Transfer and Transmission of Securities refer to the legal process of transferring ownership of stocks, bonds, and other financial assets from one party to another. It is a crucial aspect of the financial industry, as it enables investors to buy and sell securities in a transparent and secure manner.
he act of movement of an asset is termed as a transfer. The movement can be physical movement or the ownership of the title of the asset or both. For securities, this movement can be voluntary or operational by law. The transfer of shares is a voluntary act by the holder of shares and takes place by way of contract. Whereas, the transmission of shares takes place due to the operation of law that is on the death of the holder of shares or in an event where the holder becomes insolvent/lunatic.
Meaning of Transfer of Shares
ransfer of shares refers to the intentional transfer of title of the shares between the transferor (one who transfers) and the transferee (one who receives). The shares of a public company are freely transferable unless the company has a valid reason to disallow the same. The shares of a private limited company are not transferable subject to certain exceptions. A transfer deed is executed for the transfer of shares.
Transfer of securities refers to the process of transferring the ownership of securities from one person to another, voluntarily. The transfer of securities can be done by way of sale, gift, pledge, or any other legally recognized method. In the case of transfer of securities, the ownership of the securities changes hands from the transferor to the transferee.
The process of transfer of securities involves the execution of a transfer deed, which is a legal document that contains the details of the securities being transferred, the names of the transferor and the transferee, and the consideration, if any, involved in the transfer. The transfer deed needs to be stamped as per the stamp duty laws applicable in the respective state and submitted to the concerned depository participant (DP) or registrar and transfer agent (RTA) for processing.
Meaning of Transmission of Shares
Transmission of securities refers to the process of transferring the ownership of securities from one person to another, involuntarily. In the case of transmission of securities, the ownership of the securities changes hands due to the death, insolvency, or other legal incapacitation of the original owner.
The process of transmission of securities involves the submission of a transmission request form, along with the death certificate or other relevant legal documents, to the concerned DP or RTA for processing. The transmission request form needs to be signed by the legal heir or the executor of the will of the deceased owner, as applicable.
Transmission of shares takes place due to the operation of law that is when the holder is no more or has become lunatic or insolvent. It can also take place when the holder of shares is a company, and it has wound up. There is no transfer deed executed, and the transferee will be given the rights to the shares, and the transmission is recorded only when the transferee gives proof of entitlement to the shares. In case of the death of the holder the shares, it will be transferred to the legal representative and in case of insolvency to the official assignee. The following table illustrates the differences between the transfer of shares and transmission of shares:
| Details | Transfer of Shares | Transmission of Shares |
| What is it? | Voluntary Act | Operational by law |
| Who can initiate? | Transferor or Transferee | Legal heir or receiver |
| How is it affected? | A deliberate act of parties | Insolency, lunacy, death, or inheritance |
| Is there a consideration? | Yes | No |
| Is a transfer deed compulsory? | Yes | No |
| Is stamp duty compulsory? | Yes. Payable on the market value of shares | No |
| Who is liable? | Liability of transferor ceases to exist post the transfer | Original liability of shares continues to exist |
Types of Transfer and Transmission of Securities
There are two types of transfer of securities:
- Physical Transfer and
- Electronic Transfer
Physical transfer refers to the transfer of securities in paper form. In this case, the investor has to physically deliver the share certificate to the transferee, who will then have to get it registered in their name.
Electronic transfer, on the other hand, refers to the transfer of securities through electronic means. In this case, the securities are held in a dematerialized form, and the transfer of ownership is recorded in a central depository system.
Transmission of securities can also be Physical or Electronic. In case of Physical Transmission, the legal heirs or beneficiaries of the deceased owner have to produce the share certificate along with the necessary legal documents to get the securities transferred in their name. In case of electronic transmission, the legal heirs or beneficiaries have to provide the necessary legal documents to the depository participant to get the securities transferred in their name.
Legal Requirements for Transfer and Transmission of Securities
Both transfer and transmission of securities are subject to certain legal requirements. In the case of transfer of securities, the transfer deed needs to be executed as per the provisions of the Indian Stamp Act, 1899, and the state-specific stamp duty laws. The transfer deed needs to be signed by the transferor and the transferee, and the signatures need to be witnessed by two independent witnesses. The transfer deed also needs to be submitted to the concerned DP or RTA for processing, along with the relevant fees and documents.
In the case of transmission of securities, the legal heir or the executor of the will needs to submit the transmission request form, along with the death certificate or other relevant legal documents, to the concerned DP or RTA for processing. The transmission request form needs to be signed by the legal heir or the executor of the will, as applicable, and the signatures need to be witnessed by two independent witnesses. The transmission request form also needs to be submitted along with the relevant fees and documents.
Role of Depository Participants and Registrar and Transfer Agents
Depository Participants (DPs) and Registrar and Transfer Agents (RTAs) play a crucial role in the transfer and transmission of securities. DPs are intermediaries between investors and depositories and provide a range of services related to securities trading, including opening of demat accounts, transfer of securities, and settlement of trades. RTAs, on the other hand, are appointed by companies to maintain their shareholder records, process corporate actions, and facilitate the transfer and transmission of securities.
Procedure of Transfer of Securities
The procedure of transfer of securities involves the following steps:
- Filling up of Transfer Deed: The seller of the securities has to fill up a transfer deed which is a legal document that transfers the ownership of the securities from the seller to the buyer.
- Submission of Transfer Deed: The transfer deed has to be submitted along with the physical certificate of the securities to the company or its registrar and transfer agent.
- Verification of Transfer Deed: The transfer deed is verified by the registrar and transfer agent and if found to be in order, the transfer is executed.
- Updation of Records: Once the transfer is executed, the registrar and transfer agent update their records to reflect the transfer of ownership.
Penalties for Non-Compliance for Transfer of Security
Non-compliance with the rules and regulations regarding transfer of securities can attract penalties. Some of the penalties for non-compliance are as follows:
- Delayed Transfer: If the transfer of securities is not executed within the time limit, the seller and the company can be penalized.
- Incorrect Transfer: If the transfer is executed incorrectly, the buyer and the seller can be penalized.
- Fraudulent Transfer: If the transfer is executed fraudulently, the seller and the company can be penalized.
Time Limits for Transfer of Securities
The time limit for transfer of securities depends on the mode of transfer. In case of physical transfer, the time limit for transfer is 15 days from the date of receipt of transfer deed by the company or its registrar and transfer agent. In case of electronic transfer, the time limit for transfer is 2 days from the date of receipt of the transfer request by the depository participant.
Procedure of Transmission of Securities
- Obtain the Transmission Form: The legal heir or the executor of the will of the deceased should obtain the transmission form from the company or the RTA.
- Fill the Transmission Form: The legal heir or the executor should fill in the details such as name, address, and the number of securities being transmitted.
- Submit the Transmission Form: The legal heir or the executor should then submit the transmission form along with the necessary documents such as the death certificate and the legal heir certificate to the company or the RTA.
- Update Records: Once the transmission is completed, the records of the company or the RTA will be updated to reflect the change in ownership.
Time Limits for Transmission of Securities
As per the SEBI guidelines, the time limit for transmission of securities is one month from the date of receipt of the transmission request by the company or the RTA. If the transmission is not completed within the stipulated time frame, the company or the RTA must provide an explanation for the delay.
Penalties for Non-Compliance for Transmission of Securities
If the company or the RTA fails to complete the transmission within the stipulated time frame, a penalty of Rs. 5000 per day may be levied by SEBI. If the transmission is not completed even after 90 days from the date of receipt of the transmission request, the securities may be transferred to the IEPF.
FAQs
Q: What documents are required for the transfer of securities?
The necessary documents may vary based on the type of securities and local regulations, but generally, a signed transfer deed, along with relevant share certificates, is required.
Q: What is the process of transmission of securities in case of the death of the holder?
In the event of the death of a securities holder, the transmission process involves submitting the required documents, including a copy of the death certificate, probate of the will (if applicable), and other relevant legal documents, to the issuer’s registrar or transfer agent.
Q: How long does it take to complete a securities transfer or transmission?
The time required for the transfer or transmission of securities depends on various factors, including the efficiency of the registrar or transfer agent, the completeness of the documentation, and compliance with regulatory requirements. It can range from a few days to several weeks.
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