TABLE OF CONTENTS

QUESTION FOUR 1
1.0 INTRODUCTION 2
2.0 CONCEPT OF TRANSFER OF SHARES 3
2.1 Definition of “Transfer of Shares” 3
2.2 Forged Transfer of Shares 3
3.0 PARTIES INVOLVED IN A FORGED TRANSFER OF SHARES 5
4.0 LEGAL POSITION OF FORGED TRANSFER OF SHARES 5
4.1 Punishment as per the Companies Act 2013 9
5.0 APPLICATION TO NICE TREE SDN BHD IN REGARDS TO MR. GREEN’S CASE
(QUESTION A) 10
6.0 APPLICATION TO MR. GOOD (QUESTION B) 12
7.0 CONCLUSION 13
BIBLIOGRAPHY 15
 QUESTION FOUR

Mr. Green is a shareholder in Nice Tree Sdn Bhd where he holds 10,000 shares. When he was

away to India for a business trip, his share certificate of these 10,000 shares was stolen by Ah

Goo who forged his signature as transferor and Ah Goo was named as a transferee in the share

transfer form. Ah Goo managed to get a new share certificate from the company. Relying on the

new share certificate and acting in good faith, Mr. Good bought the shares and thereafter he was

registered as the shareholder and issued with a share certificate.

(a) Mr. Green now demands that his name be restored to the register of members. Advise
Nice Tree Sdn Bhd.

(b) Assuming the company concedes to the demand of Mr. Green and restores his name
into the register of members. Advise Mr. Good of his rights and remedy.

1
1.0 INTRODUCTION

Transfer of shares is one of the most important topics in Company Law. When a share
title is passed from one person to another, this is what we call “transfer of shares”. As any other
matter, there are certain steps that must be taken before the transfer can be declared as legitimate.
The company, whose shares are being transferred from one person to another, must be informed
first as the act of not doing so is not final and might not be effective until the change in the legal
title is recorded in the company’s register.

Share transfers can be made by either an individual or the company itself. The parties
involved in this process are called buyer (transferee) and seller (transferor) and the shares are set
to a certain price.1 The terms and conditions of the transfer of shares are outlined in the transfer
agreement which usually contains the details of the parties involved, consideration (what is being
offered in the agreement- usually money), and information regarding the type of shares, its value
and so on.

In cases of transfer of shares, one of the problems that usually arise is a forged transfer of
shares. This is a situation where the original shareholder is not in the known that his shares have
been fraudulently transferred by another party2 and such transfer is wrong and nullified. This can
be done by forging the signature of the transferor of shares. The document used to perform such
forged transfer is called the forged instrument.

Therefore, for a person to transfer his share in a company, there are certain rules and
regulations that must be made aware of in order for the transfer to be valid.

1
Clear Tax, (2022), Difference Between Share Transfer and Share Transmission. Retrieved from,
https://cleartax.in/s/share-transfer-share-transmission-difference
2
James Knight, (2021), What is Forged Transfer of Shares? Retrieved from,
https://invezz.com/definitions/forged-transfer-of-shares/

2
2.0 CONCEPT OF TRANSFER OF SHARES

2.1 Definition of “Transfer of Shares”

According to the Oxford Dictionary, “transfer” is defined as moving someone or something from
one place to another; an act of transferring; and in this context, the act of passing a property, right, or
responsibility to another.3 In the legal sense, it denotes the meaning of an act where the owner of a
property title willingly passes his asset to another.4 This is also known as a method of disposing of one's
assets through a sale, cash transfer, lease, gift and so on.

Shares, as defined in the Companies Act, Chapter 39, is “share in the share capital of a company,
and includes stock except where a distinction between stock and shares is expressed or implied.”5 It is also
a form of security where it is usually quantified by its obligation and interest. The person who has
ownership of shares in a company is called “shareholders”. They are investors who contributed money to
the company and in return, they will receive dividends based on the company’s earnings.

Thus, transfer of shares refers to when a person, known as the transferor, willingly transfers his
ownership of the shares to another, the transferee. This can be done by presenting the company with a
properly stamped and executed instrument of transfer, by or on behalf of the transferor and transferee,
which contain their names, addresses, occupations along with the share certificates relating to the shares
to be transferred.6

2.2 Forged Transfer of Shares

3
Sara Hawker, (2006), Transfer. Little Oxford English Dictionary, 9th Ed. Oxford University Press, Oxford.
4
Cornell Law School, (n.d.), Transfer. Retrieved from,
https://www.law.cornell.edu/wex/transfer#:~:text=Transfer%20is%20an%20act%20by,not%20involve%20a%20lega
l%20process.
5
Section 2, Companies Act, Chapter 39
6
Securities and Exchange Commission of Pakistan, (n.d.), Guide on Transfer and Transmission of Shares and
Debentures. Retrieved from,
https://jamapunji.pk/sites/default/files/Guide_TransferOfShares_20140102.pdf

3
 When a property is transferred from one person to another using an instrument on which either
party’s signature is forged or falsified, the transfer is referred to as a “forged transfer” and the document
used to carry out the agreement is called a “forged instrument”.7
This issue could arise in a situation where the original shareholder is unaware that his shares have
been fraudulently transferred. The transferee, the one who executed the forged transfer, may use his name
from the company and thus gain the share certificate which is a piece of writing that the corporation signs
on its behalf and that serves as a receipt for the legal transfer of shares from one owner to another.

Illustration can be made to better understand this issue. Suppose, Mr. Khai spent a sum of money
to buy 200 shares of a company, he became the registered shareholder of the business. Upon the purchase
of the shares, the company issued him a share certificate as proof that the transfer was legal and he is now
a stakeholder of the business owning 200 shares. Then, by accident, Mr. Khai misplaced his share
certificate and it was found by another person, Mr. Liam, who instead of giving Mr. Khai his share
certificate back, he decided to sign a transfer deed in his own name by forging Mr. Khai’s signature.

After that, Mr. Liam had successfully registered himself as a shareholder and received a share
certificate from the company after supplying them with the forged instrument for the transfer of shares.
Despite the fact that the company’s share certificate for him is legitimate, no actual ownership of the
shares has been transferred to him as a result. Furthermore, Mr. Liam deceitfully sells those 200 shares to
an innocent buyer who is acting in good faith and unaware of Mr. Liam’s deception, Mrs. Tiffany. The
company then officially recognises her as a shareholder and issues her a share certificate for the shares
she bought from Mr. Liam. Despite the fact that she has the share certificate with her now and is
collecting the company’s dividend, Mrs. Tiffany is not the original owner of the shares she purchased. As
a result, the company will be held accountable to Mr. Khai and Mrs. Tiffany if the former asserts his
ownership rights over the shares. Mr. Khai will receive his shares back and the corporation will
compensate him and Mrs. Tiffany for their losses. On the other hand, Mr. Liam will be held liable for the
costs associated with his fraud against the company.

7
James Chen, (2022), Share Certificate: Definition, How They Work, and Key Information. Retrieved from,
https://www.investopedia.com/terms/s/share-certificate.asp#:~:text=By-,What%20Is%20a%20Share%20Ce
rtificate%3F,to%20as%20a%20stock%20certificate.

4
 However, the person who forged the transfer of shares must have the intention to do so.
Absence of such intention will not make the person liable. For instance, if a person transfers
some shares thinking those belong to him, he will not be held accountable. As per the Court view
in the case of Venkat Narayan v State of Andhra Pradesh, “if any act is said to be a theft but
lacks dishonest intent of the person committing such act, then theft cannot be held to have been
committed.”8

Hence, the action of forging someone’s signature in transfer of shares is not only invalid
but the wrongdoer in such a situation will be held liable for compensation towards the company
and the company is obligated to compensate the affected parties namely the original shareholder
as well as the bona fide purchaser.

3.0 PARTIES INVOLVED IN A FORGED TRANSFER OF SHARES

The Supreme Court has consistently decided that a forgery or fraudulent deed is void and

confers no title. There are a number of stakeholders engaged in falsified transfers,9 which

consists of:

1. The true owner of shares;

4.0 LEGAL POSITION OF FORGED TRANSFER OF SHARES

8
Venkat Narayan v State of Andhra Pradesh. Retrieved from,
https://thecompany.ninja/forged-transfer/
9
iPleaders. (2013). Forged shares with reference to transfer of shares under the Companies Act, 2013. Retrieved
from,
https://blog.ipleaders.in/forged-shares-reference-transfer-shares-companies-act-2013/#Parties_involved_in_
a_forged_transfer

5
 In the event of forged transfer of shares, as mentioned above, there are four parties
involved. A forged share transfer is regarded as “nullity” meaning an act or thing that is legally
void.10 The transferee is not given ownership of the shares and despite the effect of transfer of
shares, the original owner retains his ownership rights and is still regarded as the true
shareholder. In the circumstances of a joint ownership, all parties must sign a transfer for it to be
valid and if even one of their signatures is forged, the transfer is null and void.11 Below are the
legal position of each parties involved in a forged transfer of shares:

1. The true owner of shares (original shareholder).

This is the person whose shares are being transferred without his consent and knowledge.
Even after his name is removed from the company’s register and his shares are
transferred to another person through a legitimate share certificate, he is still the rightful
owner of the shares. Upon knowledge of the forged transfer, the original shareholder can
ask for his name to be restored in the company’s register as well as his rights from the
company and they are obligated to comply with his request.

In the case of Barton v North Staffordshire Railway Co.12 where two executors were
listed on the company’s register as owners of their testator’s shares. One of them signed a
deed of transfer while using a false co-name, and as a result the transfer was registered by
the company. When the fraud was discovered, the executor whose signature had been
forged filed a lawsuit against the company, requesting his name to be added back to the
register of the company for the shares. He was found to be entitled to the remedy sought.
According to the court, a fraudulent or forgery transfer is void as against the true owner,
and the person who has been stripped of their shares may force the company to restore
them if their names have been withdrawn from the register.

10
Merriam Webster, (n.d.), Nullity. Retrieved from,
https://www.merriam-webster.com/dictionary/nullity
11
ibid
12
38 Ch D 456

6
 2. The transferee (the person who forged the transfer).

The person who transfers shares in his or her own name using a forgery instrument is
known as the “transferee”. Although he had received a legitimate share certificate from
the company upon the completion of forged transfer of shares, the transferee has no legal
claim to the shares despite having a genuine certificate and no rights has been acquired.
There are two circumstances that may happen after forging the transfer of shares: he can
either keep the shares into his own name and collect the company’s dividends, or he can
transfer them to someone else in exchange for money.13 If the shares are with the
transferee, the company, upon the request of the original owner, can cancel his share
certificate and the shares will be transferred back to the original owner by issuing a new
share certificate to him. However, if the transferee has already sold the shares to a third
party, the transferee can be held liable for damages to the company to make up for any
losses incurred by the affected parties.

In Sheffield Corporation v Barclay,14 the transferee who receives a share certificate after
forging the transfer of shares in his name is required to pay the company for any liability
it may have to the original owner of the shares whose name was struck off from the
company’s register of shareholders.

3. The company.

The company can also be held accountable if they transfer the transferee’s shares to a
third party without exercising due diligence. In the case of Barton,15 it was decided that
the company must pay the original shareholder the dividend for the interim period that

13
Pragati Srivastava, (2022), Forged Transfer. Retrieved from,
https://thecompany.ninja/forged-transfer/
14
1905 AC 392
15
38 Ch D 456

7
 would have been paid to him if such forged transfer had not taken place and the company
is obligated to restore the original owner’s name in the company’s register.
In order to eliminate the possibility of forged transfer of shares, the company can take a
few security measures such as before transferring the shares of a shareholder to another
person, they can sends a notice to the owner of the shares seeking his approval within a
specific period of time and it there is no response from the owner, it would be considered
that he has no objection of the transfer.

4. The bona fide purchaser.

The last party involved in a forged transfer of shares is the innocent buyer or known as
the bona fide purchaser.16 Even though this individual does not have any knowledge of
the forgery, he does not obtain any ownership rights to the shares and this is due to the
nature of the contract being void and as such, cannot result in a legal transfer of rights.
The bona fide purchaser is entitled to compensation from the company in the event of
forged transfer of shares.

It is a known fact that those who buy a stolen property, even acting in good faith and
unaware of the dishonest intentions of the seller, cannot obtain a good title to it. In a well
known case of Kaushalya Devi v National Insulated Cable Company of India,17 a
stranger obtained shares that belonged to a corporate shareholder and forged the
shareholder’s signature on the transfer document and then transferred the shares to a third
party. The transferee was required to give the shares back to the person to whom they
legitimately belong and regardless of whether the buyer was a bona fide purchaser for
value without notice or vice versa.

16
Cornell Law School, (n.d.), Bona Fide Purchaser. Retrieved from,
https://www.law.cornell.edu/wex/bona_fide_purchaser#:~:text=A%20bona%20fide%20purchaser%20is,transfer%20
title%20to%20the%20property.
17
[1977] Tax LR 1928

8
 Therefore, as a result of a forged transfer of shares, each party involved has their own

consequences. For the original shareholder, he can compel the company to restore his name back

on the company’s register as well as claim any dividend which he might not have received during

the course of the event. The transferee, based on the two circumstances which might have

happened- he did not further transfer the shares to another party and he sells the shares in

exchange of money. In the first situation, the company will strike off his name from the

company’s register and the shares will be returned to its original owner, and in the second

situation, the transferee will be liable to pay damages to the company for any losses it incurred.

Lastly, the bona fide purchaser will be compensated by the company and the shares will be

returned to the original shareholder.

4.1 Punishment as per the Companies Act 2013

Other than being liable for damages to the company, the transferee, if found guilty for

forging a transfer of shares, can be held liable under Section 74 of the Companies Act 2013. This

section reads the punishment that will be imposed on the offender. Cited,

Penalty for personation of shareholder18

74. If any person falsely and deceitfully personates any owner of any share or interest in any

company, or of any share warrant or coupon, issued in pursuant of this Act, and thereby obtains

or endeavours to obtain any such share or interest or share warrant or coupon, or receives or

endeavours to receive any money due to any such owner, as if the offender were the true and

lawful owner, he is guilty of a seizable offence and liable on conviction to imprisonment for 15

years.

18
Section 74, Companies Act, Chapter 39

9
 Hence, it can be understood that forging a transfer of shares is a serious criminal offence

and any person who is found guilty of such an act can be held liable on conviction to

imprisonment for 15 years by the virtue of Section 74.

5.0 APPLICATION TO NICE TREE SDN BHD IN REGARDS TO MR. GREEN’S CASE

(QUESTION A)

The issue here is whether Nice Tree Sdn Bhd is obligated to restore Mr. Green’s name

into the register of members.

Under common principles of law, a forged transfer is a total nullity and the true owner’s

name must be restored back to the register of members. It is a well-established legal principle

that the true owner has the right to demand that the company replace the shares of which he has

been dispossessed into his name if the company, acting on a forged transfer, modifies its register

by striking out the name of the true owner and replacing it with that of the transferee. Illustration

can be made to the case of Re Bahia v San Francisco Rail Company,19 whereby in this case,

the court held that the true owner’s name must be restored back to the register of members as a

forged transfer is completely invalid. The innocent purchaser’s name should be removed from

the register and damages should be paid by the company because it was estopped from denying

that the person who forged the signature is the true owner.

To apply to the current situation, Mr. Green is the actual owner of the shares. He left his

share certificate behind while on a business trip to India which was then stolen by Ah Goo who

forged his signature as transferor and Ah Goo was named as a transferee in the share transfer

form. Mr. Good, an innocent purchaser, bought the shares from Ah Goo and thereafter, Mr. Good

was officially recognized as the shareholder and given a share certificate. Here, any subsequent

19
[1868] L.R. 3 Q.B. 584

10
transfer is completely invalid because Ah Goo falsified the original transfer. Hence, Mr. Good is

unable to obtain a better title than the defective title. Similar to Re Bahia’s case in which Amy's

name should be eliminated and Tommy's name should be added back to the members' register.

According to the judgement made in Re Bahia’s case, Mr. Green is entitled for the restoration of

his name because his name was wrongly omitted from the register of members. Simply said,

Nice Tree Sdn Bhd is compelled to restore Mr. Green’s name to the register of members.

Illustration can also be made to the case of Barton v North Staffordshire Railway Co.20,

where the name of two executors were registered as the holders of testator’s shares. One of them

signed a document of transfer in the name of the co-executors name. The company registered the

transfer. However, when the fraud was discovered, the executor whose name had been forged

filed a lawsuit against the company to have his name cleared in relation to the shares listed in the

register. The Court determined that his application for relief was valid. The court further stated

that a forged or fraudulent transfer is a nullity as against the real owner and that the person who

has been deprived of his shares may require the company, if it has removed his name from the

register, to reinstate him as the holder of shares. It is relevant to Mr. Green’s case as it clearly

demonstrates how Mr. Green can compel the company to restore his name back to the register of

members. To indicate, the company is bound to put Mr. Green’s name back on the register of

members.

To conclude, Mr. Green is the rightful owner of the shares. Therefore, he has full right to

the shares as the true owner and the restoration of his name in the registration of the shares is

valid. On the one hand, the company, Nice Tree Sdn Bhd, is obliged to restore the name of Mr.

Green on the register of members and pay him any overdue dividends which he ought to have

received.

20
38 Ch D 456

11
6.0 APPLICATION TO MR. GOOD (QUESTION B)

The issue here is whether Mr. Good has a claim to the shares, and if not, whether he has a

right to compensation.

It has been established that even if someone buys stolen property in good faith and

without being informed, they cannot obtain a good title to it. A buyer acting in good faith who

purchases a share certificate that has been obtained through forgery is not eligible to obtain legal

title to the shares they have purchased since the transfer is void. Purchaser, on the other hand, is

eligible for compensation from the company on the removal of his name from the register of

members.

Illustration can be made to the case of Kaushalya Devi v National Insulated Cable

Company of India,21 a stranger transferred shares that belonged to a shareholder of a company to

a third party by falsifying the shareholder’s signature on the transfer deeds. The Court held that

the transferee was required to return the shares to the owner and did not uphold the transfer

despite the transferee being a bona fide purchaser for value. This also reaffirmed the principle

that even if someone bought stolen property in good faith and without prior notice, they could

not obtain a legitimate title to it. Simply put, it did not matter if the transferee was a bona fide

purchaser for value and they were still required to return the shares to the original owner.

In regards to Mr. Good's case, he bought the shares from Ah Goo without being aware

that Ah Goo had obtained them through forgery where he forged his signature as transferor and

Ah Goo was named as a transferee in the share transfer form. Here, it is made very obvious how

Mr. Good is an innocent buyer, making him a bona fide purchaser. In reference to the

aforementioned case, it reaffirmed the idea that someone who owns a stolen property cannot get

a legitimate title to it. Despite being a bona fide purchaser, Mr. Good, on the one hand, has no
21
[1977] Tax LR 1928

12
legal claim to the shares even if he had bought it without notice and in good faith, he could not

have obtained an ownership over it.

Furthermore, Mr. Good is entitled to compensation from the company on the removal of

his name from the register of members. This can be supported by the case of Balkis

Consolidated Co. v Tomkinson22 where 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.” Here, it clearly

demonstrates how Mr. Good is entitled to reimbursement since he is a bona fide purchaser.

To conclude, Mr. Good has no legal claim to the shares. He is, nonetheless, entitled for

compensation as a bona fide purchaser.

7.0 CONCLUSION

Taking everything into account, it can be seen that forgery never has any legal

consequences despite the share certificate obtained from a company is legitimate and real

because it can never strip off the original owner’s rightful claim over the shares when it is gained

through a forged transfer of shares. A falsified instrument of transfer leaves the so-called

transferor as the only owner of the shares and those shares are neither the property of the

transferee or the bona fide purchaser. A forged transfer of shares is null and void because it is

done without the true owner’s knowledge and consent. Thus, in the current case of Mr. Green,

the company, Nice Tree Sdn Bhd, must restore his name in the company’s register upon request

22
(1893) A.C 396

13
and the company is also accountable to compensate Mr. Good as his name is now removed from

the company’s register.

14
 BIBLIOGRAPHY

ACTS/LEGISLATION

Section 2, Companies Act, Chapter 39

Section 74, Companies Act, Chapter 39

CASE LAWS

Balkis Consolidated Co, v Tomkinson (1893) A.C 396

Barton v North Staffordshire Railway Co. 38 Ch D 456

Kaushalya Devi v. National Insulated Cable Company of India [1977] Tax LR 1928

Re Bahia v San Francisco Rail Company [1868] L.R. 3 Q.B. 584

Sheffield Corporation v Barclay 1905 AC 392

BOOKS

Sara Hawker, (2006), Transfer. Little Oxford English Dictionary, 9th Ed. Oxford University

Press, Oxford.

WEBSITE

Clear Tax, (2022), Difference Between Share Transfer and Share Transmission. Retrieved from,

https://cleartax.in/s/share-transfer-share-transmission-difference

Cornell Law School, (n.d.), Bona Fide Purchaser. Retrieved from,

https://www.law.cornell.edu/wex/bona_fide_purchaser#:~:text=A%20bona%20fide%20p

urchaser%20is,transfer%20title%20to%20the%20property.

Cornell Law School, (n.d.), Transfer. Retrieved from,

https://www.law.cornell.edu/wex/transfer#:~:text=Transfer%20is%20an%20act%20by,no

t%20involve%20a%20legal%20process.

15
iPleaders. (2013). Forged shares with reference to transfer of shares under the Companies Act,

2013. Retrieved from,

https://blog.ipleaders.in/forged-shares-reference-transfer-shares-companies-act-2013/#Par

ties_involved_in_a_forged_transfer

James Chen, (2022), Share Certificate: Definition, How They Work, and Key Information.

Retrieved from,

https://www.investopedia.com/terms/s/share-certificate.asp#:~:text=By-,What%20Is%20

a%20Share%20Certificate%3F,to%20as%20a%20stock%20certificate.

James Knight, (2021), What is Forged Transfer of Shares? Retrieved from,

https://invezz.com/definitions/forged-transfer-of-shares/

Merriam Webster, (n.d.), Nullity. Retrieved from,

https://www.merriam-webster.com/dictionary/nullity

Pragati Srivastava, (2022), Forged Transfer. Retrieved from,

https://thecompany.ninja/forged-transfer/

Securities and Exchange Commission of Pakistan, (n.d.), Guide on Transfer and Transmission of

Shares and Debentures. Retrieved from,

https://jamapunji.pk/sites/default/files/Guide_TransferOfShares_20140102.pdf

Venkat Narayan v State of Andhra Pradesh. Retrieved from,

https://thecompany.ninja/forged-transfer/

16