Introduction:
Before 1996, the transfers of shares are done physically. After the introduction Depositories Act, 1996, the volume has reduced significantly. The transfer of shares for unlisted companies continues to be physical transfer as they are not availed for depositories act. In case of listed entities, the compulsory holding of shares electronically. However few share holders still not availed electronic holding of shares.
Section 82 of the Companies Act, 1956:
According to this section 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 6 of Transfer of Property Act:
According to the section 6 that it provides Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force.
Section 108 of Companies Act 1956:
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:
Distinction between Section 82 and Section 108 of Companies Act, 1956
Section 82 of the Companies Act, 1956 provides shares or debentures transferable in the manner provided in the Articles of Association. Whereas Section 108 of the Companies Act, 1956 provides that transfer of shares or debentures to be registered by the company unless proper instrument of transfer duly stamped and executed and filled in all respects. Is it not contradictory that section 82 provides transfer will be effected as per provision contained in the Articles whereas Section 108 transfer will be effected as per proper instrument of transfer duly stamped and executed. As far as Shares are concerned Form 7B will be valid proper instrument.
Table A: As per Section 82 if a company adopts Table A, then Regulations 19 to 25 will be applicable for effecting the transfer
Transfer of Debenture: The Transfer of debentures contained in the Sections 82 and 108 of the Companies Act, 1956. There is no proper instrument for transfer of debenture. There are no separate provisions contained in Table A of Companies Act, 1956. Section 108 provides proper instrument of transfer to be executed for effecting transfer of shares or debentures. However Form 7B contains only to transfer shares only not debentures. There is no provision to effect the transfer of debentures. Many corporate are entertaining Form7B to effect transfer for debentures. As such there is no proper instrument to effect the transfer of debentures.
Stamp duty on Debenture: The stamp duty on Transfer of debenture contained in Schedule 1-A of Stamp Act under serial no.27 rates are given. For every rupees five hundred and part there of in excess of one thousand the duty will be payable will be Rs.7.50 There is huge transfer of stamp duty will be payable. To avoid stamp duty payable corporate will be to demat the Debenture certificates.
Debenture will also include as securities as per the definition given in the companies Act 1956 [(45AA)] "securities" means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and includes hybrids;] The definition of Section 2 ( h) of the Securities Contract (Regulation) Act, 1956 are as follows
h) "securities" include -
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
(ii) Government securities;
(ii-a) such other instruments as may be declared by the Central Government to be securities;
(iii) rights or interests in securities;
(i) "spot delivery contract" means a contract which provides for, -
(a) actual delivery of securities and the payment of a price therefore either on the same day as the date of the contract or on the next day, the actual period taken for the dispatch of the securities or the remittance of money therefore through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality;
(b) transfer of the securities by the depository from the account of a beneficial owner to the account of another beneficial owner when such securities are dealt with by a depository;
Conclusion:
1) There is no valid proper instrument of transfer for Debenture.
2) The contradiction of Sections for effecting Transfer of shares and Debentures
3) Form 7B only enable to transfer of shares and it should be modified to securities transfer form to effect all types of transfer of securities.
4) There is no proper instrument of transfer for debenture though both the sections provides transfer of share or debenture
5) Huge sum will be payable for transfer of debentures not at par with share transfer
It appears that there is a lacuna in this regard.
The companies bill 2009 that should amends to this lacuna when the bill becomes an Act.
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