Company Law Notes of CS Executive

Company Law Notes of CS Executive- Share Capital – Chapter 2 – Part E

Company Law Notes of CS Executive

CS Executive Company Law short notes  are updated for June 2023 and Dec 2023 Exams. These notes are beneficial for CS Executive New Syllabus of ICSI.  

SHARE CAPITAL – CHAPTER 2

Part E: Transferability – A Brief of Provisions of Companies Act, 2013

Company Law Notes of CS Executive – Some Basic Facts

  • Section 44 – 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.
  • Section 58(2) – The securities or other interest of any member in a public company shall be freely transferable.
  • Section 2(68) – Private company restricts the right to transfer its shares by its articles. (restrictions shall be reasonable)

 But, in any case, transferability of shares cannot be prohibited absolutely.

Reasonable Restrictions on Transferability of Shares in Case of Private Companies

As per the definition of Private Company, every such company restricts the right to transfer its shares by its articles. But restrictions shall be reasonable, and bonafide to the interest of the company itself. It shall be noted that even a private company cannot prohibit the transferability of shares.
There are mainly 2 modes of imposing restrictions:

  • Right of pre-emption
  • Powers of directors to refuse registration of transfer of shares. Such power shall be given in the AOA and shall be used by BOD in the good faith.

What is ‘Right of Pre-emption’?
According to Right of Pre-emption, existing members of the company have first right to acquire the shares of the company. Thus, if a company wants to increase its subscribed capital, it shall offer the shares first to its existing shareholders. Similarly, if any/some of the member/s of the company want/s to sell their shares, such shares shall be first offered to the other existing members of the company at the fair market price which may be decided by the BOD of the company or auditor of the company.

If existing members are not interested in acquiring the shares, such shares may be offered to others (non-members/strangers).

Cases where restrictions on transferability of shares are not applicable

  • On the right of a member to transfer his/her shares in a case where the shares are to be transferred to his/her representative(s).
  • In the event of death of a shareholder, legal representatives may require the registration of shares in the names of heirs, on whom the shares have been devolved.
  • In respect of shares which are proposed to be issued on a right basis, existing members would have a right to renounce shares likely to be allotted to them. If the existing shareholders renounce their shares then these shares will be allotted to the renounces for the first time and therefore no transfer of shares will take place Company Law Notes of CS Executive 
Transfer and Transmission of Securities [Section 56]

Requirement of Transfer Deed in case of Physical Securities [Subsection 1]
A company shall not register a transfer of-

  • securities of the company (in case company is having share capital), or
  • the interest of a member in the company in the case of a company having no share capital,

unless a proper instrument of transfer, in form no. SH4, 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 60 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.

This provision is not applicable in case of Dematerialised Securities. Thus, in case of Dematerialised Securities, no securities transfer deed is required.

Note:

  • 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.

No requirement of Transfer Deed in case of transmission [Subsection 2]
Company may, without transfer deed, register the securities in the name of a person, 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 case of partly paid shares [Subsection 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 form no. SH-5, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.

Time limit for delivering the certificates of all securities allotted, transferred or transmitted [Subsection 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—

  • within a period of 2 months from the date of incorporation, in the case of subscribers to the memorandum;
  • within a period of 2 months from the date of allotment, in the case of any allotment of any of its shares;
  • within a period of 1 month from the date of receipt by the company of the instrument of transferor, as the case may be, of the intimation of transmission, in the case of a transfer or transmission of securities;
  • within a period of 6 months from the date of allotment in the case of any allotment of debenture:

Legal representative of a deceased member shall have right to transfer the securities/interest [Subsection 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.

Punishment in case of Default [Subsection 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.

Exceptions/ Modification/s Adaptations [Section 56]
In case of Government company – In Sub-section (1) of Section 56, after the proviso, the following provisos shall be inserted, namely’ –

Provided further that the provisions of this sub-section, in so far as it requires a proper instrument of transfer, to be duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee, shall not apply with respect to bonds issued by a Government company, provided that an intimation by the transferee specifying his name, address and occupation, if any, has been delivered to the company along with the certificate relating to the bond; and if no such certificate is in existence, along with the letter of allotment of the bond:

Provided also that the provisions of this sub-section shall not apply to a Government Company in respect of securities held by nominees of the Government. – Inserted by notification dated 5th june, 2015 Company Law Notes of CS Executive

Stamp duty on Transfer Deed

Consideration for the purpose of Stamp Duty
The “value of the shares” means the price which the shares would fetch at the time of the transfer and not the face value of the shares. The consideration actually paid or agreed to be paid is the value of the shares. So long as there is nothing to indicate that the consideration was not truly stated in the transfer, the one mentioned therein should be accepted as the consideration that was paid. [Union of India v. Kulu Valley Transport Ltd. (1958) 28 Com Cases 29 at 36 (P&H)]

In case where question of consideration does not arise like in the case of a gift of shares, stamp duty will be paid on the basis of the market value of shares and in case of unquoted shares or where quotations are not available at the face value of the shares.

Cancellation of Adhesive Stamp [Section 12 of Indian Stamp Act, 1899]

  • Whoever affixes an adhesive stamp to an instrument which has been executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again.
  • Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be used again, shall, so far as such stamp is concerned, be deemed to be unstamped.
  • Stamp be cancelled by writing on or across the stamp his name or initials or the name or initials of his firm.

Section 17 of the Indian Stamp Act, 1899 makes it clear that all instruments chargeable with duty and executed shall be stamped before, or at the time of execution. Therefore, the legal requirement is that the stamp must be cancelled either before or at the time of execution.

Whether a newly added Article empowering the Board to reject transfer of shares would affect transactions of sale of shares entered into before the insertion of the Article

The Court held that the property in the shares passes on the date of transfer and the right to have the shares registered in the transferee’s name becomes crystallised on that day itself. Any alteration of articles will not affect concluded transactions and in respect of such transactions, the existing articles would prevail. So, if the original (unaltered) Articles as on the date of transfer permit free transfer of shares, the Board cannot refuse registration of the transfer. [Vardhaman Publishers Ltd. v. Mathrubhumi Printing & Publishing Co. Ltd.] Company Law Notes of CS Executive

Procedure for transfer of shares as per the Companies Act, 2013
  1. Get the transfer deed duly executed either by the transferor and the transferee or on their behalf in accordance with section 56 of the Companies Act, 2013 and the Articles of Association, in case of shares, and also in accordance with trust deed in the case of debentures.
  2. Transfer Deed shall be in the Form No. SH – 4, shall be properly stamped, and stamp shall be properly cancelled at the time or before signing of the transfer deed.
  3. Within 60 days of execution of Transfer Deed, send share/debenture certificate or allotment letter along with the transfer deed to the company.
  4. 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 two weeks from the receipt of notice.
  5. If signed transfer deed has been lost, affix the same stamp on a written application. In such case, the Board may, if it thinks fit to do so, register the transfer on such terms of indemnity as it thinks fit.
  6. If the shares of the company are listed in a recognized stock exchange, then the company cannot charge any fee for registration of transfers of shares and debentures.
Checklist for Company Secretary

Company Secretary should take care of following points before putting the transfer deed in front of BOD or Share Transfer Committee of BOD:

  1. Each column of transfer deed (SH-4) is properly and adequately filled in.
  2. In case of joint shareholdings, form shall be signed by all joint transferors.
  3. Relevant certificate(s) of shares or debentures or other securities is/are to be enclosed.
  4. Share Transfer Stamps of appropriate value have been affixed on the Instrument and they have been properly cancelled by a rubber stamp or defaced otherwise.
  5. Where the transfer is proposed to be in the name of the minor(s), whether the articles of association of the company permit such registration of transfer and the shares are fully paid.
  6. Whether the transferor(s) and/or transferee(s) is/are non-resident Indians and if so, whether the transfer is permitted under the Foreign Exchange Management Act, 1999, and if not, whether specific permission of the Reserve Bank of India has been obtained.
  7. Where the transferor is a body corporate, whether board resolution of the transferor is passed to this effect and proper authority has been given by the Board of directors to the person signing as the transferor on behalf of the company
  8. In case of listed company, comply with the formalities of SEBI (LODR) Reg, 2015 and other SEBI Guidelines.
  9. Check whether the shares under registration are subject to a lien of the company and if so, whether the company has lifted the lien.
  10. The transfer of shares must not contravene the provisions of SEBI (Substantial Acquisition of Share and Takeovers) Regulations, 2011. Company Law Notes of CS Executive
Refusal of Registration and Appeal Against Refusal [Section 58]

Refusal by a Private Company [Subsection 1]
If a private company limited by shares refuses,

  • whether in pursuance of any power of the company under its articles or otherwise,

to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member in the company,

  • it shall within a period of 30 days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company,
    • send notice of the refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal.

Public Company [Subsection 2]
The securities or other interest of any member in a public company shall be freely transferable.

Appeal to NCLT against the refusal [Subsection 3]
The transferee may appeal to the Tribunal against the refusal

  • within a period of 30 days from the date of receipt of the notice or
  • in case no notice has been sent by the company, within a period of 60 days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, was delivered to the company.

Appeal to NCLT against Public Company [Subsection 4]
If a public company without sufficient cause refuses to register the transfer of securities within a period of 30 days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to the company, the transferee may,

  • within a period of 60 days of such refusal or
  • where no intimation has been received from the company, within 90 days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal.

Powers of NCLT [Subsection 5]
The Tribunal, while dealing with an appeal made under sub-section (3) or sub-section (4), may, after hearing the parties, either dismiss the appeal, or by order—

  • direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within a period of ten days of the receipt of the order; or
  • direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

Punishment in case of Contravention [Subsection 6]
If a person contravenes the order of the Tribunal under this section, he shall be punishable

  • with imprisonment for a term which shall not be less than 1 year but which may extend to 3 years and
  • with fine which shall not be less than 1 lakh rupees but which may extend to 5 lakh rupees.
Rectification of Register of Members [Section 59]

Subsection 1
If

  • the name of any person is, without sufficient cause, entered in the register of members of a company, or
  • after having been entered in the register, is, without sufficient cause, omitted therefrom, or
  • if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member,

the

  • person aggrieved, or
  • any member of the company, or
  • the company

may appeal,

  • to the Tribunal, or
  • to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India,

for rectification of the register.

Subsection 2
The Tribunal may,

  • after hearing the parties to the appeal under sub-section (1) by order,
    • either dismiss the appeal or
    • direct that the transfer or transmission shall be registered by the company within a period of 10 days of the receipt of the order or
    • direct rectification of the records of the depository or the register and,
  • direct the company to pay damages, if any, sustained by the party aggrieved.

Subsection 4
Where the transfer of securities is in contravention of any of the provisions of

  • the Securities Contracts (Regulation) Act, 1956,
  • the Securities and Exchange Board of India Act, 1992 or
  • this Act or
  • any other law for the time being in force,

the Tribunal may,

  • on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board,

direct any company or a depository to set right the contravention and rectify its register or records concerned.

In the following cases, rectification of registers/records of company has been held to be permissible:

  • Applicant induced to take shares by misrepresentation;
  • Shareholders’ name removed under unlawful surrender of his shares;
  • Irregular allotment;
  • Name of nominee entered in register without his knowledge or consent;
  • Allotment of shares to a non-resident without taking necessary permission for foreign exchange.
  • Allotment in violation of memorandum of association of the company Company Law Notes of CS Executive
Some Miscellaneous Provisions

In case where transfer deed is lost
In such cases, the company may register the transfer on such terms as to indemnity as the Board may think fit. BOD may ask for some proofs like

  • An affidavit from the transferor or the transferee
  • Purchase or sale note of the broker
  • The registration receipt issued by the postal authorities

 BOD may ask transferee to sing indemnity bond to safeguard its position.

Transfer of shares to a partnership firm

A partnership firm is not a legal person and therefore cannot become a member of a company. But, a partnership firm can become a member of company registered u/s 8 of Companies Act.

Transfer of shares to a Body Corporate
A body corporate is a legal person and therefore can become a member of a company. But it can purchase securities of any other company/body corporate only it is authorised by its AOA. Thus, while requesting to transfer any security/share in its name, it shall submit following documents:

  • A certified true copy of the Board resolution and/or power of attorney authorizing the signatory of the instrument of transfer to execute the instruments;
  • A certified true copy of a Board resolution passed under Section 179(3)(e) of the Companies Act; and
  • A certified true copy of Memorandum and Articles of Association of a company.

Transfer of securities without authority of the Owner
Any transfer without authority of the owner shall be void. The Supreme Court held that, transfer of shares by the husband of a lady owner without her authority was void and the transferee obtained no rights.

Position of Transferor
While transferring the securities, transferor makes an implied representation that transferee shall be the real owner of the securities.

What if company refuses to register the transfer for no fault of the transferee?
If, due to any reason, company refuses to register the transfer for no fault of the transferee, the transferor,

  • by reason of the shares continuing to stand in his name,

will,

  • in cases where he has received consideration for the transfer,

be treated as trustee for the transferee.

Transferor is bound to act in accordance with the directions of transferee unless the transferee rescinds the contract and seeks to recover his money. 

But, in such case also, transferor cannot be compelled to undertake any financial burden in respect of the shares at the instance of transferee, like transferee can’t compel transferor to subscribe right issue offered by company.

Transfer in Violation of Articles
In general any transfer in the violation of provisions of AOA shall be void. In a case, John Tinson & co. P. Ltd. v. Surjeet Malhan, Supreme Court held that where the article of a private company requires that transfers of the company shares should be made with the previous sanction of the company’s Board of Directors, any transfer without such approval would be invalid.

Can transferor objects the transfer where transfer is in violation of Articles?
Where a transfer was made in violation of a private company’s articles requiring that shares must be first offered to existing members, it was held that the transferor was not the proper person to object Company Law Notes of CS Executive

Transfer of shares to a minor
As per Section 11 of the Indian Contract Act, 1872, minor is not competent to enter into a contract. His name cannot be entered in the Register of Members and therefore, he cannot become a member of a company. But, as per Hindu Minority and Guardianship Act, 1956, guardian of a minor may enter into a contract on behalf of a minor. Thus, guardian of a minor may hold shares on behalf of minor. Contract so entered into by a minor through his natural guardian is a binding and valid contract.

The articles of association of a company cannot prohibit the transfer of shares in favour of a minor, as such a restriction is unreasonable and not sustainable. In case, the restriction imposed on transfer to a minor is accepted, it would mean that the shares of a deceased member can never be inherited by the legal heir who might be a minor.

Accordingly, if the shares can be transmitted in favour of a minor, there is no reason why the shares which are fully paid-up and in respect of which no financial liability devolves on the minor are to be held as not transferable merely because of the ban imposed in the articles of association [Saroj v. Britannia Industries Ltd.,].

 In case of partly paid-up shares, guardians of minor shall be responsible to pay unpaid part.

Transmission of Securities - Company Law Notes of CS Executive

Transmission means where any person acquires any right to securities by operation of any law (other than by way of contract), like

  • by right of inheritance or
  • due to succession or
  • by reason of the insolvency/liquidation or lunacy of the holder of securities or
  • by purchase in a Court-sale

In case of transmission, no transfer deed shall be necessary. Merely an application addressed to the company (with sufficient proof like succession certificate or will) by the legal representative is sufficient.

According to Section 56(2), a company shall have power 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.

It should be noted that where any person acquires any right to securities by operation of any law, such person shall not automatically becomes member of the company. Further, the company cannot register them as members without their consent [Cheshire Banking Co. Duff’s Executor’s case]. The company can justifiably register them as members when they apply for it.

Transmission of shares to widow
If a widow applies for transmission of the shares standing in the name of her deceased husband without producing a succession certificate and if the articles of association of the company so authorises, the directors may dispense with the production of succession certificate, probate or letter of administration upon such terms as to indemnity as the directors may consider necessary, and transmit the shares to the widow of the deceased by obtaining an indemnity bond.

Provisions in the AOA w.r.t Transmission
Articles of companies generally provide for formalities to be observed for transmission of shares. In the absence of such provision in the articles of the company, Regulations 23 to 27 of Table F of Schedule I to the Act will govern the procedure for transmission.

Regulation 23
On the death of a member,

  • the survivor or survivors where the member was a joint holder, and his nominee or nominees or
  • legal representatives where he was a sole holder,

shall be the only persons recognised by the company as having any title to his interest in the shares.

In case some shares are registered in joint names and the articles of the company provide that the survivor shall be the only person to be recognised by the company as having any title to the shares, the company is justified in refusing to register the transmission of title by operation of law in favour of the son of the deceased holder even though he may obtain succession certificate from the Court.

Regulation 24
Any person becoming entitled to a share in consequence of the death or insolvency of a member may, upon such evidence being produced as may from time to time properly be required by the Board and subject as hereinafter provided, elect, either—
(a) to be registered himself as holder of the share; or
(b) to make such transfer of the share as the deceased or insolvent member could have made.

The Board shall, in either case, have the same right to decline or suspend registration as it would have had, if the deceased or insolvent member had transferred the share before his death or insolvency.

But if the company unduly refuses to accept a transmission, the same remedies are available to the legal representative as in the case of a transfer namely, an appeal to the Tribunal under Section 58.

Regulation 25
If the person so becoming entitled shall elect to be registered as holder of the share himself, he shall deliver or send to the company a notice in writing signed by him stating that he so elects.

If the person aforesaid shall elect to transfer the share, he shall testify his election by executing a transfer of the share.

All the limitations, restrictions and provisions of these regulations relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as aforesaid as if the death or insolvency of the member had not occurred and the notice or transfer were a transfer signed by that member.

Regulation 26
A person becoming entitled to a share by reason of the death or insolvency of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the company:

Provided that the Board may, at any time, give notice requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within 90 days, the Board may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share, until the requirements of the notice have been complied with.

Distinction between Transfer and Transmission

TransferTransmission
Transfer takes place by a voluntary or deliberate act of the parties by way of a contract.Transmission is the result of the operation of law. For example, due to death, insolvency or lunacy of a member.
An instrument of transfer is required in case of transfer.No instrument of transfer is required in case of transmission.
Transfer is a normal course of transferring property.Transmission takes place on death or insolvency of a holder of securities.
Transfer of securities is generally made for some consideration.Transmission of securities is generally made without any consideration.
Stamp duty is payable on transfer of securities by a holder of securities.No stamp duty is payable on transmission of securities.
As soon as transfer is complete, the liability of the transferor ceases.Shares continue to be subject to the original liabilities.
Forged Transfer - Company Law Notes of CS Executive

Forged transfer means when a non-owner signs transfer deed pretending the owner of the securities.

  • A forged transfer cannot pass any title and is a nullity. The original owner of the shares continues to be the shareholder and the company is bound to restore his name on the register of members [People’s Ins. Co. v. Wood and Co.]
  • If the company issues a share certificate to the transferee and he sells the shares to an innocent purchaser, the company is liable to compensate such a purchaser, if it refuses to register him as a member, or if his name has to be removed on the application of the true owner.
  • If the company is put to loss by reason of the forged transfer, as it may have paid damages to an innocent purchaser, it may recover the same independently from the person who lodged the forged transfer.

Punishment for Personation of Shareholder [Section 57]
If any person

  • deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of this Act, and

thereby obtains or attempts to obtain any such security or interest or any such share warrant or coupon, or receives or attempts to receive any money due to any such owner,
he shall be punishable

  • with imprisonment for a term which shall not be less than 1 year but which may extend to 3 years and
  • with fine which shall not be less than 1 lakh rupees but which may extend to 5 lakh rupees.

Rights of Unpaid Transferor/Vendor
An unpaid vendor has the right to exercise voting rights in respect of shares registered in his name. He is not obliged to comply with the directions of the purchaser in respect of the shares taken by him. [JRRT (Investments) Ltd. v. Haycraft]

Case of Blank Transfer
Where a transferor transfers his share for consideration and delivers along with the share certificate the transfer form duly signed by him, but the transferee, instead of completing the transfer by signing his own name as transferee and presenting it for registration to the company, chooses to keep the transfer in blank and passes it on to others along with the share certificate, it cannot be said that the transferor, simply because the share continues to stand in his name, should be treated as a trustee for a series of unknown holders of the blank transfer.

But where a shareholder executes a blank transfer to enable another to deal with the shares, he is bound not to do anything to obstruct registration of the transfer and if he improperly intervenes he is liable in damages. [Hooper v. Herts] Company Law Notes of CS Executive

TRANSPOSITION OF NAME
In the case of joint-shareholders, one or more of them may require the company to alter or rearrange the serial order of their names in the register of members of the company. In this process, there will be need for effecting consequential changes in the share certificates issued to them.

Since no transfer of any interest in the shares take place on such transposition, the question of insisting on filling transfer deed with the company, may not arise. Transposition does not also require stamp duty.

Cases where share transfer deed is executed but shares are still in the name of transferor

Transferor’s right to indemnity for calls
Where a transferor has paid for calls to the company after the shares are transferred, there arises an implied promise by the transferee to indemnify the transferor. Such a promise to indemnify can be implied even in the case of blank transfers [Ashworth Partington & Co.]

Transferee’s right to Dividends, Bonus and Rights Shares
Where the transferor, by reason of the shares standing in his name, has received after the transfer, any dividend on shares, bonus or other benefit accruing in respect thereof, the transferee being the person lawfully entitled thereto, can recover the same from the transferor. [Chunnilal Khushaldas Patel v. H.K. Adhyaru]

Dividend to transferee after transfer
In one case the transfer was registered and dividends paid to the transferee. Later, the register was rectified by removing the transferee’s name from the register on the ground of a technical nature, like inadequacy of stamps, it was held that the transferee was not bound to handover the dividend amount to the transferor. [Kothari Industrial Corpn. Ltd. v. Lazor Detergents P. Ltd.]. However the Madras High Court held that the company should not be allowed to rectify the register on a technical ground after transferring the shares.

Section 27 of the Securities Contracts (Regulation) Act, 1956
It shall be lawful for the holder of any security whose name appears on the books of the company issuing the said security to receive and retain any dividend declared by the company in respect thereof for any year, notwithstanding that the said security has already been transferred by him for consideration, unless the transferee, who claims the dividend from the transferor has lodged the security and all other documents relating to the transfer which may be required by the company with the company for being registered in his name within 15 days of the date on which the dividend became due.

Can a company refuse to register the transfer on the ground of lack of consideration?
A company cannot refuse to register a transfer on the ground that the transfer was without consideration or that there was a collusion and connivance between the transferor and transferee. Any objection about inadequate consideration can be raised only by the transferor himself and not by the company particularly where the shares are fully paid.

In case of fraudulent transfer to two different transferee
Where a shareholder has fraudulently sold his shares to two different transferees, the first purchaser will, on the ground of time alone, be entitled to the shares in priority to the second [Society General De Paris v. Jonet Walker and other]

Pledging of Shares
Shares are goods under the Sale of Goods Act, 1930 and therefore can be a subject matter of pledge under the Indian Contract Act, 1872. Company Law Notes of CS Executive

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