July 24, 2012

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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