Is it truthful to ban the switch of bodily shares?

Before the arrival of the dematerialization period of listed shares across the yr 2000, the sale and buy of shares had been completely handbook. Stock brokers used to behave as intermediaries for connecting consumers and sellers. The switch of shares occurred by means of a bodily kind SH-4, which is named a ‘transfer deed’ in frequent parlance. 

The transaction was thought of full as soon as the customer submitted the unique share certificates and switch deed to the corporate for getting the shares registered in his or her identify.

If you had been a purchaser in a single such transaction and, for no matter causes, nonetheless maintain bodily shares with the switch deed with out getting it transferred in your identify, be aware that the bodily shares you maintain could not have any worth now. You could not be capable to do a lot about it as Sebi banned the bodily switch of shares from 1 April 2019. The shareholder information of the corporate will proceed to have the vendor’s identify. The purchaser won’t be entitled to any of the advantages {that a} shareholder is entitled to. The price of buying the shares goes down the drain. 

I share my perspective on the regulator not permitting the switch of bodily shares within the above instances. Even right now, there have been many real consumers who maintain the bodily shares with a switch deed however should not in a position to declare their shares.

Bad deliveries

Back then, because the whole course of was handbook, there have been lots of instances of dangerous deliveries whereby the consumers couldn’t get them transferred of their names resulting from technical points comparable to mismatch in identify or signature, distinction in stamp obligation, and so forth. 

There have been lakhs of such instances of dangerous deliveries that are persisting as, in some instances, the sellers don’t cooperate in case of signature or identify mismatch, or typically sellers should not traceable.

There had been additionally instances the place the customer missed lodging of shares — submitting the unique share certificates and switch deed to the corporate for getting the shares registered in his/her identify— inside a stipulated time interval of 1 yr from execution of the deed.

SEBI’s Clampdown

Sebi’s notification dated 8 June 2018 on banning the bodily switch of shares and lodging with corporations was a complete shock to buyers who purchased bodily shares however couldn’t get them transferred resulting from above causes. With the extension of due dates, lastly, Sebi in September 2020 put an finish to the re-lodgement of switch requests with the businesses.

Therefore, no bodily transferred shares could be lodged now and the real purchaser of the shares is left with no choice to get the possession for which they’ve already paid the consideration. The solely distant chance is to undergo the authorized course of by filling fits in courtroom. But with the extent of pendency of instances in our nation, this appears to be a non-viable possibility for such buyers. There doesn’t appear to be any method out for such consumers.

In my opinion, this entire ban on the method of getting possession on bodily held securities with a switch deed will not be justified because it deprives real claimants of their proper and can also be towards the rules of pure justice.

Loophole

As per our expertise, the ban on the switch of bodily shares with a switch deed might additionally enable the sellers to take undue benefit by making use of for a reproduction challenge with the corporate. The firm information nonetheless present the vendor as a registered holder of securities, as consumers did not lodge the shares with the corporate. Sebi has additionally lately waived the requirement to submit surety for the duplicate challenge of shares. This will make the job of fraudsters a lot simpler who intend to say duplicate shares regardless of promoting the shares to a purchaser years in the past. 

Measures required

To sum it up, Sebi may need stopped bodily switch with an intent to cease the manipulations within the course of nevertheless it has additionally disadvantaged a number of real buyers who’re entitled to these shares. Thus, regulators ought to think about these information and circumstances and open the window for bodily switch of securities clearly with checks in place to stop fraudulent transactions. Regulators could ask the duplicate share challenge claimants to offer indemnity and surety or could ask for some financial institution assure or lien of mounted deposits, and so forth., for the equal quantity for a sure interval. 

Vikash Jain is co-founder at Share Samadhan Limited

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