Section 56 – Transfer and Transmission of Securities
# Section 56 – Transfer and Transmission of Securities
Section 56 deals with how ownership of shares/securities of a company is changed – either voluntarily (transfer) or by operation of law (transmission).
## Part A – TRANSFER of Securities [Sec 56(1)]
A transfer is a voluntary act between two parties – the transferor (TOR) and the transferee (TEE). The company shall register the transfer only if the following conditions in Form SH-4 are satisfied:
### Conditions for Valid Transfer
1. A proper instrument of transfer (Form SH-4) is used.
2. It is duly stamped, dated and executed by both TOR and TEE.
3. It specifies the name, address and occupation of the transferee.
4. The instrument is delivered to the company by either TOR or TEE within 60 days of execution, along with:
The share certificate, OR
The letter of allotment, if certificate is not yet in existence.
## Part B – Transfer of Partly Paid-up Shares [Sec 56(3)]
Where the application to register the transfer of a partly paid-up share is made by the transferor alone:
Step
Action
1
Company gives notice to the transferee (TEE) in Form SH-5
2
TEE must give 'No Objection' within 2 weeks of receipt of notice
3
If TEE objects within 2 weeks, transfer is not registered; if no objection, transfer proceeds
Reason: The transferee will inherit the liability to pay unpaid calls, so his/her consent is mandatory.
## Part C – TRANSMISSION of Securities
Transmission happens by operation of law – without any voluntary act of the holder. The company shall register transmission on intimation by the person to whom shares are transmitted.
### Common Situations Triggering Transmission
Situation
Person Entitled
Death of shareholder
Legal Representative (LR) / Nominee
Insolvency
Resolution Professional (RP)
Lunacy / Mental incapacity
Administrator appointed by Court
## Part D – Transfer of Shares of a Deceased Person [Sec 56(2)]
A transfer made by the Legal Representative (LR) of a deceased shareholder is VALID even if the LR is not himself a registered holder as on the date of execution of the transfer deed.
> Illustration: If shares stood in the name of Dharmendra (deceased), and his LR Sunny executes a transfer deed in favour of Akshay, the transfer is valid even though Sunny's name was never entered in the Register of Members. (This is sometimes called 'transmission-cum-transfer'.)
## Part E – Time Limits for Delivery of Share Certificates [Sec 56(4)]
Situation
Time Limit for Delivery
To subscribers to memorandum
2 months from date of incorporation
On allotment of shares
2 months from date of allotment
On transfer / transmission
1 month from date of intimation/receipt of instrument
On allotment of debentures
6 months from date of allotment
For Demat (Dematerialised) Shares: Credit to the demat account must be made immediately.
Worked example
### Example 1
Example 1 – Valid Transfer: Mr. A executes SH-4 on 1 March 2026 in favour of Mr. B and hands it to Mr. B. Mr. B must deliver the instrument with share certificate to the company on or before 30 April 2026 (within 60 days). If delivered on 5 May 2026, transfer is invalid for want of timely delivery.
### Example 2
Example 2 – Partly Paid Shares: Mr. X holds 1,000 partly paid-up shares (₹10 face value, ₹6 paid). He alone applies to register transfer to Mr. Y. The company must issue notice in SH-5 to Mr. Y. If Mr. Y does not object within 2 weeks of receiving the notice, the transfer is registered.
### Example 3
Example 3 – Transmission on Death: Mr. P, holding 500 shares of ABC Ltd., dies. His son Q produces the succession certificate to the company. ABC Ltd. shall register the transmission in favour of Q on the basis of this intimation, without any SH-4 or stamp duty.
### Example 4
Example 4 – Transfer by LR of Deceased: Dharmendra dies holding 1,000 shares. His LR Sunny (not yet a registered holder) sells the shares to Akshay by executing a transfer deed. As per Sec 56(2), this transfer is VALID despite Sunny not being a registered holder.
### Example 5
Example 5 – Time Limits: XYZ Ltd. allots equity shares on 10 January 2026. Physical certificates must be delivered by 10 March 2026. If they are debentures, deadline is 10 July 2026.
⚠️ Common exam mistakes
Confusing TRANSFER (voluntary, needs SH-4) with TRANSMISSION (operation of law, no SH-4 needed, no stamp duty).
Stating the delivery period for SH-4 as 30 days – it is 60 days from execution.
Forgetting the 2-week 'no objection' rule for transfer of partly paid-up shares applied for by transferor alone.
Saying the LR of a deceased member must first get his name on the register before transferring – wrong; Sec 56(2) expressly validates such transfer.
Confusing the time limits for certificate delivery – Allotment 2 months / Transfer 1 month / Debentures 6 months.
Forgetting that for demat shares, credit must happen IMMEDIATELY (no 1-month or 2-month window).
Treating insolvency as transferring shares to the buyer in liquidation – initially they transmit to the Resolution Professional.
Bare-Act text Section 56(1), 56(2), 56(3), 56(4) · Companies Act, 2013 · click to expand
(1) A company shall not register a transfer of securities of the company, or the interest of a member in the company in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities... (4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted— (a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum; (b) within a period of two months from the date of allotment, in the case of any allotment of any of its shares; (c) within a period of one month from the date of receipt by the company of the instrument of transfer... or the intimation of transmission... in the case of a transfer or transmission of securities; (d) within a period of six months from the date of allotment in the case of any allotment of debenture.