33398122 Transfer of Share as Per Indian Company Law
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Transcript of 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