Validity of Transfer of Shares of a company without stamping
Section 108 of Companies Act, 1956 states that (1) A company shall not register a transfer of shares in, or debentures
of, the company, unless a proper instrument of transfer duly stamped and
executed by or on behalf of the transferor and by or on behalf of the
transferee and specifying the name, address and occupation, if any, of the
transferee, has been delivered to the company along with the certificate
relating to the shares or debentures or if no such certificate is in existence,
along with the letter of allotment of the shares or debentures.
Transfer of share is possible only if proper transfer deed in the form
7B duly stamped and executed under section 108 of Companies Act, 1956
Section 108 provides that adequate stamp should be there on transfer
deed so as to make it a valid transfer. In case of default it shall be deemed
as null and void. As words "shall
not register" employed
in Section 108, are indicative of the legislative intent that the provisions
contained in the section are mandatory.
According to section 12 of Indian Stamp Act, if the stamp is not
cancelled at or time of execution, the instrument shall be deemed to be
unstamped.
The Honorable Supreme Court held that the registration of transfers
contrary to mandatory provisions of section 108 and pending attachment of the
shares was illegal. When the receiver held the scripts and blank transfers, it
was not open to the persons in whose names the share originally stood to
exercise the right of ownership in respect of such shares or transfers that
ownership to anyone else.
Analysis: Shares which are not stamped and cancelled, transferring it would be
considered illegal or void. For a valid transfer share transfer form must be
adequately stamped and cancelled to provide legal validity to the
transfer. Even in case, where registrar have registered it but
overlooking it, it would be considered as void.
In such situations,
application to the concerned authority should be made within time frame
prescribed, so as to validate the transfer.
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