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This article is written by Sharanya Ramakrishnan pursuing Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.


The transferability of shares is one of the key features of a company. The Companies Act, 2013 (hereinafter referred to as “the Act”) recognizes this feature under Section 44 which states that the shares of any member in a company shall be considered movable property, transferable as per provisions contained in its articles. As far as public companies are concerned, the Act under Section 58(2) makes the shares freely transferable except in cases where transferability is enforceable as per terms of a contract or arrangement. On the other hand, as per the provisions of Section 2(68) of the Act, a private company is required to restrict the right to transfer its shares by its articles. 

The Act explicitly provides for the mode and manner of transfer of shares under Section 56. The Section requires the transferor/transferee to deliver the instrument of transfer (Form No- SH.4) duly stamped, dated and executed by or on behalf of the transferor and the transferee to the company within 60 days of its execution together with a certificate or letter of allotment of shares. Subsequently, the company is required to deliver the certificate of shares within 1 month from the date of receiving Form SH.4, unless it is prohibited from doing so as per provision of any law or order of any court or tribunal.

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There might be cases where the company may refuse to register the transfer, say when the instrument of transfer is not duly stamped or the amount of consideration is not mentioned or when the transfer seems prejudicial to the interests of the company. However, there also might be situations where the instrument of transfer seemingly appears to be valid on the face of it, but in reality, is not valid at all. This is a case of forgery.

A forged instrument is one wherein the signature of the transferor of shares is forged and any transfer stemming from such instrument is called a forged transfer. This article deals with the legal position of a forged transfer, the consequences of such a transfer and the legal remedies available therein.

Parties involved in a forged transfer

  1. The original/true owner of shares.
  2. The transferee, i.e., the person who acquired the share certificate on the basis of the forged instrument.
  3. The company, which provides the share certificate.
  4. The bona fide purchaser, i.e., the ultimate transferee if the shares are subsequently transferred by the transferee.

The legal position on forged transfer of shares

A forged transfer of shares is considered to be a “nullity” and the transferee does not obtain any title to such shares. The original owner never loses his right of ownership and is considered to be the real owner despite the transfer taking effect. Even in cases of joint shareholding, a transfer to be effective must be executed by all and if the signature of anyone is forged, the transfer will be void. 

The following legal cases establish the position on the forged transfer of shares:

  • Forged transfer is a nullity

It is a settled legal position that if a company acting on a forged transfer alters its register by striking out the name of the true owner, and replacing the same with that of the transferee, the true owner is entitled to call upon the company to replace into his name the stock or shares of which he has been dispossessed.

This has been decided in several cases but one of the best-known instances is perhaps the case of Barton v. North Staffordshire Railway. Co. In that case, two executors were placed on the register as holders of shares belonging to their testator. One of them executed a deed of transfer and forged the name of his co-executor thereto, and the transfer was registered by the company. On the fraud being brought to light, the executor whose signature had been forged brought an action against the company claiming to have his name restored to the register in respect of the shares and he was held entitled to the relief claimed. The court stated that, as against the real owner, a forged or fraudulent transfer is a nullity and the person so deprived of his shares can compel the company if it has removed his name from the register, to reinstate him as the holder of shares.

  • Refund of dividends

As far as the company’s liability to the true owner is concerned, the company would also be liable to refund the dividends, if any, which he is entitled to receive. This was granted in the case of People Insurance Co. Ltd. vs. Wood & Co. Ltd. wherein, shares nearly amounting to two-thirds of the issued capital of the petitioner-company shown in its books as its property was fraudulently transferred by way of the company’s Managing Director along with certain other directors through a resolution which was invalid and ultra vires. The court rightly stated that a colourable transaction, whereby shares of a genuine owner are transferred in consequence of fraud or forgery, cannot be allowed to stand. The respondents, in this case, were ordered to refund the dividends if any, as the petitioner-company might have been entitled to receive during the intervening period.

  • Bonafide purchaser cannot retain title to the shares

It is well established that a holder of stolen property cannot get a good title to the same even though he purchased it in good faith without notice. The prime example of this case is Kaushalya Devi v. National Insulated Cable Company of India, wherein a stranger managed to get hold of shares belonging to a shareholder of the company and forged the shareholder’s signature on the transfer deeds and had the shares transferred to a third party. The court held that the fact that the transferee was a bona fide purchaser for value did not make any difference and the transferee was bound to return the scripts to the person to whom they rightfully belong.

  • The company is hit by the law of estoppel and is bound to pay damages to the innocent purchaser

It is important to note that the principle of estoppel in case of fraudulent transfer of shares by forgery is taken one step further, wherein it is not necessary that a party making representation should know that it was false. This principle is illustrated in the case of Balkis Consolidated Co. vs. Tomkinson. In this case, the action was brought by the respondent (stockbroker) to recover damages in respect of the refusal by the appellant company (who were the defendants in the action) to register the purchasers from the respondent of some shares in the appellant company. The court held that “the giving of the certificate amounted to a statement by the company, intended by them to be acted upon by the purchasers of shares in the market, that the persons certified as the holders were entitled to the shares; and that the purchasers having acted on the statement by the company, they were estopped from denying its truth and liable to pay as damages the value of the shares.”

  • Procurer of registration of transfer acting in good faith is also liable to indemnify the company

It is also a settled principle that where an act has been done by a person under an express direction of another which occasions an injury to the rights of third persons, yet, if such an act is not illegal in itself but is done honestly and bona fide in compliance with such directions, he shall still be bound to indemnify the person’s whose rights have been infringed. In Yeung v. Hongkong and Shanghai Banking Corporation, a stockbroker while innocently trusting his clients, forwarded a forged document to the company. The court held that “a person acting in good faith, sends in and procures registration of the transfer and the issue of a fresh certificate on the basis of a forged deed is bound to indemnify the company against the untoward consequences.”

Also, in Sheffield Corporation vs. Barclay, T and H were registered joint holders of £8000 Sheffield Corporation stock. By a deed of transfer, they purported to transfer the stock to E. Barclay, but the deed was, as regards H, a forgery. Messrs Barclay & Co, on behalf of E. Barclay, then presented the transfer to the Corporation for registration, and the Corporation registered the transfer. E Barclay subsequently transferred part of the stock to Messrs Young and MacDonald and part to Ms. Cockayne, who were registered as proprietors of the corporation, and certificates were issued to them. H on discovering the fraud brought an action against the corporation, claiming to be restored to the register as the holder of the stock of the corresponding amount, and also claiming to be paid interim dividends. He obtained judgement and the corporation had to spend over £11000 in the purchase of stock and the payments of dividend and interest and for this sum, they claimed to be indemnified by Messrs Barclay & Co. The question was whether the sending on of the transfer by Messrs Barclay & Co to the corporation amounted to a representation that the transfer was a genuine one, an implied promise to indemnify the corporation against loss in doing an act which, though apparently lawful and regular was, under the circumstances, injury to the rights of third persons and exposed the corporation to an action. The court held that the loss should be borne by Messrs Barclay & Co and should indemnify the corporation’s liability to the true owner of shares whose name was removed from the register of members as a consequence of such forged transfer.

Consequences of a forged transfer

On the basis of the above-mentioned legal position, the following legal consequences ensue:

1. To the original owner

If it is a result of a forged transfer, the name of the original owner is removed from the register of members, he can;

  • Compel the company to restore his name to the register.
  • Claim any dividend which might not have been paid to him during the intervening period.

2. To the transferee

Case 1: If the shares are with the transferee itself, i.e., he did not further transfer it to others;

The company cancels the share certificate issued to the transferee and consequently, the transferee’s name will be struck off from the register of members.

Case 2: If the shares are furthered transferred by the transferee to a bona fide purchaser;

If the company is put to loss by reason of the forged transfer, as it may have paid damages to an innocent purchaser, it may recover the same independently from the person who lodged the forged transfer.

3. To the company

  • The company is bound to restore the name of the original owner on the register of members and pay him any dividend which he ought to have received.
  • If the company issues a share certificate to the transferee and he sells the shares to an innocent purchaser, the company is liable to compensate such a purchaser, if it refuses to register him as a member, or if his name has to be removed on the application of the true owner. 

4. To the bona fide purchaser

If the transferee obtains share certificate by means of forgery and further transfers the same to a purchaser for value acting in good faith, such purchaser;

  • Will not be entitled to get a good title to the shares so received as such transfer is void.
  • Is eligible for compensation from the company on the removal of his name from the register of members.

The following example illustrates the consequences of a forged transfer:

Suppose, ‘A’ is a registered shareholder of XYZ Limited and his name is entered on the register of members in respect of a certain number of shares. By fraud or theft, ‘B’ obtains possession of A’s share certificate and forges a share transfer document and succeeds in obtaining a share certificate in his name from the company after registering himself as its member. In spite of such events, A continues to be the owner of the shares and a member of the company, as a forged document, being a nullity, does not transfer ownership from him to B. Thereafter, B sells the shares to ‘C’, a bona fide purchaser, who on being satisfied with B’s title, purchases the shares in good faith without being privy to B’s fraud. The company then registers C as a member and issues the share certificate to him in respect of the shares purchased by him. Subsequently, when A uncovers the fraud, he applies for rectification of the register to have C’s name struck off the register of members and restore his own name as the rightful holder of shares. A never ceased to be the owner of the shares, although the company issued successive certificates to B and C. The company will be liable in damages to C and for other incidental loss. But it would be entitled to indemnity as against B. Consequently, if the forged transfer were lodged by a broker on B’s behalf, against the broker as well as although the broker was not negligent and was innocent to B’s fraud, he impliedly warranted that it is a genuine document.

When a company is not liable?

Where a shareholder files a complaint against the company or its directors alleging that they were responsible for registering a forged transfer, there must be sufficient material to indicate how the company or its directors were involved in the so-called allegation of forgery and in absence of such evidence, the allegations in the complaint would not make out any offence against them. 

In the case of Ashok Chaturvedi & Ors vs. Shitul Chanchani & Anr, a complaint was filed against the appellants i.e., the chairman, the directors, and secretary of the public company in respect of transfer of shares affected by the company on the basis of forged and fabricated signatures. The magistrate took cognizance of the same. The High Court refused to quash the prosecution. On appeal to the Supreme Court, it was held that the petition of the complainant was a vague one and excepting the bald allegation that the shares of the complainant had been transferred on the forged signatures, nothing further had been stated and there was no material to indicate all or any of the appellants were involved in the so-called allegation of forgery. Since the allegations in the complaint petition did not make out any offence against any of the officers of the company, the court quashed the order of the High Court and discontinued the continuance of the criminal proceeding.

How to avoid consequences arising from forged transfers?

The first thing a company should do on receiving an instrument of transfer is to inquire into its validity. The company ought to send a notice to the transferor about the lodgement of the transfer instrument so as to give him an opportunity to send objections if any. The company can also inform the transferor that if no objection is made before the expiry of the date specified in the notice, the company shall register the transfer.

Punishment for personation of shareholder

Section 57 of the Act provides that if any person deceitfully personates as an owner of any security issued in pursuance of this Act, and thereby obtains or attempts to obtain any such security or receives or attempts to receive any money due to any such owner, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. Such an offence is therefore non-compoundable in nature.


In view of the above, it is an established legal position that a forged transfer never has any legal effect. It can never transfer ownership from one person to another, however authentic and genuine it may appear. Accordingly, a forged instrument of transfer leaves the ownership of the shares exactly where it always was in the so-called transferor. Neither the transferee nor the bona fide purchaser for value can claim any title to such shares. It is so because in the case of forgery there is not merely an absence of free consent but there is no consent at all.

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