All you need to know about Transfer and Transmission of Securities

Transfer and Transmission of Securities refer to the legal process of transferring ownership of stocks, bonds, and other financial assets from one party to another. It is a crucial aspect of the financial industry, as it enables investors to buy and sell securities in a transparent and secure manner. In this article, we will discuss the meaning, types, and the process of transfer and transmission of securities.-

Short Glimpse

When it comes to securities trading, there are two terms that are often used interchangeably but have distinct meanings – Transfer and Transmission. While both involve the transfer of ownership of securities from one party to another, they differ in their circumstances and legal requirements. The Transfer and Transmission of Securities is an essential concept in the world of finance. Securities can be transferred or transmitted between parties for a variety of reasons, including investment purposes or inheritance. While both involve the movement of securities from one person to another, they differ in terms of the circumstances under which they occur. Understanding the difference between transfer and transmission of securities is important for investors to ensure that they are able to execute their investment strategies effectively.

Meaning of Transfer of Securities

Transfer of securities refers to the process of transferring the ownership of securities from one person to another, voluntarily. The transfer of securities can be done by way of sale, gift, pledge, or any other legally recognized method. In the case of transfer of securities, the ownership of the securities changes hands from the transferor to the transferee.

The process of transfer of securities involves the execution of a transfer deed, which is a legal document that contains the details of the securities being transferred, the names of the transferor and the transferee, and the consideration, if any, involved in the transfer. The transfer deed needs to be stamped as per the stamp duty laws applicable in the respective state and submitted to the concerned depository participant (DP) or registrar and transfer agent (RTA) for processing.

Meaning of Transmission of Securities

Transmission of securities refers to the process of transferring the ownership of securities from one person to another, involuntarily. In the case of transmission of securities, the ownership of the securities changes hands due to the death, insolvency, or other legal incapacitation of the original owner.

The process of transmission of securities involves the submission of a transmission request form, along with the death certificate or other relevant legal documents, to the concerned DP or RTA for processing. The transmission request form needs to be signed by the legal heir or the executor of the will of the deceased owner, as applicable.

Types of Transfer and Transmission of Securities

There are two types of transfer of securities: 

• Physical Transfer and 
• Electronic Transfer

Physical transfer refers to the transfer of securities in paper form. In this case, the investor has to physically deliver the share certificate to the transferee, who will then have to get it registered in their name. 

Electronic transfer, on the other hand, refers to the transfer of securities through electronic means. In this case, the securities are held in a dematerialized form, and the transfer of ownership is recorded in a central depository system.

Transmission of securities can also be Physical or Electronic. In case of Physical Transmission, the legal heirs or beneficiaries of the deceased owner have to produce the share certificate along with the necessary legal documents to get the securities transferred in their name. In case of electronic transmission, the legal heirs or beneficiaries have to provide the necessary legal documents to the depository participant to get the securities transferred in their name.

Role of Depository Participants and Registrar and Transfer Agents

Depository Participants (DPs) and Registrar and Transfer Agents (RTAs) play a crucial role in the transfer and transmission of securities. DPs are intermediaries between investors and depositories and provide a range of services related to securities trading, including opening of demat accounts, transfer of securities, and settlement of trades. RTAs, on the other hand, are appointed by companies to maintain their shareholder records, process corporate actions, and facilitate the transfer and transmission of securities.

Legal Requirements for Transfer and Transmission of Securities

Both transfer and transmission of securities are subject to certain legal requirements. In the case of transfer of securities, the transfer deed needs to be executed as per the provisions of the Indian Stamp Act, 1899, and the state-specific stamp duty laws. The transfer deed needs to be signed by the transferor and the transferee, and the signatures need to be witnessed by two independent witnesses. The transfer deed also needs to be submitted to the concerned DP or RTA for processing, along with the relevant fees and documents.

In the case of transmission of securities, the legal heir or the executor of the will needs to submit the transmission request form, along with the death certificate or other relevant legal documents, to the concerned DP or RTA for processing. The transmission request form needs to be signed by the legal heir or the executor of the will, as applicable, and the signatures need to be witnessed by two independent witnesses. The transmission request form also needs to be submitted along with the relevant fees and documents.

Procedure of Transfer of Securities

Transfer of securities refers to the process of transferring ownership of securities from one investor to another. Securities can be transferred through physical transfer or electronic transfer. In physical transfer, the physical certificate of the securities is transferred from the seller to the buyer. In electronic transfer, the securities are transferred through the demat account of the seller to the demat account of the buyer.

The procedure of transfer of securities involves the following steps:

• Filling up of Transfer Deed: The seller of the securities has to fill up a transfer deed which is a legal document that transfers the ownership of the securities from the seller to the buyer.
• Submission of Transfer Deed: The transfer deed has to be submitted along with the physical certificate of the securities to the company or its registrar and transfer agent.
• Verification of Transfer Deed: The transfer deed is verified by the registrar and transfer agent and if found to be in order, the transfer is executed.
• Updation of Records: Once the transfer is executed, the registrar and transfer agent update their records to reflect the transfer of ownership.

Time Limits for Transfer of Securities

The time limit for transfer of securities depends on the mode of transfer. In case of physical transfer, the time limit for transfer is 15 days from the date of receipt of transfer deed by the company or its registrar and transfer agent. In case of electronic transfer, the time limit for transfer is 2 days from the date of receipt of the transfer request by the depository participant.

Penalties for Non-Compliance for Transfer of Security

Non-compliance with the rules and regulations regarding transfer of securities can attract penalties. Some of the penalties for non-compliance are as follows:

• Delayed Transfer: If the transfer of securities is not executed within the time limit, the seller and the company can be penalized.
• Incorrect Transfer: If the transfer is executed incorrectly, the buyer and the seller can be penalized.
• Fraudulent Transfer: If the transfer is executed fraudulently, the seller and the company can be penalized.

Procedure of Transmission of Securities

Transmission of securities occurs when the owner of the securities passes away or becomes incapacitated. The procedure of transmission of securities involves the following steps:

• Obtain the Transmission Form: The legal heir or the executor of the will of the deceased should obtain the transmission form from the company or the RTA.
• Fill the Transmission Form: The legal heir or the executor should fill in the details such as name, address, and the number of securities being transmitted.
• Submit the Transmission Form: The legal heir or the executor should then submit the transmission form along with the necessary documents such as the death certificate and the legal heir certificate to the company or the RTA.
• Update Records: Once the transmission is completed, the records of the company or the RTA will be updated to reflect the change in ownership.

Time Limits for Transmission of Securities

As per the SEBI guidelines, the time limit for transmission of securities is one month from the date of receipt of the transmission request by the company or the RTA. If the transmission is not completed within the stipulated time frame, the company or the RTA must provide an explanation for the delay.

Penalties for Non-Compliance for Transmission of Securities

If the company or the RTA fails to complete the transmission within the stipulated time frame, a penalty of Rs. 5000 per day may be levied by SEBI. If the transmission is not completed even after 90 days from the date of receipt of the transmission request, the securities may be transferred to the IEPF.

Important points of consideration regarding Transfer and Transmission of Securities

The following are the important points of consideration regarding Transfer and Transmission of Securities:

Important Points to Consider Regarding Transfer of Securities:

The following are the important points of consideration regarding Transfer of Security:

• Stamp Duty: In India, stamp duty is levied on the transfer of securities. The amount of stamp duty varies from state to state and is usually a percentage of the transaction value. It is important to check the stamp duty rates applicable in your state before transferring securities.
• Mode of Transfer: Securities can be transferred either in physical or dematerialized form. In the case of physical shares, the transfer deed must be signed and submitted to the company along with the share certificate. In the case of dematerialized shares, the transfer can be done online through the depository participant.
• Signature Verification: It is important to ensure that the transfer deed is signed by the registered owner and that the signature is verified by the bank or notary.
• Timing of Transfer: The timing of the transfer is important as it affects the entitlement to dividends, bonus shares, and other benefits. The transfer must be completed before the record date to be eligible for these benefits.

Important Points to Consider Regarding Transmission of Securities:

The following are the important points of consideration regarding Transmission of Security:

• Legal Heirs: In the case of transmission of securities, the legal heirs of the deceased must provide proof of their relationship to the deceased, such as a death certificate, will, or legal heir certificate.
• Nomination: If the deceased had nominated a person to receive the securities in the event of their death, the securities will be transmitted to the nominee without the need for legal heirs to provide proof of relationship.
• Timing of Transmission: The timing of transmission is important as it affects the entitlement to dividends, bonus shares, and other benefits. The transmission must be completed before the record date to be eligible for these benefits.
• Stamp Duty: In India, stamp duty is also levied on transmission of securities. The amount of stamp duty varies from state to state and is usually a percentage of the market value of the securities at the time of transmission.

Endnote

Transfer and transmission of securities are essential processes that enable investors to buy and sell securities in a transparent and secure manner. The process involves the transfer of ownership of securities from one party to another, either voluntarily or involuntarily. It can be done through physical or electronic means, and the process involves the submission of necessary legal documents to the registrar and transfer agent or the depository participant. Understanding the process of transfer and transmission of securities is crucial for investors to manage their investments effectively.

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