Inordinate delay in registering transfers, endorsing calls, sub‑dividing and consolidating share certificates and returning defective documents - Companies Law - Letter : F. No. 9/37/SE/79,

Letter : F. No. 9/37/SE/79, issued by Stock Exchange Division, Department of Economic Affairs, dated 31 ‑ 12 ‑ 1979. Subject:- Inordinate delay in registering transfers, endorsing calls, sub ‑ dividing and consolidating share certificates and returning defective documents 1. It has been brought to the notice of Government that an inordinately long time is taken by companies listed on recognised stock exchanges when shares are lodged with them for various matters like transfer and registration, or for endorsement of calls, or for sub‑division or consolidation. The same is reported to be the position when documents are found on presentation to be defective or not in order. The necessity of sub-division and consequential delay also arise because of the failure to issue share certificates in market units of trading when new capital is issued or when rights or bonus issues are made. In all these cases, the delay ranges from two to five months and at times is even longer. it is needless to point out that this has become a source of hardship to investors and a matter of serious complaint. 2. As is well known, the investing public invests in shares because of liquidity and ready marketability. The ease and facility with which savings can be invested in shares and the rapidity with which shares can be converted into cash are of utmost importance from the point of view of investors. The listing regulations specifically prescribe a maximum period of one month for return of documents by listed companies. In the interest of investors, documents should be returned to them much earlier as, for instance, is the case in the USA and the UK where it does not take more than a few days. 3. Government is much concerned that the time taken here by listed companies should run into weeks and months. The results are unfortunate : Investors complain about the overlong delay in receiving the documents of title though payment is duly made. In consequence, they remain in uncertainty, their safety is jeopardised and, they are unable to sell their holdings and realise the sale proceeds at the most opportune time and when in actual need. This discourages investors from investing shares and industrial securities. Again, it is far from desirable that transactions in shares should remain outstanding in the market, and for want of documents, delivery and payment should be delayed. Performance of contracts on the due date is essential for the smooth running of the market so that the contracting parties are not penalised and buying‑in and selling‑out are avoided. It is equally undesirable that, when documents are found to be defective or not in order on presentation to the company, they should not be returned forthwith to the parties concerned. The delay of weeks and at times of months which frequently occurs makes it difficult to rectify the documents in time and creates avoidable difficulties in the collection of dividends as well as right and bonus shares. The right of recourse of the contracting parties is prejudiced thereby and delayed receipt of valid documents is detrimental to the interests of bona fide investors. 4. Recognised stock exchanges owe a duty to the investing public and they are advised to ensure that listed companies duly comply with the listing requirements. Government, therefore, directs that recognised stock exchanges should specifically draw the attention of listed companies to the following mandatory requirements: a. that listed companies should register transfers, endorse calls and sub‑divide and consolidate share certificates and return them to the parties concerned within two to three weeks of the date of lodgement and that in any case it is mandatory on them under the listing agreement to do so within a month; b. that documents should be scrutinised by listed companies promptly on presentation, and if found to be defective or not in order, they should be returned forthwith to the parties concerned, and in any case, expeditiously within a week, with a memo clearly stating the nature of the defect or objection; and c. that share certificates should be issued in denomination of the market unit of trading when new capital is issued or when rights or bonus issues are made. Listed companies should be requested to co‑operate and make appropriate arrangements and where required, they should take steps for their directors to delegate the necessary power and authority to a committee or to the managing director or other senior officers of the company.