# Forged Transfer of Shares

## Meaning

If a company effects transfer of shares on the basis of an instrument that carries forged signatures of the transferor, the transaction is called a forged transfer.

## Legal Status

A forged transfer is void ab initio (a nullity).
It does NOT confer any title on the transferee.

## Consequences — Three Stakeholders

### (a) Original Shareholder

Company cannot deny his ownership.
Company must restore his name in the register of members.
Company must pay him any dividend he ought to have received.

### (b) Bona-fide Subsequent Buyer (from the forged transferee)

If the forged transferee further sells to a person acting in good faith, and the company registers the transfer & endorses the share certificate:
The bona-fide buyer does not get good title — his title is only as good as the seller's (and the seller had none).
BUT the company cannot deny his ownership because it endorsed his certificate (estoppel principle).
Company is liable to compensate the bona-fide buyer.

### (c) Forger / Person Lodging Forged Instrument

Company can claim indemnity from the person who lodged the forged transfer.

## Summary Rule

> Forged transfer = void. Original owner restored. Bona-fide buyer compensated. Indemnity recovered from forger.

Worked example

### Example 1

Example: X owns 1000 shares of ABC Ltd. Y forges X's signature and gets shares transferred to himself. Y then sells to Z (bona fide buyer); company endorses Z's certificate.

X retains ownership; his name is restored and unpaid dividends are paid.
Z does not get title from Y but the company is estopped from denying Z's certificate — company must compensate Z.
Company sues Y (forger) for indemnity.

⚠️ Common exam mistakes

Assuming a bona-fide subsequent buyer gets good title — he does not; he only gets compensation.
Forgetting to restore unpaid dividends to the original shareholder along with his name.
Failing to invoke indemnity against the person who lodged the forged instrument.

Reference: — Companies Act, 2013 (judicial principles)

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