# Sec 126 — Dividend & Other Rights Held in Abeyance Pending Registration

## Context

When shares are sold, the buyer submits the share transfer form to the company for registration. Until registration is complete, the registered owner on the company's books is still the transferor, even though equitable ownership has passed to the transferee.

Section 126 resolves what happens to dividend, rights shares and bonus shares during this transition window.

## 1. Actions on Receipt of Unregistered Share Transfer

### (a) Dividend

The company shall transfer the dividend in relation to such shares to the Unpaid Dividend Account.
Exception: Unless the registered holder authorises the company in writing to pay the dividend to the transferee specified in the instrument of transfer.

### (b) Rights Shares & Bonus Shares — Abeyance

Any rights shares offered under Sec 62(1)(a), AND
Any bonus shares issued under Sec 123(5) [proviso] (capitalisation of profits/reserves),
in respect of such shares, shall be kept in abeyance by the company until the dispute over title/registration is resolved.

## Why?

The company does not know whether the transferor (registered holder) or the transferee (beneficial owner) is currently entitled.
Paying or allotting to the wrong person creates litigation risk.
Hence the law provides a safe harbour: park dividend in UDA, hold rights and bonus issues until ownership is sorted.
The transferor's written authorisation is a one-way safety valve — they can voluntarily redirect the dividend to the transferee since they are the registered (and hence legally entitled) holder.

## Key Takeaway

During the registration limbo: dividend → UDA, rights & bonus → abeyance. Only the registered holder's written authorisation can divert dividend directly to the transferee.

Worked example

### Example 1

Example: Ms. A sold 100 shares of XYZ Ltd. to Mr. B on 1-Sep-2025. The transfer deed is lodged with the company but not yet registered. The company declares dividend on 20-Sep-2025 and a rights issue is also announced. Action:

The dividend on these 100 shares is transferred to the Unpaid Dividend Account.
The rights shares for these 100 shares are kept in abeyance.
If Ms. A (registered holder) writes to the company directing that the dividend be paid to Mr. B, the company may pay it directly to Mr. B.

⚠️ Common exam mistakes

Stating that the dividend is forfeited — it goes to UDA, not forfeited.
Believing the company can decide on its own to pay dividend to transferee — only the registered holder's written authorisation enables this.
Forgetting that both rights and bonus shares are kept in abeyance — many candidates remember only one.
Confusing 'abeyance' with 'forfeiture'. Abeyance = held back pending resolution; ownership is preserved.

Bare-Act text Section 126 · 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, 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 Dividend, Rights Shares and Bonus Shares Held in Abeyance Pending Share Transfer [Sec 126]

Worked example

⚠️ Common exam mistakes