A perennial puzzle in securities practice is deceptively simple: a shareholder sells his shares, the company then declares a dividend, and both seller and buyer claim it. Who is entitled to keep the money? Section 27 of the Securities Contracts (Regulation) Act, 1956 answers this with a statutory tie-breaker built around the register of members and a strict fifteen-day window. It does not invent a new theory of ownership; it codifies the old common-law and company-law position that the company pays whoever appears on its books, while preserving the transferee's equities against the transferor. This article unpacks the bare provision, the controlling Explanation, the leading authorities — Howrah Trading Co. Ltd. v. CIT and Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar — and the sister provisions, Sections 27A and 27B, that extend the same logic to collective investment schemes and mutual funds.
Where Section 27 sits in the scheme of the Act
Section 27 appears in the Miscellaneous cluster of the Securities Contracts (Regulation) Act, 1956 ("SCRA"), well after the machinery provisions that dominate the statute. The bulk of the Act is concerned with the recognition and regulation of stock exchanges and the contracts traded on them — the architecture surveyed in our introduction, object and scheme note and given precise content by the definitions of "securities" and "recognised stock exchange". Section 27 is different in character. It is not regulatory; it is a substantive rule of private right, settling a question of entitlement between two private parties — the transferor and the transferee of a security — and between each of them and the issuing company.
Its placement among the miscellaneous provisions reflects its function as a gap-filler. Once the Act decided to treat marketable securities as a distinct category of property capable of being dealt with on exchanges, it had to address the awkward interval between the sale of a security and the registration of the transfer in the issuer's books. During that interval a corporate benefit — most commonly a dividend — may fall due. Section 27 allocates that benefit. For the companion question of how a security gets on to an exchange in the first place, see our note on the listing of securities; the present provision assumes the security is already in circulation and concerns itself only with the fruits it throws off.
The bare text of Section 27
Section 27(1) provides, in substance, that it shall be lawful for the holder of any security whose name appears on the books of the company issuing the security to receive and retain any dividend declared by the company in respect thereof for any year, notwithstanding that the security has already been transferred by him for consideration — unless the transferee who claims the dividend from the transferor has lodged the security and all other documents relating to the transfer (which the company may require) with the company for registration in his name within fifteen days of the date on which the dividend became due.
An Explanation follows, extending the fifteen-day period in three defined situations (discussed below). Section 27(2) then makes clear that sub-section (1) does not affect: (a) the right of a company to pay the dividend which has become due to any person whose name is for the time being registered in its books as the holder of the security; or (b) the right of the transferee of any security to enforce against the transferor, or any other person, his rights, if any, in relation to the transfer.
Two features of the drafting deserve emphasis at the outset. First, the operative permission runs in favour of the registered holder ("the holder ... whose name appears on the books"), not the beneficial owner. Second, the section speaks of the right to "receive and retain" — it is not merely about who collects the money from the company but about who may keep it as against the other claimant. That second word, "retain", is what converts a payment rule into a rule of entitlement.
The problem Section 27 solves
Shares and other listed securities are routinely sold and resold faster than companies can update their registers. Under ordinary company law a company knows only its members — the persons on the register — and deals only with them. It declares dividends payable to members "as on" a record date and posts the warrants to the registered addresses. If a seller has parted with his shares but his name is still on the register on the record date, the company will, quite properly, pay him. The buyer, who is the real economic owner, gets nothing from the company directly.
Absent a clear rule, this generates two disputes. The first is between the company and the buyer: must the company chase down and pay the buyer? The second, and the one Section 27 squarely addresses, is between the seller who received the dividend and the buyer who economically deserves it. The provision resolves the first by leaving the company free to pay its registered member (sub-section (2)(a)), and resolves the second by a bright-line test: the seller may keep the dividend unless the buyer had perfected his position by lodging the transfer within fifteen days of the dividend falling due, in which case the equities shift to the buyer. The provision thus protects the company's administrative convenience while giving the diligent transferee a defined route to the money.
The registered holder as the pivot: Howrah Trading
The conceptual foundation of Section 27 predates it and is most authoritatively stated in Howrah Trading Co. Ltd. v. Commissioner of Income-Tax, Calcutta, AIR 1959 SC 775. The assessee there had acquired shares under "blank transfers" — instruments of transfer signed by the transferor with the transferee's name left blank — but had not got the transfers registered. It nonetheless received the dividends and claimed, for income-tax purposes, to be treated as the "shareholder" entitled to grossing-up of dividend income.
The Supreme Court rejected the claim, holding that the company "recognises no person except one whose name is on the register of members, upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable." In a blank transfer, the Court explained, equities exist between transferor and transferee: the transferee acquires equitable or beneficial ownership and a right to claim the dividend from the transferor, who holds it in trust for him — but the transferee is "not a full owner", because the legal interest remains with the registered transferor until registration. The "shareholder" recognised by law is the registered member, not the unregistered beneficial owner.
That dichotomy — legal title in the registered holder, beneficial interest in the unregistered transferee — is precisely the architecture Section 27 presupposes. The company may safely pay the registered holder (the legal owner of record); but as between the two private parties, the law must still decide whether the registered holder keeps the money or accounts for it to the beneficial owner. Section 27 supplies that decision, turning the open-ended trust analysis of Howrah Trading into a time-bound, mechanical rule.
Transfer versus registration: Vasudev Shelat
The distinction between completing a transfer and securing registration was elaborated by the Supreme Court in Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar, AIR 1974 SC 1728 (reported also as (1974) 2 SCC 323). A donor had executed a registered gift deed of certain company shares and signed blank transfer forms, but died before the transfers could be registered in the companies' books. The question was whether the gift was complete.
The Court held that the gift was effective. It drew a careful line between (i) the full rights of ownership of the shares, which passed to the donee on completion of the transfer in accordance with the law governing transfer of movable property, and (ii) the separate right of the transferee to have his name entered on the register of members, which is acquired only on registration. The handing over of the share certificates with duly executed transfer forms vested the beneficial title; registration was a further, administrative step concerning the relationship with the company, not a condition of the transfer of ownership inter partes.
Read alongside Howrah Trading, Vasudev Shelat confirms the two-tier model that animates Section 27. Ownership can pass between the parties before the register catches up; but until registration, the company's books — and hence the company's dividend cheque — point to the transferor. Section 27 governs the interim: it tells us who keeps that cheque.
The fifteen-day rule and the date the dividend "becomes due"
The pivot of Section 27(1) is the proviso clause: the transferor keeps the dividend unless the transferee has lodged the security and the transfer documents for registration within fifteen days of the date on which the dividend became due. The fifteen days run not from the date of sale, nor from the record date as such, but from the date the dividend "became due". For a declared dividend, this is ordinarily the date of declaration (for an interim dividend, on the Board's resolution; for a final dividend, on adoption by the company in general meeting), being the point at which the company's obligation to pay crystallises.
The structure is a condition precedent to the shift of entitlement. If the transferee lodges within the window, the equities move to him and the transferor cannot retain the dividend against him. If the transferee misses the window, the statutory permission in favour of the registered holder operates and the transferor may "receive and retain" the dividend, free of the transferee's claim under this section. The provision thus rewards diligence and penalises a transferee who sits on his transfer documents while a dividend accrues. Practitioners reading this provision should also keep an eye on the parallel regime under company law, which directs that dividends, rights and bonus shares be held in abeyance pending registration of a delivered transfer — a regime that operates in tandem with, and does not displace, Section 27 of the SCRA.
The Explanation: when the fifteen days are extended
The Explanation to Section 27 recognises that a rigid fifteen-day deadline can defeat a diligent transferee through no fault of his own, and extends the period in three carefully delimited situations:
(i) Death of the transferee. Where the transferee dies, the period is extended by the actual period taken by his legal representative to establish a claim to the dividend. This accommodates the inevitable hiatus while succession or representation is sorted out.
(ii) Loss of the transfer deed. Where the transfer deed is lost by theft or any other cause beyond the transferee's control, the period is extended by the actual period taken for its replacement. The qualifier "beyond the control of the transferee" is important: ordinary carelessness will not attract the extension.
(iii) Postal delay. Where the lodging of the security and transfer documents is delayed due to causes connected with the post, the period is extended by the actual period of that delay. In an era of physical lodgement, postal mishap was a real and recurring obstacle.
Each limb extends the period by the actual period of the impediment, not by some fixed grace period — a measured, fact-specific allowance rather than a blanket relaxation. The Explanation is exhaustive in form: only the three enumerated causes extend the deadline, and a transferee who is late for any other reason cannot invoke it.
Sub-section (2): the two savings
Section 27(2) contains two savings that prevent sub-section (1) from being read more broadly than intended.
Clause (a) — the company's payment to its registered holder. Nothing in sub-section (1) affects the company's right to pay a dividend that has become due to the person whose name is, for the time being, registered as the holder. This is the company-facing safeguard: the issuer is never obliged to investigate beneficial ownership or to police the fifteen-day lodgement. It pays its registered member and is discharged. This is the statutory embodiment of the Howrah Trading principle that the company recognises only the registered holder. The contest set up by sub-section (1) is therefore between the two private parties, not a contest the company must adjudicate.
Clause (b) — the transferee's independent remedies. Nothing in sub-section (1) affects the transferee's right to enforce against the transferor, or any other person, his rights (if any) in relation to the transfer. Section 27 is thus not a complete code of the transferee's remedies. Even a transferee who misses the fifteen-day window, and so cannot rely on the section to claim the dividend, may pursue whatever rights he has under the contract of sale or in equity — for instance, where the transferor expressly agreed to account for any dividend, or where a constructive trust arises on the Howrah Trading reasoning. The section settles the default allocation; it does not extinguish bargained-for or equitable rights that exist independently of it.
Section 27 and the practice of blank transfers
Section 27 must be read against the historical market practice of trading in physical securities by "blank transfers", as described in Howrah Trading. A blank transfer form, signed by the registered holder and accompanied by the certificate, could be passed from hand to hand, each successive buyer being free to fill in his own name and apply for registration when he chose. This made shares highly negotiable but created precisely the registration lag that Section 27 addresses: a string of beneficial owners might come and go while the register still showed the original signatory.
In that environment the registered holder might receive a dividend long after parting with his beneficial interest. Howrah Trading held the legal title and the dividend to be the registered holder's, with the beneficial owner left to his equities. Section 27 disciplines those equities: the most recent transferee who lodges within fifteen days can compel the dividend to follow the shares; one who does not, cannot use the section. With the advent of dematerialisation and electronic transfer under the depository system, the physical blank transfer has largely disappeared and the registration lag has shrunk dramatically. Section 27 nonetheless remains on the statute book as the governing rule for any case in which a dividend falls due in the gap between transfer and registration, and as the conceptual template for the fund provisions that follow it.
Section 27A: income from a collective investment scheme
Section 27A, inserted by the Securities Laws (Amendment) Act, 1995, applies the same template to collective investment schemes ("CIS"). It provides that it shall be lawful for the holder of any securities, being units or other instruments issued by a CIS, whose name appears on the books of the collective investment scheme, to receive and retain any income in respect of those units or instruments, notwithstanding that the units or instruments have already been transferred by him for consideration — unless the transferee who claims the income from the transferor has lodged the units or instruments and all other documents relating to the transfer for registration within fifteen days of the date on which the income became due.
An Explanation in the same terms as Section 27 extends the fifteen-day period for death of the transferee, loss of the transfer deed beyond the transferee's control, and postal delay. A corresponding sub-section preserves the scheme's right to pay the registered holder and the transferee's independent remedies against the transferor. The provision tracks Section 27 almost word for word, substituting "collective investment scheme" for the issuing company, "units or other instruments" for securities, and "income" for dividend. Because units of a CIS are themselves "securities" within the Act — a point developed in our note on the definitions of securities — it was natural to extend the dividend rule to the income they generate.
Section 27B: income from a mutual fund
Section 27B, also inserted by the Securities Laws (Amendment) Act, 1995, performs the identical exercise for mutual funds. It makes it lawful for the holder of units or other instruments issued by a mutual fund, whose name appears on the books of the mutual fund, to receive and retain any income in respect of those units or instruments, notwithstanding a prior transfer for consideration — subject to the same fifteen-day lodgement rule in favour of the transferee, the same Explanation extending the period for death, loss of the deed beyond control, and postal delay, and the same twin savings preserving the mutual fund's right to pay its registered holder and the transferee's independent remedies.
Sections 27, 27A and 27B together form a coherent trilogy. Each addresses the same structural problem — the gap between transfer of an investment instrument and registration of that transfer in the issuer's or scheme's books — and resolves it in the same way: the issuer or scheme pays its registered holder; as between the parties the registered holder keeps the income unless the transferee perfects his position within fifteen days; and independent contractual and equitable remedies survive. A candidate who has internalised Section 27 has, in effect, learnt all three.
Interaction with company law on dividends
Section 27 of the SCRA does not operate in isolation from the Companies Act regime on dividends. Under company law, a declared dividend is a debt due from the company to its registered members; the company is to pay dividends to the registered shareholders (or to their order) and, where a duly executed instrument of transfer has been delivered but not yet registered, the company must keep the dividend, and any rights or bonus entitlement, in abeyance in relation to those shares pending registration, unless authorised in writing by the registered holder to pay the transferee.
These regimes are complementary. The Companies Act tells the company what to do with the dividend at the corporate level — pay the registered member, or hold it in abeyance where a transfer has been lodged with the company. The SCRA's Section 27 supplies the rule of entitlement between transferor and transferee where the company has, in the ordinary course, paid its registered member. The fifteen-day window in Section 27 and the "transfer delivered but not registered" trigger in company law both turn on the same underlying event — lodgement of the transfer with the company — and are best read harmoniously. Neither displaces the other; each addresses a different relationship in the same transaction.
Relationship with the rest of the SCRA
Although Section 27 is a private-rights provision, it sits inside a regulatory statute and should be understood in that setting. The Act's regulatory spine — the machinery for recognition of stock exchanges, the power for withdrawal of that recognition, and the power to suspend business on an exchange — governs the venues and conduct of trading. Section 27 governs the consequences, at the level of corporate income, of trades that have already happened in those venues.
The link is the concept of a transferable, marketable security. Once the Act facilitated dealings in securities on recognised exchanges, the dividend-allocation problem became unavoidable, and Section 27 (with 27A and 27B) is the Act's answer to it. For the foundational ideas that knit these provisions together, the reader may return to the SCRA notes hub, which collects the introductory, definitional and regulatory material that gives Section 27 its context.
Exam pointers and common traps
Who keeps the dividend by default? The registered holder (transferor). The transferee displaces this only by lodging the transfer for registration within fifteen days of the dividend becoming due. State the default and then the exception — not the other way round.
From what date do the fifteen days run? From the date the dividend "became due", i.e. on declaration — not the date of sale and not (in itself) the record date. This is a favourite trap.
Is the Explanation open-ended? No. Only three causes extend the period — death of the transferee, loss of the transfer deed beyond his control, and postal delay — and each extends it only by the actual period of the impediment.
Does missing the window destroy the transferee's claim entirely? No. Section 27(2)(b) preserves independent contractual and equitable remedies against the transferor, consistent with the trust analysis in Howrah Trading.
Two cases to cite: Howrah Trading Co. Ltd. v. CIT, AIR 1959 SC 775 (registered holder is the legal owner; dividend legally payable to him; transferee only beneficial owner), and Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar, AIR 1974 SC 1728 / (1974) 2 SCC 323 (ownership passes on transfer of movable property; registration is a separate right against the company). Together they explain why Section 27 makes the register the pivot.
Do not forget 27A and 27B: the same rule applies, mutatis mutandis, to income from collective investment schemes (Section 27A) and mutual funds (Section 27B), both inserted by the Securities Laws (Amendment) Act, 1995.
Frequently asked questions
Who is entitled to keep a dividend declared after shares are sold but before the transfer is registered?
By default the transferor — the registered holder whose name still appears on the company's books — may receive and retain the dividend under Section 27(1). The transferee can claim it only if he lodged the security and transfer documents for registration within fifteen days of the date the dividend became due.
From what date do the fifteen days under Section 27 run?
From the date on which the dividend "became due", which is ordinarily the date of declaration of the dividend — not the date of sale and not, by itself, the record date. The transferee must lodge his transfer for registration within fifteen days of that date to displace the transferor's right to retain.
In what circumstances is the fifteen-day period extended?
The Explanation extends it in exactly three situations: death of the transferee (by the time his legal representative takes to establish the claim); loss of the transfer deed by theft or other cause beyond the transferee's control (by the replacement period); and delay due to causes connected with the post (by the actual period of delay). Each extension equals only the actual period of the impediment.
What did Howrah Trading Co. v. CIT decide about dividends and registration?
In Howrah Trading Co. Ltd. v. CIT, AIR 1959 SC 775, the Supreme Court held that a company recognises only the registered holder, to whom alone the dividend is legally payable. A transferee under a blank transfer who has not registered is merely a beneficial owner; the registered holder holds the dividend in trust for him but the legal interest, and the dividend, remain with the registered holder. This is the principle Section 27 codifies.
Does a transferee who misses the fifteen-day window lose all rights to the dividend?
No. Section 27(2)(b) expressly preserves the transferee's right to enforce against the transferor, or any other person, his rights (if any) in relation to the transfer. He cannot use Section 27 to claim the dividend, but contractual rights under the sale and equitable rights — such as the constructive trust recognised in Howrah Trading — survive independently of the section.
Do Sections 27A and 27B differ from Section 27?
Only in subject-matter. Sections 27A and 27B, both inserted by the Securities Laws (Amendment) Act, 1995, apply the identical rule to income from collective investment schemes and from mutual funds respectively. The registered unit-holder may receive and retain the income unless the transferee lodges the transfer within fifteen days; the same Explanation and the same savings apply, substituting "income" and "units" for "dividend" and "securities".