parties, either
- dismiss the appeal; or
- direct that the transfer shall be registered by the company within 10 days of the receipt of the order;
The Tribunal may direct company to pay damages to ag-grieved party.

Penalty

If any person contravenes order of Tribunal, he is punishable with:
Imprisonment for not less than 1 year and not more than 3 years; and
Fine of not less than ₹ 1 lac and not more than ₹ 5 lacs.

Rectification of Register of Ivieivibers – Section 59
When Person can Apply for Rectifi-cation?

As per section 59 of Companies Act, 2013, a person may apply to the Tribunal or Court, if :
His name is removed from Register of members without sufficient reason; or
His name is included into Register of members without sufficient reason.

Important Note:
Foreign members or debenture holders residing outside India, shall file appeal in a competent Court outside India as specified by Central Government.

Who can Apply?

Aggrieved person; or
Company.

Order by Tribunal
Tribunal hears party and may order company to rectify Register of members within 10 days.

Transmission Of Securities
What is Transmission?
The term ‘transmission of securities’ means the process whereby the ownership of securities is transferred to another person by operation of law and not on account of the Will of the shareholder.

When Transmission Takes Place?

Transmission of securities takes place on the death, lunacy or insolvency of a shareholder.
In case of joint holding, transmission takes place when last surviving member dies.
It also takes place where the holder is a company, if it goes into liquidation.
Transmission of shares takes place when:
The company is amalgamated and fresh shares of new company are issued
Shares are held by guardian for benefit of a minor and the minor becomes major.
Shares are transferred by order of the Court or by order of Arbitrator.

Procedure for Transmission of Securities
As per AOA
The rules regarding transmission of shares arc given in the Articles of Association of the company.

Table F

Regulations 23 to 27 of Table F govern the procedure for transmission. According to these regulations, the legal representatives are entitled to the securities held bv deceased member.
Legal representative may apply to company for transmission of securities in his name on the basis of succession certificate or letter of administrations or probate.
No transfer form is filled in.

Refusal to Transmit Shares

A company may refuse to register a transmission. But, this power must be exercised in good faith and in the interest of the company.
However, in case of refusal, the aggrieved party can appeal to the Tribunal in the same manner as in the case of refusal to register transfer of shares.

Transmission in case of OPC

In case of OPC, person nominated by the sole member will have title to ail the shares of the deceased sole member.
The nominee shall inform member’s death to the Board.

Important Note:

No stamp duty is payable on transmission of securities.
Under transmission, person entitled to shares has to inform company, if he elects to be member. If he intends to transfer shares, he should execute transfer form. – Regulation 25 of Table F.

Distinguish Between Transfer And Transmission Of Securities

Basis for Comparison	Transfer of securities	Transmission of securities
Meaning	Transfer of securities refers to the transfer of title to securities, voluntarily, by one parly to another.	Transmission of securities means the transfer of title to securities by the operation of law.
Affected by	It is affected by act of parties.	It is affected due to insolvency, death, inheritance or lunacy of the member.
Initiated by	Transferor and transferee	Legal heir or receiver
Consideration	Adequate consideration must be there.	No consideration is paid.
Execution of valid transfer deed	Yes	No
Liability	Liabilities of transferor cease on the completion of transfer.	Original liability of shares continues to exist.
Stamp duty	Payable on the market value of shares.	No need to pay.

Blank Transfer
What is Blank Transfer?

The term ‘blank transfer’ means where the instrument of transfer is signed by the transferor and is complete in all other respects, but the name and other particulars about the transferee are not filled in.
Thus, in case of blank transfer, the transferor delivers to the buyer the share certificate and the blank transfer deed.

Advantages of Blank Transfer

A transfer in blank, when accompanied by a share certificate, carries to the transferee both the legal and equitable rights to the shares and also the right to call upon the company to register the transfer,
It facilitate easy and quick transfer of shares.

Disadvantages of Blank Transfer

It results in loss of stamp duty and income tax.
Until name of buyer is registered in records of company as shareholder, the original shareholders (i.e. transferor) shall continue to be owner of shares. All benefits will be available to transferor.
The title of the transferee acquiring shares through a blank transfer is subject to the title of the transferor.

Whether a Ne-gotiable Instrument?
It is not a negotiable instrument because it may be transferred by mere delivery.

Forged Transfer
What is Forged Transfer?
Any instruments on which the signature of the transferor is forged, is called a forged instrument of transfer and the transfer made on the basis of forged instrument of transfer is termed ‘forged transfer’.

Effect of forged Transfer or Rights of Parties under Forged Transfer

A forged transfer is legally ineffective and confers no title on the transferee of shares.
Forged transfer is void ab-initio transfer and therefore, original owner will continue to be owner of shares. His rights are not affected in any way.
Transferee does not become owner of shares and therefore he has no right.

Consequences if Company Registers Forged Transfer

If a company registers a forged transfer, the original owner of the shares can compel the company to restore his name on the Register of members and he is entitled to dividends, if declared by company.
If the company has suffered loss by forged transfer, it can no doubt claim an indemnity from the person presenting the instrument of transfer for registration even though he is quite innocent of the forgery.

Consequences if Transferee has Transferred Shares under Forged Transfer

Original owner can compel company to cancel transfer and restore his name in records, if his name is removed from records of company.
On application of original owner, company will ask transferee to return certificate and if he does not return, company can cancel certificate which is issued in favour and in name of transferee.

Important Note:
Forged transfer is possible only in case of physical holding of shares.

Transposition of Name
What is Transposition?
In the case of joint-shareholders, one or more of them may require the company to alter or rearrange the serial order of their names in the Register of members of the company. Process of rearrangement of serial order in name is known as ‘transposition of name’.

Procedure or Pro-visions for Trans-position

There is no need of execution of transfer form for transposition of names, if the request for change in the order of names was made in writing by all the joint-holders.
If transposition is required in respect of a part of the holding, execution of transfer deed will be required.
Transposition does not also require stamp duty.
The request of transposition is approved by the Board or other authorised officer of the company.

Nomination By Security Holders – Section 72
What is Nomination?

Process of appointment of nominee is known as nomination.
On death of holder of security, nominee is entitled to all rights in securities, if nomination is made.

Time for Making Nomination
Nomination is optional and therefore nomination can be made at any time.

Wrho can Appoint Nominee?

Every natural shareholder or debenture holder or deposit holder can nominate nominee any time.
Facility of nomination is not available to non-individuals like trust, LLP or Body Corporate etc.

Who can be Appointed as Nomi-nee?

Only individual person can be appointed as nominee. Company or body corporate cannot be appointed as nominee.
Two or more individuals can be joint nominee.
A minor can also be appointed as nominee but in such case one major is appointed as guardian of nominee.

Process of Appointment
Form and sign

Nomination is made in Form SH 13.
It shall be duly filed and signed by security holder.
This form should be signed by all joint holders in case where securities are held jointly.

Record by Company
Company shall record request for nomination within period of 2 months from the date of receipt of duly filed and signed form of nomination.

Cancellation or Variation in Nomination

Nomination can be cancelled or changed by giving notice of such cancellation or change to company in Form SB-14.
The cancellation or change takes effect from date on which it is received by company.

In the following situations nomination stands cancelled automatically:

Transfer of security
Renewal of deposit or payment of deposit on maturity % Withdrawal of nomination
Nominee dies
Submission of fresh nomination.

Rights of Nominee
Nominee has following rights:

Right to dividend, right shares, bonus shares etc.
No right to vote
Right to become member
Right to transfer shares.

How Nominee can Become Member?

On death of member, nominee is required to make an application along with death certificate of deceased member to company.
Application shall state that nominee has elected to become member of company.

How to Transfer Shares?

On death of member, nominee can either become member or directly transfer shares.
If he w’ants to transfer shares, he is required to sign transfer deed and attach death certificate of deceased member to company.

Register of Members – Section 88
Applicability
Every company shall keep and maintain the following registers :

Register of Members indicating separately for each class of equity and preference shares held by each member residing in or outside India;
Register of Debenture-holder; and a Register of any other security holders.

Format

Register of Members	4 Register of members shall be in Form MGT 1.
Register of Debenture holder	4 Register of debenture holders shall be in Form MGT 2.

Instructions for Maintaining Register

The entries in Register of members shall be made within 7 days of allotment or transfer of shares, debenture or securities.
Entry shall be made within 7 days in case of forfeiture, buy-back, reduction and issue of duplicate share certificate after approval of Board or Committee.
The Register should have index of names in respect of each portfolio, to find relevant entry. Entries in index should be simultaneously with the entry in the register. Such index is not required if number of members is less than 50.

Authentication
Entries in register and its index shall be authenticated by Company Secretary or any other person authorised by Board.

Place of keeping Register

The Register of members, debenture holders and security holders are required to be kept at registered office of company.
These can be kept at other place where at least 10% of members are residing, if approved by Special Resolution in general meeting.

Foreign Register

A company may, if so authorised by its Articles, keep in any country outside India, in prescribed manner, a part of the register, called ‘foreign register’ containing name and particulars of members, debenture holders, other security holders residing outside India.
If foreign register is to be kept, notice of situation of that register shall be given to Registrar in Form MGT 3 within 30 days.
Foreign register will be in same format of principal register.

Declaration In Respect Of Beneficial Interest In Any Shares – Section 89
Declaration by Registered Holder

When any person who is a member but does hold the beneficial interest in such shares, then such person shall make declaration in Form MGT-4 in duplicate to the company. He should specify name and other particulars of the person who holds beneficial interest in such shares.
Declaration should be filed within 30 days from date on which his name is entered in the Register of Members.

Declaration by Beneficial
Holder
Every person who holds or acquires a beneficial interest in shares of company shall make a declaration to the company specifying the nature of his interest, particulars of person in whose name the shares stand registered in the books of the company and such other particulars prescribed.

Return Filed with Registrar
Where any declaration is made to company, it shall make note of such declaration in the register concerned and shall file return in Form MGT-6 within 30 days. Unlisted public company and private company which is licensed to operate from the IFSC can inform within period of 60 days.

Closure of Register of Members Or Register of Debenture Holders Or Register of Security Holders – Section 91
Purpose

Register of members can be closed for any of following purpose:
To finalise list of security holders to whom the notice of General Meeting is to be sent
To determine who are entitled for dividend
To determine the entitlement for right shares or bonus shares

Notice of Closure

The notice of closure shall be given at least 7 days before closure by advertisement in English and vernacular newspaper.
However, SEBI can prescribe shorter period in case of listed company.

Maximum Period

Register can be closed:
For maximum 30 days at one time
Total 45 days in a year

Practice Questions

Question 1.
The name of piyush is found entered in the register of members of a company. But, Piyush contends that he is not a member of the company. The company maintains that Piyush had orally agreed to become a member of the company, and hence, his name was entered in the register and so he is a member. Is the contention of Piyush valid?
Answer:
As per section 2(55) person can become member of company, if there is an agreement to become member in writing and his name is entered into Register of Members. Here, Piyush has orally agreed to be member of company. Contention of Piyush is not valid.

Question 2.
Fortune Ltd. refused to enter the name of the minor son of a deceased member in the register of members on the ground that the minor cannot enter into a contract as per section 11 of the Indian Contract Act, 1872. The shares are fully paid-up. Comment on the decision of the company and suggest remedies available.
Answer:
Minor cannot be member of company but there is nothing in law to prevent minor from acquiring shares through his guardian. In the given case, shares of deceased are fully paid up. If the minor enters into contract on behalf of his guardian, company should not refuse to enter the name of minor in Register of Members.

Question 3.
John, is a member of Alex Ltd. is of unsound mind. Can the shareholder of unsound mind exercise his voting rights in respect of his membership in the said company? Give your advice.
Answer:
A person who is of unsound mind can exercise his voting right as member.

Question 4.
Rahees, who is member of Vivek Ltd., a public company, has very recently become an insolvent. Can the insolvent Rahees continue as a member of the company?
Answer:
Insolvent member continues as member till his name is removed from Register of Members. On appointment of liquidator or official assignee, he lost all beneficial interest in the shares.

Question 5.
ABC & Co., a partnership firm applied for shares in XYZ Ltd. The company allotted the shares required by the partnership firm. In the given context, what is the liability of partners and partnership firm?
Answer:
A partnership firm is not legal person and therefore it cannot be member of company. In the given case, company has allotted shares in the name of ABC & Co., firm. Allotment is invalid. Neither partners of firm nor firm are liable.

Question 6.
RSP Limited allotted 500 fully paid-up shares of ₹ 100 each to Z, a minor, in response to his application without knowing that he was a minor and entered his name in the Register of members. Later on, the company came to know of this fact. The company cancelled the allotment and struck- off his name from the Register of members and also forfeited his entire share money. He filed a suit against the action of the company. Decide whether Z would be given any relief by the Court under the provisions of the Companies Act, 2013.
Answer:
The situation in the question is similar to the case of Palaniappa vs. Official Liquidator. In this case, it was observed that if the directors allot shares to a minor in response to his application, without knowing that he was a minor and enter his name in the Register of Member, it can cancel the allotment and strike the name of the minor off the Register of Members as soon as it comes to know the fact of minority. But the company must refund the entire money to the minor, which it obtained in relation to the shares allotted.

On the basis of above decision, the company is empowered to cancel the allotment and strike off the name of Z from the Register of Member. But decision of company to forfeit entire share money is wrong. Company must refund the money to the Z.

Question 7.
Anant buys 20 shares of a public company from Basant through a stock broker. Anant receives the share certificate and the blank transfer deed countersigned by Basant but does not lodge the transfer deed for reg-istration. Examine the legal effect of unregistered transfer between the transferor and the transferee.
Answer:
Anant can become member of company only when the transfer of shares is registered by the company. Dividends or other benefits received by Basant, subject to any agreement to the contrary, must be handed over to Anant when name of Anant is entered into Register of members.

Question 8.
Dinesh, one of the joint-holders of shares of a company, sent a requisition to the company to split the shares equally amongst him and the other joint-holders, by issuing fresh share certificates. State whether the company is bound to comply with this requisition.
Answer:
Request to split shares held by joint holders should be made by all joint holders along with deposition of duly executed transfer deed to company. In such case, company is required to issue the fresh certificate.
In the given case, request is not made by all joint holders but signed by one of the joint holders. Accordingly, company is not bound to comply with this request.

Question 9.
Ajay sold his shares and executed a transfer deed in favour of Vijay. The documents were lodged for transfer with the company. However, before effecting and registering the transfer by the company, Ajay, the transferor passed away. What is the impact of the death of Ajay on the registration of transfer of shares in favour of Vijay, if the death of Ajay is—
(i) intimated to the company before the registration; and
(ii) intimated to the company after registration of the transfer of the shares in favour of Vijay?
If Vijay dies before registration of the transfer of shares, what will be the consequences?
(i) if the death of Vijay is intimated to the company before registration of transfer; and
(ii) if the death of Vijay is not intimated to the company before the registration of transfer ?
Answer:
In the given case, shares have been sold by Ajay executing a transfer form in favour of Vijay and such documents were lodged for transfer. Therefore, if Ajay dies, the company shall register the transfer of shares in favour of Vijay whether death is intimated before or after registration of transfer.

If Vijay dies before registration and company has been intimated of his death, transfer of shares cannot be registered in the name of Vijay who has already deceased, with the consent of the transferor and legal representative of the transferee, the transfer may be registered in the name of the legal heirs of the Vijay or his nominee. In case of dispute, an order of the Court or Tribunal will be enforced by the company before effecting the transfer.

If intimation of death of Vijay is not intimated to the company, the company can register the transfer in the name of the deceased transferee, in as much as the company is not aware of the death of transferee and , the transfer is done bona fide by the company, as per the information available with it.

Question 10.
Grace Ltd., a public limited company has received an application from Rosy for transmission of certain shares in her name. Rosy, being a widow of a shareholder, applies for transmission of the shares standing in the name of her deceased husband without producing a succession certificate. Can the company transfer the shares of the deceased member? Discuss.
Answer:
Legal representative may apply for transmission of shares on death of shareholder of company, if nomination has not been made by shareholder.
Usually, Articles of company provide rules or procedure for transmission of shares. There is no need to execute transfer form but company should be supplied either probate, letter of administration or succession certificate. Company’s Articles usually demand for indemnity bond from legal representative. Therefore, directors of company may transmit shares in name of legal representative, if indemnity bond and other documents are produced.

Question 11.
Layman is a holder of a share warrant in Ontime Fliers Ltd., a public limited company. Unfortunately, Layman is unaware of any of the formalities to be complied with for transferring the said share warrant. Advise him about the formalities to be completed in this regard.
Answer:
Share warrant is different than share certificate. Share warrant is treated as negotiable instrument and it can be transferred by way of delivery.

Question 12.
Mohan applied for 4,000 shares in a company but no allotment was made to him. Subsequently, 4,000 shares were transferred to him without his request and his name was entered in the register of members. Mohan stood by and allowed his name to remain in the register of members. Subsequently, the company went into liquidation and he was held liable as a contributory. Now, Mohan wants to apply to the Tribunal for rectification of the Register of members. Can he do so? Explain.
Answer:
A person whose name is entered into Register of members wrongfully or whose name is removed from it without sufficient cause may apply to the NCLT for rectification of register as per provisions of section 59 of Companies Act, 2013 and request to order company to remove his name. But, he must do so within reasonable time otherwise rule of ‘membership by estoppel’ will apply.

Question 13.
An employee of a company purchased certain shares of his company through a member of a stock exchange and lodged with the company an application for transfer of shares in his (employee’s) name. The company refused to execute the transfer on the suspicion that the employee, if admitted as a member of the company, will create nuisance in general meetings and seek access to the records of the company. Decide giving reasons – (i) Whether the company’s contention shall be tenable; and (ii) What is the remedy available to the employee in the given case?
Answer:
Company cannot refuse to register on suspicion that the employee if admitted as a member will attend General Meetings of the company and may create nuisance by raising questions and also obtain access to the records of the company as a shareholder. It is not valid reason or ground for refusal to register transfer of shares.
An employee can prefer an appeal to Tribunal against company’s refusal to transfer shares.

Question 14.
Examine the validity of transfer and transmission of shares in favour of a minor under the provisions of the Companies Act, 2013.
Answer:
Section 56 of the Companies Act, 2013 enables execution of transfer deed by or on behalf of the transferor or the transferee, the transfer deed can be executed by a minor through his natural guardian as transferee, and the contract so entered into by a minor through his natural guardian is a binding and valid contract under section 8 of the Hindu Minority and Guardianship Act, 1956.

The Articles of Association of a company cannot impose a blanket ban prohibiting transfer of shares in favour of a minor, as such a restriction is unreasonable and not sustainable. Therefore, shares can be transferred in favour of minor. In the same way, shares can be transmitted in favour of minor.

Question 15.
‘ A’ commits forgery and thereby obtains a certificate of transfer of shares from a company and transfers the shares to ‘B’ for value acting in good faith. Company refuses to transfer the shares to ‘B’. Can company refuse? Decide the liability of ‘A’ and of the company towards ‘B’.
Answer:
Company can refuse to register B as a member. The company is liable to B since the company had issued share certificate to A, and therefore, the company shall be stopped from denying the liability occurring to it from its own default. A is liable to compensate the loss caused to the company since he had lodged the forged transfer deed.

Past Examination Questions

Question 1.
A company refuses to register transfer of shares made by Mr. X to Mr. Y. The company does not even send a notice of refusal to Mr. X or Mr. Y respectively within the prescribed period. Has the aggrieved party any right(s) against the company for such refusal? Advise as per the provisions of the Companies Act, 2013. (CA May 2002, November 2015)
Answer:
Company is required to give notice of refusal with reason to the transferor and the transferee within period of 30 days from day of receipt of transfer deed. Mr. Y is entitled to file an appeal to the Tribunal against the refusal of the company to transfer shares. The Tribunal may direct company to register the transfer of shares.

Question 2.
Describe the ways to become a member of company. (CA November 2002)
Answer:

Question 3.
A company issued 20 partly equity shares and registered them in the name of minor describing him as minor. The father of minor signed the application on the minor’s behalf. After sometime company went into liquidation. The company filed a suit against father of the minor to recover the remaining amount on the shares. Whether the company will succeed? Advice. (CA November 2002)
Answer:

Question 4.
Examine the provisions of the Companies Act, 2013 regarding ‘nomination’ in case of transmission of shares. (CA November 2003)
Answer:

Question 5.
Honest Cycles Ltd. has received an application for transfer of 1,000 equity shares of ₹ 10 each fully paid up in favour of Mr. Balak. On scrutiny of the application form it was found that the applicant is minor. Advise the company regarding the contractual liability of minor and whether shares can be allotted to the Balak by way of transfer. (CA November 2004)
Answer:
Membership can be given to minor in this case as shares are fully paid up.

Question 6.
‘Every shareholder of a company is also known as a member, while every member may not be known as a shareholder.’ Examine the validity of the statement and point out the distinction between a ‘member’ and a ‘shareholder’. (CA November 2005)
Or
Every shareholder is a member, but every member may not be a share-holder of the Company. Explain. (CA November 2006)
Or
In what ways a ‘member’ of a company is different from that of a ‘share-holder’ of the company? (CA May 2012)
Answer:

Question 7.
Explain the meaning of ‘transmission of shares’ under the Companies Act, 2013. In what ways is ‘transmission of shares’ different from ‘transfer of shares’? (CA November 2006)
Or
What do you mean by Transmission of Shares? Differentiate between Transfer of Shares and Transmission of Shares (CA November 2008)
Answer:

Question 8.
X, a registered shareholder of Y limited left his share certificates with his broker A. A forged the transfer deed in favour of Z. Accompanied by these share certificates Z lodged the transfer deed along with the share certificates with the company for registration. The Company Secretary who had certain doubts, wrote to X informing him of the proposed transfer and in the absence of a reply from him (Mr. X) within the stipulated time, registered the transfer of shares in the name of Z. Subsequently, Z sold the shares to J and J’s name was placed in the register of shareholders. Later on, X discovered that forgery has taken place. Referring to the provisions of the Companies Act, 2013 state the remedy available to X and Z in the given case. Explain. (CA May 2007)
Or
Mr. Y, the transferor acquired 250 equity shares of BRS Limited from Mr. X, the transferor. But the signature of Mr. X, the transferor, on the transfer deed was forged. Mr. Y after getting the shares registered by the company in his name, sold 150 equity shares to Mr. Z on the basis of the share certificate issued by BRS Limited. Mr. Y and Mr. Z against the company with reference to the aforesaid shares. (CA May 2009)
Or
V the transferee, acquired 300 equity shares of ABC Limited from S, the transferor. But the signature of S the transferor, on the transfer deed was forged. V after getting the shares registered by the company in his name and subsequently sold 250 shares to X on the basis of the share certificate issued by ABC Ltd. V and X were not aware of the forgery. Explain the rights of S, V and X against the company with reference to the aforesaid equity shares under the provisions of Companies Act, 2013. (CA November 2016)
Answer:
Rights of X:
He can compel the company to restore his name on the Register of members (since a forged transfer is without any legal effect and the true owner continues to be the member of the company).
Liabilities of Z:
Z is liable to compensate the loss caused to the company since he had lodged the forged transfer deed, even though he was not aware of the forgery.

Rights of J:
The company can refuse to register J as a member. The company is liable to J since the company had issued share certificate to Z, and therefore, the company shall be stopped from denying the liability accruing to it from its own default.

Question 9.
How nomination facility shall operate in case of transmission of shares under the provisions of the Companies Act, 2013? (CA November 2007)
Answer:

Question 10.
X, a minor purchased 500 equity shares of ₹ 10 each of a company on which ₹ 5 per share were paid from the Mumbai stock exchange and / submitted an application to the company for transfer of these shares in his name. Decide whether these shares can be transferred to X? (CA June 2009)
Answer:
The company should not transfer partly paid up shares to X, a minor because minor is not liable to pay unpaid calls. When under any contract minor becomes liable to perform anything, such contract is not valid and binding to minor.

Question 11.
Examine the position of a minor in relation to obtaining membership in a company under the provisions of the Companies Act, 2013. (CA November 2011)
Answer:

Question 12.
A holder of share-warrant of a company is not a member of the company. (CA May 2012)
Answer:
Statement is correct. Holder of share warrant of company is not a member of company but he is shareholder.

Membership, Transfer and Transmission – CA Inter Law Notes

Leave a Comment Cancel Reply