Moving Shares Between Founders? Transfer Deeds, Certificates and Timelines Under Sections 46 and 56
How share transfers are registered and certificates issued under Sections 46 and 56 of the Companies Act 2013: the sixty-day deed, delivery clocks, duplicates and penalties.
CA Harun Raaj
makeitlegit.in
When a founder sells to a co-founder, an early investor buys in, or an heir steps into a deceased holder's place, the share movement runs through two sections of the Companies Act, 2013. Section 56 sets how a transfer or transmission of securities is registered and how fast the company must deliver the resulting certificates. Section 46 sets what a share certificate proves and when a duplicate may be issued. This guide walks through both in plain order, so you can line up the paperwork before the cap table you agreed on is out of step with the company's records.
Legal basis: Companies Act, 2013, sections 46 and 56 (with s.57 on personation). The forms, manner of notice and certificate particulars are left to the rules; this guide quotes the Act only.
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The transfer instrument: stamped, executed by both sides, delivered within sixty days
Section 56(1) is the gatekeeper. A company "shall not register a transfer of securities of the company … other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities" (s.56(1), Companies Act 2013).
Take that sentence apart and you get a checklist:
- A proper instrument of transfer in the prescribed form.
- Duly stamped and dated.
- Executed by or on behalf of both the transferor and the transferee.
- Transferee details stated: name, address and occupation, if any.
- Delivered to the company by either the transferor or the transferee.
- Within sixty days from the date of execution.
- Accompanied by the share certificate, or, if no certificate exists, the letter of allotment.
The only carve-out in the main text is a transfer between persons who both appear as beneficial-interest holders in a depository's records (the demat system). Shares held in demat form move through the depository system rather than through a signed paper deed.
Lost deeds and late delivery
A deed can go missing, or the sixty days can slip. The proviso to s.56(1) covers both: "where the instrument of transfer has been lost or the instrument of transfer 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."
Three points follow from the wording:
- The word is "may". Registration after a lost or late deed is the Board's choice, not the transferee's right.
- The Board sets the indemnity terms. The indemnity terms are whatever the Board thinks fit.
- Because it is discretionary, the proviso is a fallback. Plan to deliver the executed deed inside sixty days so you never need it.
The stamp duty payable on a transfer deed and the number of the prescribed transfer form are not set out in the Act's text, so check the current rules and your state's stamp law before executing.
Transmission is not transfer: operation of law needs only intimation
Not every change of holder is a sale or gift. Transmission means shares passing to someone by operation of law, that is, automatically under the law rather than by sale or gift, for example to an heir. Section 56(2) says that nothing in sub-section (1) "shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted."
In short, when rights pass by operation of law, the person to whom the right has passed gives the company an intimation, and the company can register on that basis. The signed, stamped two-party instrument described in s.56(1) is not what this subsection asks for.
Section 56(5) deals with a deceased holder: "The transfer of any security or other interest of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of the execution of the instrument of transfer." A legal representative who never appeared in the register can therefore validly sign the transfer. For founders, the practical lesson is to keep succession documents in order, because a company will want to see the representative's authority before it acts on an intimation or a deed.
Partly paid shares: the transferee gets a two-week window
Section 56(3) adds a protection for the incoming holder where the application comes from the transferor alone: "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 such manner as may be prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice."
Two conditions must both be met before registration: the company must give notice in the prescribed manner, and the transferee must give no objection within two weeks of receiving that notice. If your deal involves partly paid shares and only the seller signs the application, build that two-week window into the timetable.
Certificate delivery clocks: two months, two months, one month, six months
Section 56(4) puts the delivery duty on the company. Unless prohibited by any provision of law or any order of a Court, Tribunal or other authority, every company must deliver the certificates of all securities allotted, transferred or transmitted:
| Situation | Deadline (s.56(4)) |
|---|---|
| Subscribers to the memorandum | Two months from the date of incorporation (clause (a)) |
| Any allotment of shares | Two months from the date of allotment (clause (b)) |
| Transfer or transmission of securities | One month from the date of receipt by the company of the instrument of transfer under s.56(1) or the intimation of transmission under s.56(2) (clause (c)) |
| Allotment of debentures | Six months from the date of allotment (clause (d)) |
The one-month clock for a transfer starts when the company receives the instrument of transfer or the intimation of transmission, not on the date you signed. That is another reason to deliver the deed to the company promptly and keep proof of the date you did so.
There is also a proviso for demat: "where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities."
What a certificate proves, and when a duplicate is allowed
The certificate as evidence
Under s.46(1), a certificate "issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares."
"Prima facie evidence" means the holder starts with a presumption in their favour. It is evidence of title, not an unchallengeable guarantee. The certificate should be authenticated one of three ways: the common seal (if the company has one), the signatures of two directors, or the signatures of a director and the Company Secretary where one has been appointed.
Duplicate certificates
Section 46(2) lets a company issue a duplicate certificate only in two situations:
- the original "is proved to have been lost or destroyed"; or
- it "has been defaced, mutilated or torn and is surrendered to the company."
So a lost certificate needs proof of loss or destruction, while a damaged one needs to be handed back. Section 46(3) adds that, notwithstanding anything in the articles, "the manner of issue of a certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be entered in the register of members and other matters shall be such as may be prescribed." Check the prescribed rules for the form and particulars rather than relying on what the articles say.
Demat holdings
Where shares are held in depository form, "the record of the depository is the prima facie evidence of the interest of the beneficial owner" (s.46(4)).
Fraudulent duplicates
Section 46(5) deals with fraud: "If a company with intent to defraud issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees ten crores whichever is higher and every officer of the company who is in default shall be liable for action under section 447."
The key words are "with intent to defraud". This penalty targets deliberate fraud in issuing a duplicate, not an honest replacement of a lost certificate.
Penalties for getting it wrong
For ordinary default in the transfer-and-certificate machinery, s.56(6) provides: "Where any default is made in complying with the provisions of sub-sections (1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees."
That covers the sixty-day deed, the transmission and partly-paid rules, the certificate delivery clocks and the legal-representative provision in s.56(1) to (5). The penalty applies to the company and to every officer in default.
Fraud sits higher. Under s.56(7), "without prejudice to any liability under the Depositories Act, 1996 (22 of 1996), where any depository or depository participant, with an intention to defraud a person, has transferred shares, it shall be liable under section 447."
Personation is a separate offence. Section 57 provides that a person who "deceitfully personates as an owner of any security or interest in a company" and thereby obtains or tries to obtain the security, or receives or tries to receive money due to the owner, is punishable with imprisonment of not less than one year but up to three years, and with fine of not less than one lakh rupees but up to five lakh rupees.
What to do now
- Next step: if a transfer is pending, execute the prescribed instrument of transfer, duly stamped and dated, signed by or for both transferor and transferee with the transferee's name, address and occupation, if any, and deliver it to the company with the share certificate (or the letter of allotment if no certificate exists) (s.56(1), Companies Act 2013).
- Deadline: deliver within sixty days from the date of execution (s.56(1)). The company must then deliver the new certificate within one month from receiving the instrument of transfer or the intimation of transmission (s.56(4)(c)). If a deed is lost or late, the Board may register on indemnity terms it thinks fit (proviso to s.56(1)).
- Consequence of default: the company and every officer in default are liable to a penalty of fifty thousand rupees (s.56(6)).
Have a CA review your facts before you act or file.
FAQ
How long do I have to deliver a signed transfer deed to the company?
Sixty days from the date of execution, with the share certificate or letter of allotment attached (s.56(1)). If the deed is lost or the period is missed, the company may still register the transfer on indemnity terms the Board thinks fit (proviso to s.56(1)).
Does an heir need a stamped transfer deed?
Where rights pass by operation of law, the company can register them on receiving an intimation from the person to whom the right has passed (s.56(2)). A transfer by a deceased holder's legal representative is valid even if the representative is not a holder (s.56(5)).
How fast must the company issue the new certificate?
Two months from incorporation for subscribers to the memorandum, two months from allotment for shares, one month from receipt of the instrument of transfer or intimation of transmission for transfers and transmissions, and six months from allotment for debentures (s.56(4)).
When can a company issue a duplicate share certificate?
Only if the original is proved lost or destroyed, or is defaced, mutilated or torn and is surrendered to the company (s.46(2)). A duplicate issued with intent to defraud draws a fine of five to ten times the face value of the shares involved, or rupees ten crores if higher, and action under section 447 against officers in default (s.46(5)).
What does a share certificate prove?
It is prima facie evidence of the holder's title to the shares (s.46(1)). For shares held in depository form, the depository's record is prima facie evidence of the beneficial owner's interest (s.46(4)).
What is the penalty for missing the certificate delivery deadline?
A penalty of fifty thousand rupees on the company and every officer in default (s.56(6)).
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See Also
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