Succession certificate requirement for share transmission upheld where company articles and rival heir claims made entitlement uncertain.
Shares of a deceased member of a private company are movable property transmissible in the manner provided by the articles of association, and where the articles require a succession certificate, the company may insist on it before transmission. The SEBI circular relied on was treated as inapplicable to a private unlisted company and, in any event, did not govern a dispute involving rival claims among legal heirs. Because competing entitlement claims and a pending recall application existed, the certificate was viewed as necessary to protect the company against third-party claims and to establish rightful succession.
Issues: Whether transmission of shares of a deceased member of a private company could be directed without a succession certificate when the articles of association required such certificate and rival claims among legal heirs existed.
Analysis: Section 44 of the Companies Act, 2013 treats shares as movable property transferable in the manner provided by the articles of the company. The articles in question required a succession certificate for transmission on the death of a member. The SEBI circular relied upon by the respondent was found inapplicable to a private unlisted company and, in any event, contemplated simplified documentation in a different factual setting involving all legal heirs. Here, there were competing claims from other heirs and a pending recall application, so a succession certificate was considered necessary to protect the company against third-party claims and to establish entitlement before transmission.
Conclusion: The requirement of a succession certificate was upheld, and transmission of the shares without such certificate was held not sustainable; the appeal succeeded.
Ratio Decidendi: Where the articles of association prescribe a succession certificate for transmission of shares and the deceased shareholder's heirs assert rival claims, the company may insist on such certificate before effecting transmission.
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