Forged or Disputed Share Transfers: Rectification of the Register

Shares are the proof of ownership in a company, and the register of members is the legal record of who owns what. When that record is wrong, because shares were transferred on a forged form, an allotment was recorded improperly, or a genuine transfer was not registered, the rightful owner needs a quick remedy. The Companies Act, 2013 provides one: rectification of the register by the National Company Law Tribunal.

How Is a Valid Share Transfer Made?

Under Section 56 of the Companies Act, a company cannot register a transfer of shares unless a proper instrument of transfer, in the prescribed form, duly stamped and signed by the transferor and transferee, has been delivered to the company along with the share certificate. Shares of listed companies are held and transferred in dematerialised form, so disputes over paper transfers arise mostly in private and unlisted companies, where physical share certificates and transfer forms are common.

A private company's board can refuse to register a transfer where its articles allow, as under Section 58, and must send notice of refusal with reasons within 30 days. The articles of a private company usually restrict transfers, so a transfer made in breach of those restrictions can be refused or challenged. For the relationship between the articles and shareholder agreements, see our note on shareholders' agreements and articles of association.

What Are the Common Disputes?

Cases usually fall into a few types

• Forged transfer: the signature of the transferor was forged and the shares were registered in another name
• Transfer without consideration or authority: shares transferred by a director or relative without the owner's consent
• Refusal to register: the board refuses or delays registering a genuine transfer
• Disputed allotment: shares were issued or recorded in a way that dilutes a member, or without proper approval
• Omitted entry: a member's name was left out or wrongly removed from the register

What Does Section 59 Provide?

Section 59 of the Companies Act allows a person aggrieved to apply to the NCLT for rectification of the register of members. It applies where the name of a person is, without sufficient cause, entered in or omitted from the register, or where there is a default or unnecessary delay in entering the fact of a person becoming or ceasing to be a member. The Tribunal can order the register to be rectified, and can decide any question relating to the title of any person who is a party to the application, as well as any issue that is necessary or expedient to decide for rectification.

A related remedy exists for refusal of registration. Under Section 58, a transferee aggrieved by a private company's refusal can appeal to the Tribunal within 30 days of receiving the notice of refusal or, if no notice was sent, within 60 days from the date the instrument of transfer was delivered to the company. Different periods apply to public companies. These are short periods and they should be treated as strict.

What Is the Effect of a Forged Transfer?

The general principle is that a forged transfer passes no title. A person whose signature was forged remains the owner, even if the register was changed, and the transferee, even one who bought in good faith from the forger, does not acquire a valid title to those shares. The registered owner can therefore seek to restore the position, but should act promptly: delay can raise questions of acquiescence, and a later transfer to an innocent buyer, or a dividend or voting history, complicates matters. Relief may also include setting aside later allotments and restoring voting rights.

What Evidence Do You Need?

The strength of the application depends on the documents. A petitioner should assemble:

• Original share certificates, allotment letters and proof of payment for the shares
• Certified copies of the register of members, share transfer register and the transfer form
• Specimen signatures and an expert handwriting opinion where forgery is alleged
• Board minutes approving the transfer or allotment, and the notices
• Annual returns and statutory filings with the Registrar, which show the shareholding history
• Bank records showing whether any consideration was paid

A shareholder can inspect the statutory registers and ask for copies under the Act, and should do so at the first sign of trouble. Annual returns filed on the MCA portal are public and often show the first appearance of an unexpected change in shareholding.

What Other Remedies Are Available?

The NCLT's power under Section 59 is not the only avenue. Where forgery or fraud is clear, a criminal complaint under the forgery and cheating provisions of the Bharatiya Nyaya Sanhita may be filed, and where the conduct is oppressive to a member, a petition under Sections 241 and 242 allows broader relief, including regulating the company's affairs and setting aside transfers; see our guide to oppression and mismanagement. Interim orders to freeze the register, restrain voting by disputed shares or stop further transfers can be sought while the application is pending. A civil suit for declaration of title may be needed in some cases, but the Companies Act's bar on civil courts for matters within the Tribunal's powers means the forum must be chosen carefully.

Shareholding disputes are won on documents and speed. If you suspect your shares have been dealt with without your consent, preserve your records and act without delay. Our NCLT & Corporate Litigation practice advises on rectification of registers and share transfer disputes, and you can request a consultation.