May 20262(a) OR5 marksNew Scheme
(a)Saira Projects Limited (SPL) is a listed public company engaged exclusively in setting up, execution and financing of long-gestation infrastructure projects such as highways, ports, and metro corridors. Its equity shares are listed on recognized stock exchanges in India. As per the latest audited financial statements, SPL has a net worth of ₹ 1,020 crore.
During FY 2025-26, SPL issued 7,20,000 instruments of ₹ 1,000 each, described in the offer document as, "Secured Redeemable Convertible Debentures with Deferred Optional Equity Conversion Feature".
The issue was made by way of private placement to four Category II Alternative Investment Funds, all of which qualify as Qualified Institutional Buyers (QIBs).
The principal terms were as follows:
•Tenure: 16 years
•Coupon rate: 8.75% per annum, payable annually
Conversion feature- At the end of the 13th year, the debenture holder may, at its discretion, convert up to 30% of the outstanding principal into equity shares of SPL. Security is exclusive first charge on immovable property of the company situated outside India, with a second charge on movable fixed assets of it located in India.
A debenture trustee was appointed, but SPL did not create any Debenture Redemption Reserve (DRR), relying on the following grounds recorded in the Board note:
(A)Listed company status
(B)Private placement restricted to QIBs
(C)Infrastructure company classification
With reference to the above case, critically examine and answer the followings:
(i)Whether the 16-year tenure is permissible?
(ii)Whether creation of security on assets situated outside India affect the validity of the debenture issue?
(iii)Whether SPL is legally justified in not creating a Debenture Redemption Reserve (DRR)? (5 Marks)
(a)(i) According to Rule 18(1)(a) of the Companies (Share Capital and Debentures) Rules, 2014, an issue of secured debentures may be made, provided the date of its redemption shall not exceed ten years from the date of issue.
Provided that the companies engaged in setting up of infrastructure projects may issue secured debentures for a period exceeding ten years but not exceeding thirty years.
In the given question, Saira Projects Limited (SPL) is exclusively engaged in infrastructure projects such as highways, ports and metro corridors. Therefore, being an infrastructure company, SPL is permitted to issue secured debentures having a maximum tenure of 30 years.
Hence, the 16-year tenure is permissible.
(ii)According to Rule 18(1)(d), the security for the debentures by way of a charge or mortgage shall be created in favour of the debenture trustee on:
(i)any specific movable property of the company or its holding company or subsidiaries or associate companies or otherwise.
(ii)any specific immovable property wherever situate, or any interest therein.
In the given question, SPL has created:
•exclusive first charge on immovable property situated outside
India; and
•second charge on movable fixed assets situated in India.
Therefore, the mere fact that part of the security is situated outside India does not affect the validity of the debenture issue.
Hence, the debenture issue remains valid.
(iii)As per Rule 18(7), for listed companies (other than All India financial Institutions and Banking Companies as specified in sub-clause (i)), Debenture Redemption Reserve is not required in case of privately placed debentures.
In the given question, SPL is a listed public company and the debentures were issued through private placement. Therefore, SPL falls within the category of listed companies exempted from the requirement of creating Debenture Redemption Reserve and hence it is justified in not creating a Debenture Redemption Reserve (DRR).
Source: ICAI Suggested Answers, May 2026, 2(a) OR (New Scheme).
December 20214(b)4 marksOld Scheme
(b)What are provisions of the Companies Act, 2013 relating to the appointment of ‘Debenture Trustee’ by a company? Whether the following can be appoint ed as ‘Debenture Trustee’ ?
(i)A shareholder of the company who has shares of ₹ 10,000.
(ii)A creditor whom the company owes ₹ 999 only.
(iii)A person who has given a guarantee for repayment of amount of debentures issued by the company. (4 Marks)
(b)Appointment of Debenture Trustee: Under section 71 (5) of the Companies Act, 2013, no company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees and the conditions governing the appointment of such trustees shall be such as may be prescribed.
Rule 18 (2) of the Companies (Share Capital and Debentures) Rules, 2014, framed under the Companies Act for the issue of secured debentures provide that before the appointment of debenture trustee or trustees, a written consent shall be obtained from such debenture trustee or trustees proposed to be appointed and a statement to that effect shall appear in the letter of offer issued for inviting the subscription of the debentures.
Further according to the provided rules inter-alia , no person shall be appointed as a debenture trustee, if he-
(1)beneficially holds shares in the company;
(2)is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration payable to the debenture trustee;
(3)has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon;
Thus, based on the above provisions answers to the given questions are as follows:
(i)A shareholder who has holds shares of ₹ 10,000, cannot be appointed as a debenture trustee.
(ii)A creditor whom company owes ₹ 999 cannot be appointed as a debenture trustee. The amount owed is immaterial.
(iii)A person who has given guarantee for repayment of principal and interest thereon in respect of debentures also cannot be appointed as a debenture trustee.
Source: ICAI Suggested Answers, December 2021, 4(b) (Old Scheme).
May 20243(a)5 marksNew Scheme
(a)"A Bonus share is a distribution of capitalized undivided profit having an identity and value capable of being bought and sold." in reference to the above line elaborate the pre-requisites for issue of bonus shares as enlisted in the Companies Act, 2013. (5 Marks)
(a)Pre-requisites for issue of bonus shares
As per 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.it is authorised by its Articles,
b.it has on the recommendation of the Board, been authorised in the general meeting of the company.
c.it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it.
d.it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus.
e.the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up.
f.it complies with such conditions as prescribed by Rule 14 of the Companies (Share capital and debenture) Rules, 2014, that a company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.
Source: ICAI Suggested Answers, May 2024, 3(a) (New Scheme).
May 20235(a) OR5 marksOld Scheme
(i)Authorized Share Capital (50,00,000 equity shares of ₹ 10 each) ₹ 5,00,000
(ii)Issued, subscribed and paid-up Share Capital (20,00,000 equity shares of ₹ 10 each, fully paid-up) ₹ 2,00,00,000
(iii)Free Reserves ₹ 50,00,000
(iv)Securities premium account ₹ 25,00,000
(v)Capital Redemption Reserve ₹ 25,00,000
The Board wants to know the conditions of issuing bonus shares under the provisions of the Companies Act, 2013. Also explain, whether the company may proceed for a bonus
issue. (5 Marks)
(a)Conditions for bonus shares
According to section 63(1) of the Companies Act, 2013, a company may issue fully paidup bonus shares to its members, in any manner whatsoever, out of -
(i)its free reserves;
(ii)the securities premium account; or
(iii)the capital redemption reserve account.
Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
Conditions for issue of Bonus Shares [Section 63(2)]: No company shall capitalise its
profits or reserves for the purpose of issuing fully paid-up bonus shares, unless -
(i)it is authorised by its Articles;
(ii)it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(iii)it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
(iv)it has not defaulted in respect of payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
(v)the partly paid-up shares, if any, outstanding on the date of allotment, are made fully paid-up;
(vi)it complies with such conditions as are prescribed by Rule 14 of the Companies (Share Capital and debentures) Rules, 2014 which states that the company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.
Further, the company has to ensure that the bonus shares shall not be issued in lieu of dividend.
Issue of bonus shares: For the issue of bonus shares, Frontline Limited will require reserves of ₹ 1,00,00,000 (i.e. half of ₹ 2,00,00,000 being the paid-up share capital) and the available reserves with the company are of same amount i.e. ₹ 1,00,00,000 ( ₹ 50,00,000+ ₹ 25,00,000 + ₹ 25,00,000). Hence, after following the above conditions relating to the issue of bonus shares, the company may proceed for a bonus issue of 1 share for every 2 shares held by the existing shareholders.
Source: ICAI Suggested Answers, May 2023, 5(a) OR (Old Scheme).
May 20241(a)5 marksNew Scheme
(a)MNO limited has the following equity share capital -
| Class-1: Equity Share Capital - 3,00,000 equity shares of ₹ 10 each. (1 voting right for every 1 share) | ₹ 30,00,000 |
| Class-2: Equity share Capital - 50,000 equity shares of ₹ 10 each. (1 voting right for every 5 shares) | ₹ 5,00,000 |
At the time of issue, the company had fulfilled all the conditions related to the issue of equity share capital.
The company wants to vary the voting rights of class 2 equity share capital - 1 voting right for every 5 shares to 1 voting right for every 10 shares.
The Company’s Memorandum and Articles of Association h ave given the company the power to make the variation. The holders of 40,000 equity shares have their consent in writing for this variation.
Out of dissenting shareholders, the holders of 4,500 equity shares want to apply to the Tribunal against the com pany’s action.
Examine, with reference to the relevant provisions of the Companies Act, 2013-
(i)Whether a company can change the rights of its shareholders?
(ii)Whether the dissenting shareholders can apply to the Tribunal?
(5 Marks)
(a)Section 48 of the Companies Act, 2013, allows the variation of shareholders’ rights , if three conditions have been met.
First - There should be a provision in the memorandum or articles of the company entitling it to vary such class rights, in absence of same; the terms of issue of the shares of that class not prohibiting such a variation.
Second - The holders of at-least 75% of the issued shares of that class must have given their consent in writing or pass a special resolution sanctioning the variation at a separate class meeting.
Proviso to sub-section 1, provides if variation by one class of shareholders affects the rights of any other class of shareholders, the consent of threefourths of such other class of shareholders shall also be obtained and the provisions of this section shall apply to such variation.
Third - Where the holders of not less than10 per cent of the issued shares of a class did not consent to such variation or vote in favour of the special resolution for the variation, they may apply to the Tribunal to have the variation cancelled and where any such application is made the variation shall not have effect unless and until it is confirmed by the Tribunal.
(i)In the given question, 40,000 equity shareholders of Class 2 have given their consent in writing for the variation.
Since, 80% (40,000/ 50,000) of the shareholders have given the consent, the company can change the rights of Class 2 shareholders provided such change in the rights of Class 2 shareholders is not affecting the rights of any other class of shareholders i.e. Class 1 shareholders in this case.
(ii)Total number of dissenting shareholders= 50,000- 40,000= 10,000.
Minimum number of shareholders who may apply to the Tribunal and then variation shall not take effect unless and until it is confirmed by the Tribunal= 10% of 50,000=5,000.
In the given question, since less than 5,000 (here 4,500) shareholders are intending to apply to Tribunal, hence, they cannot apply.
Source: ICAI Suggested Answers, May 2024, 1(a) (New Scheme).
September 20241(a)5 marksNew Scheme
(a)SAB Health Products Limited issued equity shares worth ₹ 5,00,00,000 (5,00,000 equity shares of ₹ 100 each) and it was fully subscribed and partly paid at ₹ 50 each. The company made a call to all its subscribers to pay a sum of ₹ 30 for each share held by them. Mr. GH, a subscriber to the shares of a company, holding 10,000 shares, paid all the money due on the shares held by him in advance. Later, Mr. GH claimed interest on the money advanced by him and also dividend in respect of the advance money paid. Is his claim justified? Another shareholder Mr. LK holding 15,000 shares did not pay the first call. So, the directors called upon him to pay the entire amount due by him in respect of the shares held by him. Referring to the provisions of the Companies Act, 2013 and Rules made there under, examine whether the directors of SAB Health Products Limited permitted to do so? (5 Marks)
(a)As per section 50 of the Companies Act, 2013, (the Act) a company may, if so authorized by its Articles, accept from any member the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up.
As per section 51 of the Act, a company may, if so authorized by its Articles, pay dividends in proportion to the amount paid-up on each share. The Board of Directors of a company may decide to pay dividends on pro-rata basis if all the equity shares of the company are not equally paid-up.
Interest can be paid on such advance, if permitted by Articles. Here it is worth noting that, where the rate of interest is permitted by the Articles on such advance payment, same could be varied by shareholders in general meeting.
Further, section 49 of the Act, specifies that calls shall be made on a uniform basis on all shares that are falling under the same class. A shareholder on whom a regular call for payment has been served may choose to pay only a part of the sum due.
Hence, in the light of the stated provisions, SAB Health Products Limited is permitted to do the following acts:
Is Mr. GH’s claim justified?
Mr. GH is entitled to claim interest on money advanced by him and also dividend in proportion to the amount paid-up on each share, if so authorized by the Articles of the company.
In the matter of Mr. LK
Whereas, with respect to Mr. LK, calls shall be made on a uniform basis by the directors, on all shares that are falling under the same class as per section 49 of the Act. A call cannot be made on some of the members only, unless they constitute a separate class of shareholders.
Therefore, the action of the Board of Directors of SAB Health Products Limited towards Mr. LK for calling to pay the entire amount due by him in respect of the shares held by Mr. LK is invalid and not permissible.
Source: ICAI Suggested Answers, September 2024, 1(a) (New Scheme).