Transmission of Shares – Meaning and Legal Basis
Transmission of shares refers to the transfer of ownership of shares by operation of law and not by the voluntary act of the shareholder. It usually occurs due to events such as death, insolvency, or lunacy of a shareholder. Under Section 56 of the Companies Act, 2013, transmission is legally recognized without the execution of a transfer deed, unlike transfer of shares. When a shareholder dies, the legal representative or nominee becomes entitled to the shares after submitting prescribed documents such as death certificate, succession certificate, or probate. Transmission ensures continuity of ownership while protecting the company from unauthorized claims. It is an automatic process arising from law and not from contract. The company is bound to register the transmission once statutory requirements are fulfilled. Thus, transmission safeguards the rights of legal heirs and maintains stability in shareholding structure.
Procedure and Legal Requirements
The procedure for transmission of shares is comparatively simpler than transfer. As per Section 56(2) of the Companies Act, 2013, the company must register transmission after verifying legal documents. In case of death, the legal heir must submit a request along with proof of entitlement. No consideration is involved, and stamp duty is not applicable since transmission is not a sale. The Articles of Association generally lay down the detailed procedure, including timelines and documentation. The company has limited discretion and cannot arbitrarily refuse transmission if documents are valid. Transmission may also arise due to insolvency, where the official assignee becomes entitled, or due to mental incapacity, where a guardian represents the shareholder. This mechanism ensures lawful succession and protects corporate records from uncertainty.
Legal Effect and Distinction from Transfer
The legal effect of transmission is that the legal heir steps into the shoes of the deceased shareholder. However, until registration, the heir is not entitled to exercise membership rights such as voting. Transmission differs fundamentally from transfer because it does not require a contract, consideration, or transfer instrument. Courts have consistently held that transmission is a statutory right, not dependent on company discretion. While transfer involves voluntary alienation, transmission is involuntary and inevitable. The company must act promptly to avoid disputes. This distinction is important in examinations and corporate practice, as improper refusal of transmission can attract legal consequences under company law.
Realtime Example
Mr. A, a shareholder of XYZ Ltd., dies intestate holding 1,000 equity shares. His daughter submits a transmission request along with the death certificate and succession certificate. XYZ Ltd., after verifying documents, registers the shares in her name under Section 56 of the Companies Act, 2013. No transfer deed or stamp duty is required. This is a classic case of transmission of shares by operation of law.
Mnemonic to Remember Transmission of Shares
Use the mnemonic “DIL” to remember transmission:
D – Death
I – Insolvency
L – Lunacy
These are the three main legal events leading to transmission of shares. Remembering “DIL” helps students quickly recall that transmission is involuntary, automatic, and law-driven, unlike transfer which is voluntary and contractual.
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