Share Certificate :

A share certificate is a document showing title issued by the company declaring that the person named therein is the owner of a specified number of shares in the capital of the company.

Prima facie evidence of title: According to the section 46 of the Companies Act, 2013, it is a certificate, issued under the common seal of the company, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.

A duplicate certificate of shares may be issued, if such certificate —

(a) is proved to have been lost or destroyed; or

(b) has been defaced, mutilated or torn and is surrendered to the company.

The manner of issue of a certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be entered in the register of members and other matters shall be such as may be prescribed.

Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner.

If a company with intent to defraud issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees 10 crores whichever is higher and every officer of the company who is in default shall be liable for action under section 447.

Implications of a share certificate: The issue of a share certificate by the company creates an estoppel as to title and also as to payment.

(i) Estoppel as to title: The company cannot deny the truth of the certificate as against a person who has relied upon it and who, in consequence, has changed his position. But if an officer of the company, who has no authority to issue certificates, issues a forged certificate, then there is no estoppel [Rubpen vs. Great Fingal Consolidated [1906] A.C. 439; South London Greyhound Racecourses Ltd. vs. Wake 1931 Ch. 496].

(ii) Estoppel as to payment: Where a company states that shares are fully paid up, it cannot later contend that they were not, unless the person relying upon the certificate knew that the shares were not in fact fully paid up [Bloomenthal vs. Ford [1897] A.C. 156]. It has also been held in another case that the bona fide holder of the share certificate, who had no notice that the shares were not actually paid up fully, could sell those shares away as fully paid to a person who knew that they were not fully paid so as to give the latter a good title to shares as fully paid because the latter derived title from the transferor who had a good title [Gulabdas’s [1982] 17 Bom 672].

A certificate, however, does not confirm the existence of an equitable interest in the share and as such, the company owes no obligation to a person who holds such an interest. The title of mortgagee, with whom a share certificate and bank transfer have been deposited, may be defeated by the borrower selling all the shares and procuring the registration of the purchaser by obtaining a duplicate certificate. The purchaser in such cases would obtain priority over the mortgagee, since the mortgagee would have no remedy against the company [Reinford vs. James Keith Blackman and Co. [1905] 1 Ch. 296].

Section 46 provides that a certificate under the common seal of the company, which specifies any shares by any member shall be prima facie evidence of the title of the member to such shares. The certificate is the prima facie evidence of the title of the member, specified in the certificate, to certain shares mentioned therein. To the shareholder this evidence is useful in so far as it enables him to prove his title to any shares that he might be desiring to transfer, pledge, or charge. A share certificate, however cannot be described as “share”. It is just prima facie evidence of the title to a share or shares represented by the certificate [Gopal Paper Mills Ltd. vs. CIT Central Calcutta [1966] 1 Com. L.J. 1 174].

Section 46(2) provides that a company may renew or issue a duplicate certificate if it is proved to have been lost or destroyed or having been defaced, mutilated or torn, after the certificate is surrendered to the company. Section 46(3) makes it obligatory for companies to follow the rules prescribed by Government in regard to the following matters:

(i) The manner of issue or renewal of a certificate or issue of a duplicate thereof.

(ii) The form of a certificate (original on renewed or a duplicate thereof).

(iii) The particulars to be entered in the Register of Members or in the register of renewed or duplicate certificate.

(iv) The form of such registers.

Penalty for impersonation of shareholders: If any person deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued and thereby obtains or attempts to obtain any such security or interest or any such share warrant or coupon, 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