Gift of shares not intimated

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

28 September 2013 Dear Sir/Mam,
If a person gifted his shares in year 2009 to one of his relative, properly executed the gift deed, and transfer deed was also signed by them but the doner or donee failed to intimate the Company about the same.Please tell me What would be the consequences and what can be the possible remedy.

Ajay Mishra

Ajay Mishra (Expert)
Follow

28 September 2013 Hi

Section 108 provides that a company shall not register a transfer of shares of, the company, unless a proper transfer deed in Form 7B as given in the Companies (Central Government's) General Rules and Forms, 1956 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, alongwith the certificate relating to the shares, or if no such certificate is in existence, alongwith the letter of allotment of the shares.

Ajay Mishra

Ajay Mishra (Expert)
Follow

28 September 2013
Validity of unstamped/non-cancelled stamped on transfer deed
Section 108 requires that where share transfer form is delivered to the Board it should be duly stamped. It means stamp of adequate value should be affixed and cancelled on transfer deed. Unless a transfer form is duly stamped when it was delivered to the Board of directors for registration of transfer, it could not be said that the mandatory requirement of section 108 is complied with and the company is justified to refuse the transfer. [Patel Engineering Co. v B.Y. Invest. Pvt. Ltd. & Others Case No. 20/CLB/WR/91]
It is not necessary that stamps be affixed before transfer deed is executed, they are to be affixed before delivery. [Prafulla Kumar Rout v Orient Engg. Works (P) Ltd. (1986) 60 Comp Cas 65 (Ori)].
If adhesive stamp on transfer deed is not defaced, a fresh deed is to be submitted; company is not obliged to cancel stamp. [Nuddea Tea Co. Ltd. v Asok Kumar Saha (1988) 64 Comp Cas 775 (Cal)].
Unless a particular mode of cancellation is prescribed in any State, crossing of stamps is sufficient. [Prafulla Kumar Rout v Orient Engg. Works (P) Ltd. (1986) 60 Comp Cas 65 (Ori)].

In your case your transfer deed validity has been expire for presenting to the company. So you made another transfer deed and placed them accordingly.

Upgrade to CAclubindia Pro. Subscribe Now!

Ajay Mishra

Ajay Mishra (Expert)
Follow

28 September 2013
What should constitute a gift document and whether in any case a gift of shares be invalidated for non-compliance of the Act?:

It was held in the case of Shree Shanti Textile Mills (P) Ltd. v Siddharth N Shah in CLB Petition No.30 of 1999, the Registration Act does not require registration of a movable gift. Where the thing to be gifted is a share certificate and the company is already in possession of the certificates in question, a mere letter from the transferor addressed to the company expressing the transferor's intention to gift the shares to the transferee, should constitute a valid gift document. In terms of Vasudev Ramachandra Shelat v Pranlal Jayanand Thakur AIR 1974 SC 1728, a gift does not become invalid for non-compliance with the formalities prescribed in the Act.
Where the shares are gifted by delivery under a proper instrument of gift and prescribed share transfer form is duly signed by the transferor, gift of title to the shares is complete, even though transfer of shares in the books of the company has not yet been registered. [Vasudev Ramchandra Shelat v Pranlal Jayanand Thakur (1975) 45 Comp Cas 43 (SC)].
Where share certificate along with duly executed transfer form is handed over to donee by the donor, gift is complete and donee is entitled to have shares registered in his name. [Sheila Devi Chamaria v Tara Chand Saraogi (1986) 60 Comp Cas 735 (Cal)].

Ajay Mishra

Ajay Mishra (Expert)
Follow

28 September 2013
Extension of validity of transfer deed:

Where the validity period of an instrument of transfer has expired, namely, the instrument is beyond 12 months from the date of presentation to the prescribed authority or from the date of book closure which ever is later in case of shares of a listed company and in other case 2 months from the date of presentation, the holder may make an application in Form 7C to the Registrar of Companies requesting for extension in the validity. The fee for such application is Rs.50 where the nominal value of the shares is upto Rs. 5,000 and the fee is Rs. 100 where the value exceeds Rs. 5000.
The application shall be made to the Registrar of Companies, where the registered office of the Company is situated or under whose jurisdiction the transferor or transferee resides. The Registrar on satisfaction of the cause shown in the application shall extend the validity for a period of 30 days from the date of approval by the Registrar. It should be noted that further extension will not be provided by the Registrar. Therefore, the transfer deed should be lodged with the company within the extended period only.

Ajay Mishra

Ajay Mishra (Expert)
Follow

28 September 2013
Consequence of non-compliance of section 108:

Section 108 requires the applicant desiring to obtain the registration of transfer of shares in its favour to comply with the provisions contained therein. It is, therefore, for the applicant company to comply with all the formalities. If it does not do so it cannot make the company bound to effect the transfer, unless sufficient and cogent reasons are assigned. [Sterling Holiday Resort (India) Ltd. v Gujarat Industrial Investment Corpn. Ltd. (2006) SC 164; (2006) 129 Comp Cas 929; (2006) 71 CLA 112 (SC); (2006) 66 SCL 89 (SC)].
It cannot be said that provisions contained in section 108 are directory because non-compliance with section is not declared an offence. [P.V. Chandran v Malbar & Pioneer Hosiery (P) Ltd. (1990) 69 Comp Cas 164 (Ker)].
Except sub-section (1) of section 108, other provisions, namely sub-section (1A) and (1C) are directory and not mandatory in nature. [Dove Investments (P) Ltd. v Gujarat Industrial Investment Corpn. Ltd. (2005) 60 SCL 604 (Mad)].

Ankur Garg

Ankur Garg (Expert)
Follow

29 September 2013 If company is not intimated about this transaction, Doner will remain the shareholder in the register of member maintained by the company.

Querist : Anonymous

Querist : Anonymous (Querist)

01 October 2013 Thank you sir.
So the remedy is to make and execute the transfer and gift deed of current date. Right?

Upgrade to CAclubindia Pro. Subscribe Now!

Ankur Garg

Ankur Garg (Expert)
Follow

01 October 2013 You can prepare all the documents in back date subject to the availability of old stamp paper for gift Deed and Share transfer deed for executing share transfer.

But the problem is how you are going to add this old board minutes as this transfer also needs to be approved by board through a resolution. Only after board resolution register of member can be altered.

Ankur Garg

Ankur Garg (Expert)
Follow

01 October 2013 Further another problem is rectification in annual return filed with ROC. I am presuming that in annual return name of old member should have been given as member since there was no recording in the company about the execution of gift.
Please check the name of shareholder given in previous years annual returns filed with ROC.