Transfer of securities means a change in the ownership of the shared title either through a private arrangement or through an exchange transaction.
SECTION 56 UNDER COMPANIES ACT
As per section 56 of the Companies Act, a company will register the transfer of securities only when it is duly stamped, dated and then executed by the transferor and transferee.
The name and address of them shall be sent to the company by either party within 60 days from the date of execution. Also, a letter of allotment of security must be sent.
- If the instrument containing transfer of the security is lost or not delivered, then the company can register transfer based upon an indemnity bond.
- If the transferor makes an application which relates to partly paid shares, the company must make the transfer only after notifying the transferee. The notice must be made in Form SH-5. The transfer must be made when no objection is raised by transferee within 2 weeks of receipt.
- If the transfer is related to any deceased person and transfer is made by his legal representative then it will be valid only if he had been the holder at time of execution.
PROCESS OF TRANSFER THROUGH MANUAL MODE
(a) The owner of the security must inform the company about its intent to transfer.
(b) Then, the company would inform its members that certain shares are available for purchase by the members. Also, the price of shares and the time limit for notifying about the intent to purchase will be declared.
If no member notifies its intent to purchase the shares, then the share can be sold to an outsider.
(c) if there is a buyer, he must fill share transfer deed in Form SH-4
(d) The transfer deed then will be duly stamped and executed by the transferor and transferee.
(e) At last, the share certificate or letter of allotment along with transfer deed and the same will be sent to the company within 60 days from date of execution.
TRANSFER THROUGH DEPOSITORIES (ELECTRONIC MODE)
If the transfer of share is through depositories system, then as per Companies Act, 2013 the company shall immediately inform about the details to the depository (NSDL).
(1) Then, the transferor will give delivery instruction to Depository Participant1 so as to debit his account and transfer the security to be transferred to Clearing Member1 Pool Account with Depository Participant1.
The Clearing Member1 will give receipt instruction to DP1 in order to accept his clearing account security transferred by transferor through DP1.
Security then is transferred from transferor’s account to Clearing Member pool Account with Depository Participant1.
(2)Clearing Member1 then gives delivery to Clearing Corporation instruction to DP1 to debit his clearing Member1 Pool Account and credit his Clearing Member1 Delivery Account.The transfer takes place on execution date.
(3)The transferred securities are kept in Clearing Member1 Delivery account till the settlement day. The securities which are lying in Clearing Member1 delivery account gets automatically transferred to Clearing Corporation at the time of pay in.
(4) After this, there is an automatic transfer from the CC to clearing member2 pool account with DP2 at the time the pay out takes place.
(5) Then, security is transferred from clearing member2 receipt account to clearing member2 pools account.
(6) After this, clearing member2 gives delivery instruction to depository participant2 to debit his clearing member2 pool account and credit buying client account with depository participant2.
The transferor then gives receipt instruction to depository participant2 to accept in his account security transferred from clearing member2 pool account through depository participant2.
(7) At the last, security is transferred from buying client account from clearing member2 pool account with depository participant2. The security then will remain with the clearing member pool account until the instruction of delivery is given by him.
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