Transfer and Transmission of Shares
Transfer and Transmission of Shares
Transfer and Transmission of Shares
Transfer Form’ Section 108 requires the transfer to be in a proper instrument of transfer
known as ‘Share Transfer Form’ which is required to be presented to the Registrar of
Companies before it is signed and filled up by the transferor .
Any instrument of transfer which is not in agreement with these provisions shall not be
accepted by the company. The transferee becomes a member of a company only when the
transfer is registered by the company.
In Prafulla Kumar Rout v. Orient Engg. Works (P.) Ltd it was observed that all that section
108 requires is that before delivery, the stamps should be affixed. However, in Mathrubhumi
Printing & Publishing Co. Ltd. v. Vardhaman Publishers Ltd . the Kerala High Court
observed that instrument is unstamped if the it is not properly executed. Cancellation of the
stamps by the staff of the company does not make the transfer instrument duly stamped .
Provisions of Section 108 are inapplicable to transfer where transferee or transferor are
entitled as beneficial owners in the records of depository.
1.3Demat Shares
In the case of fresh issue (IPO), the investor would indicate his choice in the application
form, if he opts to hold the security in the depository mode, commonly known as 'demat'
mode. An investor, who opts for a depository mode may at any time, opt to choose out of it
and claim share certificate from the company by substituting his name as the registered owner
in the place of the depository. Ownership changes in the depository system will be made
automatically on the basis of delivery vs. payment. The provisions of section 108 are
inapplicable to transfer where transferee and transferor are entered as beneficial owners in
records of depository.
1.4Time Limit
As per section 113, a company is required, within 2 months after the application for transfer,
to deliver the share certificates duly transferred. In Re, Reliance Industries Ltd. the company
failed to deliver shares within the prescribed time of 2 months. CLB fined the company and
share transfer agents. The default under section 113 is a continuing offence and, therefore,
shall not be subject to limitation.
1.6rights Of Transferees
Till the company has registered the transfer, the name of the transferor continues to appear in
the register of members and thus he continues to be the lawful owner but transferee is the
beneficial owner (cestui que trust). In order to protect the interest of the transferees; section
206A was added by the Amendment Act, 1988 which provides that where any instrument of
transfer of shares has been delivered to the company for registration and transfer has not been
registered, the right to dividend, rights shares and bonus shares will be kept on hold.
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1.7Blank Transfer
Where a shareholder signs a share transfer form without filling in the name of the transferee
and hands it over along with the share certificate to the transferee thereby enabling him to
deal with the shares, he is said to have made a transfer ‘in blank’ or a ‘blank transfer’. It is
not a negotiable instrument because it may be transferred by mere delivery.
1.8Right To Pre-Emption
It is a common practice to provide in the articles that any member intending to transfer his
shares must offer the shares first to other members of the company. Such restrictions are not
invalid. The conditions imposed and the formalities prescribed by the articles are
mandatory. The pre-emption clause does not, however, completely bar transfers to outsiders .
1.9 Restrictions On Transfer Of Shares
I General Grounds - Malafide instrument of transfer, inadequacy of reasons, irrelevant
considerations and bad delivery of transfer documents, contravention of law, prejudicial to
company or public interest and stay order by Court are the reasons when transfer of shares
can be restricted.
II Special Circumstances
1) On transfer with regard to the company's borrowing
2) Under SEBI Guidelines shares allotted to certain categories of shareholders such as
promoters, employees, etc are subject to condition of non-transferability for a period of 3-5
years accordingly.
Transmission Of Shares
Transmission of shares takes place, when the registered shareholder dies; or when he is
adjudicated an insolvent; or where the shareholder is a company it goes into liquidation. On
the death of a shareholder, his shares vest in his legal representative. The legal representative
may transfer the shares devolved upon him by transmission.
Transmission of shares in favour of a member of a private company who is engaged in a
competing business cannot be refused. In S.M. Hagee Abdul Hye Sahib v. KNS Hajee Shaik
Abdul Kadar Labbai Sahib Co. (P.) Ltd ., the CLB held that a transfer of shares in a private
company may be refused in case the transferee is engaged in a competing business but
transmission cannot be refused on that ground. Succession certificate covering shares held by
a deceased member on the date of his death would cover subsequent issue of bonus shares
and no fresh succession certificate would be required .
3.1Transmission V Transfer
Transfer is by the act of the parties. Transmission is by devolution of law, i.e. death or
bankruptcy. In transmission of shares no procedures are required to be followed unlike in
transfer of shares.
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2. Limit on Period: The Reserve bank Regulation is the limit on the period of such deposits.
Formerly in order to avoid direct competition with short-term public deposits, companies
were prohibited from accepting deposits for a period of less than 12 months. But the
amendment of 1973 reduced the period to less than 6 months. The short term deposit is now
pegged down to 10% of the aggregate to the paid-up capital.
3. Information about Repayment: The Reserve Bank has made obligatory on the part of the
companies accepting deposits to regularly file returns giving detailed information about them
their repayment etc.
4. While issuing Newspapers: The Reserve Bank has stipulated that while issuing
newspaper advertisement certain specified information regarding the financial position and
the working of the company must accompany.
5. Auditors: The RBI has entrusted the auditors of the companies with additional
responsibility of reporting to it that the provisions under the Act had been strictly followed by
the company.
6. Issued Brochure: The RBI has issued brochure RBI directives and company Deposits in
order to clarify its role in protecting depositors.
1. Illegal or Ultra Vires Act: A shareholder is entitled to bring an action against the
company and its officers in respect of matter which are ultra vires.
Payment of Dividends:
1. The payment of dividends is having two fundamental principles. The first dividends must
never be paid out of capital.
2. The dividends shall be paid only out of profits.
Case: K.Madhava v Popular Bank,(AIR 1970 Ker.131): It has been held that payment of
dividend out of capital is a breach of trust.Howerver the directors may recover indemnity
from he shareholders who have received the dividends out of capital.
Case: Flitcroft’s case (i.e in re Exchange Banking Co,(1882) 21 Ch D 519) certain bad debts
were credited to the accounts and not real profit created were paid away as dividends. The
directors were held responsible.
Learning Outcomes:
A "security" varies by legal and regulatory jurisdiction. In some jurisdictions the term
specifically excludes financial instruments other than equities and fixed income instruments.
Introduction:
Securities: A security is a tradable financial asset. It is commonly used to mean any form of
financial instrument but the legal definition of a "security" varies by legal and regulatory
jurisdiction. In some jurisdictions the term specifically excludes financial instruments other
than equities and fixed income instruments.
1. Corporate Securities: Corporate Securities means raising of the Capital.
2. Classification of Securities: (i) Ownership: known as Capital Stock and (ii) Creditorship:
Securities as Debt
3.Ownership Securities: Ownership securities includes Ordinary shares(equity), preference
shares and cumulative convertible preference shares.
4. Ordinary Shares: Ordinary shares may be regarded as the corner-stone of financial
structure. Ordinary shares are takes responsibility which are usually associated with
ownership
5. Advantage of Ordinary Share: The Corporation by issuing equity shares can have the
funds permanently and there is no obligation to return the creation of any charge against the
assets of company.
ii Legal Restriction: Individual and Institutional investors cannot purchase equity shares
because of choice.
Iii Over-Captalisation: Excessive issues of equity shares may result in over-capitalisation in
future.
6.The Right of Ordinary Shares:
i Right to Vote: The shareholders having Right to vote. Vote issues like the amendment of
Memorandum of Association or Alternation of article etc.
ii Right against ultra vires acts of the Company: Share holders consent is required to
investment their Capital. Shareholders may bring legal action to prevent the corporation.
iii Pre-emptive right: It is vital right which serves to protect the shareholders by giving
themfirst option to buy of additional issues.
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iv. Right to have knowledge of corporate affairs: the equity shareholders have the
fundamental right of being informed about various developments in a corporation at least
once in a year in annual general meeting.
v.Right to transfer the shares: The shareholders are always at liberty in a public limited
company to transfer their holding to anyone.
vi. Miscellaneous Rights: besides the above rights the shareholders have the privilege of
participating in exceptional profits.
Restriction on Borrowing (Sec11):A company having share Capital shall not start any
business having borrowing power unless following condition fulfill:
1.Decleration:A declaration is filled by a director with the Registrar that every subscriber to
the memorandum has paid value of the shares. The paid Capital value of the shares is not less
than five lakh rupees in case of public company and not less than one lakh rupees in case of
Private company.
2. Registered office: The company has filed with the Registrar a verification of its registered
office.
3. Penalty:if any default is made in complying with the requirement of this section.
4. Removal of the Name: No declaration has been filed Within a period of one hundred and
eighty days of the date of incorporation of the company Registrar believe that company is not
carrying on any business he may removal of the name of the company.
5. Borrowing by the Board of Directors: Sec.180 (1) (c) :Consent of the shareholders: The
Board of Directors of the company borrow the money with the consent of the company by a
special resolution passed in the company general meeting shall .
6. Un Authorized borrowing (Ultra Vires Borrowing):If company borrows money beyond
its powers the borrowing is ultra vires.
7. Right to Recover: If the money lent to the company has not been spent the lender may get
injunction from the court to restrain the company. The lender has the right to recover the
amount from the company.
8.Recover Original Form: As long as the money of the lender is in the hands of the
company in its original form or its products are still capable of identification he may claim
that money or its products. In case of winding up of company he may claim the distribution
of assets of the company.
9.Ultra Vires discovered in Public docouments:The Lender under a transaction Ultra Vires
the directors may recover damage from the directors. But if the fact that the borrowing is
ultra vires have been discovered from the public documents of the company I;e Memorandum
and Articles than the lender cannot recover from the company.
10.Regular Borrowings: If the borrowing is with in the powers of company, and misused the
fund in unauthorized activities without knowledge of the lender than lender can recover. If
lender provides finance for a business which( with his knowledge) is not within the
company’s objects the loan is ultra vires and the lender cannot claim from the company.
11.Case:I. In Equity Insurance Co Ltd v Dinshaw & Co.(AIR 1940) it was held that where
the managing agent of a company who is not authorized to borrow has borrow money which
is not necessary, neither bona fide nor for the benefit of the company,the company is not
liable for amount borrowed.
ii.Suraj Babu v Jaitly & Co AIR 1946 :where loan has not been taken in the name of
company it will not be liable even though it may have benefited.
12.Borrowing methods:I Long term finance ii Short term finance
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13.Long Term finance can be raised :By mortgaging immovable property such as land and
Building,Machines etc.
Ii By securing long term loans from specialized financial institutions.
Iii By securing loan from central Government and state Government,
Iv By issuing Debentures
WORKING CAPITAL
Objective: After reading this module, the learners will have a clear picture of :
This refers to that minimum amount of investment in all Current assets which is required at
all times to carry out minimum level of business activities. it represents the current assets
required on a continuing basis over the entire year
Learning Outcomes:
The term “working capital” is often referred to “circulating capital” starting from cash,
changing to raw materials, converting into work-in-progress and finished products, sale of
finished products and ending with realization of cash from debtors.
Introduction:
Working Capital: The term working capital is commonly used for the capital required for
day-to-day working in a business concern, such as for purchasing raw material, for meeting
day-to-day expenditure on salaries, wages, rents rates, advertising etc.
Definition: According to Weston & Brigham - “Working capital refers to a firm’s investment
in short term assets, such as cash amounts receivables, inventories etc. But as per accounting
terminology, it is difference between the inflow and outflow of funds.
Circulating Capital : The term “working capital” is often referred to “circulating capital”
starting from cash, changing to raw materials, converting into work-in-progress and finished
products, sale of finished products and ending with realization of cash from debtors.
Temporary Working Capital: The amount of such working capital keeps on fluctuating
from time to time on the basis of business activities. For example, extra inventory has to be
maintained to support sales during peak sales period
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The internal factors includes: Nature of business Size of business, firm’s product policy,
credit policy, dividend policy, and access to money, and capital markets, growth and
expansion of business etc.
The external factors include business:
Fluctuations, changes in the technology, infrastructural facilities, import policy and the
taxation
Policy etc. These factors are discussed in brief in the following lines.
I. Internal Factors
1. Nature and size of the business
The working capital requirements of a firm are basically influenced by the nature and size of
the business. Size may be measured in terms of the scale of operations. A firm with larger
scale of operations will need more working capital than a small firm.
Similarly, the nature of the business - influence the working capital decisions. Trading and
financial firms have less investment in fixed assets. But require a large sum of money to be
invested in working capital. Retail stores, business units require larger amount of working
capital.
4. Availability of credit
The working capital requirements of a firm are also affected by credit terms granted by its
suppliers – i.e. creditors. A firm will need less working capital if liberal credit terms are
available to it. Similarly, the availability of credit from banks also influences the working
capital needs of the firm. A firm, which can get bank credit easily on favorable conditions,
will be operated with less working capital than a firm without such a facility.
investment in Current assets to support increased scale of operations. Thus, a growing firm
needs additional Funds continuously.
3. Import policy
Import policy of the Government may also effect the levels of working capital of a firm since
they have to arrange funds for importing goods at specified times.
4. Infrastructural facilities
The firms may require additional funds to maintain the levels of inventory and other current
assets, when there is good infrastructural facilities in the company like, transportation and
Communications.
5. Taxation policy
The tax policies of the Government will influence the working capital decisions. If the
Government follow regressive taxation policy, i.e. imposing heavy tax burdens on business
firms, they are left with very little profits for distribution and retention purpose. Consequently
the firm has to borrow additional funds to meet their increased working capital needs. When
there is a liberalised tax policy, the pressure on working capital requirement is minimised.
Thus the working capital requirements of a firm is influenced by the internal and external
factors.
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The central government may also make an application to the tribunal for its orders where it
thinks that the affairs of the company are prejudicial to public interest.
Powers of Tribunal : Under section 242 of the Act, the Tribunal has the power to order for
the regulation of the conduct of affairs of the company in future, the purchase of shares,
restriction on the transfer of the share, termination, setting aside or modification of any
agreement, setting aside of any transfer, delivery of goods, payment, execution or other act
relating to property, removal of managing director, manager, or any of the directors of the
company, recovery of undue gains made by any managing director, manager or director
during the period of his appointment as such, imposition of costs as may be deemed fit.
A certified copy of the order shall be filed with the registrar within 30 days of the order by
the tribunal.
Any contravention of the provisions of this chapter shall lead company towards the imposing
of fine which shall not be less than 10 lakh rupees and which may extend to 25 lakh rupees
and every officer of the company who is in default shall be punished with an imprisonment of
six months and with fine which shall not be less than twenty-five thousand rupees and which
may extend to one lakh rupees.
Right to apply under section 241: According to section 244 of the Act, the following people
can apply for the orders from the tribunal-
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In the case of a company having share capital of not less than one hundred members of the
company or not less than one-tenth of the total number of its members, whichever is less, or
any member or members holding not less than one- tenth of the issued share capital of the
company, subject to the condition that the applicant or applicants has or have paid all calls,
and other sums due on his or their shares.
In the case of a company not having a share capital, not less than one- fifth of the total
number of its members.
Section 245 of the act talks about class action suits, wherein the class of members having a
similar cause of action can file an application before the tribunal to seek necessary orders.
Conclusion
The prevention and oppression of mismanagement of a company is required so that there is
no prejudice towards the public interest and there is no biasness towards the minority
shareholders. Thereby the Act incorporates the wide provisions for the same so that there is
smooth functioning of the companies, as well as the interest of all the shareholders, is put to
forth.