# Rights Held in Abeyance Pending Transfer Registration

## The Problem This Solves

When a shareholder sells shares, there is a gap between (a) lodging the transfer instrument with the company and (b) the company actually registering the transfer in its register of members. During this gap, who is entitled to dividends, rights shares, and bonus shares — the seller (still on the register) or the buyer (the real economic owner)?

Section 126 fixes this by freezing the corporate benefits until the register is updated.

## The Rule

If an instrument of transfer has been delivered to the company but transfer is not yet registered, the company shall:

1. Dividend — Transfer the dividend on such shares to the Unpaid Dividend Account (UDA).

Exception: If the registered holder (the seller) has authorised the company in writing to pay the dividend to the transferee (the buyer), the company pays the buyer directly.

2. Rights Shares & Bonus Shares — Keep the offer in abeyance on such transferred shares.

## Key Take-aways

Triggering event: delivery of transfer instrument (not just an oral sale).
The company does not pay the seller, because economically the seller has parted with the shares.
The company does not pay the buyer either, because legally the register has not been updated.
The safe middle path is parking the dividend in UDA and pausing rights/bonus offers.

Worked example

### Example 1

Example: A sells 1,000 shares of XYZ Ltd. to B and lodges the transfer instrument on 1st June. The company has not yet registered the transfer when it declares a dividend on 15th June. The company will transfer the dividend on these 1,000 shares to the Unpaid Dividend Account, and will keep any concurrent rights/bonus issue in abeyance on those shares — unless A has given written authority to pay B directly.

⚠️ Common exam mistakes

Assuming dividend is paid to the buyer once the transfer instrument is lodged — it is parked in UDA unless seller gives written authority.
Confusing 'in abeyance' for rights/bonus shares with 'forfeited' — they are held, not lost.
Forgetting that the authorisation by the registered holder must be in writing (oral authority is not enough).

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

If instrument of transfer is delivered but is not registered by company, company shall: (a) Transfer dividend on such shares to Unpaid Dividend Account [except if registered holder of shares authorised company in writing to pay dividend to transferee], and (b) Keep in abeyance offer of rights shares & bonus shares on such transferred shares.

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Rights kept in abeyance pending registration of transfer (Section 126)

Worked example

⚠️ Common exam mistakes