Shares and Share Capital - Concepts

According to Section 2(88) of Companies Act, 2013 Sweat equity shares means such equity shares as are issued by a company to its Directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Section 54 of the Companies Act, 2013 permits issue of sweat equity shares to employees or directors of company in recognition for providing know-how etc. Company may issue sweat equity shares at a discount or for consideration other than cash for providing know-how or making available any Intellectual Property Rights or value additions. Company should get consent of its member at General Meeting.

Further, as per Rule 8(9) of the Companies (Share Capital and Debentures) Rules, 2014, company can issue sweat equity shares for non-cash consideration on the basis of valuation report in respect thereof obtained from a registered valuer. Based on above provisions, we can conclude that the view of the Managing Director is not correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2A(iii) (Syllabus 2017).

With reference to the definition of a private company as provided under Section 2

(68)of the Companies Act, 2013, a private company is only authorised to exercise restriction by its Articles on the transfer of shares of the company held by its members. In other words, in public companies the shares are freely transferable and no restrictions can be imposed on the members right regarding transfer of their shares.

In the instant case the agreement between P Realtors Ltd. and A Construction Ltd restricting their rights to transfer their shares till completion of the project will be held subservient to the provision contained in the Companies Act, 2013, which provide for free transferability of shares. Therefore, A Construction Ltd. will not be able to restrain P Realtors from transferring their shares in XYZ Builders Ltd. to PQR Builders Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2(e) (Syllabus 2017).

“Allotment” of shares means the act of appropriation by the Board of directors of the company out of the previously un-appropriated capital of a company of a certain number of shares to persons who have made applications for shares (In Re Calcutta Stock Exchange Association, AIR 1957 Cal. 438). It is on allotment that shares come into existence

The following general principles should be observed with regard to allotment of securities:

1.The allotment should be made by proper authority i.e. the Board of directors or committee authorities to allot securities on behalf of the Board.

2.Allotment of securities must be made within a reasonable time as specified in section 56 of the Companies Act, 2013.

3.The allotment must be communicated. This is done by sending a letter of allotment to the applicant.

4.Allotment can be only against an application. Section 2(55) of the Act requires that a person should agree in writing to become a member.

5.Allotment should not be in contravention of any law e.g. if securities (not fully paid up) are alloted to a minor, the allotment could be void.

6.The allotment should be absolute and unconditional. Securities must be allotted on same terms on which they were applied for and as they are stated in the application for securities. Allotment of securities subject to certain conditions is also not valid. Similarly, if the number of securities alloted is less than those applied for, it cannot be termed as absolute allotment.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(b) (Old syllabus).

As per Section 23(1) of the Companies Act, 2013, a public company may issue securities in the following manner:

1)to public through prospectus ('public offer') by complying with the provisions of Part I of Chapter III of the Companies Act, 2013; or

2)through private placement by complying with the provisions of Part II of Chapter III of the Companies Act, 2013; or

3)through rights issue or a bonus issue in accordance with the provisions of the Companies Act, 2013 and in case of a listed company or a company which intends to get its securities listed also with the provisions of the SEBI Act, 1992 and the rules and regulations made there under.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2A(iii) (Syllabus 2017).

Deemed Prospectus

According to section 25(1) of the Companies Act, 2013, when a company allots or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public, any document by which the offer for sale to the public is made, shall, for all purposes, be deemed to be a prospectus issued by the company.

Shelf Prospectus

Shelf Prospectus means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus. Accordingly as per Section 31 of Companies Act, 2013, any class of companies, as prescribed by the Securities and Exchange Board may file a shelf prospectus with the Registrar at the stage of the first offer of securities included therein which shall indicate a period not exceeding one year as the period of validity of such prospectus which shall commence from the date of opening of the first offer of securities under such prospectus. Further, in respect of a second or subsequent offer issued during the period of validity of shelf prospectus, no further prospectus is required.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(b) (Old syllabus).

Section 28 of the Companies Act, 2013 permits certain members of a company, in consultation with Board of directors, to offer the whole or a part of their holdings of shares to the public. The document by which the offer of sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company.

Since public offer is not same as offer for sale. Though many provisions relating to issue of prospectus does apply to such an offer, yet many provisions including requirement of minimum subscription does not apply to the same.

All laws and rules made hereunder as to the contents of the prospectus and as to liability in respect of misstatements in and omission from prospectus or otherwise relating to prospectus shall apply as if this offer document is a prospectus issued by the company.

The section provides that the members, whether individuals or bodies corporate or both, whose shares are proposed to be offered to the public, shall collectively authorize the company, whose share were offered for sale to the public, to take all actions in respect of offer of sale for and on their behalf and they shall reimburse the company all expenses incurred by it on this matter.

Rule 8 of The Companies (Prospectus and Allotment of Securities) Rules, 2014 in this context provide that the provisions of Part I of Chapter III namely “Prospectus and Allotment of Securities” and rules made there under shall be applicable to an offer of sale referred to in section 28 of Companies Act, 2013 except for the following, namely:-

(a)the provisions relating to minimum subscription;

(b)the provisions for minimum application value;

(c)the provisions requiring any statement to be made by the Board of directors in respect of the utilization of money; and

(d)any other provision or information which cannot be compiled or gathered by the offer or, with detailed justifications for not being able to comply with such provisions.

Further the rules provide that such offer document or prospectus issued under the section shall disclose the name of the entity bearing the cost of making the offer for sale along with reasons.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(d) (Syllabus 2017).

Section 29 of the Companies Act 2013 mandates that every company making public offer and such other class or classes of companies as may be prescribed, shall issue the securities only in dematerialized form by complying with the provisions of the Depositories Act, 1996 and the regulations made thereunder.

Further, Section 29 read with Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 also mandates that every unlisted public company shall issue the securities only in dematerialised form and also facilitate dematerialisation of all of its existing securities in accordance with the provisions of the Depositories Act, 1996 and regulations made there under.

However, an unlisted public company which is a Nidhi Company, a Government Company or a wholly owned subsidiary company is exempted from the above requirement as specified in Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Any company, other than the companies mentioned above, may convert its securities into dematerialised form or issue its securities in physical form in accordance with the provisions of the Companies Act, 2013 or in dematerialised form in accordance with the provisions of the Depositories Act, 1996 and the regulations made thereunder.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(a) (Old syllabus).

Company can issue shelf prospectus under Section 31 of the Companies Act, 2013, read with Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 to avoid repeated issuance of prospectus.

Definition: Shelf Prospectus means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus. In simple terms Shelf Prospectus is a single prospectus for multiple public issue. Issuer is permitted to offer and sell securities to the public without a separate prospectus for each act of offering for a certain period.

Validity Period: Under section 31 of the Act, any class or classes of Companies, as the Securities and Exchange Board (SEBI) may provide by regulations in this behalf, may file a shelf prospectus with the Registrar. Such prospectus is to be submitted at the stage of the first offer of securities which shall indicate a period not exceeding one year as the period of validity of such prospectus. The validity period shall commence from the date of opening of the first offer of securities under that prospectus, and in respect of a second or subsequent offer of such securities issued during the period of validity of that prospectus, no further prospectus is required.

Filing of Information Memorandum (FORM PAS-2) with ROC: An information memorandum is required to be filed by a company filing a shell prospectus which shall contain all material facts relating to new charges created, changes in the financial position of the company as have occurred between the first offer of Securities or the previous offer of securities and the succeeding offer of securities; and such other changes as may be prescribed.

The Information Memorandum shall be prepared in Form PAS-2 and filed with the Registrar within one month prior to the issue of a second or subsequent offer of securities under the shelf prospectus.

Where an information memorandum is filed, every time an offer of securities is made, such memorandum together with the shelf prospectus shall be deemed to be a prospectus.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(b) (Syllabus 2022).

“Shelf prospectus” means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus.

(1)According to Section 31 of the Companies Act 2013, any class or classes of companies as the Securities and Exchange Board of India may provide by regulations in this behalf, may file a shelf prospectus with the Registrar of Companies at the stage:

-of the first offer of securities included therein which shall indicate a period not exceeding 1 year as the period of validity of such prospectus which shall commence from the date of opening of the first offer of securities under that prospectus, and

-in respect of a second or subsequent offer of such securities issued during the period of validity of that prospectus, no further prospectus is required.

(2)The other formalities related to such repeated/ subsequent issue of shares:

A company filing a shelf prospectus shall be required to file an information memorandum containing all material facts relating to new charges created, changes in the financial position of the company as have occurred between the first or previous offer of securities and the succeeding offer of securities and such other prescribed changes, with the Registrar of Companies within the prescribed time, prior to the issue of a second or subsequent offer of securities under the Shelf Prospectus.

Thus, P. Limited can follow the above mentioned provisions and issue a Shelf Prospectus, to avoid repeated issuance of prospectus.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(d) (Old syllabus).

As per Section 31 of the Companies Act, 2013, Shelf Prospectus means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period of time within a year, without the issue of further prospectus. It has a longer life than a normal prospectus. The concept of shelf prospectus will save expenditure and time of the companies in issuing a new prospectus every time they wish to issue securities to the public within a period of one year.

As per Section 32 of the Companies Act, 2013, Red Herring Prospectus means a prospectus which does not include complete particulars of the quantum or price of the securities included therein. This is issued during the book building process when the price cannot be finalized at the time of issue of prospectus. It contains only the floor price or a price band within which the bids can move. Upon closure of the bids, a final prospectus shall be issued stating the total capital raised and the closing price of the securities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(c) (Old syllabus).

As per Explanation appended to Section 32 of the Companies Act, 2013, Red herring Prospectus means “a prospectus which does not include complete particulars of the quantum or price of the securities included therein.” In simple terms, a Red herring Prospectus is a prospectus, which does not include details of either price or number of securities being offered, or the amount of issue.

According to section 32(1) of the Companies Act, 2013, a company proposing to make an offer of securities may issue a Red herring Prospectus prior to the issue of a prospectus. Such company proposing to issue a Red herring Prospectus shall file it with the Registrar of Companies at least 3 days prior to the opening of the subscription list and the offer.

Therefore, the advice given by CEO Santosh is correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(d) (Syllabus 2017).

Section 35 of the Companies Act, 2013 clarifies that where a person has subscribed for securities of a company acting on any statement included, or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person who was responsible as specified shall, without prejudice to any punishment to which any person may be liable under section 36, be liable to pay compensation to every person who has sustained such loss or damage.

Besides civil liability, the promoters, directors and others authorised the issue of prospectus are criminally liable under Section 34 for the issue of prospectus containing untrue or misleading statements in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead.

Section 34 provides that, where a prospectus, issued, circulated or distributed under Chapter III-Part I of the Companies Act, 2013, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under section 447 of the Companies Act, 2013 (Fraud).

However, nothing in this section shall apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary.

As per Section 37, a suit may be filed or any other action may be taken under section 34 or section 35 or section 36 by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus.

Accordingly, in view of the fact that Ms. Runa, is not a shareholder of Blue Ladder Ltd and is only the sister of its shareholder Lakshya, a suit filed by Ms. Runa for untrue statement in the prospectus for Mr. Lakshya who bought the shares of Blue Ladder Ltd will not be admissible, unless she proves to the satisfaction of the Court that she is also affected by the misleading statements in the prospectus. The claim for rescission is the right of the shareholder who purchased the shares relying on the untrue statement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3A(ii) (Old syllabus).

As per Section 34 of the Companies act, 2013, where a prospectus, issued, circulated or distributed, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under Section 447 of the Companies Act, 2013.

However, nothing above shall apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary.

In the instant case, A Ltd. has not disclosed in the prospectus the fact that the company has incurred significant losses for a period of 2 years immediately preceding the previous 5 years. On the other hand, the statement that dividend was paid by the company for the previous 10 years without any interruption could mislead the investor that the company has been profitable throughout. The fact that dividend was actually paid out of windfall capital profits (which was not assured in the future years) for those 2 years was also suppressed. Therefore, the prospectus will be held to be false in material particulars and the Managing Director who issued the prospectus will be held guilty of fraud.

Therefore, the Managing Director of the company shall be liable under Section 34 and 35 of the Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3A(i) (Old syllabus).

Section 35 of the Companies Act, 2013 dealing with civil liability for misstatement in prospectus.

In the present case the prospectus containing a statement that B a very well-known successful businessman was on the board of directors of the company. The fact is “he was not a director of the company”. Obviously the statement in the prospectus is untrue statement.

The burden of proof in a suit by an allottee that he has been misled by the mis-statement in the prospectus lies on the allottee. He must prove the following:-

(i)The misrepresentation was of a fact

(ii)It was in respect of a material fact

(iii)He acted on the misrepresentation and

(iv)He suffered damages in consequence.

In the present case only C will have remedies because he satisfies all the four conditions mentioned above.

D cannot seek any relief because his consent was not caused by misrepresentation as he did not rely on the statement.

E was a subscriber obviously he has not become a member on the basis of prospectus.

F has not bought the shares from the company on the basis of the prospectus. Therefore he cannot claim that his consent was caused by the company by misrepresentation.

C may apply to the court to have the contract set a side and striking off his name from the register of members and claim his money back. However he must act within a reasonable time. The allottee here C may recover the damages from the company for any loss he may have suffered because of the misrepresentation of the prospectus.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(b) (Old syllabus).

According to section 39 of the Companies Act, 2013 allotment of any securities of a company offered to the public for subscription shall be made only when the amount stated in the prospectus as the minimum amount has been subscribed and the sums payable on application for the amount so stated have been paid to and received by the company by cheque or other instrument.

The amount payable on application on every security shall not be less than five per cent of the nominal amount of the security or such other percentage or amount, as may be specified by the Securities and Exchange Board of India (SEBI) by making regulations in this behalf.

Refund of money

In cases where the stated minimum amount has not been subscribed and the sum payable on application is not received within a period of thirty days from the date of issue of the prospectus, or such other period as may be specified by SEBI, the amount received as above shall be returned. ‘The application money shall be repaid within a period of fifteen days from the closure of the issue and if any such money is not so repaid within such period, the directors of the company who are officers in default shall jointly and severally be liable to repay that money with interest at the rate of fifteen percent per annum.

The application money to be refunded shall be credited only to the bank account from which the subscription was remitted.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(a) (Syllabus 2017).

Validity of offer to select group of 250 persons.

As per section 42(2) of the Companies Act 2013 read with rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, a private placement shall be made only to a select group of persons who have been identified by the Board, whose numbers shall not exceed 200 in aggregate in a financial year, excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employee’s stock option in terms of provisions of clause(b) of sub-section (1) of section 62 of the Companies Act, 2013 in a financial year subject to such conditions as may be prescribed. It is further clarified that the restrictions aforesaid would be reckoned individually for each kind of security that is equity share, preference share or debenture.

In this present case, Guddi Logistics Limited made a private placement offer to 250 persons, including 60 qualified institutional buyers. Excluding these 60 QIBs, the offer was made to 190 select persons, which is within the prescribed limit of 200 persons. Therefore, the offer made to a total of 250 select persons is valid under provisions of the Companies Act, 2013.

Objection and Suggestion by the Company Secretary Regarding Utilization of Application Money and Refund with Interest:

As per Section 42(6) of the Companies Act, 2013, a company must allot the securities within 60 days from the receipt of the application money. If the company fails to allot the securities within this period, it is required to refund the application money within 15 days from the expiry of the 60- day period.

If the refund is not made within these 15 days, the company is liable to pay interest at 12% per annum from the expiry of the 60 days.

Additionally, the application money cannot be used for any purpose other than the allotment of securities or for the repayment of monies where the company is unable to allot securities.

In the present case, the company failed to allot the shares by 30th September 2024, which is the 60th day from the receipt of the application money on 1st August 2024. The application money should therefore be refunded by 15th October 2024. If not refunded by this date, interest at 12% per annum will be payable from 1st October 2024.

Hence, the utilization of the application money for the payment of interest on a cash credit limit is not permissible under the provisions of the Companies Act, 2013, making the company secretary’s objection valid. Furthermore, the suggestion to refund the application money with interest at 12% per annum from 1st October 2024, if not refunded by 15th October 2024, is also correct. The view of CFO is therefore not correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(a) (Syllabus 2022).

Specimen of the Board Resolution Approving Private Placement of Shares

“RESOLVED THAT pursuant to the provisions of Section 42, 62(1)(c) and other provisions, applicable, if any, of the Companies Act, 2013 read with the Companies (Prospectus and Allotment of Securities) Rules, 2014 and the Companies (Share Capital and Debentures) Rules, 2014, the consent of the Board of Directors of the Company be and is hereby accorded for an allotment of ____________ (_____________) Equity Shares of Rs. (Rupees_____________ ) each of the Company at par, distinctively numbered from_________ to___________ (both inclusive), to ___________ from whom the Company has received share application money aggregating to Rs. _____________ /(Rupees _______________).

RESOLVED FURTHER THAT the said Equity Shares shall rank pari-passu with the existing Equity Shares in all respects.

RESOLVED FURTHER THAT any of the Directors of the Company be and is hereby authorized to file Return on Allotment of aforesaid shares in E-Form No. PAS-3 or such other applicable form from time to time with the Registrar of Companies by affixing Digital Signature thereto.

RESOLVED FURTHER THAT the Share Certificate for the shares allotted as aforesaid be issued to abovementioned allottee under the signatures of any two Directors and Mr._______________ as Authorised signatory of the Company and the Common Seal (if any) of the company be affixed on the share certificate as per the Articles of Association of the Company.

RESOLVED FURTHER THAT necessary entries in respect of issue and allotment of aforesaid shares be made in the Register of Members.

RESOLVED FURTHER THAT any of the Director of the Company be and is hereby authorized to intimate the above allotment to Depositories and/or R&T agents by submitting necessary documents and to do all such acts, deeds, matters and things which may deem necessary, pertinent, desirable, incidental in this regard.”

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(c) (Syllabus 2022).

1.As per Explanation I under Section 42(3) of the Act, “private placement" means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application (Form PAS-4), which satisfies the conditions specified in this section. As per Rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 a company shall not make an offer or invitation to subscribe to securities through private placement unless the proposal has been previously approved by the shareholders of the company, by a special resolution for each of the offers or invitations. Hence, the proposal of CFO on further raising of share capital by private placement is prima facie valid.

2.As per Rule 14(2) of Companies (Prospectus and Allotment of Securities) Rules, 2014: an offer or invitation to subscribe securities under private placement shall not be made to persons more than two hundred in the aggregate in a financial year: Provided that any offer or invitation made to qualified institutional buyers, or to employees of the company under a scheme of employees stock option as per provisions of section 62(1) (b) shall not be considered while calculating the limit of two hundred persons. In light of above provisions, the proposal to issue offer letter to Four QIBs is valid. But the company cannot issue securities under private placement to the top 250 shareholders.

3.As per Section 42(4) of the Companies Act, 2013: Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person alongwith subscription money paid either by cheque or demand draft or other banking channel and not by cash. Hence, the suggestion of CFO on receiving consideration by cash payment is not valid. In the light of above provisions, the objection of CS in raising the further capital through private placement is not correct. However, his objection to an offer or invitation to subscribe securities under private placement to 250 members and receiving the same in cash is correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2(b) (Syllabus 2017).

RAN Ltd. an unlisted company can issue the equity shares of the company to the identified investors by complying the following provisions of the Companies Act, 2013 read with rules made thereunder:

Section 42 of the Companies Act, 2013 contains the following conditions to be complied with in case a company makes a private placement of securities:

i)A private placement shall be made only to a select group of persons who have been identified by the Board, whose number shall not exceed 200 in any financial year. For the purpose of this limit of 200, offer or invitation made to qualified institutional buyers or employees under the ESOP scheme shall not be considered. The company may make more than one issue of securities to such class of identified persons, subject to the overall limit of 200 persons. The limit of 200 persons shall be reckoned for each class of securities that is equity, preference or debenture.

ii)If a company makes an offer to allot or invite subscription or allots or enters into an agreement to allot securities more than the prescribed number of persons, whether payment has been received or not, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions applicable to public offer.

iii)The company shall issue private placement offer and application in the prescribed form to identified persons, whose names and addresses are recorded by the company in the prescribed manner.

iv)The private placement offer and application shall not carry any right of renunciation. This means that only the identified person to whom the offer is made can subscribe and not any other person to whom the identified person may like to renounce.

v)Every identified person willing to subscribe shall apply in the application issued to him, along with subscription money paid either by cheque or demand draft or other banking channel and not by cash.

vi)The company shall not utilize money raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with Section 42(8).

vii)No fresh offer or invitation under Section 42 shall be made unless the allotment with respect to the previous offer or invitation have been completed or that offer or invitation have been withdrawn or abandoned by the company.

viii)The company shall allot its securities under private placement within 60 days from the date of receipt of the application money and if the company is not able to allot the securities within the prescribed time, it shall repay the application money to the subscribers within 15 days from the expiry of 60 days and if the company fails to repay the application money within the aforesaid time, it shall be liable to repay that money along with interest at the rate of 12% p.a. from the expiry of the 16th day.

ix)The money received under private placement shall be kept in a separate bank account and shall not be utilized for any purpose other than for adjustment against allotment of securities or for the repayment of money where the company is unable to allot securities.

x)The company making a private placement shall not issue any public advertisement or utilize any media, marketing or distribution channels or agents inform the public at large about such an issue.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(b) (Old syllabus).

Section 43 of the Companies Act, 2013 read with Rule 4 of Companies (Share Capital and Debentures) Rules, 2014 provides that company can issue shares with Differential Voting Rights (DVRs) if company's Articles authorise it to issue differential voting right shares. Shares with DVRs can be issued by company limited by shares only.

Company cannot issue shares with DVRs if company has defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares. The provisions of section 43 of the Companies Act, 2013 are applicable to public as well as private company.

In light of the above provisions:

•A Ltd. can issue shares with DVRs. Company would be ineligible to issue shares with s if it has defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year which it is proposed to be issued. A Ltd. has made default during financial year 2018-19 & 2019- 20 only in respect of filing annual return, which was made good during the financial year 2020-2021. Articles of Association of A Ltd. also authorise the company to issue shares with DVRs.

•B Pvt. Ltd. cannot issue shares with DVRs unless it alter its Articles of Association in such a manner so as to authorise it to issue shares with DVRs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2(a) (Syllabus 2017).

Section 43 of the Companies Act, 2013, provides that a company limited by shares can issue equity shares with differential rights as to dividend, voting or otherwise in accordance with the conditions which are prescribed under Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014.

Rule 4 of Companies (Share capital and Debentures) Rules, 2014 specifies a condition w.r.t. the limit on issue of shares with differential rights i.e., a company limited by shares can issue equity shares with differential rights complying with the condition that the voting power in respect of shares with differential rights of the company shall not exceed 74% of total voting power including voting power in respect of equity shares with differential rights issued at any point of time.

Hence, the statement that every company can issue shares with differential voting rights up to 50% of its share capital is well within the limit mentioned in Rule 4 of Companies (Share Capital and Debentures) Rules, 2014. Thus, this statement is correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(ii) (Old syllabus).

Validity of share certificate:

According to Section 46(1) of the Companies Act, 2013, a share certificate must be issued under the common seal of the company, if any, and must be signed by at least two directors or by at least one director and the company secretary, if the company has one.

Since ABC Pvt. Ltd. does not have a company secretary, the share certificates should have been signed by at least 2 directors. However, they are signed by only one director. Hence, the share certificates issued are not valid.

Validity of objection of Raj: As per Section 56(4) of the Companies Act, 2013, a company is required to deliver the share certificates of all shares allotted within a period of two months from the date of allotment of share. Since the company failed to issue the share certificates on or before 14th September i.e. within 2 months of allotment of shares on 15th July, 2025, the complaint of Raj dated 15th September, 2025 is valid.

Validity of issue raised by Neha: Under Section 45 of the Companies Act, 2013, every share in a company having a share capital shall be distinguished by its distinctive number:

Provided that nothing in this section shall apply to a share held by a person whose name is entered as holder of beneficial interest in such share in the records of a depository. Hence, the issue raised by Neha is not valid

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 4(a) (Syllabus 2022).

The question whether a share certificate of a company is an official publication within the meaning of Section 12(3)(c) was considered by the Department of Company Affairs (Now, Ministry of Corporate Affairs) and the Department has clarified vide Circular No. 3/73[8/10(47)]/72-CL-V dated 03.02.1973 as follows:

“It will be seen that in terms of Section 82 [Corresponds to Section 44 of the Companies Act, 2013], the shares in a company are movable property transferable in the manner provided in the articles of the company.”

Section 84 [Corresponds to Section 46 of the Companies Act, 2013] provides that a certificate issued under the common seal of the company, if any or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary, specifying the shares held by any member shall be prima facie evidence of the title of the member to such share.

Thus, shares are movable property transferable in the manner provided in the articles of the company and that the share certificates are certificates of title and are movable property but are not publications in the nature of prospectus, balance sheet, profit and loss account, notice or advertisement.

The conclusion reached, therefore, is that the share certificate is not an official publication within the meaning of Section 12(3)(c) of Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(c) (Old syllabus).

As per Section 46 of the Companies Act, 2013 read with Rule 6 of Companies (Share Capital and Debentures) Rules, 2014, every company with a share capital should, from the date of its registration, maintain a register of renewed and duplicate certificates.

The word ‘renewed’ includes consolidation and sub-division of shares and issue of certificate in lieu thereof.

Particulars of every share certificate issued shall be recorded in a Register of Renewed and Duplicate Share Certificates. Such register shall be maintained in Form No. SH-2 indicating against the name(s) of the person(s) to whom the certificate is issued, the number and date of issue of the share certificate in lieu of which the new certificate is issued, and the necessary changes indicated in the Register of Members by suitable cross-references in the “Remarks” column. Such register shall be kept at the registered office of the company or at such other place where the Register of Members is kept.

The register shall be preserved permanently and shall be kept in the custody of the Company Secretary of the company or any other person authorized by the Board for the purpose. All entries made in the Register of Renewed and Duplicate Share Certificates shall be authenticated by the company secretary or such other person as may be authorized by the Board for purposes of sealing and signing the share certificate. The register is not open for inspection.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5A(iv) (Syllabus 2017).

According to Section 46(3) of the Companies Act, 2013 a share certificate, issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary, specifying the shares held by any person, is the prima facie evidence of the title of the person to such shares.

Hence where the company has appointed a Company secretary then his signature is mandatory on the share certificate issued by the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(c) (Syllabus 2017).

According to section 50(1) of the Companies Act, 2013 a company may if authorized by its articles accept from any member the whole or a part of the amount remaining unpaid or any shares held by him, even if no part of that amount has been called up.

Section 50(2) of the said Act provides that a member of the company limited by shares shall not be entitled to any voting rights in respect of the amount paid by him until that amount has been called up.

The amount so received in advance will be treated as a loan with a specific purpose, where the company goes into liquidation, calls in advance will be repaid first, before the capital is returned.

Interest on the calls-in-advance may be paid, if authorized by the articles of association.

Accordingly, in the instant case, the shareholder can claim interest on the amount advanced by him, if authorized by the articles of association. However, he shall acquire voting rights on the amount paid up in advance only when the amount is called by the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3A(i) (Old syllabus).

In accordance with the provisions of Section 52(2) of the Companies Act, 2013, the securities premium can be utilized only for:

a)towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares;

b)in writing off the preliminary expenses of the company;

c)writing off commission paid, or discount allowed, or the expenses incurred on issue of shares or debentures of the company.

d)for providing for the premium payable on redemption of any redeemable preference shares or debentures of the company; or

e)for the purchase of its own shares or other securities under section 68.

Section 52(3) further states that the securities premium account may, notwithstanding anything contained in sub-sections (1) and (2), be applied by such class of companies, as may be prescribed and whose financial statement complies with the accounting standards prescribed for such class of companies under section 133-

a)in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or

b)in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or

c)for the purchase of its own shares or other securities under section 68.

Firstly, the premium cannot be treated as profit and as such the amount of premium is not available for distribution as dividend. Secondly, the amount of premium whether received in cash or in kind must be kept in a separate account, known as the “Securities Premium Account”. Thirdly, the amount of premium is to be maintained with the same sanctity as the share capital.

Accordingly, the suggestion of a director is partly correct. His suggestion to utilise the securities premium account for writing off the preliminary expenses is valid. However, the suggestion to utilise the same for distribution of dividend is not valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(b) (Syllabus 2017).

In accordance with the provisions of Section 52(2) of the Companies Act, 2013, the securities premium can be utilised only:

(a)towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares;

(b)in writing off the preliminary expenses of the company;

(c)in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;

(d)in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or

(e)for the purchase of its own shares or other securities under Section 68 of the Companies Act, 2013.

Accordingly, the amount available in the securities premium is restrictive in nature and can only be used for specified purposes.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(a) (Syllabus 2017).

(i)Section 54(1) of Companies Act 2013 provides that notwithstanding anything contained in Section 53, of Companies Act 2013 a company can issue sweat equity shares, of a class of shares already issued, if the following conditions, are satisfied:

1.Authorisation by Special Resolution: The issue has been authorized by a special resolution passed by the company in the general meeting. The resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued.

2.Limitations on issue of sweat equity shares: Rule 8(4) of the Companies (Share Capital and Debenture) Rules 2014 states that, the company shall not issue sweat equity shares for more than fifteen percent of the existing paid-up equity share capital in a year or shares of the issue value of rupees five crores, whichever is higher. The issuance of sweat equity shares in the company shall not exceed twenty five percent, of the paid-up equity capital of the company at any time.

3.Three Years Locking Period: Rule 8(5) of the Companies (Share Capital and Debenture) Rules 2014-The sweat equity shares issued to directors or employees shall be locked for a period of three years from the date of allotment and the fact that the share certificates are under lock-in and the period of expiry of lock in shall be stamped in bold or mentioned in any other prominent manner on the share certificate.

The sweat equity shares may be issued at a discount. It has been correctly authorised by passing a special resolution. The size of issue of shares should not exceed 7,50,000 shares (15%*50 lakh shares). However, the company has issued 10,00,000 sweat equity shares which is in excess of the prescribed limit of 15% in any year though it is within the limit of 25% of total shares at any time. The lock-in period should be 3 years but the company has fixed it for 5 years. Considering this the company has violated the conditions regarding size and lock-in period of the issue of sweat equity shares.

However, the value of proposed 10 lakh sweat equity shares @ Rs. 10 per share i.e. Rs. 1 crore does not exceed Rs. 5,00,00,000, the company can issue 10 lakh sweat equity shares, not exceeding the overall limit of 25% of paid-up equity share capital at any time.

(ii)If the company is a Start-up company:

As per proviso to Rule 8(4) of the Companies (Share Capital and Debenture) Rules 2014 -A startup company, as defined by Ministry of Commerce and Industry, Government of India, may issue sweat equity shares not exceeding fifty percent of its paid up capital up-to ten years from the date of its incorporation or registration.

The company was incorporated 5 years ago and not crossed the time limit of 10 years from its incorporation. The issue size of 10 lakh equity shares would be within the limit of 50% of the total paid-up shares (50%*50 lakh=25 lakh) but the lock-in-period of 5 years will be a violation of condition of section 54. Hence, for this reason, the issue of sweat equity shares shall be invalid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(c) (Syllabus 2022).

According to section 2(88) of the Companies Act, 2013, sweat equity shares means such equity shares issued by company to its directors or employees at a discount or for consideration, other than cash for providing their know how of available rights in the nature of intellectual property rights or value additions, by whatever name called.

According to explanation to Rule 8(l) of the Companies (Shares Capital and Debentures) Rules, 2014:

For the purpose of this rule the expression “Employee” means-

•A permanent employee of the company who has been working in India or outside India;

•A director of the company, whether a whole-time director or not; or

•An employee or a director as defined in sub clause (a) or (b) above of a subsidiary, in India or outside India, or of a holding company of the company.

Further, section 54(1) provides that notwithstanding anything contained in Section 53, a company can issue sweat equity shares of a class of shares already issued, if the issue has been authorised by a special resolution by the company in the general meeting.

As per the above provisions of the Companies Act, 2013, the analysis of the objections of Company Secretary of XYZ Limited is as below-

(i)Sweat equity shares can be issued to the executive director of ABC Limited which a subsidiary company of XYZ Limited. Hence, the objection of Pankaj is not correct.

(ii)Special resolution is required to be passed to issue of sweat equity shares. Ordinary resolution is not sufficient. Hence, the objection of Pankaj is correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(b) (Syllabus 2017).

Type of meeting: General Meeting

Kind of resolution: Special Resolution

Specimen resolution:

TO CONSIDER AND APPROVE ALLOTMENT OF SWEAT EQUITY SHARES TO MR. / MS….….(DIN:…..) CHAIRMAN AND MANAGING DIRECTOR

"RESOLVED THAT subject to the provisions of section 54 of the Companies Act, 2013 read with Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014, in accordance with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, Securities Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI Listing Regulations"), and in accordance with the provisions of the Articles of Association of the Company and any other regulatory approval if required, including any statutory modification(s) or re- enactment(s) thereto, and further subject to such other approvals, permissions and sanctions as may be necessary from any other statutory authority and such conditions and modifications as may be prescribed or imposed while granting such approvals consent of the members be and is hereby accorded to allot _________________ Equity Shares as Sweat Equity Shares of Rs. /- __________each to Mr./Ms. __________________________ Chairman & Managing Director of the Company holding DIN :_________________, for the value addition he / she continues to create in 4 years while in employment of the Company, in such tranches as may be decided from time to time within the time permissible under relevant regulation, at Rs. /-____________ per share on the basis of the valuation reports dated _________from (SEBI Category I Merchant Banker) & from _________________ Registered Valuer.

"RESOLVED FURTHER THAT the Equity Shares to be allotted shall rank pari passu with the existing Equity Shares of the Company.

"RESOLVED FURTHER THAT the price of the same shall be determined as prescribed under Regulation 33 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

"RESOLVED FURTHER THAT Mr./Ms. _____________Company Secretary and/or any director of the Company be and is/are hereby authorized to do all such acts and deeds as may be deemed necessary for giving effect to the aforementioned resolution.”

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 3(a) (Syllabus 2017).

(i)Yes, Section 54 of Companies Act, 2013 permits issue of sweat equity shares to employees or directors in recognition of their contribution for providing know-how etc. as aforesaid. As the contribution made by employees/directors results in increased profits to the company for a number of years, sweat equity shares provide a new form of adequate return.

(ii)Yes, Rule 8(1) of Companies (Share capital and Debentures) Rules, 2014 states the special resolution shall be passed authorizing the issue of sweat equity shares and shall be valid for making the allotment within a period of not more than twelve months from the date of passing of the special resolution.

(iii)Rule 8(4) of Companies (Share capital and Debentures) Rules, 2014 states that the company shall not issue sweat equity shares for more than fifteen percent of the existing paid up equity share capital in a year or shares of the issue value of rupees five crore, whichever is higher, The issuance of sweat equity shares in the company shall not exceed twenty five percent, of the paid up equity capital of the company at any time.

As the paid-up capital of the company is Rs.30 crore. Hence he can be allotted with 15% of existing equity i.e. (15% of 30 crore up to Rs. 4.5 Crore) value of shares or Rs. 5 crore whichever is higher.

(iv)Rule 8(5) of Companies (Share capital and Debentures) Rules, 2014 says that the sweat equity shares issued to directors or employees shall be locked/non-transferrable for a period of three years from the date of allotment and the fact that the share certificates are under lock-in and the period of expiry of lock-in shall be stamped in bold or mentioned in any other prominent manner on the share certificate. And hence the sweat equity shares allotted to Russel can be sold in the market only after the expiry of the lock-in period of three years from the date of allotment.

(v)Yes, Rule 8(10) of Companies (Share capital and Debentures) Rules, 2014 states that the amount of sweat equity shares issued shall be treated as part of managerial remuneration for the purposes of sections 197 and 198 of the Act, if the following conditions are fulfilled namely-

(a)the sweat equity shares are issued to any director or manager; and

(b)they are issued for consideration other than cash, which does not take the form of an asset which can be carried to the balance sheet of the company in accordance with the applicable accounting standards.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(a) (Syllabus 2017).

Section 53 of Companies Act, 2013 read with Rule 8(1) of Companies (Share Capital and Debentures) Rules, 2014 deal with issue of sweat equity share by a company.

Accordingly. Employee as per explanation to Rule 8(1) of Companies (Share Capital and Debentures) Rules, 2014 is as under:

“Employee” means-

(a)a permanent employee of the company who has been working in India or outside India, for at least last one year or;

(b)a director of the company, whether a whole-time director or not; or

(c)an employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India or outside India, or of a holding company of the company;

Considering the above,

(a)Issuance of sweat equity shares by Kamadenu Sugars Ltd. to temporary employee accounts to non-compliance of the provisions of Companies Act, 2013.

(b)Further issuance of sweat equity shares by Kamadenu Sugars Ltd. to part time director of the company is valid as employee includes ‘a director of the company whether a whole time director or not’.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3A(i) (Old syllabus).

As per Section 55(3) of Companies Act 2013, states that when a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue (such shares here in after referred to as unredeemed preference shares), it may, with the consent of the holders of three-fourths in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed.

The issue of further redeemable preference shares or the redemption of preference shares under this section shall not be deemed to be an increase or, as the case may be, a reduction, in the share capital of the company.

Hence, AD Ltd. may redeem the due preference shares by issuing further redeemable preference shares of ₹55 lakh (including dividend), after obtaining the consent of preference shareholders holding not less than three-fourths in value of such shares (i.e., ₹37.50 lakh) and the approval of the Tribunal. On such issue, the unredeemed preference shares shall be deemed to have been redeemed, and the transaction shall not be regarded as an increase or reduction of the company’s share capital.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 4(a) (Syllabus 2022).

According to second proviso to Section 55(2) of the Companies Act, 2013 (the Act), no preference shares shall be redeemed except out of the profits of the company which would otherwise be available for the purpose of payment of dividend or out of fresh issue of preference shares made specifically for the purpose of redemption of existing preference shares.

According to Section 55(3) of the Act, where a company which has issued preference shares is not in a position to redeem any of its preference shares or pay dividend on the preference shares, it may, with the consent of 3/4th of in value of such preference shares and with the approval of Tribunal, issue further redeemable preference shares equal to the amount of outstanding preference shares including outstanding dividend.

Where the profit is not available for payment of dividend and redemption of unredeemed preference shares on maturity, the only way available to the company is to opt for rollover of the existing preference shares along with accumulated preference dividend when it becomes due for redemption in the year 2023.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(d) (Syllabus 2017).

•As per Section 55(2) (c) of the Companies Act, 2013 (Act), where preference shares of a company are proposed to be redeemed out of profits of the company, a sum equal to the nominal amount of preference shares to be redeemed shall be transferred to Capital Redemption Reserve account.

•The provision of the Act on reduction of capital under section 66 shall apply as if the Capital Redemption Reserve account is part of the paid-up share capital of the company.

•Again, under section 69 of the Act dealing with buy-back regulations, where a company purchases its own shares out of free reserves or security premium account, a sum equal to nominal value of the shares bought back shall be transferred to Capital Redemption Reserve account and also disclosed in the balance sheet.

•The amount in Capital Redemption Reserve account can be applied under section 69(2) of the Act by the company in paying up unissued shares of the company to be issued to members of the company as fully paid-up bonus shares under section 63 of the Act.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2Aiii (Syllabus 2017).

Article 23(i) of Table F of Schedule I of the Companies Act, 2013, provides that on the death of a member, the survivor or survivors where the member was a joint holder, and his nominee or nominees or legal representatives where he was a sole holder, shall be the only persons recognised by the company as having any title to his interest in the shares.

Accordingly, in case of transmission of share, the Company Secretary should check whether:

-The shares have been transmitted to the legal representative of the deceased shareholder in the case of death of a sole shareholder; and

-In the case of joint holdings only to the survivor(s).

-Transmission of share is effected upon the production of succession certificate or probate or letter of administration or indemnity duly signed by the legal heirs of the deceased or as per procedure stipulated by the board and / or Articles of Association.

In the present case, Jishu was the deceased member who held 500 equity shares along with Jesmine, being the joint holder and the only survivor and for the transmission of share they were two claimants:

1.Jagdish, the legal representative of the deceased member;

2.Jesmine, the spouse of the deceased member who is also the joint share holder of 500 along with the deceased member.

Thus, in view of above, the shares shall be transmitted in favour of Jesmine, being the survivor of shares held by her jointly with the deceased member of the company subject to the fulfilment of other applicable conditions.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 1(c) (Syllabus 2022).

In case of joint shareholders one or more of them may require the company to alter or re-arrange the order of their names in the register of members of the company. If the company provides in its articles that the senior most amongst the joint shareholders will be recognised for all processes like service of notice, voting at the meeting etc. the request of transposition may be duly considered and approved by the Board or other authorised officer of the company. Since no transfer of any interest in the shares take place on such transposition it does not require payment of stamp duty. Section 56 of the Companies Act, 2013 read with Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014, is primarily for the transfer of securities where there is a change in ownership from one person to another. Since transposition does not involve a change in ownership, it falls outside the purview of requiring a Form SH-4.

The stock exchange division of Department of Economic Affairs has clarified that there is no need of execution of transfer deed if requirement of change of order of name is made in writing by all joint holders. Hence a joint application by all the shareholders will be sufficient if it is for entire holding. Transposition of names of shareholders in the register of members do not require the execution through instrument of transfer in Form SH-4.

If transposition is needed in case of part of holding, execution of transfer deed with payment of stamp duty will be needed. The Board of directors are advised accordingly.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(a) (Syllabus 2022).

In case of a newly incorporated company the subscribers to Memorandum automatically become members of the company on the date of incorporation u/s 2(55)(i) read with Section 9 of Companies Act, 2013 and their names have to be entered in the register of members. Share certificates have to be issued to the subscribers within 2 months as provided in Section 56(4)(a) failing which penalty provision as per sub-section (6) gets attracted. A question that arises here is whether share certificate is required to be issued even if subscription money has not been received from the subscribers. Interestingly, the answer is yes. Subscription money payable is a debt under Section 10(2) of the Act and company can file suit for recovery of the same. As per ICAI guidance note on Schedule III to the Act:

“However, the unpaid amount towards shares subscribed by the subscribers of the Memorandum of Association should be considered as ‘subscribed and paid-up capital’ in the Balance Sheet and the debts due from the subscriber should be appropriately disclosed as an asset in the balance sheet.”

In this case there was delay of 74 days in issue of share certificates to subscribers due to delay in receipt of subscription money and hence ROC levied penalty of Rs. 50,000 each on the company and its officers which is justified.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 4A(i) (Syllabus 2022).

When the instrument of transfer (also known as transfer deed) in Form SH-4 contains the forged signature of the transferor and is presented to the company by the transferee along with the share certificates, it is called a forged transfer deed. Further Section 57 of the Companies Act, 2013 states that if any person deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of this Act, 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.

The consequences of forged transfer are detailed as below:

(i)A forged transfer is a nullity and the original owner of shares remains the shareholder and the member of the company. A forged transfer deed has no legal effect.

The company is bound to restore the name of the transferor on the register of members (maintained in Form MGT-1 u/s 88 of the Act) as decided in a case law Peoples Insurance Company v Wood, 1961.

(ii)A company does not incur any liability in case of a forged transfer if the name of the transferor is restored on the register of members.

(iii)However, if a company (without obtaining an indemnity bond from the transferee) issues new share certificates to the transferee who made the share transfer application using a forged transfer deed and subsequently, on receipt of new share certificates from the company, the illegal transferee sells the shares to an innocent buyer, then the company is liable to compensate the innocent buyer if it refuses to register him as a member or if the name of the innocent buyer has been removed, on the application of the true owner of the shares.

Normally, companies write to the transferor about the lodgement of the transfer deed to avoid the consequences of a forged transfer. If a company incurs any loss due to a forged transfer, it may recover the losses independently from the person who lodged the forged transfer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(c) (Syllabus 2017).

In the case of joint-shareholders, one or more of them may require the company to alter or rearrange order of their names in the register of members of the company. In this process, there will be need for effecting consequential changes in the share certificates issued to them. If the company provides in its articles that the senior-most among the joint- holders will be recognised for all purposes like service of notice, a copy of balance sheet, profit and loss account, voting at a meeting etc., the request of transposition may be duly considered and approved by the Board or other authorised officer of the company. Since no transfer of any interest in the shares take place on such transposition, the question of insisting on filling transfer deed with the company, may not arise. Transposition also does not require stamp duty.

Transposition of names of shareholders in the register of members do not require the execution through instrument of transfer in Form SH-4.

The Stock Exchange Division of the Department of Economic Affairs has clarified that there is no need of execution of transfer deed for transposition of names if the request for change in the order of names was made in writing, by all the joint-holders. If transposition is required in respect of a part of the holding, execution of transfer deed will be required.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(e) (Syllabus 2017).

According to Section 56(1) of the Companies Act, 2013 a company shall not register a transfer of securities of the company, unless a proper instrument of transfer duly stamped, dated and executed by or on behalf of the transferor and transferee has been delivered to the company by the transferor or transferee within a period of 60 days from the date of execution along with the share certificates relating to the securities, or if no such certificate is in existence, then along with the related certificate or letter of allotment of the securities. According to Section 56(4) of the Companies Act, 2013 every company unless prohibited by any provision of law or of any order of court, Tribunal or other authority, shall deliver the certificates of all shares transferred within a period of one month from the date of receipt by the company of the instrument of transfer. Hence, in the given case, if all the required formalities are duly complied with by the Transferor or Transferee, the Company was required to issue share certificate(s) within the stipulated time period. Further, under section 56(6), where any default is made in complying with the provisions of sub-section

(1)to (5) of Section 56 (which deals with transfer and transmission of shares), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees. The jurisdiction binding on the company is that of the State in which the registered office of the company is situated. Hence, in the given case the Bengaluru Court is not competent to take action in the matter.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2A(ii) (Syllabus 2017).

Distinction between transfer and transmission of shares are as under:

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2(b) (Syllabus 2017).

Where any person acquires any right to securities by operation of any law, the company may register the transmission of shares in favour of such person if the company receives intimation of transmission from such person, and in such a case no transfer deed shall be necessary.

Article 23(i) of Table F of Schedule I of the Companies Act, 2013, states that on the death of a member, the survivor or survivors where the member was a joint holder, and his nominee or nominees or legal representatives where he was a sole holder, shall be the only persons recognised by the company as having any title to his interest in the shares.

Further, according to Section 56(2) of the Companies Act, 2013, a company shall have power to register on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted. The legal heirs have to produce the succession certificates for transmission of securities.

However, if a widow applies for transmission of the shares standing in the name of her deceased husband without producing succession certificate and if the Articles of Association of the Company so authorizes, the directors may dispense with the production of succession certificate, probate or letter of administration upon such terms as to indemnity, as the Directors may consider necessary, and transmit the shares to the widow of the deceased by obtaining an Indemnity bond, (Pushpa Vadera vs. Thomas Cook (India) Ltd.).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3A(ii) (Old syllabus).

Under section 56(4) of the Companies Act, 2013, every company, unless prohibited by any provision of law or any order of any Court Tribunal or other authority must deliver the certificates of all securities allotted, transferred or transmitted :- .

(i)Within a period of two months from the date of incorporation, in the case of subscribers to the Memorandum and within a period of two months from the date of allotment in the case of any allotment of any of its shares;

(ii)Within a period of six months from the date of allotment in the case of any allotment of debenture

However, as per the proviso to sub section 4 of section 56, where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.

Where any default is made in complying with the above provisions, Section 56(6) states the company shall be punishable with fine which shall not be less than Rs. 25,000 but which may extend to Rs 5 Lakh and every officer of the company who is in default shall be punishable with fine Which shall not be less than Rs 10,000 but which may extend to Rs.1, 00,000.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(e) (Syllabus 2017).

SPECIMEN OF DEED OF ASSIGNMENT OF SHARES OF COMPANY

THIS ASSIGNMENT is made this -------day of --------between AB, son of ---------- resident of ---------- (hereinafter called “the Assignor”) of the one part, and CD, son of --- ------- resident of ---------- (hereinafter called “the Assignee”) of the other part.

THE DEED WITNESSES:

That in consideration of the sum of Rs.--------- (Rupees ------------ ) paid by the assignee to the assignor, the receipt whereof the assignor hereby acknowledges, the said AB hereby assigns, sells and transfers to the said CD --------------- Equity Shares of Rs------ -- each, fully paid up ,bearing consecutive Nos---------to------------ (inclusive), which stand in the name of the assignor in the Register of Members of --------- Co. Ltd. TO HOLD the same to the assignee absolutely, subject nevertheless to the conditions on which the assignor held the same up to date.

AND the assignee hereby agrees to take the said Equity Shares subject to such conditions.

IN WITNESS WHEREOF the assignor and the assignee do hereto affix their respective signatures on the day, month and the year stated above.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(ii) (Syllabus 2017).

Section 57 of the Companies Act, 2013 provides that, where any person deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of the Companies Act, 2013 and:

(i)thereby obtains or attempts to obtain any such share or interest or any such share warrant or coupon, or

(ii)receives or attempt 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.

Hence, the argument of the company secretary is not correct. The Companies Act 2013 itself provides for punishment for impersonation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(c) (Old syllabus).

The securities or other interest of any member in a public company are freely transferable. Refusal to register share transfer on suspicion that the employee if admitted as a member will attend general meetings of the company and may create nuisance by raising irrelevant issues and also obtain access to the records to the company as a shareholder is not a valid reason.

(Appeal to the CLB No. 27, of 1975 dated 17th August, 1976, Shri Nirmal Kumar v. Jaipur Metal and Electrical Limited.)

Accordingly, as per Section 58 (4) of the Companies Act, 2013, if a public company without sufficient cause refuses to register the transfer of securities within a period of 30 days from the date on which the instrument of transfer is delivered to the company, the transferee may, within period of 60 days of such refusal or where no intimation has been received from the company, within 90 days of the delivery of the instrument of transfer, can appeal to the Tribunal.

Hence taking into account the above-

(a)The refusal by the company to register the transfer shares in the name of the employee is not tenable.

(b)Employee in this case can go for appeal to the Tribunal against the company's refusal.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(i) (Syllabus 2017).

Name of the company…………………….

Registered address: ………….

CIN…………. Email……. Telephone………Website……

NOTICE is hereby given that an (no. of meeting) Extra ordinary General Meeting of the members of ............................. (Name of the Company) will be held on ….day, ….. December, 2025, at 11 AM at ............................. (address) to transact the following business:

SPECIAL BUSINESS

To consider, and if thought fit, to pass, with or without modification, the following Resolution as a Special Resolution:

“RESOLVED THAT pursuant to Section 13 read with Section 61(1)(b) and other applicable provisions, if any, of the Companies Act, 2013, and Article No.... of the Articles of Association of the company, all the …….. crore equity shares of ₹. … each of the company be and are hereby consolidated into …….. equity shares of ₹. …./- each. and consequently, Clause V of the Memorandum of Association shall stand restated as follows:”

“The Authorised Share Capital of the company is Rs. …….(… Crores) consisting of …… Equity Shares of Rs. …./- each.”

“RESOLVED FURTHER THAT all the present shareholders holding in all …… issued, subscribed and fully paid equity shares of ₹. …. (Rupees …) each be issued, in lieu of their present shareholding, the number of fully paid consolidated equity shares of ₹. …. (Rupees ….) each.”

“RESOLVED FURTHER THAT the Board of directors of the company be and is hereby authorised to take all the necessary steps for giving effect to the foregoing resolution, including recall of the existing share certificates, issue of new share certificates in lieu of the existing issued share certificates in terms of the foregoing resolutions and in accordance with the applicable provisions of the Companies Act, 2013 read with Companies (Share Capital and Debentures) Rules, 2014.”

Explanatory Statement pursuant to section 102 of the Companies Act, 2013:

In order to maintain uniformity in the nominal value of the company’s equity shares with the nominal value of equity shares of other companies, the Board of directors of the company, at its meeting held on ............. resolved to alter Clause V of the Memorandum of Association consequent to consolidation of the company’s equity shares of ₹. …. (Rupees ….) each into shares of ₹. …. (Rupees ….) each.

Therefore, the proposed resolutions are commended to the shareholders of the company for their consideration and approval.

The directors of the company are interested in the proposed resolutions to the extent of their respective shareholdings in the company.

For and on behalf of …………………..

Name:

Designation:

Date:

Place:

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6(c) (Syllabus 2022).

Difference between ‘Reduction of Share Capital’ and ‘Diminution of Share Capital’

Reduction of Share Capital

Reduction of Share Capital is the process of decreasing a company’s share capital (both equity and preference share capital) through share cancellations and share repurchases. After a capital reduction, the number of shares in the company will decrease by the reduction amount.

Reduction of Share Capital is governed by the provisions of Section 66 of the Companies Act, 2013. It provides that subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in, particular, may—

(a)extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or

(b)either with or without extinguishing or reducing liability on any of its shares,:

(i)cancel any paid-up share capital which is lost or is unrepresented by available assets; or

(ii)pay off any paid-up share capital which is in excess of the wants of the company,

alter its memorandum by reducing the amount of its share capital and of its shares accordingly.

Diminution of Share Capital

Diminution of capital is the cancellation of the unsubscribed part of the issued capital.

Section 61(1)(e) of the Companies Act, 2013, provides that, a limited company having share capital, if so, authorised by its Articles of Association, may alter its Memorandum in its general meeting to cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.

Further, Section 61(2) of the Companies Act, 2013 specifically states that the cancellation of shares under section 61(1) shall not be deemed to be reduction of share capital.

While Reduction of Capital in accordance to Section 66 of the Companies Act, 2013 requires confirmation of the same by Tribunal, diminution of capital do not require such confirmation by the Tribunal.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(a) (Old syllabus).

Sub-Division of equity shares from the Face Value of Rs.5/- to Face Value of Rs.1/- per share

To consider and if thought fit to pass with or without modification(s) the following resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to Section 61(1)(d),64 and all other applicable provisions, if any, of the Companies Act, 2013, and Rules framed thereunder (including any statutory modification or re-enactment thereof, for the time being in force) and the provisions of Memorandum of Association and Articles of Association of the Company and subject to such other approvals, consent, permissions and sanctions as may be necessary from the appropriate authorities or bodies, consent of the members of the company be and is hereby accorded for the sub-division of each of the Equity Share of the Company having a face value of Rs. 5 each in the Authorized Equity Share Capital of the company sub-divided into 5 (Five) Equity Shares having a face value of Rs.1/- each (“Sub-division”).

RESOLVED FURTHER THAT pursuant to the sub-division of the equity shares of the Company, all the issued, subscribed and paid-up equity shares of face value of Rs. 5/- (Rupees Five only) each of the Company existing on the record date to be fixed by the Company shall stand sub-divided into equity shares of face value of Rs.1/- (Rupees One only) each fully paid up, without altering the aggregate amount of such capital and shall rank pari passu in all respects with the existing fully paid equity share of Rs.5/- each of the company and shall be entitled to participate in full dividend to be declared after subdivided Equity shares are allotted.

RESOLVED FURTHER THAT upon sub-division of equity shares as aforesaid, the existing share certificate(s) in relation to the existing equity shares of the nominal value of Rs.5/- (Rupees Five only) each held in physical form shall be deemed to have been automatically cancelled and be of no effect on and from the “Record Date” to be fixed by the Company and Company may without requiring the surrender of existing share certificate(s) directly issue and dispatch the new share certificate(s) of the company, in lieu thereof, subject to the provisions of the Companies (Share Capital and Debentures) Rules, 2014 and in the case of members who hold the equity shares / opt to receive the sub-divided equity shares in dematerialised form, the subdivided equity shares of nominal value of Rs.1/- (Rupee one only) each shall be credited to the respective beneficiary account of the members with their respective depository participants and the Company shall undertake such corporate actions as may be necessary in relation to the existing equity shares of the Company.

RESOLVED FURTHTER THAT the Board of Directors of the Company be and is hereby authorised to take such steps as may be necessary for obtaining approvals, statutory, contractual or otherwise in relation to the above and to settle all matters arising out of and incidental thereto and to execute all deeds, applications, documents and writings that may be required, on behalf of the Company and generally to do all such acts, deeds, matters and things and to give from time to time such directions as may be necessary, proper, expedient or incidental for the purpose of giving effect to this Resolution and to delegate all or any of the powers herein vested in the Board to any Director(s), Officer(s) of the Company as may be required to give effect to this above resolution”.

EXPLANATORY STATEMENT PURSUANT TO SECTION 102 OF THE COMPANIES ACT, 2013

As the members are aware, the equity shares of your company are listed on the BSE & NSE and are regularly traded on the said Exchanges.

With a view to broad base the investor base by encouraging the participation of the retail investors and also with a view to increase the liquidity of the company's shares, the Board of directors in its meeting held on May 5, 2021 recommended sub-division of the nominal value and paid-up value (Authorised, Issued, Subscribed & Paid-up) of the company from one equity shares of Rs.5 (Rupees five only) each into five equity shares of Rs.1 (Rupees one only) each.

The aforesaid sub-division of equity shares of Rs. 5 each into equity shares of Rs.1 each would require amendment to existing capital clause V of the Memorandum of Association.

After approval of the resolution set out as above, the Board of directors or Committee thereof will fix the record date for the purpose of ascertaining the list of members whose shares shall be sub-divided as proposed above and the same shall be notified to the members through appropriate medium.

Pursuant to the provisions of Section 13 and Section 51 of the Companies Act, 2013 approval of members is required for sub-division of shares and consequent amendment to clause V of the Memorandum of Association.

The board recommends the Resolution stipulated above of this notice for approval of the members.

A copy of the Memorandum of Association along with proposed amendments will be open for inspection by the Members at the Registered office of the company during business hours on all working days upto the date of this meeting.

None of the Directors, Key Managerial Personnel of the company and their relatives is concerned or interested, financially or otherwise, in the Resolution, except to the extent of equity shares held by them in the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(b) (Old syllabus).

Section 66(1) of the Companies Act, 2013 states that subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by passing a special resolution, reduce the share capital in any manner and in, particular, may—

(a)extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or

(b)either with or without extinguishing or reducing liability on any of its shares,—

(i)cancel any paid-up share capital which is lost or is unrepresented by available assets; or

(ii)pay off any paid-up share capital which is in excess of the wants of the company,

alter its memorandum by reducing the amount of its share capital and of its shares accordingly.

While, Section 61(1)(e) of the Companies Act, 2013 provides that, a limited company having share capital, if authorised by its Articles, may cancel shares, by passing an ordinary resolution in that behalf, which have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled. Diminution needs no confirmation by the Tribunal.

Further, Section 61(2) of the Companies Act, 2013 specifically states that the cancellation of shares under section 61(1) of the Companies Act, 2013 shall not be deemed to be reduction of share capital.

Thus, Reduction of Share Capital and Diminution of Share Capital is not the same.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(a) (Syllabus 2017).

The following are the key differences between Alteration of Share Capital and Reduction of Share Capital :

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(a) (Old syllabus).

The Companies (Share Capital and Debenture) Rules, 2014 deals with provisions on preferential offer by unlisted companies. Accordingly,

i)As per rule 13(2)(e), the allotment of shares on a preferential basis shall be completed within a period of twelve months of date of passing of special resolution.

ii)As per rule 13(2)(h), where convertible securities are offered on a preferential basis with an option to apply for and get equity shares allotted, the price of the resultant shares pursuant to conversion shall be determined-

a.either upfront at the time when the offer of convertible securities is made, on the basis of valuation report of the registered valuer given at the stage of such offer; or

b.at the time, which shall not be earlier than thirty days to the date when the holder of convertible security becomes entitled to apply for shares, on the basis of valuation report of the registered valuer given not earlier than sixty days of the date when the holder of convertible security becomes entitled to apply for shares.

The Vice President (Corporate Affairs) is to be updated accordingly.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2(d) (Syllabus 2022).

As per section 62(l)(a) of the Companies Act, 2013 and rule 12A of the Companies (Share Capital and Debentures) Rules, 2014.

The offer for rights issue shall be made by notice, specifying the number of shares offered:

(i)Limiting a time not being less than fifteen days or such lesser number of days as may be prescribed and not more than 30 days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(ii)The offer shall be deemed to include right of renunciation, unless the articles of the company otherwise provide; and the notice referred above shall contain a statement of this right;

The CEO of Sigma Ltd. is to be guided accordingly.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 4(b) (Syllabus 2022).

(i)As per the provisions under section 62(1)(b) of the Companies Act, 2013 and Rule 12 of the Companies (Share Capital and Debenture) Rules, 2014 the following employees including directors shall be eligible for ESOP:

(a)a permanent employee of the company who has been working in India or outside India; or

(b)a director of the company, whether a whole time Director or not but excluding an Independent Director; or

(c)an employee as defined in clauses (a) or (b) of a subsidiary, in India or outside India, or of a holding company of the company but does not include -

(i)an employee who is a promoter or a person belonging to the promoter group:

or

(ii)a director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than ten percent of the outstanding equity shares of the company.

The conditions mentioned in sub-clause (i) and (ii) shall not apply to a startup company up to ten years from the date of its incorporation or registration.

Accordingly, all permanent employees subject to exceptions and all directors shall be eligible but the independent directors shall not be eligible for ESOP.

(ii)Company has freedom to specify lock-in period

Rule 12(6)(b) of the Companies (Share Capital and Debenture) Rules, 2014 states that the company shall have the freedom to specify the lock-in period for the shares issued pursuant to exercise of option, Hence, a lock-in period for five years can be provided under ESOP.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(b) (Syllabus 2022).

Rule 13 of Companies (Share Capital and Debenture) Rules, 2014 deals with provisions on preferential offer by unlisted companies. Accordingly,

(i)Allotment of shares on a preferential basis shall be completed within a period of twelve months of the date of passing of the special resolution.

(ii)If the allotment of shares is not completed within twelve months from the date of passing of the special resolution, another special resolution shall be passed for the company to complete such allotment thereafter.

(iii)Where convertible securities are offered on a preferential basis with an option to apply for and get equity shares allotted, the price of the resultant shares pursuant to conversion shall be determined-

a.either upfront at the time when the offer of convertible securities is made, on the basis of the valuation report of the registered valuer given at the stage of such offer; or

b.at the time, which shall not be earlier than thirty days to the date when the holder of convertible security becomes entitled to apply for shares, on the basis of the valuation report of the registered valuer given not earlier than sixty days of the date when the holder of convertible security becomes entitled to apply for shares.

The company should take a decision on basis of above (a) or (b) at the time of the offer of convertible securities itself and make such disclosure in an explanatory statement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 1(a) (Syllabus 2017).

Pre-emptive Rights

To preserve the shareholders’ proportionate dividend, liquidation and voting rights, pre-emptive rights are often recognised, but their existence and scope can be effected by provisions in the articles.

However, Section 62 of the Companies Act, 2013 secures shareholders’ pre-emptive rights with regard to the further issue of share capital by the company. The Section lays down: “(1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the condition that unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person and the notice of offer shall contain a statement of this right [Sub-clause (a)].

Preferential Rights

As per Explanation (ii) to section 43 of the Companies Act, 2013, the term ‘‘preference share capital’’, with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to—

(a)payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and

(b)repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;

A preference share has a preference in regard to payment of fixed amount of dividend or fixed rate of dividend and preferential right of the repayment of capital in the event of winding up of company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(c) (Old syllabus).

Pursuant to Section 62 read with rule 13(2) of Companies (Share Capital and Debentures) Rules 2014, where shares or other securities are to be allotted for consideration other than cash, the valuation of such consideration shall be done by a registered valuer who shall submit a valuation report to the company for justification of valuation.

Where the preferential offer of shares is made for a non-cash consideration, such non-cash consideration shall be treated in the following manner in the books of account of the company-

(a)where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the accounting standards; or

(b)where above clause is not applicable, it shall be expensed as provided in the accounting standards.

The Practising Company Secretary can advised the Green Commercial Ltd. accordingly.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(c) (Syllabus 2017).

As per Section 62 of the Companies Act, 2013 read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014:

Sub-rule 8(d) : In the event of the death of an employee while in employment, all the options granted to him till such date shall vest in the legal heirs or nominees of the deceased employee.

Sub-rule 8(e) :In case the employee suffers a permanent incapacity while in employment, all the options granted to him as on the date of permanent incapacitation, shall vest in him on that day.

Sub-rule 8(f) : In the event of resignation or termination of employment, all options not vested in the employee as on that day shall expire. However, the employee can exercise the options granted to him which are vested within the period specified in this behalf, subject to the terms and conditions under the scheme granting such options as approved by the Board.

Hence, option will vest in the case of Rinku and Rina and in the case of Reshma, options will expire.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(b) (Old syllabus).

According to section 63(1) of the Companies Act, 2013, a company may issue fully paid-up bonus shares to its members. in any manner whatsoever, out of- (Sources)

•Its free reserves

•Securities premium account

•The capital redemption reserve account

No issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets

Conditions for issue of Bonus Shares

In terms of section 63(2) of the Companies Act, 2013, no company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares, unless-

(a)Authorisation in AOA: It is authorised by its articles.

(b)Passing of Ordinary Resolution: It has, on the recommendation of the Board, been authorised in the general meeting of the company.

(c)No defaults: It has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it; it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus.

(d)Fully paid-up shares: The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up.

(e)The company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.

(f)No issue in lieu of dividend: The bonus shares shall not be issued in lieu of dividend.

Maximum number of shares to be issued:

The company proposes to issue 1 bonus share for every 2 equity shares. The issued and fully paid-up shares are 10,00, 000. Hence, the company wants to issue 5,00,000 shares, the face value of which will be Rs. 50,00,000 and reserve of equal amount is required.

As per Section 71 of the Companies Act, 2013, where the company has created a debenture redemption reserve account, the amount credited to such account shall not be utilised by the company except for the redemption of debentures.

The aggregate of eligible reserves come to Rs. 40,00,000 (Rs. 30,00,000+10,00,000).

Hence, sufficient reserves are not available and the company cannot implement its proposal to issue 1 bonus share for every 2 shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 3(b) (Syllabus 2022).

According to Section 63 of Companies Act, 2013: A company can issue fully paid-up bonus shares to its members in any manner, out of its free reserves, security premium or capital redemption reserve account. However, no bonus shares can be issued by capitalising reserves created by the revaluation of assets.

A company can capitalise its profits by issuing fully paid-up bonus shares only when-

a)It is authorized by its articles and the shares are fully paid-up;

b)It has been, on the recommendation of the Board of Directors, authorized in the General Meeting of the company by a special resolution;

c)In case of listed company, an ordinary resolution will suffice;

d)It is not defaulted on repayment of the principal or payment of interest on deposits or debt securities issued by it;

e)It has not defaulted on payment of statutory dues of its employees such as, contribution to provident fund, gratuity and bonus.

(i)According to Section 63(3) of Companies Act, 2013, a company shall not issue bonus shares in lieu of dividend.

(ii)Yes, Stock dividend is the same as issue of bonus shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(d) (Syllabus 2017).

A listed company is required to comply with the requirements of the Companies Act, 2013, rules made thereunder and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 for issue of bonus shares.

In terms of section 63(2) of the Companies Act, 2013, no company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares, unless it has, on the recommendation of the Board, been authorised in the general meeting of the company.

Further, as per Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014, a company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.

Also, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 provides that a bonus issue, once announced, shall not be withdrawn.

In view of the above provisions, the Board of Directors of Aakash Limited once announced the issue of bonus share on 1st April 2021 to all equity shareholders of the company in the ratio of 1:1 cannot subsequently reverse the proposal of such issue in another board meeting. Hence, the first board resolution proposing the bonus share is valid but second board resolution for reversal is not valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(a) (Syllabus 2017).

Name of the company……………………..

Registered address: …………..

CIN………….Email……..Telephone………Website……

NOTICE is hereby given that an Extra ordinary General Meeting of the members of ............................. (Name of the Company) will be held on ----(day)----(date) at -----(time) at ............................. (address) to transact the following business:

SPECIAL BUSINESS

To consider, and if thought fit, to pass, with or without modification, the following Resolution as an Special Resolution:

“RESOLVED THAT pursuant to section 66(1) and other applicable provisions, if any, of the Companies Act, 2103, article ......... of articles of association of the company and subject to confirmation by the National Company Law Tribunal at .......... and subject to such other approvals, consents, permissions or sanctions of any other authority, body or institution (hereinafter collectively referred to as “the concerned authorities”) as may be required, and subject to such other conditions or guidelines, if any, as may be prescribed or stipulated by any of the concerned authorities, from time to time, while granting such approvals, consents, permissions or sanctions, the subscribed, issued and paid up equity share capital of the company be reduced from ₹ 40,00,00,000 (Rupees forty crore) divided into 4,00,00,000 (four crore) equity shares of ₹ 10 each to ₹ 20,00,00,000 (Rupees twenty crore) divided into 4,00,00,000 (four crore) equity shares of ₹ 5 each, and the surplus amount, i.e., ₹ 20,00,00,000 (Rupees twenty crore), being in excess of the wants of the company be paid to the shareholders.”

Explanatory Statement

As the members are aware, the company has a cash surplus which has resulted from the recent restructuring including merger of the erstwhile ................... Ltd. with the company. The Board is of the view that the present economic environment in the country is not conducive to expansion or diversification. The Board of directors of the company discussed the matter in detail at its meeting held on ................... and resolved to return the surplus cash to the members in recognition of their dedication, consistency and utmost faith reposed by them in the management of the company.

Hence the proposed special resolution is for consideration of and approval by the members of the company.

Directors of the company are interested in the proposed resolution to the extent of their respective shareholdings in the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6(c) (Syllabus 2022).

The maximum quantum of buy- back that company in question can make as on 1st April, 2026, in pursuance of section 68 of Companies Act, 2013 is 25% of aggregate of paid-up capital and free reserves of the company. Further provided that the reference to twenty-five per cent shall be construed with respect to its total paid-up equity capital in that financial year and the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back should not be more than twice the paid-up capital and its free reserves.

Accordingly, in the present case we have,

Free Reserves - ₹10,00,000 (Reserve & Surplus + profit & loss account)

Securities premium Account – Nil; Proceeds of other specified securities- Nil

Total Debt i.e. (25,00,000+ 15,00,000) - ₹40,00,000 (debenture + unsecured loan)

Sum of paid-up Equity capital + free reserves - ₹30,00,000 (20,00,000+10,00,000)

Hence, the maximum fund available for buy-back (in absence of securities premium account and proceeds of issue of any other specified securities) is ₹10,00,000

Amount that must be maintained as sum total of free reserves and paid-up equity capital is half of total debt i.e., half of ₹40,00,000 i.e., ₹20,00,000

Buy back can be made up to 25% of Paid up capital and free reserves i.e. ₹30,00,000 *25% = ₹7,50,000.

Further debt equity ratio is:

Debt: ₹40,00,000

Capital after buy back: Total Capital= 20,00,000-7,50,000= ₹12,50,000

Free reserve= 10,00,000-7,50,000= ₹2,50,000

Capital + free reserve= ₹15,00,000

Debt equity ratio= ₹40,00,000 / ₹15,00,000= 2.67

The ratio being more than twice the paid-up capital and its free reserves the maximum quantum of ₹7,50,000 is not advisable.

As stated above post buyback debt equity ratio must not be more than 2. Accordingly, post buy back total capital and free reserve must be half of debts i.e. ₹40,00,000 /2 = ₹20,00,000.

The maximum buyback of equity may be (30,00,000 -20,00,000) / 2 = ₹5,00,000.

Therefore, in the given case, maximum possible buyback is of ₹5,00,000 amounting to 50,000 equity shares of ₹10 each.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 4A(ii) (Syllabus 2022).

This provision is covered under section 68(6) of the Companies Act, 2013 read with Rule 17(3) of Companies (Share Capital and Debenture) Rules, 2014. When a company proposes to buy-back its own shares or other specified securities under this section in pursuance of a special resolution or board resolution as the case may be, it shall, before making such buy back, file with Registrar and the Securities & Exchange Board of India (in case of listed companies), a declaration of solvency signed by at least 2 directors of the company, one of whom shall be the managing director, if any, in Form SH-9 and verified by an affidavit to the effect that the Board of Directors of the Company has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not rendered insolvent within a period of one year from the date of declaration adopted by the Board.

As per proviso to section 68(2)(g) no offer of buy-back under section 68(2) shall be made within a period of one year reckoned from the date of the closure of the preceding offer of buy- back, if any.

Naveen who has recently joined the Board as an additional director should be apprised accordingly.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2A(v) (Syllabus 2017).

A few advantages of buyback of shares are as under:

1.It is an alternate mode of reduction in capital without requiring approval of the court/NCLT.

2.To improve the earnings per share.

3.To improve return on capital, return on net worth and to enhance the long-term shareholders value.

4.To provide an additional exit route to shareholders when shares are undervalued or thinly traded.

5.To enhance consolidation of stake in the company.

6.To prevent unwelcome takeover bids.

7.To return surplus cash to shareholders.

8.To achieve optimum capital structure.

9.To support share price during periods of sluggish market condition.

10.To serve the equity more efficiently.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 4(c) (Syllabus 2017).

Inspiration Limited has to ensure that the company is authorized for buyback of shares by its Articles of Association. In the present case, the buyback is 20% of the paid up capital and so it requires a special resolution. As per section 68(2) of the Companies Act, 2013, if the amount of buyback was up to 10% of paid up capital and free reserves, then the board resolution would have been sufficient. If Directors have decided to hold the board meeting next week to approve the buy back and implement the buyback process, they are wrong as they will need to call a meeting of shareholders. So, Special Resolution is to be passed, Notice for the same has to be given to Shareholders at least 21 days before the date on which passing Special Resolution. Along with Notice an explanatory statement needs to be provided explaining the purpose of Buyback. E-Form MGT-14 should be filed with the Registrar along with fee within 30 days of passing the Special Resolution.

As per Section 68 of the Companies Act 2013 read with Rule 17(2) of the Companies (Share Capital and Debentures) Rules, 2014-The company which has been authorized by a special resolution shall, before the buy-back of shares, file with the Registrar of Companies a letter of offer in Form No. SH.8, along with the fee:

Provided that such letter of offer shall be dated and signed on behalf of the Board of directors of the company by not less than two directors of the company, one of whom shall be the managing director, where there is one.

Where a company proposes to buy-back its own shares or other specified securities under section 68 in pursuance of a special resolution, it shall, before making such buy-back, file with the Registrar and the Securities and Exchange Board, a declaration of solvency signed by at least two Directors of the company, one of whom shall be the managing director, if any, in Form SH-9 and verified by an affidavit to the effect that the Board of Directors of the company has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year from the date of declaration adopted by the Board.The letter of offer shall be dispatched to the shareholders or security holders immediately after filing the same with the Registrar of Companies but not later than twenty days from its filing with the Registrar of Companies.

The offer for buy-back shall remain open for a period of not less than fifteen days and not exceeding thirty days from the date of dispatch of the letter of offer. However, where all members of a company agree, the offer for buy-back may remain open for a period less than fifteen days.

The company shall immediately after the date of closure of the offer, open a separate bank account and deposit therein, such sum, as would make up the entire sum due and payable as consideration for the shares tendered for buy-back in terms of these rules.

Every buy-back shall be completed within a period of one year from the date of passing of the special resolution, or as the case may be, the resolution passed by the Board. The company, shall maintain a register of shares or other securities which have been bought-back in Form No. SH. 10. Company should after the completion of the buy-back file with the Registrar and the Securities and Exchange Board (in case of listed companies) a return Form No. SH.11 along with the 'fee' containing such particulars relating to the buy-back within thirty days of such completion, as may be prescribed.

There shall be annexed to the return filed with the Registrar in Form No. SH-11, a certificate in Form No. SH-15 signed by two directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and rules made thereunder.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(a) (Old syllabus).

According to Section 68(1) of the Companies Act, 2013 a company may purchase its own shares or other specified securities (known as "buy-back") out of:

(i)its free reserves; or

(ii)the securities premium account; or

(iii)the proceeds of the issue of any shares or other specified securities.

However, no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.

Thus, in given case Monika Ltd. can purchase its own 5,00,000 equity shares @10 each out of free reserves and from the securities premium account in accordance with the provisions of the Companies Act, 2013.

But it cannot do buy-back from the amount of Unsecured Loan as it will be contravention of the provisions of Section 68 of the Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(v) (Syllabus 2017).

In the case of dividend payment, the net worth of the Company gets reduced without any reduction in the number of equity shares and hence the valuation of the shares of the company is also reduced and increase earning per share for future periods.

But in the case of buy back, there is a simultaneous reduction in the net worth as well as the number of equity shares and hence the value of security is not affected. However, it is to be noted that future earnings per share will improves with the reduction in the number of equity shares. Buy back gives an indication of a fair market value of the share in the market. Further, it enables the promoters to consolidate their stake. Both the options leave some cash in the hands of the shareholders. In terms of taxation (which of course can change from time to time), while dividend payment attracts a Dividend Distribution Tax at an effective rate prescribed under section 115O of the Income Tax Act, 1961 payable by the company out of its profits over and above the amount of dividend declared, the tax in case of buy-backs by listed companies, is provided for under Section 112A of the Income Tax Act wherein the distributed income (capital gain from buybacks to the shareholder) upto Rs 10,00,000 is tax free in the hands of the investor and the amount of distributed income beyond Rs 10,00,000 is taxed tax @10 percent, in the hands of the shareholder. Further in case of Buy-back of shares by an unlisted company, under Section 115QA of the Income Tax Act, the amount of distributed income is taxable @ 20% in the hands of the company.

Accordingly, from a Promoter’s points of view a buy-back of shares is more beneficial as compared to Dividend payment.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(c) (Old syllabus).

The maximum quantum of buy- back that Premium Ltd. can make as on 1st April, 2018, in pursuance to section 68 of Companies Act, 2013 is 25% of aggregate of paid-up capital and free reserves of the company. Further provided that the reference to twenty-five per cent shall be construed with respect to its total paid-up equity capital in that financial year and the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back should not be more than twice the paid-up capital and its free reserves.

Accordingly, in the present case we have,

Free Reserves - ₹5,00,000

Securities premium Account – Nil

Proceeds of other specified securities- Nil

Total Debt i.e.(7,00,000+ 15,00,000) - ₹22,00,000

Sum of paid up Equity capital + free reserves - ₹15,00,000

Hence, the maximum fund available for buy-back (in absence of securities premium account and proceeds of issue of any other specified securities) is ₹5,00,000

Amount that must be maintained as sum total of free reserves and paid up equity capital is half of total debt i.e. half of ₹22,00,000 i.e. ₹11,00,000

Buy back can be made upto 25% of Paid up capital and free reserves i.e. ₹10,00,000 + ₹5,00,000 i.e. ₹15,00,000 *25% = ₹3,75,000.

Further debt equity ratio is

Debt:

Secured and unsecured debt= 15,00,000+ 7,00,000= 22,00,000

Capital after Buy Back:

Total Capital= 10,00,000-3,75,000= 625000

Free reserve= 5,00,000-375000= 1,25,000

Total Capital+ free reserve= 6,25,000+ 1,25,000=7,50,000

Debt equity ratio= 22,00,000/7,50,000= 2.93

The ratio being more than twice the paid-up capital and its free reserves the maximum quantum of ₹3,75,000 is not advisable.

As stated above post buyback debt equity ratio must not be more than 2. Accordingly, post buyback total capital and free reserve must be half of debts i.e (15,00,000 + 7,00,000) /2 = 11,00,000. The maximum buyback of equity may be {(10,00,000 +5,00,000) -11,00,000}/2 = ₹2,00,000.

Therefore, in the given case, maximum possible buyback is of ₹2,00,000 amounting to 20,000 equity shares of ₹10 each.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3(b) (Syllabus 2017).

The buy- back of shares is governed under section 68 of Companies Act, 2013. The following conditions should be met under section 68:

According to sub-section 2, shareholders by a special resolution can approve buy-back up to 25% of the total paid-up capital and free reserves of the company. The buy-back shall be twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company. Further in respect of the buy-back of equity shares in any financial year, the reference to twenty-five per cent in this clause shall be construed with respect to its total paid-up equity capital in that financial year. The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves.

Accordingly,

A.Share Outstanding test

Number of equity share: 1,25,000

25% thereof = 31250

B.Resource Test

Buy back can be made upto 25% of Paid up capital (Rs. 12,50,000) + free reserves (Rs. 15,00,000+2,50,000+1,25,000) i.e. Rs. 31,25,000 *25%= Rs. 7,81,250.

Buy Back price is Rs. 20 hence number of shares to be bought back is 7,81,250= 39062.5 shares which comes to total 39062 shares.

C.Debt Equity Ratio

Secured and unsecured debt= 18,75,000+ 10,00,000= 28,75,000

Debt Equity ratio post buy-back should be 2:1 or the equity should be half of the debt, hence desirable minimum capital is Rs. 14,37,500 (Rs. 28,75,000/2).

Shareholder Fund: Rs. 31,25,000

Maximum Amount that can be bought back is Rs. 31,25,000- Rs. 14,37,500= Rs. 16,87,500

Hence No of shares in this situation is Rs.16,87,500/20= 84375

In the present case maximum number of shares that can be bought back shall be 25% of equity shares i.e. 31250 shares can be bought back at Rs, 20 each.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 4(a) (Old syllabus).

Circumstances prohibiting buy-back [Section 70(1) of the Companies Act, 2013]

No company shall directly or indirectly purchase its own shares or other specified securities

a.through any subsidiary company including its own subsidiary companies;

b.through any investment company of group of investment companies; or

c.if a default, is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company: However, the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

According to section 70(2) No company shall, directly or indirectly, purchase its own shares or other specified securities in case such company has not complied with the provisions of sections 92 (Annual Return), section 123 (Declaration of Dividend), section 127 (punishment for failure to distribute dividend) and section 129 (Financial Statement).

Therefore, NRS Bio Chemicals Limited cannot buy back its share until the expiry of cooling period (3 years) after the default is remedied since it has defaulted in repayment of loan and not filed the annual return for the financial year 2022-23.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(d) (Syllabus 2022).

Section 72(1) states that every holder of securities of a company may, at any time, nominate, in the prescribed manner, any person to whom his securities shall vest in the event of his death.

Section 72(2) states that when the securities of a company are held by more than one person jointly, the joint holders may together nominate, in the prescribed manner, any person to whom all the rights in the securities shall vest in the event of death of all the joint holders.

Section 72(3) states that notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of the securities of a company, where a nomination made in the prescribed manner purports to confer on any person the right to vest the securities of the company, the nominee shall, on the death of the holder of securities or, as the case may be, on the death of the joint holders, become entitled to all the rights in the securities, of the holder or, as the case may be, of all the joint holders, in relation to such securities, to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner.

Section 72 (4) states that when the nominee is a minor, it shall be lawful for the holder of the securities, making the nomination to appoint, in the prescribed manner, any person to become entitled to the securities of the company, in the event of the death of the nominee during his minority.

Rule 19 of Companies (Share Capital and Debentures) Rules, 2014 deals with Nomination by securities holders. It provides that:-

(1)Any holder of securities of a company may, at any time, nominate, in Form No. SH.13. any person as his nominee in whom the securities shall vest in the event of his death.

(2)On the receipt of the nomination form, a corresponding entry shall forthwith be made in the relevant register of securities holders, maintained under section 88.

(3)Where the nomination is made in respect of the securities held by more than one person jointly, all joint holders shall together nominate in Form No.SH. 13 any person as nominee.

(4)The request for nomination should be recorded by the Company within a period of two months from the date of receipt of the duly filled and signed nomination form.

(5)In the event of death of the holder of securities or where the securities are held by more than one person jointly, in the event of death of all the joint holders, the person nominated as the nominee may upon the production of such evidence as may be required by the Board, elect, either-

•to register himself as holder of the securities; or

•to transfer the securities, as the deceased holder could have done.

(6)If the person being a nominee, so becoming entitled, elects to be registered as holder of the securities himself, he shall deliver or send to the company a notice in writing signed by him stating that he so elects and such notice shall be accompanied with the death certificate of the deceased share or debenture holder(s).

(7)All the limitations, restrictions and provisions of the Act relating to the right to transfer and the registration of transfers of securities shall be applicable to any such notice or transfer as aforesaid as if the death of the share or debenture holder had not occurred and the notice or transfer were a transfer signed by that shareholder or debenture holder, as the case may be.

(8)A person, being a nominee, becoming entitled to any securities by reason of the death of the holder shall be entitled to the same dividends or interests and other advantages to which he would have been entitled to if he were the registered holder of the securities except that he shall not, before being registered as a holder in respect of such securities, be entitled in respect of these securities to exercise any right conferred by the membership in relation to meetings of the company.

(a)The Board may, at any time, give notice requiring any such person to elect either to be registered himself or to transfer the securities, and if the notice is not complied with within ninety days, the Board may thereafter withhold payment of all dividends or interests, bonuses or other moneys payable in respect of the securities, as the case may be, until the requirements of the notice have been complied with.

(9)A nomination may be cancelled, or varied by nominating any other person in place of the present nominee, by the holder of securities who has made the nomination, by giving a notice of such cancellation or variation, to the company in Form No. SH.14.

(10)The cancellation or variation shall take effect from the date on which the notice of such variation or cancellation is received by the company.

(11)When the nominee is a minor, the holder of the securities, making the nomination, may appoint a person in Form No. SH. 13 specified under sub-rule (1), who shall become entitled to the securities of the company, in the event of death of the nominee during his minority.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 1(d) (Syllabus 2017).

Rule 5 of the Companies (Share Capital and Debentures) Rules, 2014, every share certificate shall be issued under the seal, if any, of the company, which shall be affixed in the presence of, and signed by-

(a)two directors duly authorized by the Board of Directors of the company for the purpose or the committee of the Board, if so authorized by the Board; and

(b)the secretary or any person authorised by the Board for the purpose: In case a company does not have a common seal, the share certificate shall be signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.

Further, director or company secretary shall be deemed to have signed the share certificate if his signature is printed thereon as facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography or digitally signed, but not by means of rubber stamp, provided that the director or company secretary shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose.

All directors need not sign, however it shall be signed by two directors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(iv) (Old syllabus).

A company has to send back the share certificate after transfer to the person who lodged the share certificates for transfer or to a person whom he has directed to be sent. In the present case it seems that company after transferring the shares in favour of Sakshi, daughter of Arun has sent the certificate to another Sakshi, daughter of Barun.

The facts in the given case under reference are similar to the facts of BPL Sanyo Technology Ltd. vs. Rahul Agarwal [1995] 83 Comp Cas 885 decided by the Rajasthan High Court.

In the said case Rajasthan High Court held that the bank should surrender the original share certificate and if the said certificate is not so surrendered, the same should be cancelled by the company and duplicate certificate should be issued to the real owner, i.e., Sakshi daughter of Arun. The company should also compensate her and take care to see those other incidental benefits, if any, accruing to the shares in the meantime, are handed over to Sakshi, daughter of Arun.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3A(iv) (Old syllabus).

Forfeiture of shares means taking back of shares by the Company from the shareholders. Article 28 of Table-F of Schedule-I of the Companies Act, 2013 stipulates that, if a member of the company fails to pay any call, or instalment of a call, on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.

For a valid forfeiture, satisfaction of following conditions is necessary:

(i)Articles of Association must authorize the forfeiture of shares;

(ii)Proper Notice is required to be sent to the shareholder;

(iii)Board Resolution is required to be passed for forfeiture of shares;

(iv)Power of forfeiture must be exercised bona fide and for the benefit of the company.

In terms of Article 29 of Table F, the notice shall specify a further day, which shall not be earlier than the expiry of 14 days from the date of service of notice, on or before which the payment required by the notice is to be made. Further, the notice shall also mention that in the event of non-payment, on or before the day so named, the shares in respect of which the call was made shall be liable to be forfeited.

According to Article 30 of Table F, if the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may, at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect.

As per the conditions stipulated as above, the Malafied Ltd. has sent the notice to the shareholders at the address available as per records of the Company.

In the case of Sparks vs. Liverpool Water Works Co., Accidental non-receipt of notice of forfeiture by the defaulter is not a ground for relief against forfeiture regularly effected.

Thus, the objection of defaulter is not valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(i) (Old syllabus).

In the case of joint shareholders one or more of them may require the company to alter or re-arrange the order of their names in the register of members of the company. If the company provides in it’s articles that the senior most amongst the joint shareholders will be recognised for all processes like service of notice, a copy of balance sheet, P&L account, voting at the meeting etc the request of the transposition may be duly considered and approved by the board or other authorised officer of the company. Since no transfer of any interest in the shares taken place on such transposition, it does not require payment of stamp duty. The stock exchange division of the Department of Economic Affairs has clarified that there is no need of execution of transfer deed for transposition of names if the request for the change of the order of name is made in writing by all the joint holders. If transposition is required in case of part of the holding execution of transfer deed will be required.

Accordingly in the present case a joint application by all the shareholders will be sufficient if it is for the entire holding. However if the request is for a part of the holding the transfer deed (including payment of stamp duty) will be required.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(d) (Old syllabus).