Understanding the concept of Transmission of Securities

Introduction
‘Transmission of Securities’ means transferring the ownership of securities to legal heirs or successor or nominee or surviving joint holder, by operation of law, in case of death of a security holder, insolvency, inheritance or lunacy of the member.

Securities
As per Section 2(81) of the Companies Act, 2013 and Section 2(h) of the Securities Contracts (Regulation) Act, 1956, the term ‘Securities’ includes the following:
      • Shares, scrip, stocks, bonds, debentures, debenture stocks etc. in or of any incorporated company or            another body corporate
      • Derivatives
      • Units issued by any Collective Investment Scheme to the investors in such scheme.
      • Security receipt as defined in Section 2(zg) of the Securitization and Reconstruction of Financial Assets            and Enforcement of Security Interest Act, 2002.
      • Units or any other such instruments issued to the investors under any Mutual fund scheme.
      • Government Securities
      • Such other instruments, rights or interest therein shall be declared by the government to be securities             be declared by the government to be securities.

Statute
For statutory provisions related to transmission of security one should refer the following:
• Section 56 of Companies Act, 2013
• The Companies (Share Capital and Debentures) Rules, 2014
• Provisions given in Articles of Association (AOA)
However, if the AOA is silent, Table F of CA 2013, relating to transmission of securities shall be applicable.

What the law says?
1. Person eligible to apply for transmission
In case of joint holding of securities, the survivors can get the securities transmitted in their names by production of the death certificate of the deceased holder of securities. The legal heir of the deceased member shall have no right or claims in case of joint holding of securities in terms of Table F of Companies Act, 2013.
In case securities are not held jointly, legal heir of the deceased member shall have the rights.

2. Documents for Transmission of Securities
The legal heir of the deceased member has to make simple application to the company along with the following evidences for the transmission of securities:
• Copy of death certificate
• Copy of Probate (“Probate” as per Indian Succession Act, 1929, means the copy of a will certified under the seal of a Court of competent jurisdiction with a grant of administration to the estate of the testator).
• Copy of Succession certificate (Required only in case “Probate” is not available)
• In case, Succession Certificate / Probate are not available, legal heir can provide Affidavit on non-judicial stamp paper certified by notary and Indemnity bond on non-judicial stamp paper.
• Specimen signature of successor
• Application to company for transmission
• Copy of ID & Address proof of legal heir
• Original Security Certificate
• In case securities to be transmitted to a single / few legal heirs out of multiple legal heirs, an NOC to be provided by the remaining legal heirs.
• Articles of Association may provide for additional requirements as well.

In case of dematerialized securities, the legal heir of the deceased must request the Depository Participant (DP) to transmit the balances lying in the account of the deceased to the account of the legal heir. For this, the legal heir must submit a Transmission Form to the DP along with the above documents.

3. Nomination
A security holder of a company can nominate, any person, to whom his securities shall vest in the event of death of that holder by filing Form No. SH–13 with the company.

In Shakti Yezdani and Ors. Vs. Jayanand Jayant Salgaonkar and Ors. (2016) division bench of Bombay High Court held that nomination neither gives an absolute right on the shares to the nominee, nor does it override the law in relation to testamentary or intestate succession. Therefore, the shares only vest in the nominee as a trustee until such time the legal heir/successor of the deceased shareholder is able to establish his/her rights of succession with respect to such shares.

4. Time limit for issue of security certificate on transmission
The Company shall obtain Board approval for transmission of security. In terms of section 56(4) of Companies Act, 2013, company shall deliver the certificates of all security transmitted within 1 month from the date of receipt of application/transmission intimation from the legal heirs. Legal heir’s name shall be endorsed on the backside of the original security certificate and any one of the Directors of the Company to initial the same.

5. Updating the Statutory Register
Transmission details to be updated in the Statutory Registers of the Company.

6. Time Limit for Refusal of registration of Transmission
In terms of Section 58 of Companies Act, 2013, a private company may refuse to register transmission of securities. A notice of refusal with reasons for the same shall be sent within 30 days from the date on which the intimation of transmission is delivered to the company.

7. Time Limit for appeal against refusal to register Transmission
If a Private Company refuses to register Transmission of Securities, the legal heir can appeal to the Tribunal against the refusal
– within a period of 30 days from the date of receipt of the notice of refusal from the Company
– in case no such notice has been received, within a period of 60 days from the date on which the intimation of transmission was delivered to the company.
If a Public Company, without sufficient cause, refuses to register Transmission of Securities, the legal heir can appeal to the Tribunal against the refusal
– within a period of 60 days of such refusal
– in case no such notice has been received, within 90 days from the date on which the intimation of transmission was delivered to the company.

Conclusion
The transmission of securities is a simple process provided required documents are submitted to the company or the depository participant, as the case may be, by the claimant. It is the responsibility of the company and its Officer to complete the transmission process within time limits prescribed in the Companies Act, 2013.

Note: This article is purely for academic purpose and shall not be acted upon as a professional advice.