Transmission of Shares to be in mode and manner provided for under the Articles of Association of the Company

In a landmark ruling by the National Company Law Appellate Tribunal (NCLAT) Chennai, it was held that shares cannot be transmitted without obtaining a Succession Certificate. The case is cited as Avanti Metals Pvt. Ltd. Vs. Alkesh Gupta – NCLAT Chennai.

Facts of the case:

1. The Appellant is a Private Limited Company in which Mr. Arun Gupta, was allotted 54,166 share. While so, Mr. Arun Gupta died in 2020, consequently his son sought for transmission of the shares of Mr. Arun Gupta.
2. It is argued that such transmission can only be done following the proper procedure and submitting the necessary documents namely,
   1. Original share certificate,
   2. Certified copy of death certificate and Legal heirship certificate.
   3. Succession Certificate
   4. Probate
   5. Specimen signature of the Successor etc.
3. It is submitted that the NCLT has ordered the transmission of the shares without such necessary documentation, which is erroneous

Decision of the NCLAT: The Hon’ble NCLAT made several key observations in their ruling:

1. Probate proceedings and rectification of register: If the probate proceedings are pending in a Civil Court, then the petition under the Companies Act for rectification of register would not be maintainable.
2. Transmission of shares on the basis of a Will: The tribunal noted that this can raise complicated issues which require evidence to be read by the parties and need to be determined by a Court of Law.
3. Role of the Succession Certificate: The Succession Certificate, which specifies the debts and securities entitles a legal heir not only to receive the Interest or Dividends but also to negotiate or transfer them as per decision in “Themappa Chettiar Vs. `Indian Overseas Bank”, in (1943) 13 Comp. Cas. 202 (Madras).
4. Dispute as to the heirship of a deceased shareholder: The tribunal held that where there is a dispute as to the heirship of a deceased shareholder, the Company could refuse transfer of shares, until such dispute is resolved by a Competent Court of Law as per decision in “ Rajesh Kapoor’ Vs. `Tirupati Balaji Hotels P. Ltd.”, in (2017) 204 Comp. Cas 303.
5. Transmission of Shares without a Succession Certificate: The tribunal concluded that the prayer of the first Respondent herein seeking transmission of Shares without even obtaining a Succession Certificate, cannot be sustained.
6. Section 44 of the Companies Act, 2013: From this section, it is clear that shares are construed as movable property governed by the Articles of Association of the Company and Article 8.15 mandates that a Succession Certificate is required for the transmission of the shares.
7. Indemnity: A Succession Certificate would provide legal indemnity to the Appellant, under Section 381 of the Indian Succession Act, 1925, against any third-party claims of other legal heirs.

Order of the NCLAT: The Tribunal held that submission of a Succession Certificate, as provided for under the Articles of Association of the Appellant Company, is required for the transmission of shares of the deceased Member. Also, the Company can effect transfer of shares, on the basis of Succession Certificate as per Section 370 of the Indian Succession Act, 1925.

Source: Avanti Metals Pvt. Ltd. v. Alkesh Gupta Order dated 26.07.2023 in Comp App (AT) (CH) No. 87/2023 IA No. 1099/2023