# Right to Dividend, Rights Shares & Bonus Shares Held in Abeyance Pending Registration of Transfer

Statutory Anchor: Section 126 of the Companies Act, 2013.

## The Problem Section 126 Solves

When shares change hands, the transferee lodges the instrument of transfer with the company. Until the company registers the transfer, on the register the seller (transferor) is still the owner — but morally the buyer has paid. If the company declares a dividend, issues rights, or allots bonus shares during this gap, who gets what? Section 126 freezes these entitlements until registration sorts itself out.

## The Rule

Where an instrument of transfer has been delivered to the company for registration but the transfer has not yet been registered, the company shall:

### (a) Treatment of Dividend

Transfer the dividend on such shares to the Unpaid Dividend Account (Section 124).

Exception: If the registered holder (transferor) authorises the company in writing to pay the dividend to the transferee specified in the instrument, the company may pay directly to the transferee.

### (b) Treatment of Rights & Bonus Shares

Keep in abeyance:

Any offer of rights shares under Section 62; and
Any issue of fully paid-up bonus shares under Section 123.

## Quick-Reference Table

Corporate Benefit	Default Treatment Pending Registration
Dividend	Transferred to Unpaid Dividend Account (s.124)
Dividend (with written authority from registered holder)	Paid to transferee
Rights Issue under s.62	Kept in abeyance
Bonus Issue under s.123	Kept in abeyance

## Why This Matters

Protects the transferee's economic interest even though they don't yet appear on the register.
Prevents the company from being caught between competing claims.
Note: the dividend goes to a holding account, not back to the transferor — so once the transfer is registered, the rightful owner can claim it.

Worked example

### Example 1

Q: A sold 1,000 shares of XYZ Ltd. to B on 1 April. B lodged the transfer deed on 10 April. On 25 April, XYZ declared a dividend. The transfer was registered only on 15 May. How is the dividend handled?

A: Since the instrument was delivered but transfer was not yet registered when dividend was declared, the dividend on these 1,000 shares must be transferred to the Unpaid Dividend Account under Section 126(a). Once registration completes on 15 May, B (the new registered holder) can claim it. Exception: If A had given written authority to pay B directly, the company could have done so.

### Example 2

Q: Same facts as above, but on 30 April XYZ also announced a 1:1 bonus issue. What happens to the bonus shares relating to the 1,000 unregistered transferred shares?

A: Section 126(b) requires the company to keep the bonus issue in abeyance for these shares. They are neither credited to A nor B until the transfer is registered. After registration, the bonus entitlement will be allotted to B.

### Example 3

Q: Will Section 126 apply if the transfer deed was lost in transit and never delivered to the company?

A: No. The trigger is delivery of the instrument to the company. If no instrument has been delivered, the company recognises only the registered holder for all corporate benefits.

⚠️ Common exam mistakes

Thinking the dividend is paid to the transferor by default — actually it goes to the Unpaid Dividend Account.
Believing the company can pay the dividend to the transferee on its own — it needs written authority from the registered holder.
Forgetting that BOTH rights and bonus shares are kept in abeyance — students often remember only one.
Applying Section 126 even before the transfer instrument is delivered — the trigger is delivery, not the sale.
Confusing 'kept in abeyance' (held by company pending decision) with 'transferred to IEPF' (which only happens after 7 years of remaining unclaimed).

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

Section 126: 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— (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 section 62 and any issue of fully paid-up bonus shares in pursuance of section 123.

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Right to Dividend, Rights Shares and Bonus Shares Held in Abeyance [Section 126]

Worked example

⚠️ Common exam mistakes