(12.9.9) Right of Transferees Pending Registration of Transfer

For transferring the ownership rights in shares, it is necessary that the company must register the transfer and make new entries in the register of members. But, as we know, the transfer of shares is not registered immediately on delivering the instrument of transfer to the company. In fact, the company is given two months time to either register the transfer or refuse it. But, what shall be the position of the respective parties during this period? The question assumes importance because the company during this period may issue bonus shares or make offer of rights. Till the company has registered the transfer, the name of the transferor continues to appear in the register of members. Technically, therefore, the transferor continues to be a lawful owner and the member of the company but the transferee is the beneficial owner. In order to protect the interest of transferees in such a situation s.206 A provides that where any instrument of transfer of shares has been delivered to the company for registration and transfer has not been registered, the right to dividend, rights shares and bonus shares shall be kept in abeyance. The dividend in relation to such shares shall be transferred to the special account called ‘Unpaid Dividend Account” as per s.205A unless the company is authorised by the registered holder to such share in writing to pay such dividend to the transferee specified in such instrument of transfer.