# Forged Transfer

## Core Idea

A forged transfer has no legal existence — it is a nullity. The law protects the true owner while also providing equitable remedies for genuine third-party buyers who acted in good faith.

## 1. What is a Forged Transfer?

A forged transfer is a nullity and not legally binding.
It occurs when a company registers a transfer of shares based on an instrument of transfer with forged signatures of the transferor.

## 2. Effect on the Real Owner

The real owner (true transferor) remains the legal shareholder. The company can be compelled to:

Delete the transferee's name, AND
Restore the original shareholder's name in the Register of Members.

## 3. Remedy for a Genuine Third-Party Buyer (Chain of Transfers)

Sometimes the forger sells shares to an innocent buyer, and the company registers the new buyer. Now there is a conflict:

### (a) Remedy for the Innocent Buyer

The company cannot deny ownership rights to a genuine buyer who acted in good faith based on the company's records.
The company shall restore the name of the original shareholder, BUT may be required to compensate the innocent buyer.

### (b) Remedy for the Company

The company can seek indemnity from the first transferee (the one who used the forged instrument).

## 4. Role of Dematerialisation

Dematerialisation significantly reduces the chances of forgery.
Private companies are not required to dematerialise securities — but they typically have fewer shareholders, so forgery is easier to detect.

## Memory Hook

Forged transfer = NULLITY → true owner restored
Innocent buyer (relying on company records) → compensation, not the shares
Company → indemnity from the forger

## Key Principle: Estoppel by Certificate

Where a company issues a share certificate based on a forged transfer, it is estopped (prevented) from denying the title to an innocent purchaser who relied on that certificate. This is why companies must verify signatures carefully.

Worked example

### Example 1

Example 1: Mr A's signature is forged by B. B gets shares registered in his own name. A discovers the forgery. What is the legal position?

Answer: The forged transfer is a nullity. The company must delete B's name and restore A's name on the Register of Members. A continues to be the legal shareholder.

### Example 2

Example 2: After the forged transfer, B sold the shares to C (an innocent purchaser) who relied on the share certificate issued by the company. What now?

Answer: The original shareholder A must be restored. C, having relied on the company's certificate, is entitled to compensation from the company (estoppel by certificate). The company can recover from B (the forger) by way of indemnity.

⚠️ Common exam mistakes

Believing the company is bound to the new owner once it registers a forged transfer — a forged transfer is void ab initio.
Treating the innocent buyer's right as a right to keep the shares — usually it is a right to compensation, not ownership.
Forgetting that the company has a right of indemnity against the original forger.
Assuming dematerialisation eliminates forgery risk — it reduces it but does not eliminate it entirely.

Reference:

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