Chapter VIII - Declaration and Payment of Dividend
Section 126
Section 126: dividend, rights and bonus pending share transfer
When a share transfer has been lodged but not yet registered, the company must transfer the dividend to the Unpaid Dividend Account and hold rights and bonus entitlements in abeyance, unless the registered holder authorises payment to the transferee.
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Need advice on Section 126?
This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Where any instrument of transfer of shares has been delivered to any company for registration and the transfer of such shares has not been registered by the company, it shall, notwithstanding anything contained in any other provision of this Act,— (a) transfer the dividend in relation to such shares to the Unpaid Dividend Account referred to in section 124 unless the company is authorised by the registered holder of such shares in writing to pay such dividend to the transferee specified in such instrument of transfer; and (b) keep in abeyance in relation to such shares, any offer of rights shares under clause (a) of sub-section (1) of section 62 and any issue of fully paid-up bonus shares in pursuance of first proviso to sub-section (5) of section 123.
Introduction
Section 126 deals with the gap between delivery of a share transfer instrument to the company and registration of the transfer. It protects both the registered holder and the transferee by keeping the benefits aside until the position is clear.
Key takeaways
Dividend
The dividend goes to the Unpaid Dividend Account under section 124, unless the registered holder authorises the company in writing to pay the transferee named in the instrument.
Rights and bonus
A rights offer under section 62(1)(a) and fully paid-up bonus shares under the first proviso to section 123(5) are held in abeyance.
Overriding effect
The rule applies notwithstanding anything in any other provision of the Act.
When section 126 applies
Section 126 applies when an instrument of transfer of shares has been delivered to the company for registration and the company has not yet registered the transfer. Check the date the instrument was lodged against the record date or entitlement date of the corporate action.
Treatment of each entitlement
Dividend on those shares is transferred to the Unpaid Dividend Account, unless the registered holder gives the company written authority to pay it to the transferee named in the instrument. Rights offers and fully paid-up bonus shares on those shares are kept in abeyance until the transfer is dealt with.
Practical preparation
List transfer instruments that were lodged but not registered on the entitlement date. Check for any written authority from the registered holder. Route the dividend accordingly. Record abeyance entries for rights and bonus. Release entitlements when the transfer is registered or the position is otherwise resolved under the Act.
Practical checklist
Do
- Keep an abeyance register linked to each pending transfer.
- Keep the registered holder’s written authority if dividend is paid to the transferee.
Avoid
- Do not pay the dividend to the transferee without the registered holder’s written authority.
- Do not allot rights or bonus shares on pending-transfer shares outside the abeyance mechanism.
Illustrative example
Hypothetical: transfer lodged before record date
A buyer lodges a transfer instrument, but the company has not registered it when a dividend and a rights issue are announced.
Identify
Flag the shares as subject to a pending transfer.
Dividend
Transfer the dividend to the Unpaid Dividend Account unless the seller has authorised payment to the buyer in writing.
Rights
Hold the rights offer in abeyance for those shares.
Outcome
- The company avoids paying the wrong person and keeps the entitlements for whoever turns out to be entitled.
Glossary
- Abeyance
- Holding an entitlement in suspense until the share transfer position is resolved.
- Registered holder
- The person currently shown as holder in the company’s register for the shares.
Frequently asked questions
Can the transferee receive the dividend before registration?
Only if the registered holder authorises the company in writing to pay it to the transferee named in the instrument. Otherwise it goes to the Unpaid Dividend Account.
What happens to bonus shares on a pending transfer?
An issue of fully paid-up bonus shares under the first proviso to section 123(5) is held in abeyance for those shares.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026