‘Share certificate’ is a document issued by a company, which serves as evidence that the person whose name is on the certificate is owner of shares in the company. The Companies Act, 2013 mandates companies to issue such share certificates after the company’s incorporations. These are thus, very important documents which serve as primary evidence when issues regarding to holds certain shares arises. This paper, will briefly look at share certificates and then look into duplicate share certificates and its procedures.
Every share certificate contains a set amount of information
- Name of the issuing company
- Corporate identification number of the Company
- Address of the company’s registered office
- Name of owner(s) of such shares
- Folio number of member[i]
- Number of shares represented by this share certificate
- Amount paid for these shares
- Distinct number of shares
After incorporation of the company, the company has to issue the share certificates within 2 months from date of the incorporation. When existing or new members buy shares or shares are issued to them, the certificate is to be issued within 2 months of the allotment of these shares. Transfer is used in regards to inter vivos transfer.[ii] If shares are transferred, then the share certificate need to be issued to the transferees, within period of 1 month of receipt of the instrument of transfer, under section 56(1) of the companies act,[iii] by the company. Transfer of shares can be denied by directors, and if it is alleged that the same is not in good faith, the burden of proof is on the person making the allegation.[iv]
There is a procedure of issuing shares certificates:
- Allotment Committee
The board of directors has to decide on the allotment of shares.[v] The board of directors first assigns a committee, ‘allotment committee,’ with the amin task of deciding who to allot the shares to. Once the committee has made its decision, then the board of directors approves their report and then the company secretary sends the letter of allotment to the members who have been allotted this. The letter of allotment is considered to be the share certificate till the share certificate is issued.
- Register of members
The company will then prepare of register of members. This register provides information on shareholders, such as the details of shares allotted and so on.[vi]
- Preparing and printing share certificates
The share certificate will be arranged by the company secretary in the form dictated by the articles of association of the company, along with all the required details as governed by the law. The share certificate has to be signed by 2 directors and needs to have the company’s seal and revenue stamp.[vii] In case of transfer of shares, the share transfer form needs to be duly stamped and executed by transferor with original share certificate.[viii] Once the process is complete, a board meeting needs to pass a resolution to issue the certificates.
- Dispatch of Share Certificates
Company secretary will contact the concerned shareholders and inform them that the share certificates are ready and will be delivered in exchange of allotment letters and banking receipt confirming payment of allotment money.
Following this, a public notice giving information of the shareholders will be published. The share certificates will be delivered to those who suspended their allotment letters, or they can personally collect it.
If there is a breach in issuance of the share certificate, then, the company is punishable with fine starting from Rs. 25 thousand extendable to Rs. 5 lakhs. Every defaulting officer of the company is punishable by a fine starting from Rs. 10 thousand extendable to Rs. 1 lakh. The cost of fine will be decided depending on the circumstances.
Duplicate share certificates are generally needed if a shareholder has lost their share certificate; or in cases where the share certificate has been mutilated, torn, or defaced and surrender to the company. In this case, the shareholder has to inform he company or the registered transfer agent of the same.[ix] A registered or share transfer agent is an institution or trust, basically an agent of the company, which has the responsibility of maintaining and registering detailed records of holders of securities, and their main function is to issue and cancel certificates to reflect changes in ownership.[x] The loss of the share certificate is also to be informed to stock exchange by the company on notice of such loss.[xi] The shareholder along with this notice, is supposed to include his details, including number of shares, the share certificate number, folio and distinctive number. This information can be shared with the responsible company or agent through email.
The shareholder is also supposed to file a Loss of Article FIR at a police station. The place where the share certificate was lost, the police station of that area is where the FIR will be lodged. Only after this is done, can the process of issuing the duplicate share certificate will begin. Because, for the issuance of the duplicate share certificate, the shareholder is supposed to submit to the concerned authorities (“company or the registered transfer agent”) a copy of the police complaint, court injunction, e-FIR, copy of the plaint or whatever is available. No matter which of these documents are submitted, they are to include the details of the securities, distinctive number range, certificate number, and folio number. The loss of the share certificate also needs to be advertised in a widely circulated newspaper.
A board meeting has to be convened to gain approval of issuance of the duplicate share certificate,[xii] along with allowing an officer of the company to probe the evidence provided, and to allow an officer of the company, a director or company secretary, to sign and issue the duplicate share certificate.[xiii] Before issuance of the duplicate share certificate, the company will call for the payment of fees deemed to be fit by the board of directors, but it cannot exceed Rs. 50;[xiv] all supporting evidence; indemnity bond; and payment of out-of-pocket expenses incurred by the company to look for any more evidence.[xv]
However, if the shareholding of value of securities does not exceed Rs. 5 lakhs on the date of submission of application along with the complete documentation, then there is no requirement of the copy of the FIR and the advertisement in a widely circulating newspaper. The value of the securities is to be calculated in accordance to the closing price of the securities at any of the stock exchanges recognized by government, day prior to date of such submission in the application. Moreover, if the shareholder is missing any of the information to be provided with the notice of loss, the agent will provide the information, only if the address and signature of security holder matches their registry. If it does not match, then the security holder needs to comply with a KYC procedure and then the information will be provided to them.
For an overseas shareholder, the FIR will not be possible to attain, since they are not in Indian jurisdiction. In this case, they can provide a self-declaration of the loss of share certification which has to be attested, notarized or apostilled by the Indian Embassy or Consulate in their country of residence, along with overseas address proof and a valid passport.
The concerned authorities are responsible for seizing any forged, fake, or stolen certificates and should be defaced by them in accordance to the manner provided by the board of directors of the company. This defaced certificate will continue to be in possession of the concerned authorities and they are supposed to dispose it in the manner provided by the board of directors of the company.
The duplicate share certificate will be issued within 3 months of submission of the complete set of documents and all due procedure being fulfilled in the case of unlisted companies, and within 45 days in case of listed companies.[xvi] If it is a case of new certificate because old certificate has become decrepit then the new certificate is to be issued within 30 days.
Once the certificate has been issued, the details of the duplicate share certificate need to be recorded under “register of renewed and duplicate share certificates”[xvii] including the name of the person(s) to whom the certificate was issued; and, number and issue date of the original share certificate in lieu of which the duplicate was issued. All accounts under this registry will be substantiated by the any recognized person by the board or the company secretary to affect the signing and sealing of the share certificate.[xviii]
[i] Companies Act, 2013, Section 88(2).
[ii] Hemendra Prasad Barooah v. Bahdur Tea Co. P. Ltd., (1991) 70 CampCas 792 Gauhati.
[iii] Companies Act, 2013, Section 56(1).
[iv] Bajaj Auto v. N.K. Firodia, 1971 AIR 321, 1971 SCR(2) 40.
[v] Companies (Share Capital and Debentures) Rules, 2014, Section 5(1)(a).
[vi] Companies (Share Capital and Debentures) Rules, 2014, Section 5(4).
[vii] Companies (Issue of Share Certificates) Rules, 1940, Section 6(i).
[viii] Muniyamma v. Arathi Cine Enterprises Pvt. Ltd., 1993 77 CompCas 97 Kar.
[ix] Companies (Share Capital and Debentures) Rules, 2014.
[x] Ankit Aggarwal, ‘Register and Share Transfer Agent,’ (TaxGuru, April 2020), <https://taxguru.in/sebi/registrar-share-transfer-agent.html> Accessed 16th October.
[xi] SEBI (LODR) Regulations, Regulation 39(3).
[xii] Companies (Share Capital and Debentures) Rules, 2014, Section 5(1)(a).
[xiii] Companies (Share Capital and Debentures) Rules, 2014;
Companies Act, 2013, section 173;
SS-1.
[xiv] Companies (Share Capital and Debentures) Rules, 2014, Section 6(2)(a).
[xv] Companies (Share Capital and Debentures) Rules, 2014.
[xvi] Companies (Share Capital and Debentures) Rules, 2014, Section 6(c).
[xvii] Companies (Share Capital and Debentures) Rules, 2014, Section 6(3)(a).
[xviii] Companies (Share Capital and Debentures) Rules, 2014, Rule 5(3).
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