Meaning and Grounds of Transmission of Shares

Not every change in the ownership of shares is something the shareholder himself decides. Transmission of shares is the process by which the title to shares passes to another person by operation of law, upon the happening of a specified event, rather than through any voluntary act of sale or gift by the original holder. Where transfer is a deliberate, negotiated, consideration-based transaction, transmission happens automatically, whether anyone particularly wants it to or not, because the law recognises that shares, like any other property, must have someone entitled to hold them at every point in time.

The Companies Act, 2013 recognises transmission of securities alongside transfer in the very same provision — Section 56 — which speaks of "transfer or transmission" together, but transmission is triggered only by one of a limited set of legally recognised events:

1. Death of a member. When a shareholder dies, his shares do not vanish or automatically go to the company; they pass, by the law of succession, to his legal representative — the person entitled to represent the deceased's estate, whether under a will (an executor) or under the law of intestate succession (an administrator or legal heir).

2. Insolvency of a member. If a shareholder is adjudged insolvent, his property, including his shares, vests by law in the Official Assignee or Official Receiver appointed under the insolvency law, who then becomes entitled to deal with those shares on behalf of the insolvent's creditors.

3. Lunacy or unsoundness of mind of a member. Where a shareholder is found, through the appropriate legal process, to be of unsound mind and incapable of managing his own affairs, the shares vest for management purposes in the committee of the lunatic, or in whoever is lawfully appointed as his guardian or manager under the relevant guardianship law.

4. Winding up of a corporate member. Where the shareholder is itself a company or other body corporate that goes into liquidation, its shares vest in the official liquidator appointed to wind up its affairs, who deals with the shares as part of realising the corporate member's assets. …