This article has been written by Apeksha Choubey, pursuing a Diploma in US Corporate Law for Company Secretaries and Chartered Accountants from LawSikho and edited by Shashwat Kaushik. In this article, we will learn about share certificates, how they work, and duplicate share certificates from the perspective of India.

It has been published by Rachit Garg.

Introduction

The stock exchange is a place where public companies list their stock in the primary stock market and buyers and sellers meet at this place to trade on the listed stock in the secondary market. It provides a transparent and regulated marketplace for investors to buy and sell securities. These stock exchanges play a crucial role in the world economy as they allow companies to raise capital, provide liquidity to investors and help capital allocation in the most productive way.

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As a process, these public companies issue share certificates to shareholders who invest in their companies. Therefore, a share certificate is a certificate that establishes ownership of a specific number of shares in a company. It is a key legal document that serves as evidence of ownership and is usually issued by a company to its shareholders. 

Share certificate contents

A share certificate usually contains the following information:

  1. Company’s name,
  2. Corporate Identification Number (CIN) of the company,
  3. Company’s registered office address,
  4. Share certificate folio number,
  5. Name of the shareholder,
  6. Number of shares held,
  7. Class of shares,
  8. Date of issue, and
  9. Amount paid on share (value of shares).

Process to be followed for issuing share certificate

The process to be followed for issuing a share certificate:

  1. Requirement and time frame: The Securities and Exchange Board of India (SEBI) has prescribed the companies to issue share certificates within a time frame of two months from the date of incorporation.
  2. Share allotment: First, a board meeting is held to decide the allotment of shares, in which an allotment committee has been formed consisting of directors. This committee will submit a report for the allotment of shares, which the board should approve. Afterwards, the company secretary will share a letter for allotment with the respective applicants, specifying the number of shares allotted.
  3. Members of register: The company secretary prepares a register of members, which contains shareholder details along with shares allotted to them.
  4. Preparation of share certificate and print: It is duty of the company secretary to prepare a form of share certificate as mentioned in the Articles of Association and get these printed with the details as required by law with help of the application received and allotment of shares document.
  5. Intimation and dispatch of share certificates: In next step, the company secretary issues intimation to shareholders in the form of public notice that share certificates are prepared and will be delivered in exchange for an allotment letter issued previously and a bank receipt for payment of money paid during application process.

Penalty of non-issuance of share certificate

There is a penalty provision enacted by SEBI for the company and the defaulting officer to breach in the issuance of a share certificate to shareholders. Therefore, if a company fails to comply with the share certificate provisions, a penalty is levied on the company with a minimum amount of INR 25,000 and could be extended to INR 5,00,000. Additionally, the defaulting officer can also be liable to pay a minimum fine of INR 10,000 and a maximum amount of INR 1,00,000.

Duplicate share certificates

Till now, we have a fair idea about what a share certificate is, its content and the issuance process. Thus, it is a significant document for the shareholders and hence, it is necessary to keep its share certificates safe. But it may be possible that it gets lost or destroyed due to a situation not under the control of shareholders. Therefore, provisions have been made in the laws in Section 46 of the Companies Act, 2013, Rule 6 of the Companies (Share Capital and Debentures) Rules, 2014 and Section 6 of the Indian Stamp Act, 1899. If a share certificate is lost or destroyed, the shareholder will need to obtain a duplicate share certificate.

So, a duplicate share certificate is a certificate that is issued to a shareholder in case of loss/damage to the original share certificate. To obtain a duplicate share certificate, the shareholder is required to contact the company’s registrar and submit the necessary documents.

It is very important to note that a duplicate share certificate is a replacement certificate and hence does not replace the original share certificate. In any case, if the original share certificate is found in the future, it should be submitted back to the company for cancellation.

In the coming sections, we will look at cases, steps to be taken, documentation and processes to be followed for the issuance of duplicate share certificates.

Cases for issuance of duplicate share certificate

Either one of the below two cases specified in the law in which a duplicate share certificate will be issued is:

  • The share certificate is lost, destroyed or misplaced
  • The share certificate is defaced, mutilated or torn

Steps to be followed for both cases

Different procedures need to be followed by both shareholders and the company in case a share certificate is lost, destroyed or misplaced.

By the shareholders: The shareholder must inform the company immediately about the lost, destroyed, misplaced, defaced, mutilated or torn, as the case may be, through a written letter to the company’s address or official email. The letter should include all the details of the loss/damage, registered name, folio number, registered address and share certificate number.  

By the company: Upon receiving a written letter from shareholders, it must freeze the share transfer process for at least 30 days to avoid any illegal or fraudulent transfer requests. As a next step, the company should inform shareholders about documents to be furnished for the issue of duplicate share certificates.

A list of documents to be furnished for the issuance of a duplicate share certificate:

  • Indemnity bond on non-judicial stamp paper of INR 100.
  • A copy of FIR contains the following information about lost share certificate:
    • Share certificate number,
    • Share certificate folio number,
    • Name on the share certificate,
    • Class of shares.
  • An affidavit on non-judicial stamp paper should be attested by the notary public.
  • Identity and address proofs of shareholders.
  • Advertisements published in any newspaper about loss or misplacement.

Process to be followed for issuing a duplicate certificate

The process to be followed for issuing a duplicate certificate is as follows:

  1. A signed application should be made by the shareholder along with the required documents mentioned above to issue a duplicate share certificate.
  2. Once an application is received, the company will initiate a process to issue duplicate share certificates and obtain approval from the Board of Directors.
  3. The board of directors will provide their consent post passing resolution with respect to the facts of charging a fee for the issue of a duplicate share certificate (the fee must not exceed INR 50 per share certificate) and any other out-of-pocket expenses involved in scrutinising the request.
  4. After receiving consent from the board of directors, the company will examine the documents submitted and issue the duplicate share certificate.
  5. Below is the time frame prescribed for issuing a duplicate share certificate:
    1. For a listed company, it should be issued within 45 days of submitting documents to the company
    2. For an unlisted company, it should be issued within 3 months of submitting documents to the company
  6. Upon issue of a duplicate share certificate, entry must be made in ‘Register of Renewed and Duplicate Share Certificate’ kept in Form SH-2 in the prescribed format covered under Companies (Share Capital and Debentures) Rules, 2014.
  7. The company should maintain a register, namely “Register of Renewed and Duplicate Share Certificates,” and keep it along with “Register of Members” at registered office or any other place as prescribed by the BOD.

Current scenario in India

The current situation is changing at a fast rate across the globe in the financial market and physical possession of securities is totally discarded. Some countries have completely shut down the process of physically issuing shares to shareholders rather than starting to issue shares in electronic form, which is considered the easiest and quickest way to comply with laws and regulations and proved to be the safest method as well.

The Indian government has commenced the process of dematerializing shares, i.e., converting physical share certificates into electronic form, which is a safe and easy method and does not involve risk of being lost, misplaced, damaged, torn, etc. Moreover, there will be no need to issue duplicate share certificates in this case. The electronic buy or sell transaction can be performed easily and holdings will be reflected in shareholder accounts within a short period of time. In this way, the chances of fraud and error are also minimised, promoting less use of paper, which in turn reduces many formalities and paper requirements. The dematerialisation process is facilitated through a depository system, which is governed by the Depositories Act, 1996.

SEBI has published an important circular to shareholders holding shares in physical form in which they are required to complete their KYC (Know Your Customers) and furnish the required documents before April 1, 2023. Hence, physical share certificates have no value after April 1, 2023 and are considered to have zero value with zero return unless converted into dematerialised (electronic) form. Shareholders cannot encash their physical share certificates.

Conclusion

Investors can open a demat account with a depository participant (DP) to hold their electronic shares and trade them on stock exchanges using a trading account. Dematerialization offers several advantages over physical shares and is mandatory for trading in most securities on stock exchanges in India.

References

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