## Section 126 – Right to Dividend, Rights Shares and Bonus Shares to be Held in Abeyance Pending Registration of Transfer of Shares

When an instrument of transfer has been delivered to the company but the registration of the transfer is still pending, the company faces a question — should the dividend, bonus shares or rights shares be issued to the transferor (old owner) or to the transferee (new owner)?

Section 126 answers this neatly.

### Treatment Pending Registration of Transfer

Item	Treatment by Company
Dividend	Transfer such dividend to the Unpaid Dividend Account UNLESS the company is authorised by the registered holder (transferor) in writing to pay it to the transferee specified in the instrument of transfer.
Bonus Shares	Keep the bonus shares in abeyance in relation to such shares.
Rights Shares (offer to subscribe at a discount/premium)	Keep the rights offer in abeyance in relation to such shares.

### Key Principle

The company shall not pay the dividend or issue the bonus/rights shares to either party so long as the transfer is pending, except that the transferor may direct in writing that the dividend be paid to the transferee.

### Pedagogical Insight

'In abeyance' means kept on hold — neither granted to transferor nor to transferee, until the transfer is formally registered.
The protection exists because, before registration, the company's records still show the transferor as the legal owner, but the beneficial entitlement has effectively passed to the transferee.

Worked example

### Example 1

Example 1: Mr. A transferred 1,000 shares of XYZ Ltd. to Mr. B on 15 March. The instrument of transfer was lodged with the company on 20 March. On 31 March, the company declared dividend and a 1:1 bonus issue. Registration of transfer is still pending. How should the company treat these?

Solution:

Dividend: Transfer to Unpaid Dividend Account UNLESS Mr. A (registered holder) authorises in writing that it be paid to Mr. B.
Bonus shares: Keep in abeyance pending registration of transfer.

### Example 2

Example 2: In the above case, Mr. A writes to the company authorising payment of dividend to Mr. B. Can the company act on it?

Solution: Yes. Under the proviso to Sec. 126, written authorisation from the registered holder (transferor) permits the company to pay the dividend directly to the transferee.

⚠️ Common exam mistakes

Paying dividend to the transferor when an instrument of transfer is already lodged — this defeats the purpose of Sec. 126.
Issuing bonus/rights shares to the transferee before registration is complete.
Forgetting that the written authorisation exception applies only to dividend, NOT to bonus or rights shares (these must always be held in abeyance).
Confusing 'pending registration' with 'transfer rejected' — Sec. 126 only applies while registration is pending, not after rejection.

Bare-Act text Section 126 · Companies Act, 2013 · click to expand

Where any instrument of transfer of shares has been delivered to any company for registration and the transfer of such shares has not been registered by the company, it shall, notwithstanding anything contained in any other provision of this Act, — (a) transfer the dividend in relation to such shares to the Unpaid Dividend Account referred to in section 124 unless the company is authorised by the registered holder of such shares in writing to pay such dividend to the transferee specified in such instrument of transfer; and (b) keep in abeyance in relation to such shares, any offer of rights shares under clause (a) of sub-section (1) of section 62 and any issue of fully paid-up bonus shares in pursuance of first proviso to sub-section (5) of section 123.

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Right to Bonus and Rights Shares Pending Registration of Transfer (Section 126)

Worked example

⚠️ Common exam mistakes