Transfer of Shares without the Authority of the Owner

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“Share” means a share in the share capital of a company and includes stock [Section 2(84) of the Companies Act, 2013 (“the Act”)]. As per Section 44 of the Act, the shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company. Various Sections of the Act and the Company (Share Capital and Debentures) Rules, 2014 (the “Rules”) provide for transfer of shares. 

Transfer of Shares

1. Transferability of Shares

By virtue of Section 58(2) of the Act, the securities or other interest of any member of a public company are freely transferable. Any contract or arrangement between 2 or more persons in respect of transfer of securities shall be enforceable as a contract. A private company, as per Section 2(68) of the Act, is required to restrict the right to transfer its shares by its Articles of Association.

2. Instrument of Transfer

  • As per Section 56(1) of the Act, a proper instrument of transfer must exist between the transferor and transferee and it must be duly stamped, dated and executed by or on behalf of the transferor and transferee. The instrument must specify the name, address and occupation, if any, of the transferee.
  • Rule 11(1) of the Rules prescribe that an instrument of transfer held in physical form shall be in Form No.SH.4. Every instrument of transfer with the date of execution specified thereon must be delivered to the company within 60 days from the date of such execution.

3. Registration of Transfer

  • Without the submission of a proper instrument of transfer, in terms of Section 56(1) of the Act and Rule 11(1) of the Rules, along with the share certificate or, in case such certificate does not exist, the letter of allotment to the company, the company shall not register the transfer.
  • Where the instrument of transfer has been lost or has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit. [Proviso to Section 56(1) of the Act]
  • Where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered, unless the company gives the notice of the application, in Form No.SH.5, to the transferee and the transferee gives no objection to the transfer within 2 weeks from the receipt of notice. [Section 56(3) of the Act with Rule 11(3) of the Rules]
  • The transfer of any security or other interest of a deceased person in a company made by his legal representative is valid, even if the legal representative is not a holder of the security. In such a case, the legal representative will be considered to be the holder at the time of the execution of the instrument of transfer. [Section 56(5) of the Act]
  • Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities transferred within a period of 1 month from the date of receipt by the company of the instrument of transfer. [Section 56(4)(c) of the Act]
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Transfer of Shares without Authorisation

Shares may be transferred either by the owner of the shares himself or by any person authorized for this purpose by such owner. Shares may also be transmitted by operation of law, for example, transfer of rights in shares of a deceased is transmitted to his legal heirs. If a transfer is made without the authority of the owner, he can take recourse under Section 59 of the Act.

1. Register of Members

Every company must keep and maintain a register of members indicating separately for each class of equity and preference shares held by each member residing in or outside India [Section 88(1)(a) of the Act]. As per Rule 3(1) of the Companies (Management and Administration) Rules, 2014 (“the Rules, 2014”), the register is to be maintained in Form No. MGT-1. Rule 5 of the Rules, 2014 further prescribes that

  • The entries shall be made within 7 days after the Board of Directors or its duly constituted committee approves the allotment or transfer of shares, debentures or any other securities, as the case may be. [Clause (1)]
  • The register shall be maintained at the registered office of the company unless a special resolution is passed in a general meeting authorizing the keeping of the register at any other place within the city, town or village in which the registered office is situated or any other place in India in which more than 1/10th of the total members entered in the register of members reside. [Clause (2)]
  • If any rectification is made in the register maintained under Section 88 by the company pursuant to any order passed by the competent authority under the Act, the necessary reference of such order shall be indicated in the respective register. [Clause (5)]

The register shall also include an index of names [Section 88(2) of the Act]. The index shall, in respect of each folio, contain sufficient indication to enable the entries relating to that folio in the register to be readily found. The maintenance of index is not necessary in case the number of members is less than 50 [Rule 6(1) of the Rules, 2014]. The company shall make the necessary entries in the index simultaneously with the entry for allotment or transfer of any security in such Register. [Rule 6(2) of the Rules, 2014]

2. Rectification of Register of Members (Section 59 of the Act)

  • If the name of any person is, without sufficient cause, entered in the register of members of a company the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members residing outside India, for rectification of the register.
  • The Tribunal may, after hearing the parties to the appeal by order, direct rectification of the register and may also direct the company to pay damages, if any, sustained by the party aggrieved.
  • If any default is made in complying with the order of the Tribunal, the company shall be punishable with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lakhs and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 3 lakhs, or with both.
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In the case of M/S. John Tinson & Co. Pvt. Ltd. & Ors. Etc. v. Mrs. Surjeet Malhan & Anr. Etc. C.A. No.-000737-000738 – 1997, the question was whether Mrs. Surjeet Malhan, consented to the transfer of her shares by her husband, B.K. Malhan through blank transfer forms to Mr. Bhagat. The Supreme Court held that there was no direct transaction between Mrs. Surjeet Malhan and Mr. Bhagat. She had not expressly authorized her husband to entrust the shares and the blank transfer forms to Mr. Bhagat. Under these circumstances, without any specific authority by the owner of the shares, i.e., Mrs. Surjeet Malhan in favor of third party, including her husband, he gets no right to transfer her shares; nor Mr. Bhagat gets any right and title in the shares held by Mrs. Malhan. It was held that the transfer of shares held by Mrs. Surjeet Malhan in favor of the appellant is invalid in law.


Shares are movable property and hence, are freely transferable. Transfer of shares without authority of the owner has been held to be invalid by the Supreme Court. In such a case, the aggrieved person can approach the Tribunal for the rectification of the register of members.

As a layman, it may be fairly easy to confuse the terms transfer of shares with registration or transmission of shares. However, in the context of corporate law and the Companies Act, it may mean entirely different things. That is why it is important to discuss these terms at length, especially with the help of case laws and their detailed analysis. This is what this article has tried to do. The author has taken help of both the case laws as well as the relevant sections and statutory provisions that govern this area, that is, transfer of shares. This article however, particularly focuses on transfer of shares without the authority of the original owner. For this purpose, the author has defined all relevant terms necessary to understand this article in toto, and has then moved on to discuss the relevant statutes under the Companies Act, 2013.

Needless to add, such a subject matter may require far more detailed and critical analysis, and may perhaps be best suited for another article.