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:
Provided that: where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit.
2. Nothing in sub-section (1 ) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.
3. Where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered, unless the company gives the notice of the application, in such manner as may be prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.
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 under sub-section (1 ) or, as the case may be, of the intimation of transmission under sub-section (2 ), 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:
Provided that: where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.
5. The transfer of any security or other interest of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of the execution of the instrument of transfer.
6. Where any default is made in complying with the provisions of sub-sections (1 ) to (5 ), the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
7. Without prejudice to any liability under the Depositories Act, 1996, where any depository or depository participant, with an intention to defraud a person, has transferred shares, it shall be liable under section 447.
Legal Commentary & Landmark Judgments: Section 56
Section 56 establishes the statutory procedure for the lawful transfer and transmission of shares and debentures, mandating execution of stamped transfer instruments (Form SH-4) within sixty days.
Sub-section (4) fixes strict statutory timelines for delivering share certificates: within two months of incorporation, within one month of receipt of transfer instrument, and within six months of debenture allotment.
Section 56 is the fulcrum of title to corporate securities in physical form. While dematerialized securities are transferred electronically under the Depositories Act, Section 56 governs physical share transfers in private and unlisted public companies. In corporate succession and inheritance disputes, Section 56 transmission requirements interact directly with succession certificates and probate decrees.