TRANSMISSION OF DEMAT SHARES
(31st January 2024)
A. Short
Summary:
The word “transmission” means
devolution of title to Shares otherwise than by transfer.
The transmission of shares is an often
encountered subject when dealing with share certificates, however it is not
widely recognized. The Companies Act distinguishes between the act of
transmission shares and the act of transfer shares. Transmission occurs through
legal procedures, as opposed to share transfers, which are based on the
voluntary decision of the shareholder. "Transmission" denotes the
transfer of ownership of shares through means other than physical transfer,
such as in cases of marital breakdown, death, succession, inheritance,
bankruptcy, or several other legal procedures.
When shares are transmitted, the
new owner becomes the registered shareholder with full rights and
responsibilities associated with the ownership of those shares.
This process is typically
governed by company laws, regulations, and the specific terms outlined in the
company's articles of association or shareholder agreements.
The process of transmission in
case of holding of shares in Physical or in Demat form are different. In this
editorial the process of transmission of Demat shares shall be discussed.
“Transmission” means passing of
property in Shares, other than by way of transfer, by operation of law
consequent to the death or insolvency of the member.
Physical Share Transmission: The process of transmission of
demat shares is easier than process of transmission of physical shares. In case
the deceased shareholder had holdings in different companies, then in order to
effect transmission of shares for these shares, the relevant documents must be
sent to each of the companies, alongwith the share certificates. This results
in a heavy reliance on the postal system. Follow-up may have to be made with
each of the companies in order get the transmission effected before the book
closure, if the survivor(s) wishes to avail of the benefits accrued through
these shares.
Demat Shares Transmission: In the depository system, all
these problems are mitigated as the shares are account balances in the
electronic form. The process of transmission through the depository is not only
simple but it is also quicker. This is because the successor to the title
interacts only with one entity.
Provisions of Transmission of
Shares:
· SEBI: Simplification of
procedure and standardization of formats of documents for transmission of
securities Dated May 18, 2022
· Section 56, 58, 88 of Companies
Act, 2013
· Rule 11, 19 of Companies (Share
Capital and Debentures) Rules, 2014
· Rule 5 of Companies (Management
and Administration) Rules, 2014
· Table F of Schedule- I of the
Companies Act, 2013
· Reference – Secretarial Standard
6 of ICSI (It may be use for reference purpose)
B.
Important Note
i.
There is no need to prepare a transfer deed for
transmission of shares.
ii.
There is no stamp duty applicable on transmission of
shares.
iii.
There is no consideration involved in transmission of
shares.
C.
Process of Transmission of Shares:
I. Transmission of Securities held jointly
:
In case the deceased was one of
the joint holders, then the surviving holders have to request the DP vide a
form called the transmission form along with a copy of notarised death
certificate to transmit the securities lying in the account of the deceased to
the account of the surviving holders. For this purpose, the surviving clients
must have a depository account, which can be with the same DP or with a
different DP.
II.
In case of Nominee:
“Nominee” means an individual
named in accordance with the Act by a shareholder(s) whose Shares should vest
in such an individual on the death of the shareholder(s) and that individual
need not be a legal heir.
In case the deceased shareholder
has nominated any person as their nominee. the Shares shall vest in the Nominee
on the death of the Member. on death of the shareholder, the Nominee has the
option to elect either to register himself as the holder of the Shares of the
deceased or transfer the Shares to any other person. The transferees need not
be the legal heirs of the deceased shareholder(s).
The nomination facility for
shares is provided by amendment in Companies Act 1956. The clients can avail of
this facility by furnishing duly filled Form for Nomination available with their DPs.
This form contains photograph of the nominee and the other details of the
nominee, which help DPs to identify and give effect to the nomination given by
the clients.
Upon the death of the sole
client (in case of securities held singly) or the death of all the clients (in
case of securities held jointly),
The nominee must request the DP
in writing along with a certified true copy of the death certificate and
transmission form to transmit the securities covered by the nomination to the
account of the Nominee.
The DP will ensure the
completeness of the form and validity of the signature of the client and then
execute the transmission request. Thus transmission of securities where
nomination has been made eliminates the need of cumbersome legal documents such
as will, succession certificate etc.
The nominee shall submit the
following documents with the Depository Participant (DP):
i.
A request letter from nominee
ii.
KYC Documents of Nominee
iii.
Copy of Death Certificate
iv.
Execution of Indemnity cum affidavit
III.
In case of Security Held singly (No Nominee or Joint
Holder):
In case of death of the
sole holder, the legal heir(s) or legal representative(s) of the deceased must
request the DP to transmit the balances lying in the Client account of the
deceased to the account of the legal heir(s) or legal representative(s).
For this, the legal heir (s) or
the legal representative(s) of such securities must submit an instruction
called the transmission form to the DP alongwith the following documents
a)
A copy of the death certificate duly notarised
b)
A copy of the Succession certificate duly notarised
or an order of a court of competent jurisdiction where the deceased has not
left a Will; or
c)
A copy of the Probate or Letter of Administration
duly notarised.
However, if the legal heir(s) or
the legal representative(s) express inability to produce either of the
documents mentioned under (b) and (c) above, and the market value of the
securities held in each account of the deceased as on the date of application
for transmission does not exceed Rs. one lakh, then the DP will process the
transmission request on the basis of the following documents:
i.
Transmission form;
ii.
Copy of the death certificate duly notarised;
iii.
Letter of Indemnity duly supported by a guarantee of
an independent Surety acceptable to the DP, made on appropriate non judicial
stamp paper;
iv.
An Affidavit made on appropriate non judicial stamp
paper; and
v.
No Objection Certificate(s) from all the legal
heir(s) who do not object to such transmission.
The DP will ensure that the
documents submitted by the legal heir(s) or the legal representative(s) are in
order and will then effect a transfer of the balances to the Client account of
the legal heir(s) or the legal representative(s).
For value of securities more
than Rs 100,000/- (Rupees One Lakh only) per issuer company as on the date of
application: - Succession Certificate or probate of will or will or letter of
administration or court decree, as may be applicable in terms of Indian
Succession Act 1925.
After effecting the
transmission, the DP will close the account of the deceased.
Author – CS Divesh Goyal,
GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can
be contacted at csdiveshgoyal@gmail.com).
Disclaimer: The entire contents of
this document have been prepared based on relevant provisions and as per the
information existing at the time of the preparation. Although care has been
taken to ensure the accuracy, completeness, and reliability of the information
provided, I assume no responsibility, therefore. Users of this information are
expected to refer to the relevant existing provisions of applicable Laws. The
user of the information agrees that the information is not professional advice
and is subject to change without notice. I assume no responsibility for the
consequences of the use of such information.
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