Forged Transfer of Shares

Forged Transfer of Shares

An instrument of transfer, wherein the signature of the transferor is forged, is termed a forged instrument. Any transfer of shares executed using such an instrument is referred to as a forged transfer. When a transfer instrument is presented to the company, the first step is to investigate its validity. The company should dispatch a notice to the transferor at their address, informing them that the transfer has been lodged. If no objection is raised before a specified day, the transfer will be registered. Despite these precautions, a forged transfer may still be registered.

Consequences of Forged Transfer:

1. A forged transfer is deemed null and void, failing to convey legal title to the transferee. The rightful owner can have their name reinstated on the register of members.

2. In cases where the company issues a share certificate to the transferee based on a forged transfer, and the transferee subsequently sells these shares to an innocent buyer, the buyer does not acquire the right to be registered as a shareholder. In such instances, the buyer can seek damages from the company on the grounds that they relied on the company's share certificate (See Balkis Consolidated Co. Ltd v. Tomkinson (1893) A.C 396).

3. If the company suffers a loss due to the forged transfer, it has the right to recover the loss from the person who facilitated the registration, even if that person acted in good faith. In Sheffield Corp. v. Barclay (1905) A.C 392, the respondent submitted a forged transfer for registration, unbeknownst to them, leading the company to register the transfer in their name. The respondent later transferred the shares to C, who received a certificate in their name. Upon discovering the forgery, H compelled the company to issue new shares. The respondent was obliged to indemnify the company, which, in turn, was obliged to indemnify C.