Raising of Funds: Non Fund Based

Comprehensive template of a Project Report - Shark Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Pre-Issue Formalities

Checklist for Prior In-principle approval under Regulation 28(1) of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 for ESPS/ESOS/SARS/GEBS/RBS:

1)Certified copy of Stock Option/Stock Purchase Scheme/ Stock Appreciation Rights Scheme/ General Employee Benefits Scheme/ Retirement Benefit Schemes, certified by the Company Secretary.

2)Certified copy of statement to be filed with the Stock Exchange as required under Regulation 10(b) of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

3)Certified true copy of the notice of AGM/EGM for approving the Scheme/for amending the Scheme/for approving grants under Regulation 6 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, certified by the Company Secretary.

4)Certified true copy of special resolution along with the explanatory statement passed by the shareholders of the Company approving/ amending the Scheme.

5)Certificate of Secretarial Auditors on compliance with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

6)Certificate of Merchant Banker on compliance with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

7)List of Promoters as defined under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

8)Details of employee (wherever applicable) -

a)Who have been granted options/issued shares in excess of 5% of option/shares issued in one year.

b)Who have been granted options/issued shares equal to or exceeding 1% of issued capital during any one year.

9)Copy of latest Annual Report.

10)Specimen copy of Share certificate (where shares are issued in physical form).

11)Confirmation from the Company.

12)Undertakings as required by SEBI.

13)Reconciliation statement.

14)Certified true copy of irrevocable trust deed.

15)Certified true copy of Disclosure document (applicable only for ESOS and SARS).

16)Processing fees.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6A(a) (Syllabus 2022).

The following are the documentary requirements for prior in-principle under Regulation 28(1) of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 for ESOS:

•Certified copy of Stock Option/Stock Purchase Scheme/ Stock Appreciation Rights Schemel General Employee Benefits Schemel Retirement Benefit Schemes certified by the Company Secretary.

•Certified copy of statement to be filed with the Stock Exchange as required under Regulation 10(b) SEBI (Share Based Employee Benefits) Regulations, 2014

•Certified true copy of the notice of AGM/EGM for approving the Scheme/for amending the Scheme / for approving grants under Regulation 6 of the SEBI (Share Based Employee Benefits) Regulations, 2014, certified by the company secretary.

•Certified true copy of resolution passed by the shareholders of the Company approving / amending the Scheme.

•Certificate of Auditors on compliance with SEBI (Share Based Employee Benefits) Regulations, 2014.

•Certificate of Merchant Banker on compliance with SEBI (Share Based Employee Benefits) Regulations, 2014.

•List of Promoters as defined under the SEBI (Share Based Employee Benefits) Regulations, 2014.

•Details of employee (wherever applicable) -

of issued capital during any one year

•Copy of latest Annual Report.

•Specimen copy of Share certificate (where shares are issued in physical form)

•Confirmation from the Company.

•Undertakings as required by SEBI under the SEBI (Share Based Employee Benefits) Regulations, 2014.

•Reconciliation statement

•Confirmation whether options lapsed / forfeited will re-issued or not.

•Certified true copy of irrevocable trust deed.

•Certified true copy of Disclosure document (applicable only for ESOS and SARS).

•Processing fees.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

The company may determine the price of shares to be issued under an Employee Stock Purchase Scheme, provided they conform to the provisions of accounting policies as prescribed under the SEBI (Share Based Employee Benefit) Regulations, 2014. Shares issued under an ESPS shall be locked-in for a minimum period of one year from the date of allotment.

However, in case where shares are allotted by a company under an ESPS in lieu of shares acquired by the same person under an ESPS in another company which has merged or amalgamated with the first mentioned company, the lock-in period already undergone in respect of shares of the transferor company shall be adjusted against the lock-in period required under this sub-regulation.

If ESPS is part of a public issue and the shares are issued to employees at the same price as in the public issue, the shares issued to employees pursuant to ESPS shall not be subject to lock in.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

ESOP is a sweetner given to an employee at the time of joining or may be later on. The company need not make any payment to the employee. The stocks are issued to an employee by the company based on the entitlement.

Listed Companies can offer attractive Employee Stock Option (ESOP) or Employee Share Purchase Schemes (ESPS) to attract required talent pool and also to retain them. Being listed, the ESOP/ESPS may command good price gain and attraction to the employees. ESOP & ESPS are used to attract talent as well as to retain the key employees and managerial personnel which is an important human capital for business. In case the company is growing, the stock price keep on moving upward. The employee drives huge benefits from ESOP which may run beyond his emoluments otherwise. Such benefits helps the company to retain the talented employees for a longer period.

PART B

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(e) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

(i)Statutory Limits

Paid-up share capital = ₹ 10 Crores (1 Crore shares × ₹ 10 each).

•15% of paid-up capital = ₹ 1.5 Crores (15 lakh shares)

•Proposed issue = 1,00,000 shares × ₹ 10 = ₹ 10 Lakhs

It is within the 15% annual limit and much below the 25% overall cap. (Info Tech Ltd. has not issued sweat equity shares so far)

(ii)Post-Issue Share Capital

Existing share capital = 1 Crore equity shares of ₹ 10 each i.e ₹ 10 Crore

Sweat equity issue = 1,00,000 shares × ₹ 10 = ₹ 10 Lakhs.

Post-issue capital = ₹ 10 Cr + ₹ 0.1 Cr = ₹ 10.1 Cr Total number of Shares as per post Issue capital = ₹ 10.1 Crore/ ₹ 10 = 1.01 crore.

Sweat equity shares as % of post issue capital total: (1 lakh ÷ 101 lakh) x 100 = 0.99%

(iii)According to Section 54 of the Companies Act, 2013, a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled:

(a)The issue is authorized by a special resolution passed by the company.

(b)The resolution specifies the number of shares, current market price, consideration, if any and the class or classes of directors or employees to whom such equity shares are to be issued.

(c)The sweat equity shares of a company whose equity shares are listed on a recognized stock exchange are issued in accordance with the Regulations made by SEBI in this regard and if they are not listed the sweat equity shares are to be issued in accordance with Rule 8 of the Companies (Share Capital and Debenture) Rules, 2014.

(d)The rights, limitations, restrictions and provisions as are for the time being applicable to equity shares shall be applicable to the sweat equity shares issued under this section and the holders of such shares shall rank pari passu with other equity shareholders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 5(b) (Syllabus 2022).

(i)SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 states that the price of sweat equity shares shall be determined in accordance with the pricing requirements stipulated for a preferential issue to a person other than a qualified institutional buyer under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Since, PAKS Ltd. is a listed company, issuing sweat equity shares at a discount is not appropriate in terms of Pricing of frequently traded shares given for preferential issue in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

(ii)Regulation 31 of SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 provides that a company shall not issue sweat equity shares exceeding 15% of existing paidup equity share capital in a year or shall not exceed 25% of the paid-up equity share capital at any time. The proposed 30% issuance by a public company to a class of directors and employees exceeded the prescribed limit and therefore size of the sweat equity share issue is not appropriate.

As per law, lock-in period will be of 18 months from the date of allotment. Here, it states five years which is not justifiable.

(iii)According to the provisions pertaining to Sweat Equity Shares under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, term ‘employee’ means,

•An employee of the company working in India or abroad; or

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

In the given question, Puru is an independent director on the Board, he is eligible under scheme for Sweat Equity shares. However, issuing such shares beyond a threshold may compromise the Independence of Mr. Puru.

(iv)As per SEBI (Share Based Employee Benefits and Sweat Equity) Regulations 2021, “Employee”, except in relation to issue of sweat equity shares, inter-alia includes a director of the company, whether a whole-time director or not, including a non-executive director who is not a promoter or member of the promoter group, but excluding an independent director

In view of above, Puru will not be eligible under scheme for the Employees Stock Option Scheme.

(v)Issue of Sweat Equity Shares is not a ‘preferential issue’. As per regulation 2(1)(nn) of SEBI (ICDR) Regulations, 2018 which gives the meaning of a preferential issue excludes an issue of sweat equity shares there from, which means issue of sweat equity shares is not a preferential issue within the meaning of preferential issue. Further, Rule 8 (13) of the Companies (Share Capital and Debentures) Rules, 2014, clearly excludes issue of sweat equity shares from the definition of preferential offer.

Hence, sweat equity shares cannot be issued through a preferential issue as suggested by Puru.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Particulars to be included in the explanatory statement sent along with general meeting notice for passing the Special Resolution to issue sweat equity shares:

a)As per SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

For the purpose of passing a special resolution under Section 54 (1) (a) of the Companies Act, 2013, the Board of Directors at the time of sending notice to the shareholders shall send additional information for approving the issuance of sweat equity, which shall, inter-alia , contain the following information:

a)The total number of shares to be issued as sweat equity.

b)The current market price of the shares of the company.

c)The value of know-how or intellectual property rights or other value addition to be received from the employee or director along with the valuation report/basis of valuation.

d)The names of the employees or directors or promoters to whom the sweat equity shares shall be issued and their relationship with the company.

e)The consideration to be paid for the sweat equity shares.

f)The price at which the sweat equity shares shall be issued.

g)Ceiling on managerial remuneration, if any, which will be affected by issuance of such sweat equity.

h)A statement to the effect that the company shall conform to the accounting policies as specified by SEBI.

i)Diluted EPS pursuant to the issue of securities to be calculated in accordance with International Accounting Standards specified by the Central Government.

b)As per Companies (Share Capital and Debentures) Rules, 2014

The explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of Companies Act, 2013 shall contain the following particulars, namely:-

a)The date of the Board meeting at which the proposal for issue of sweat equity shares was approved;

b)The reasons or justification for the issue;

c)The class of shares under which sweat equity shares are intended to be issued;

d)The total number of shares to be issued as sweat equity;

e)The class or classes of directors or employees to whom such equity shares are to be issued;

f)the principal terms and conditions on which sweat equity shares are to be issued, including basis of valuation ;

g)The time period of association of such person with the company;

h)The names of the directors or employees to whom the sweat equity shares will be issued and their relationship with the promoter or/and Key Managerial Personnel;

i)The price at which the sweat equity shares are proposed to be issued;

j)The consideration including consideration other than cash, if any to be received for the sweat equity;

k)The ceiling on managerial remuneration, if any, be breached by issuance of such sweat equity and how it is proposed to be dealt with;

l)A statement to the effect that the company shall conform to the applicable accounting standards; and

m)Diluted Earning Per Share pursuant to the issue of sweat equity shares , calculated in accordance with the applicable accounting standards.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(iii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

1)Regulation 30 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 provides that a company whose equity shares are listed on a recognised stock exchange may issue sweat equity shares in accordance with section 54 of the Companies Act, 2013 and SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 to its employees for their providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. Also, SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, defines the term sweat equity shares which means sweat equity shares as defined in sub-section (88) of section 2 of the Companies Act, 2013. In accordance with section 2(88) of the 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.

Further section 54(1)(d) of the Companies Act, 2013 provides that where the equity shares of the company are listed on a recognised stock exchange, the sweat equity shares are issued in accordance with the regulations made by the Securities and Exchange Board in this behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as may be prescribed. In this regard, Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014, stipulates that a company other than a listed company, which is not required to comply with SEBI Regulations on sweat equity, shall not issue sweat equity shares to its directors or employees at a discount or for consideration other than cash, for their providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called, unless the issue is authorised by a special resolution passed by the company in general meeting.

Since Growth Engine Ltd. is a listed company and is required to comply with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, issuing sweat equity shares at a discount is appropriate.

2)In terms of Regulation 31 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, a company shall not issue sweat equity shares for more than 15% of the existing paid-up equity share capital in a year. However, the issuance of sweat equity shares in the company shall not exceed 25% percent of the paid up equity share capital of the company at any time.

Further, Rule 8 (4) of the Companies (Share Capital and Debenture) Rules, 2014 states that a company shall not issue sweat equity shares for more than 15% of the existing paid up equity share capital in a year or shares of the issue value of Rs.5 crores, whichever is higher. However, the issuance of sweat equity shares in the company shall not exceed 25% of the paid up equity share capital of the company at any time.

In the given situation, size of issue of sweat equity shares i.e., 30% to be issued by a public company to a class of directors and employees was not within the prescribed limit. Hence, the size of issue of sweat equity shares of the company was not appropriate.

Lock-in Period: Regulation 38(1) of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 provides that the sweat equity shares shall be locked in for such period of time as specified in relation to a preferential issue under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended from time to time.

Further, SEBI (ICDR) Regulations, 2018 states that the specified securities, allotted on a preferential basis to the promoters or promoter group and the equity shares allotted pursuant to exercise of options attached to warrants issued on a preferential basis to the promoters or the promoter group, shall be locked-in for a period of 18 months from the date of trading approval granted for the specified securities or equity shares allotted pursuant to exercise of the option attached to warrant, as the case may be. The specified securities allotted on a preferential basis to persons other than the promoters and promoter group and the equity shares allotted pursuant to exercise of options attached to warrants issued on preferential basis to such persons shall be locked-in for a period of six months from the date of trading approval.

Accordingly, in the given situation, the lock-in period of sweat equity is 5 years which is not in the compliance of the above conditions.

3)In accordance with the explanation to the Rule 8(1) of the Companies (Share Capital and Debentures) Rules, 2014, the expressions ‘Employee’ means -

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; 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;

According to the provisions pertaining to Sweat Equity Shares under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, term ‘employee’ means,

(i)An employee of the company working in India or abroad; or

(ii)A director of the company whether a whole time director or not.

In the given question, Ratan is an independent director on the Board, he is eligible under the scheme for Sweat Equity shares.

4)As per SEBI (Share Based Employee Benefits and Sweat Equity) Regulations 2021, “Employee”, except in relation to issue of sweat equity shares, means-

(i)an employee as designated by the company, who is exclusively working in India or outside India; or

(ii)a director of the company, whether a whole time director or not, including a nonexecutive director who is not a promoter or member of the promoter group, but excluding an independent director.

Since, Ratan is an independent director, will not be eligible under scheme for Employee Stock Option Scheme.

5)An issue of Sweat Equity Shares is not a ‘preferential issue. As per Regulation 2(1)(nn) of SEBI (ICDR) Regulations, 2018 provides the meaning of a preferential issue excludes an issue of sweat equity shares there from, which means issue of sweat equity shares is not a preferential issue. Further, Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014, clearly excludes issue of sweat equity shares from the definition of preferential offer.

Accordingly, the sweat equity shares cannot be issued through a preferential issue as suggested by Ratan.

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

A company whose equity shares are listed on a recognised stock exchange may issue sweat equity shares in accordance with section 54 of the Companies Act, 2013 and SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 to its employees for providing know-how or making available rights in the nature of intellectual property rights or value additions.

According to Section 54 of the Companies Act, 2013, a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled.

i.The issue is authorized by a special resolution passed by the company.

ii.The resolution specifies the number of shares, current market price, consideration if any and the class or classes of directors or employees to whom such equity shares are to be issued.

iii.Where the equity shares of the company are listed on a recognized stock exchange, the sweat equity shares are issued in accordance with the Regulations made by SEBI in this regard and if they are not listed, the sweat equity shares are to be issued in accordance with Rule 8 of the Companies (Share Capital and Debenture) Rules, 2014.

The rights, limitations, restrictions and provisions as applicable to equity shares for the time being, shall also be applicable to the sweat equity shares issued under the Section 54 of Companies Act, 2013 and the holders of such shares shall rank pari passu with other equity shareholders.

Lock-in

The Sweat Equity shares shall be locked in for such period of time as specified in relation to a preferential issue under the SEBI (ICDR) Regulations, 2018. These Regulations shall apply if a company makes a public issue after it has issued sweat equity shares.

Regulation 29 of SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 provides the definition of employee in relation to issue of sweat equity shares and covers:

(i)an employee of the company working in India or abroad; or

(ii)a director of the company whether a whole time director or not.

Hence, Sweat Equity shares can be issued to a director of the company whether a whole time director or not.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

According to Section 54 of the Companies Act, 2013 a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled:

(a)The issue is authorized by a special resolution passed by the company in the general meeting.

(b)The resolution specifies the number of shares, current market price, consideration if any.

(c)Not listed shares, the sweat equity shares are to be issued in accordance with Rule 8 of Companies (Share Capital and Debenture) Rules, 2014.

Independent directors are not entitled for sweat equity shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Case (i) In case bonus shares were issued before splitting the face value

Case (ii) if stock split happens before bonus issue

Conclusion – There is no change in the value of shares, whether the bonus issue happens before or after the split of face value.

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

Conditions for issue of Bonus Shares as per Companies Act, 2013

In terms of section 63(2) of the Companies Act, 2013, company shall not capitalize 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 been authorized in the general meeting of the company, on the recommendation of the Board of Directors;

(c)It has not defaulted in the 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.

Section 63(3) of the Companies Act, 2013 provides that the bonus shares shall not be issued in lieu of dividend.

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

Conditions for issue of Bonus Shares as per SEBI (ICDR) Regulations, 2018

Subject to the provisions of the Companies Act, 2013 or any other applicable law, a listed issuer shall be eligible to announce its bonus issue and issue bonus shares to its members if:

a)It is authorised by its articles of association for issue of bonus shares, capitalisation of reserves, etc.

b)It has received approval from the stock exchanges for listing and trading of all the securities, excluding options granted to employees pursuant to an employee stock option scheme and convertibles securities, issued by the issuer prior to the issuance of bonus shares.

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)Any outstanding partly paid shares on the date of the allotment of the bonus shares, are made fully paid-up.

f)Any of its promoters or directors is not a fugitive economic offender.

If the company has complied with all the conditions required to be satisfied as mentioned above, the court was correct in awarding the judgment in favour of the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(b) (Syllabus 2022).

Documents required for seeking in principle approval for issue of Bonus Shares

Following documents are required for seeking in-principle approval under Regulation 28(1) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, for the companies proposing bonus issue:

1.Certified copy of the resolution passed by the Board of Directors of the Company approving the bonus issue.

2.Certified copy of the notice sent to the shareholders of the company for the proposed bonus issue.

3.Certified copy of the resolution passed by the shareholders of the Company approving bonus issue.

4.Copy of the relevant Clause in the Articles of Association granting powers to the Board of Directors to capitalize the profits.

5.Copy of the shareholders’ resolution for increase in authorized capital in case the existing authorized share capital is insufficient to accommodate the bonus issue.

6.Document containing Confirmation by the Managing Director/ Company Secretary.

7.Statement of total bonus entitlement as per the existing capital, bonus shares to be allotted and shares kept in abeyance, if any to be given by the Company Secretary.

8.Document establishing the payment of processing fee.

9.Copy of the latest audited annual report.

10.Certified true copy of the amended copy of the Memorandum and Articles of Association of the Company. In case the Memorandum and Articles of Association is not amended, confirmation from the company regarding the same.

11.Name & Designation of the Contact Person of the Company, Telephone Nos. (landline & mobile) and Email address.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 5(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Conditions for issue of Bonus Shares

(i)In terms of section 63(2) of the Companies Act, 2013, no company shall capitalize its profits or reserves for the purpose of issuing fully paid-up bonus shares, unless — it is authorised by its articles.

(ii)It has been authorized by the shareholders in a general meeting of the company, on the recommendation of the Board of Directors.

(iii)It has not defaulted in the payment of interest or principal in respect of fixed deposits or debt securities, if any issued by it.

(iv)It has not defaulted in respect of the 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 have been made fully paid up.

No Bonus shares in lieu of dividend

The bonus shares shall not be issued in lieu of dividend. [Section 63(3) of the Companies Act, 2013].

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

Since the company has complied with all the conditions required to be satisfied, the court was correct in awarding the judgment in favour of the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

The following documents are required to be prepared by the Company Secretary for listing approval for Bonus equity shares issued by the Company:

1.Letter of Application (i.e. by Listed companies applying for listing of further issue) duly completed.

2.Certified true copy of the Board resolution in which the equity shares were allotted.

3.Brief particular of the new securities issued.

4.Shareholding Pattern as per the format prescribed under Regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 giving details pre and post allotment of bonus shares.

5.Certificate from Statutory Auditors / Practicing Chartered Accountant / Practicing Company Secretary to the effect that the SEBI (ICDR) Regulations, 2018 for bonus issue has been complied with.

6.Confirmation by the Managing Director/ Company Secretary.

7.Details of further listing /processing fee remitted.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).