[Opinion] ROC Penalizes Company for Share Transfer Without Consideration
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- Last Updated on 2 June, 2025
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Prof R Balakrishnan – [2025] 174 taxmann.com 1192 (Article)
1. Background of the Case
The Registrar of Companies of Kolkata, while making enquiry and conducting audit of the company named M/s Pre-Stressed Udyog (India) Private Limited had observed that the company had transferred the shares without receiving the payment of the consideration. When the matter was taken up with the company, the Registrar of Companies came across multiple complaints against the company by the Notary Officer, stamp vendor etc., and cases were registered against the company relating the irregularity in purchasing the stamp papers, notarising documents etc. Though the company had represented the matter with the Registrar of Companies, the Registrar after going through the submissions made by the company and also upon examination of the records came to a conclusion that the company and its directors transferred the shares without payment of the consideration. Since the violation was established by the Registrar, he imposed penalty upon the company and its directors to a tune of Rs. 1.50 lakh for the violation of section 56 of the Companies Act 2013 on this matter. Let us go through this case in order to understand the intricacies involved, occurrence of violation and the rationale behind the adjudication order.
2. Relevant Provisions on these under the Companies Act 2013
The following are the relevant provisions under the provisions of the Companies Act 2013, relating to this case.
| Companies Act 2013 Chapter IV – Share Capital and Debenture Section 56 – Transfer and Transmission of Securities |
|
| Section | Provisions |
| 56 (1) | A company shall not register a transfer of securities of the company, or the interest of a member in the company in the case of a company having no share capital, 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: |
| Proviso | Provided that 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. |
| 56 (2) | 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. |
| 56 (3) | 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. |
| 56 (4) | 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 allotted, transferred or transmitted— |
| 56 (4) (a) | within a period of two months from the date of incorporation, in the case of subscribers to the memorandum; |
| 56 (4) (b) | within a period of two months from the date of allotment, in the case of any allotment of any of its shares; |
| 56 (4) (c) | within a period of one month from the date of receipt by the company of the instrument of transfer under sub-section (1) or, as the case may be, of the intimation of transmission under subsection (2), in the case of a transfer or transmission of securities; |
| 56 (4) (d) | within a period of six months from the date of allotment in the case of any allotment of debenture: |
| Proviso | Provided that 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. |
| 56 (5) | 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. |
| Penal Provisions for Non-compliance | |
| 56 (6) | 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. |
| Penal Provisions for Non-compliance – under Depositories Act 1996 | |
| 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 |
3. Consequences of Default/Violation – Action from the Regulator
4. The Relevant Case Law on this Matter
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