INDIA Law and Practice Contributed by: C R Dua, Sanjeev Kaul, Abhinav Rastogi and Ashish Malkotia, Dua Associates
A company shall not register a transfer of shares (where such shares are held in physical form) unless a proper instrument of transfer in the prescribed format, duly stamped and executed by or on behalf of the trans- feror and the transferee, is delivered to the company within 60 days from the date of execution (along with a certificate of the securities or a letter of allotment of the securities). That said, the government of India has recently mandated that every private company (previ- ously, this was mandatory for public companies only), other than a small company, shall issue securities in dematerialised form and shall facilitate the demateri- alisation of all its existing securities by 30 September 2024 (subsequently extended to 30 June 2025). Fur- ther, a company (except those which are exempted) can now transfer the shares only in the dematerialised form. The transfer of shares is now facilitated through the depositories by the depository participants with whom said companies are registered. Any transfer of shares from a person resident in India to a resident outside India (or vice versa) is also sub- ject to Indian foreign exchange laws – including the sectoral caps on foreign investment, adherence to pricing guidelines and reporting requirements. 3.3 Security Over Shares Shareholders have the right to create security inter- ests over their shares through methods such as pledg- es, charges or hypothecations unless the company’s articles specifically prohibit this. Private companies are typically required to restrict the transfer of shares in their articles, but they often allow shareholders to establish security interests imposed on their shares for the specific purpose of securing loans for the company. Under the foreign exchange laws of India, there are certain limitations on pledges of shares of an Indian company by a foreign shareholder. Any such pledge in favour of a non-banking entity requires prior regulatory approval. 3.4 Disclosure of Interests Unlisted Companies As stated in 2.13 Holding Through a Nominee , both the registered owner and the beneficial owner of shares are required to make specific declarations to the company. Additionally, every individual identified as a “significant beneficial owner” of a company must
file a declaration with the company. Upon receiving this declaration, the company is obligated to submit a necessary return to the Registrar of Companies. If a company has knowledge or reason to suspect that an individual (who is not a member of the company) is a “significant beneficial owner”, or that this individual is aware of the identity of a significant beneficial own- er, the company must provide notice to that individual in the prescribed manner. Listed Companies In addition to the above requirements, as per the Securities and Exchange Board of India (SEBI) takeo- ver regulations: • any acquirer, together with persons acting in con- cert with them, acquiring shares or voting rights in a target company, which taken together aggre- gates to 5% or more of the shares of such target company, should disclose their aggregate share- holding and voting rights in such target company to the concerned stock exchange(s) and the target company in the prescribed manner; and • any person, together with persons acting in con- cert with them, who holds shares or voting rights entitling them to 5% or more of the shares or voting rights in a target company, should disclose the number of shares or voting rights held and any change in shareholding or voting rights (even if such change results in their shareholding fall- ing below 5%, should there be a change in such holdings from the last disclosure made and if such change exceeds 2% of the total shareholding or voting rights in the target company), to the con- cerned stock exchange(s) and the target company in the prescribed manner. Furthermore, per the SEBI insider trading regulations, disclosures must be made to the company by every promoter, member of the promoter group and director of the company regarding the shares held, acquired or disposed of by them.
112 CHAMBERS.COM
Powered by FlippingBook