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COMPANY SECRETARIAL PRACTICE STUDY 1 E GOVERNANCE OF COMPANY LAW (MCA-21)

Introduction

Almost every sector is computerised in todays scenario. Governments all over the world are integrating IT in their processes. For this purpose, public-private partnership model is being used to implement e-governance. IT enablement of various governments to business processes alongwith business process reengineering improves efficiency and transparency of government operations.
MCA-21

Electronic governance is SMART governance i.e. Simple, Moral, Accountable, Responsive and Transparent. MCA 21 is part of the National E-governance plan launched by the Ministry of Corporate Affairs alongwith TCS. Scope At present it covers RD, ROC and Ministry Headquarters Operational Aspects 1. Launch - Through Notification in 2006 and amendment of Companies (Central Government) General Rules under Section 610A of Companies Act. First Launch in Coimbatore. 2. Notification Prescribed new forms. Old forms are redundant. 3. E-forms re-engineering conventional form representing document in electronic format 4. Enactment of Rules Companies (electronic Filing and Authentication of Documents) Rules, 2006 to enable e-filing under section 610A and 610E 5. DIN Director Identification Number
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a. Mandatory for directors of Indian Companies, not mandatory for directors of foreign companies having branch offices in India. b. It is an unique identification number issued under Companies (Director Identification Number) Rules, 2006. c. Submit form DIN 1 online. Inform company with DIN -2 . company informs ROC with DIN-3 and change in particulars of Directors in DIN-4. d. Complete process is online. 6. CIN Corporate Identification Number is an unique identity number issued to corporates by ROC at the time of registration. In case of foreign companies, it is GLN (Global Location Number) 7. DSC Digital Signature Certificate. This is required to be obtained by: a. MCA Employees b. Professionals c. Authorised Signatories of Company d. Representatives of Banks/Financial Institutions Registration of DSC is a must before filing. 8. Role Check - Role check verifies whether the DSC actually belongs to the signatory at the time of filing. 9. Pre-certification by professionals in whole-time practice. Many forms require pre-certification before filing. 10.Front Office : interface between corporate and public users. Virtual front office represents computer facility for filing of forms on the MCA portal. Registrars Front Office one of the channels available for stakeholders to file documents. This is managed by an operator and run by MCA with TCS totally free of cost. 11.Back Office represents ROC, RD and Ministry Headquarters and takes care of internal processing of forms. 12.Certified Filing Centers Professionals are allowed to set up the Front Office and take a service charge 13.Hardware and Software requirements: a. Windows 2000 / Windows XP / Windows Vista / Windows 7 b. Internet Explorer v6.0 and above c. Adobe Reader V 9.4 and lower versions
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d. Java Runtime Environment (JRE) e. Broadband Internet connectivity or higher. f. A scanner (above 200 DPI) for converting the attachments in the PDF format. 14.Mode of Payment: Credit Card, Internet banking, NEFT or physical payment at specified banks authorised branches. 15.SRN Service Request Number each transaction under e-filing is uniquely identified by this number generated by the system. 16.Re-submission When MCA notifies that re-submission is required, documents may be re-submitted without payment if done within prescribed time. 17.Payment of Stamp duty E-stamping is made mandatory in most states. It is totally online through the MCA portal. Forms 1,5,44 and 67 are subject to e-stamping. 18.STP Straight through process is a facility which has been introduced where the forms are informatory such as Forms 20B, 23AC, 23ACA. 19.Online inspection Inspection of a company can be made online on payment of requisite fees. Certified copies of documents can also be obtained. 20. Annual e-filing is of Annual Accounts, Annual Return and Compliance Certificate 21.Benefits of MCA a. Elimination of interface b. Effective use of database c. Better supervision and monitoring of compliance d. Speed, transparency and efficiency e. Effective due diligence f. Environment friendly 22.National Award for E-Governance (2007-2008) was given to MCA21 egovernance project in the Gold category for Excellence in Government Process Re-engineering

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Study II Company formation and conversion

Choice of Form of Business Entity

Selecting the form of business entity is a crucial decision which requires lot of thought. It also needs to be revisited as and when there is a significant change internally or externally with respect to businesses. Change can be in the form of conversions or re-conversions. Nature, form and Types of Business Enterprises

Two categories: 1. Non-corporate form: sole proprietorship, partnerships and Hindu Undivided Family can be without registration 2. Corporate : Companies and co-operative undertakings only registered

1. Non- corporate: a. Sole Proprietorship individuals own capital, for business activity. Entitled to all profits, full control, maintains total secrecy and assumes total risk of ownership. Suitable for small businesses where risk and capital required are not large. b. HUF all members of the HUF run the family business under the control of the head of the family called karta, who is normally the seniormost male member of the family. HUF is comes into existence by Hindu Law and not contract. c. Partnership joint ownership and joint risk and joint profits in the ratio provided in the partnership agreement. It could be run by all or any one for all. Feature: i. Contractual Relationship agreement can be made only by persons competent to contract ii. Existence of business no partnership without business iii. Sharing of profits iv. Mutual agency business is carried on by all or any one for all 2. Corporate: a. Co-operative Organisation voluntary Association with unrestricted membership and collectively owned funds with equality between members. They come together for mutual benefit and service and not only for profit. This is registered under the Co-operative Societies Act, 1912. They get special concessions from the law and government to encourage development. Part IXA of the Companies Act relating to Producer Companies deals with corporatisation of the co-operative societies.

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5 b. Company main difference is that ownership and management are separate. Capital is provided by shareholders and the management is entrusted to Board of Directors. It is an artificial entity created by law, separate and distinct from its members with perpetual succession. This is suitable where requirement of capital is huge and the risk is equally great.

The decision to form one type of company or the other depends on the individual case requirement.

Procedure for Incorporation of Companies

Company means a company formed and registered under the Companies Act, 1956. Private Company 2 shareholders and 2 directors. Public limited company 7 shareholders and 3 directors. Section 12 also stipulates that there has to be : a. Lawful purpose b. Promoters must subscribe to Memorandum of Association c. Promoters to comply with requirements of Companies Act for registration of company. Promoters are defined in Companies Act only for the purpose of Section 62 (6) of the Act i.e. w.r.t. prospectus. Steps involved for incorporation of company: a. Name Availability 1. Select the Name and ascertain availability from the MCA website. 2. Apply in e-form1A with prescribed fee of Rs.500/- (only Part A) 3. Specify the order of preference of names (6) in the e-form with their reasoning. 4. Applicant duly authorised by promoters to affix DSC 5. Fee to be paid by internet banking, NEFT, credit card or challan b. Revalidation of Name Availability in case of rejection of application by ROC due to undesirability. ROC normally informs within 3 days of application. Applicants are given 2 chances for re-submission without fees. Application for extension of time for retention of name for a further period of 30 days can be made with 50% fee. Name allowed lapses after 60 days or 90 days after it is first made available. The procedure is same as above except that the earlier SRN needs to be quoted. c. Drafting of Memorandum and Articles of Association Get the same vetted by the ROC and Stock Exchange, if applicable. d. Stamping and Signing M & A is required to be printed, stamped, signed and then scanned and submitted alongwith other documents online. Physical copy is also required to be submitted. e. Dating of Memorandum and Articles Date of Stamping or later. f. Filing of Documents

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6 a. E-form 1 e-stamping is now applicable in most States in e-form 1. This is an application and declaration for incorporation of a company signed by the applicant confirming that the other requirements have been fulfilled. b. E-form 18 registered office details and it required pre-certification c. E-form 32 particulars of Directors. Attach written signed consent on plain paper from each of the Directors. DIN is a pre-requisite. Required pre-certification. d. Contracts pre-incorporation contracts are optional e. General Power of Attorney on non-judicial stamp paper authorising some persons on behalf of the applicant to make alterations etc. in the documents filed g. Pre-certification required only for e-form 18 and 32 h. Registration and filing fee as per Schedule X of the Companies Act. i. Scrutiny of documents and forms at ROC If ROC finds any defects, the same needs to be rectified before incorporation can be completed j. Certificate of Incorporation under the hand and seal of ROC. It will come by post but can be printed online also. k. Commencement of Business Separate procedure is given under this section l. Certificate of Commencement of Business Certificate is received from ROC. Private limited company: M & A provisions to be carefully drafted. The rest is same as above except for point (k) and (l) which is not required. Incorporation of company limited by guarantee: Care should be taken while drafting the M & A. The rest is same as given for public limited company. Incorporation of company for charitable or other purposes (Section 25) without addition of the word limited or private limited: Care should be taken while drafting the M & A. Steps a,b and c is same as above. The additional steps are: a. Application to Regional Director in Form 24A alongwith the following documents: a. M & A b. Declaration as per Annexure V of the Companies Regulations, 1956 c. Declaration by advocate or professionals as prescribed that the M& A is in conformity with the provisions of the Act d. Details of promoters and Directors of the Company e. Statement of grounds on which the application is made f. Estimate of the future annual income and expenditure of the proposed company g. Statement of brief work already done by the association h. Receipted challan of fees deposited b. Copy of the application to be submitted to ROC c. Notice of the application to be published in the newspaper (English and local) d. RD after considering the objections received from ROC or others determine whether the licence can be given or not. e. Once the licence is obtained, file the e-form1 and all other documents same as public limited company above.

Incorporation of existing association as limited company: Professional program LMR/Short Notes

7 The only difference is in the documentation for RDs approval. For each of the two completed financial years or in case it is in existence for only one year, the accounts, balance sheets and reports on the working of the association submitted to the members alongwith statement showing details of assets and liabilities, estimate of the future annual income and expenditure of the proposed company, statement of work already done. Unlimited Companies: Same as Companies with limited liability Producer Companies: Similar to private limited company, only difference is that the objects in the M & A should contain the matters specified in Section 581B. Foreign Company: Foreign Companies establishing a place of business in India are required to file the following documents: a. b. c. d. e. E-form 44 Charter or statutes or M & A Details of directors Approval letter of RBI for setting up business (application to RBI in Form FNC 1) Power of Attorney or Board resolution in favour of authorised representatives

Commencement of Business
Where company has issued prospectus: o Issue Prospectus o Obtain minimum subscription o Directors who have contracted to take up shares to pay the amount o Listing of shares with Stock Exchange o Shares issued to public to be allotted o File e-form 19 on stamp paper of requisite value which is the declaration of compliance under Section 149 o Obtain Certificate of Commencement of Business Where Company has not issued prospectus: o Directors to pay the contracted amount o File Statement in lieu of Prospectus at least 3 days before first allotment o File declaration in e-form 20 on stamp paper of requisite value o Obtain Certificate of Commencement of Business New business by existing company: o Board Meeting o General Meeting o Follow Listing Agreement (prior and after intimation to Stock Exchanges) o File with the ROC declaration e-form 20A and e-form 23 o No certificate of commencement of business

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Conversion of Companies
Procedure for conversion of private company into public company: a. Board resolution b. Increase number of members to 7 and number of directors to 3, if required. c. General meeting resolutions d. File e-form 23 with amended copy of M & A e. File e-form 62 with prospectus as attachment f. Surrender original certificate of incorporation and obtain new one. g. Print new copies of M & A, common seal, stationery h. Issue general notice in newspapers i. Intimate all relevant authorities Public company to private company: a. Board Meeting b. General Meeting c. File e-form 23 with ROC and e-form 1B for obtaining approval of the Central government alongwith copy of the resolution approving the same. d. Publish a notice in the newspapers e. Inform Stock Exchanges (as required under the Listing Agreement both prior and after the general meeting) f. Once approval is received, follow points f, g, h and I as stated above Sole Proprietor to limited company: The same procedure as that of incorporation of private or public limited company proprietor becomes the promoter. The M & A is required to include a clause that the Company can acquire the undertakings of an existing business. Partnership to limited company: Similar to sole proprietorship. One additional feature is that an agreement is required to be made with the directors of the newly formed undertaking for facilitating the acquisition of the partnership firm Partnership firm which is a joint stock company company conversion o Application in e-form 37 o List of members with details of the joint stock company o A copy of the partnership deed o A statement with prescribed details Inter-state Co-operative into Producer Company Inter-state Co-operative society can convert to producer company under section 581J. Procedure: a. Application for conversion to ROC alongwith: a. Copy of special resolution b. List of members and directors c. Statement confirming objects of the society d. Declaration from directors confirming accuracy b. ROC will confirm within 30 days Professional program LMR/Short Notes

9 Producer Company to Inter-State Co-operative Society: o Board Resolution o General Meeting Resolution: 2/3rd members present and voting and if creditors meeting is held on their request, 3/4th value of the total creditors. o Application to be made to the High Court o Certified copy of the order to be filed with the ROC o Copy of the order to be annexed to M & A o Within 6 months, make an application for registration under the multi-State Cooperatives Act.

Study III Alteration in the Memorandum and Articles of Association

Alteration of Memorandum 1. Change of Name a. Board Meeting for considering names and for authorising application b. File e-form 1-A c. Board Meeting for taking note of approval and convening general meeting d. General Meeting e. Prior and subsequent intimation to Stock Exchange as per Listing Agreement f. File e-form 23 and copy of altered M & A with resolution g. File e-form 1-B alongwith Minutes of General Meeting h. Original certificate to be surrendered and new one obtained from ROC i. Issue notice in newspapers j. Intimate all concerned authorities k. Arrange for new common seal, stationery etc. 2. Change of Objects a. Board Meeting for considering change of objects and for convening general meeting b. General Meeting c. Prior and subsequent intimation to Stock Exchange as per Listing Agreement d. File e-form 23 and copy of altered M & A with resolution e. Obtain certificate of registration from ROC 3. Change of registered office a. Within local limits of city, town or village i. Board Meeting for passing resolution for shifting the registered office ii. File e-form 18 within 30 days iii. Issue general notice in newspapers iv. Amend all items of stationery v. Stock Exchange and all other authorities to be informed

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10 b. Outside local limits but with the same ROC i. ii. iii. iv. v. vi. vii. viii. Board Meeting for passing resolution for shifting the registered office and for convening general meeting In case of listed companies, postal ballot is a must Intimation to Stock Exchange prior and subsequent Hold the general meeting and pass the special resolution File e-form 18 and 23 within 30 days Issue general notice in newspapers Amend all items of stationery Stock Exchange and all other authorities to be informed

c. Outside local limits of city, town or village with different ROC, same State After point iv in (b) above, make an application to RD in e-form 1AD alongwith :
(a) Copy of the minutes of the meeting (b) Copy of the newspaper advertisement (c) Particulars of investor grievances, if any (d) Any attachment to support the details of the prosecution filed against the company and its officers in default, if any

RD to confirm by order Order to be filed with ROC alongwith e-form 21 Obtain Certificate of registration of confirmation order from ROC

d. Different State Follow steps I to iv in point (b) File with ROC e-form 23 One month prior to the filing of petition with CLB: o Publish general notice in newspaper o Serve by Certificate of Posting (this has been discontinued by post office from February 2011) individual notice File the petition with CLB alongwith requisite documents and fees Send copy of petition to ROC Serve notice of petition to the Chief Secretary of the Government of the relevant State File e-form 21 with copy of the CLB order with ROC of both States Obtain registration certificate from the ROC of the State to which registered office is shifted Issue general notice in newspapers Amend all items of stationery Stock Exchange and all other authorities to be informed

4. Change in share capital a. Increase of share capital Articles of Association is required to contain provision for increase of authorised capital. If not, alter it Board Meeting for deciding increase and convening general meeting

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11 Prior and subsequent intimation to Stock Exchange Hold general meeting File e-form 23 alongwith resolution File e-form 5 duly stamped (e-stamping if applicable) alongwith altered M & A Alter the capital clause in all copies of M & A Consolidation of shares into shares of larger amount The procedure is same as (a) above except for 21 days notice to be given to Stock Exchange of proposed consolidation of shares and application to be made to Stock Exchanges for the same. Conversion of fully-paidup shares into stock or vice versa The procedure is same as (a) above except for 21 days notice to be given to Stock Exchange of proposed conversion and application to be made to Stock Exchanges for the same. Sub-division of shares into shares of smaller amount The procedure is same as (a) above except for 21 days notice to be given to Stock Exchange of proposed sub-division of shares and application to be made to Stock Exchanges for the same. Cancellation of shares 1. Make sure that its articles of association contain a provision authorising it to reduce its share capital. If there is no such provision then the articles have to be altered

b.

c.

d.

e.

2. Convene and hold a Board meeting to approve the scheme of capital reduction by a resolution and to convene the general meeting. 3. 4. Prior and subsequent intimation to the stock exchanges Hold the general meeting and have the special resolution(s) passed.

5. File e-form 23 along with a certified true copy of the special resolution(s), and copy of altered Memorandum of Association and Articles of Association with the ROC within thirty days of the passing of the resolutions 6. Apply to Court for confirmation of the capital reduction by way of a petition

7. The petition must be accompanied by an application by summons to the judge in chambers 8. 9. The petition must be verified by an affidavit The petition should be accompanied by the following documents: (a) A certified true copy of the memorandum and articles of association of the company. A certified true copy of the notice of the general meeting together with the explanatory statement annexed to the notice, at which the special resolution had been passed.

(b)

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12 (c) A certified true copy of the special resolution authorising the reduction of capital. A certified true copy of the latest audited balance sheet and profit and loss account of the company together with all the schedules and other papers attached/annexed thereto. A certified true copy of the minutes of proceedings at the general meeting at which the special resolution was passed.

(d)

(e)

10. Publish an advertisement of the petition not less than fourteen days before the date fixed for

11. the Judge.

A list of creditors should be filed by the company within the time allowed by

12. The list of creditors should be verified by an affidavit made by an officer of the company competent to make the same. 13. Within 7 days after the filing of the list of creditors or such further time as the Judge may allow, the company should send to each creditor a notice of presentation of the petition and the said list. 14. Notice of the presentation of the petition and of the list of should within 7 days after the filing of the said list be advertised by the 15. The company should file an affidavit proving the despatch and the publication of the notices 16. Within the time fixed by the Judge, the company should also file a statement signed and verified by the advocate of the company stating the result of the notices 17. The advocate of the company has to prepare the result of settlement of the list of creditors in the form of certificate which is to be signed by the Judge 18. After the expiry of not less than 14 days from the filing of the certificate mentioned above, petition will be set down for hearing. Notice of the hearing of the petition has to be advertised in such newspapers as the Judge may direct. 19. Give to the Registrar of Companies, notice in e-form 21 alongwith a certified copy of the order of the Court. 20. 21. Publish the notice of registration Make necessary alteration in the records of the company

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13 22. Take all other steps that may be required in accordance with the scheme of reduction of share capital of the company, e.g. to pay-up share capital which is in excess of the wants of the company. 23. The company must send to the concerned stock exchanges in case of listed company three copies of all the notices, circulars etc. issued and/or published in newspapers by the company in connection with the reduction of the share capital of the company as per the Listing Agreements signed with the stock exchanges. 5. Liability of directors to be made unlimited

A limited company may, if so authorised by its articles, by special resolution, alter its memorandum so as to render unlimited the liability of its directors or of any director or manager. The liability clause of Producer Company cannot be altered, as the liability of a Producer Company is, essentially, always intended to be limited. A company registered as unlimited may register under the Act as a limited company. For getting an unlimited company registered as a limited company, the Board of directors of the unlimited company will be required to follow the whole procedure which is required to be followed for the formation and incorporation of a new limited company Alteration of Articles

Procedure for Altering Articles of Association 1. Convene and hold a Board meeting to consider the proposal for alteration and convene the general meeting. 2. 3. Prior and subsequent intimation to Stock Exchanges Hold the general meeting and have the special resolution passed.

4. File with the ROC, e-form 23 along with a certified copy of the special resolution and a copy of the Articles of Association, within thirty days of the passing of the resolution along with the prescribed filing fee. 7. Make necessary changes in all the copies of the articles of association of the company lying in the office of the company so that no unaltered copy is issued to any person. Note: (i) A company, which has been granted a license under section 25 of the Act, must submit a draft of the proposed alterations to the Regional Director before convening a general meeting for passing a special resolution to approve the alterations. (ii) If a proposed alteration requires the leave of the CLB granting approval under section 404(1) of the Act, the company should make an application to the Principal Bench of the CLB for an order granting leave.

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14 A copy of the order of the CLB granting leave under section 404(1) to alter the articles as an attachment to e-Form No. 21, is required to be filed electronically with the Registrar within 30 days of receipt of the order and also simultaneously a certified copy of the order in physical form is required to be filed. Procedure for Alteration of Articles of Producer Company The amendment of articles shall be proposed by not less than two third of the elected directors or by not less than one third of the members of the Producer Company. The rest of the procedure is the same.

Changing the financial year

(1) Hold a Board meeting get the required resolution passed. (2) If the financial year is extended beyond a period of twelve calendar months and the company requires more time to finalise the accounts, the company should apply to the Registrar of Companies for obtaining extension of time for holding the annual general meeting of the company (3) The application should be made in e-form 61 (specimen in Annexure IIIA) alongwith : (a) Board resolution (b) Reasons for extension of financial year (c) Period for which extension is required. (d) Detailed application (4) The consent of the Assessing Officer of the Income Tax department is also required to be obtained by the company. (5) Due information to all concerned is also required to be given by the company.

STUDY IV

ISSUE OF SECURITIES
MEANING OF PUBLIC ISSUE OF SECURITIES
An offer to subscribe to shares or debentures to the public at large or to any section of the public would be treated as a public offer, if it is intended to invite anybody or it is made in such a way that anybody who wishes to invest can do so.

ISSUE OF EQUITY SHARES

For raising capital from the public by the issue of shares, a public company has to comply with the provisions of the Companies Act, the Securities Contracts (Regulation) Act, 1956 including the Rules made there under and the guidelines and instructions issued by the concerned Government authorities, the Stock Exchanges and SEBI etc. The whole process of issue of shares can be divided

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15 into two parts (i) pre-issue activities and (ii) post issue activities. All activities beginning with the planning of capital issue till the opening of the subscription list are pre-issue activities while all activities subsequent to the opening of the subscription list may be called post issue activities.
Steps involved in issue of equity shares The various steps involved in public issue of shares are enumerated below: 1. Before making any issue of capital, ensure that the proposed issue complies with the eligibility norms and other provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. Board Meeting to be held for considering the proposal and convening the general meeting

2.

3. General meeting of the shareholders for obtaining their consent to the proposed issue of shares 4. 5. Copy of the Memorandum and Articles of Association of the company is to be sent to the Stock Exchanges where the shares are to be enlisted, for approval Appoint one or more Merchant Bankers to act as managers to the public issue.

6. The company should in consultation with the Managers to the issue, decide upon the appointment of the following other agencies: (a) Registrars to the Issue; (b) Collecting bankers to the Issue; (c) Advisors to the Issue; (d) Underwriters to the Issue; (e) Brokers to the Issue; (f) Printers; (g) Advertising Agents etc. Consent of the aforesaid persons should be obtained in writing for acting in their respective capacities for filing, with the Registrar of Companies along with the prospectus. 7. Draft a prospectus in accordance with Schedule II of the Companies Act and an abridged prospectus as required under Section 56(3) of the Act. 8. Get approval of prospectus solicitors/legal advisors of the company, financial institutions providing loan facilities and underwriters 9. Copy of the draft prospectus to be forwarded to the Registrar of Companies for its scrutiny and approval. 10. Submit draft prospectus alongwith the Due Diligence Certificate, inter-se allocation of Responsibilities Certificate and a copy of Memorandum of Understanding to SEBI at least 30 days prior to the registering the prospectus with Registrar of Companies. 11. Simultaneously while registering the prospectus with the Registrar of Companies file a copy with SEBI through the lead merchant banker. 12. Draft offer document filed with SEBI tol be made public, for comments, if any, for a period of at least twenty one days by hosting it on the websites of SEBI, stock exchanges and merchant bankers. 13. The lead merchant bankers to file with the Board a statement giving information of the comments received by them and the consequential changes, if any, to be made in the draft offer document. 14. The issuer and lead merchant banker to carry out changes in the draft offer document before registering the prospectus with the Registrar of Companies or filing the letter of offer with the designated stock exchange. 15. Two copies of final printed copy of the final offer document to be sent to dealing offices of SEBI at least within three days of filing offer document with Registrar of Companies/Stock Exchange. 16. Lead merchant banker to submit one final printed copy of the final offer document alongwith the computer floppy containing the final prospectus/letter of offer to Primary Market Department, SEBI 17. Public issue offer documents and other issue material to be despatched to the various stock exchanges, brokers, underwriters, bankers to the issue etc. in advance 18. 20 copies of the prospectus and application form to be despatched in advance of the issue opening date to various Investor Associations.

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19. Board meeting to approve the final draft before filing with the Registrar of Companies and for the following: (a) to approve and accept consent letters received from various parties agencies to act in their respective capacities; (b) to approve and accept appointment of underwriters, brokers bankers to the issue registrar to the issue, solicitors and advocates to the issue, etc. (c) to accept the Auditors Report for inclusion in the prospectus; (d) to approve the date of opening of subscription list as also earliest and latest dates for closing of subscription list with the authority in favour of any director for earlier closing if necessary. (e) to approve draft prospectus/draft abridged prospectus and the draft share application form. (f) to authorise filing of the prospectus signed by all the directors or their constituted attorneys with the Registrar of Companies. (g) to authorise any officer of the company to deliver the prospectus for registration with the Registrar of Companies and to carry out the corrections, if any, at the office of the Registrar of Companies. (h) to approve the format of the statutory announcement. 20. Before filing prospectus with the Registrar of Companies, the company should submit an application(s) to the Stock Exchange(s) for enlistment of securities offered to the public by the said issue. 21. After receipt of the intimation from Registrar of Companies regarding registration of prospectus, the company should take steps to issue the prospectus within 90 days of its registration with ROC. 22. Refund process to be followed in case of undersubscription 23. E-Form No. 2 should be filed with the Registrar of Companies within 30 days of the date of allotment along with the fees 24. (i) Along with e-Form No. 2, e-Form No. 3 showing particulars of contracts relating to shares has also to be filed, where a company allots shares for consideration other than cash without entering into any written agreement. (ii) e-Form No. 4 containing the statement of the amount or rate percentage of the commission payable on shares together with a copy of the contract for payment of commission, if any, should be filed with the Registrar before such commission is paid.

ISSUE OF SHARES AT DISCOUNT

1. Hold a Board to decide the number of shares to be issued at a discount, the rate of discount and to convene the General Meeting, 2. Prior and subsequent intimation to the Stock Exchange 3. Hold the General Meeting and pass the Ordinary Resolution 4. Make an application to the concerned Bench of the Company Law Board in the form of a petition together with the following documents: (i) Certified true copy of the Memorandum and Articles of Association of your company; (ii) Certified true copy of the notice calling for the General Meeting with Explanatory Statement of the resolution sanctioning issue; (iii) Certified true copy of the minutes of the meeting at which the resolution was passed; (iv) Certified true copy of the last three years' audited balance sheets, profit and loss accounts, auditors report and directors' report; (v) Affidavit on stamp paper verifying the petition; (vi) Demand draft evidencing payment of fee of Rs. 1,000/-;

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(vii) Memorandum of appearance (in Form No. 5 of Annexure I to the Regulations) with copy of the Board Resolution or the executed Vakalatnama, as the case may be. 5. 6. Affix court fee stamps of the requisite value on the petition before filing. File e-Form No. 21 with ROC along with a certified copy of the order within one month from the date of the order 7. If a Prospectus is to be issued, then issue it on receipt of the Company Law Board's order. 8. Deliver a copy of the Prospectus/Statement in Lieu of Prospectus it to the ROC for registration. 9. Make an application for listing to the Stock Exchange. 10. File with the ROC, a return in e-Form No. 2 within thirty days of allotment of shares issued at a discount along with the following documents: (i) a certified true copy of the resolution of the General Meeting authorising such issue; (ii) a certified true copy of the order of the Company Law Board sanctioning the issue;

ISSUE OF SHARES AT A PREMIUM

1. Please note that the following companies only can issue shares to the public at a premium if: (a) it has net tangible assets of at least three crore rupees in each of the preceding three full years (of twelve months each), of which not more than fifty per cent. are held in monetary assets: Provided that if more than fifty per cent. of the net tangible assets are held in monetary assets, the issuer has made firm commitments to utilise such excess monetary assets in its business or project; (b) it has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years: Provided that extraordinary items shall not be considered for calculating distributable profits; (c) it has a net worth of at least one crore rupees in each of the preceding three full years (of twelve months each); (d) the aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding financial year; (e) if it has changed its name within the last one year, at least fifty per cent. of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name 2. Check up whether the company falls under any of the categories mentioned above. 3. Note that the company is allowed to mention a price band of 20% (that is the ceiling or cap price should not be more than 20% of the (floor price) in the draft offer document required to be submitted to SEBI. 4. Include suitable explanatory notes indicating the financial implications if the price were to be fixed at different levels within the price band approved by the Board of Directors or General Body of Shareholders. 5. Remember that if the Board of Directors has been authorised to determine the offer price within a specified price band, such price should be determined by a resolution to be passed by the Board of Directors at a meeting of the Board, for which 48 hours notice has been given to the Stock Exchange. 6. Determine the actual price at the time of filing the final offer document with ROC/Stock Exchange, ensuring that such actual price is within the price band. 7. Ensure that the final offer document indicates only one price (that is the actual price determined as per 6 above) and one set of financial projections.

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8. Determine the premium in consultation with the Lead Merchant Banker to the public/rights issue. 9. Offer Document to contain all relevant disclosures 10. Hold a Board Meeting and pass a resolution approving the proposal for issue of securities at a premium, specifying the number and nominal value of shares, amount of premium and the terms and conditions for issue of the shares and to convene the general meeting 11. Prior and subsequent intimation to Stock Exchanges

12. Hold the General meeting and pass the special resolution for the issue of shares at a premium. 13. File the special resolution electronically within 30 days from the date of the general meeting along with e-Form No. 23 with ROC. 14. Proceed to allot the shares so issued at a premium at a duly convened Board meeting. Allotment of shares to non residents should be made only after the receipt of RBI approval. 15. In case of a listed company, give intimation to the Stock Exchange(s) of the allotment as approved by the Board. 16. The premium so received should be transferred to the "Securities Premium Account". 17. File e-Form No. 2 with the Registrar of Companies 18. Complete the necessary formalities and arrangements for listing of the securities on the Stock Exchange(s).

MAKING CALLS ON SHARES

1. Convene a Board Meeting and pass a resolution calling whole or any portion of the unpaid amount on the shares of the company stating, inter-alia, the time, the place, the amount of call and the last date of making the payment. 2. Comply with any condition imposed in the Articles of Association of the company in this regard. 3. Issue call letters and send necessary reminders until the call is fully paid or the shares are forfeited. 4. Make necessary entries in various registers on the share certificates. 5. If any amount is paid in advance of calls on any shares, then stipulate that such amount may carry interest but shall not in respect thereof confer a right to dividend or to participate in profits. 6. If the shares of the company are listed on a recognised Stock Exchange, then: (i) approval of the call notice by the Stock Exchange is required; (ii) Intimate about the decision of the meeting within 15 minutes of the closure of the said meeting to the Stock Exchange; (iii) Forward promptly to the said Stock Exchange three copies of the call letters. (iv) Ensure that the calls are structured in such a manner that the entire subscription money is called within 12 months from the date of allotment. 7. Particulars in respect of amount called up and unpaid call must be disclosed in the Balance Sheet as required by Schedule VI.

RIGHT ISSUES
1. Check whether the rights issue is within the authorised share capital of the company. If not, steps should be taken to increase the authorised share capital of the Company. 2. In case of a listed company, notify the stock exchange concerned the date of Board Meeting at which the rights issue is proposed to be considered at least 2 days in advance of the

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meeting. 3. A listed issuer making a rights issue shall announce a record date for the purpose of determining the shareholders eligible to apply for specified securities in the proposed rights issue. The abridged letter of offer, along with application form, shall be dispatched through registered post or speed post to all the existing shareholders at least three days before the date of opening of the issue: 4. Convene the Board meeting and pass the resolution for proposal for rights issue 5. The Board should decide on the following matters: (i) Quantum of issue and the proportion of rights shares. (ii) Alteration of share capital, if necessary, and offering shares to persons other than existing holders of shares in terms of Section 81(1A). (iii) Fixation of record date. (iv) Appointment of merchant bankers and underwriters (if necessary). (v) Approval of draft letter of offer or authorisation of managing director/ company secretary to finalise the letter of offer in consultation with the managers to the issue, the stock exchange and SEBI. (vi) To approve a draft application forms (for subscribing to the rights shares, additional shares, splitting the rights renunciation) (vii) To authorise Company Secretary or other officer to send the Letter of Offer to the member and to do such acts, deeds and things as may be necessary to give effect to the Board's decision (viii) To convene a general meeting for passing necessary resolutions, if any; to fix date, time and place of the general meeting and to authorise the Company Secretary or other officer to issue notice of the meeting 6. Immediately after the Board Meeting, notify the concerned Stock Exchanges about particulars of Boards decision. 7. If it is proposed to offer shares to persons other than the shareholders of the company, a General Meeting has to be convened and a resolution is to be passed for the purpose in terms of Section 81(1A) of the Companies Act. 8. Forward 6 sets of letter of offer to concerned Stock Exchange(s). 9. Check that an advertisement giving date of completion of despatch of letter of offer has been released in at least an English National Daily, one Hindi National Paper and a Regional Language Daily where registered office of the issuer company is situated. 10. Check that the advertisement contains the list of centres where shareholders or persons entitled to rights may obtain duplicate copies of composite application forms in case they do not receive original application form alongwith the prescribed format on which application may be made. 11. Open an account with the designated bankers to the issue for acceptance of applications in accordance with the SEBI Regulations and in consultation with the Regional Stock Exchange. 12. Deposit with the Regional Stock Exchange an amount equal to 1% of the total issue amount as per Clause 42 of the Listing Agreement. Alternatively, 50% of the requisite amount may be deposited in cash and the balance 50% by way of a bank guarantee. 13. After the last date for making the application, collect the application forms received and scrutinise them in all respects. Sort the valid applications and defective applications. 14. Convene a meeting of the Board/Allotment Committee and pass resolution for allotment and file Return of Allotment with the Registrar of Companies. a

15. Prepare and despatch Letters of Allotment. Alternatively, prepare and despatch Share Certificates to the allottees. In any case, Share Certificates should be despatched within 3 months from the date of allotment.

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16. Simultaneously, prepare and despatch regret letters and refund orders to the applicants to whom no shares have been allotted. 17. Immediately after the allotment, enter the particulars of the allottees in the Register of Members. 18. Make applications to all the Stock Exchanges where the company's shares are listed, for their permission for the listing of the rights shares allotted. 19. A 3 day and 50 day monitoring report has been sent to SEBI.

ISSUE OF BONUS SHARES

1. 2. There should be a provision in the articles of association of the company permitting issue of bonus shares; if not, steps should be taken to alter the articles suitably. The share capital as increased by the proposed bonus issue should be well within the authorised capital of the company; if not, necessary steps have to be taken to increase the authorised capital. Fix the date for the Board Meeting for considering the following matters: To approve the bonus issue; To approve the resolution to be passed at a general meeting; To approve requisite resolution for increase of the capital and consequential alteration of the memorandum and the articles (if necessary) To decide (or authorise managing director/secretary or some other officer of the company to decide) the dates for fixing a record date. 4. 5. 6. 7. 8. If there are any partly paid-up shares, ensure that these are made fully paid-up before the bonus issue is recommended by the Board of directors. The date of the Board Meeting should be notified to the Stock Exchange(s) Hold the Board Meeting and get the proposal approved by the Board. Intimate the decision taken at the board meeting to the Stock Exchange(s) A company which announces bonus issue after the approval of board of directors and does not require shareholders approval for capitalisation of profits or reserves for making bonus issue as per the Articles of Association, shall implement bonus issue within fifteen days from the date of approval of the issue by the board of directors of the company and shall not have the option of changing the decision However, where the company is required to seek shareholders approval for capitalisation of profits or reserves for making bonus issue as per the Articles of Association, the bonus issue shall be implemented within two months from the date of the meeting of the board of directors wherein the decision to announce bonus was taken subject to shareholders approval. 9. 10. . Approvals of banks, financial institutions, debenture trustees, etc, if required under the related agreements, shall be obtained before the general meeting. Hold the general meeting and get the resolution for issue of bonus shares passed by the members. A copy of the proceedings of the meeting is to be forwarded to the concerned Stock Exchange(s). Within 30 days of the date of the general meeting, file the necessary returns in the prescribed forms e.g. e-Form Nos. 5, 23 to the Registrar of Companies Fix the date for closure of register of members or record date and get the same approved by the Board of directors. Issue a general notice under Section 154 of Companies Act in respect of the fixation of the record date in two newspapers one in English language and other in the language of the region in which the Registered Office of the company is situated. Give 30 days notice to the Stock Exchange(s) concerned before the date of book closure/record date. After the record date process the transfers received and prepare a list of members entitled to bonus shares on the basis of the register of members as updated. This list of allottees is to be approved by the Board or any Committee thereof. File return of allotment with the Registrar of Companies within 30 days of allotment. Also intimate Stock Exchange(s) concerned regarding the allotments made. Submit an application to the Stock Exchange(s) concerned for listing the bonus shares allotted.

3.

11. 12. 13.

14. 15.

16. 17.

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Procedure for bonus issue by an unlisted company 1. At the Board meeting resolutions for the following purposes will be passed: To approve the proposal for the bonus issue To Approve the resolution to be passed at a general meeting To approve requisite resolution for increase of the capital and consequential alteration of the memorandum and the articles (if necessary) To decide on fixing a record date 2. A general meeting will be convened to pass necessary resolution/s. 3. Within 30 days of the general meeting, file the necessary returns in the prescribed forms e.g. e-Form Nos. 5, 23, etc. to the Registrar of Companies. 4. After the record date, prepare a list of members entitled to the bonus shares on the basis of the register of members as updated. 5. Convene Board meeting (or of a meeting of committee of directors) for the allotment of bonus shares and allot the bonus shares. 6. File a return of allotment with the Registrar within 30 days of the allotment. 7. Prepare and dispatch the share certificates relating to the bonus shares allotted within three months of the date of allotment and make entries of the shares allotted in the register of members.

ISSUE OF SHARES WITH DIFFERENTIAL VOTING RIGHTS

1. Check whether the Articles of Association of the company permit issue of bonus shares with differential rights and if not then alter the Articles of association of the Company. 2. Check whether the expanded capital after the issue is within the authorised share capital of the company. If not, complete proceedings to increase the authorised share capital suitably. 3. Before issuing shares with differential rights as to dividend, voting or otherwise, ensure that the conditions prescribed are followed.

4. Ensure strict compliance with the following financial parameters for determining the quantum of the issue of bonus shares with differential voting rights: (a) that the bonus issue of shares with differential voting rights is made out of free reserves of your company built out of the genuine profits or share premium collected in cash only; (b) that reserves created by revaluation of fixed assets are not utilised for this purpose. 6. Convene a Board Meeting to decide about the issue of bonus shares with differential rights as to voting, dividend or otherwise and to convene the general meeting 7. Prior and subsequent intimation to Stock Exchanges 8. Issue notices of closure of register of members in at least one English newspaper and one in the principal language of the district/region in which the company's registered office is situated. 9. Permission of RBI to be obtained, if any required 10. If the company is a listed then ensure that it obtains the approval of its shareholders through postal ballot. 11. Hold the General Meeting and pass the Ordinary Resolution by simple majority or the Special Resolution by three fourths majority . 12. File e-Form No.23 with ROC within thirty days of the General Meeting. 13. Publish a notice of Record Date for the purpose of determining the eligibility of members for

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bonus shares with differential voting rights. 14. Convene another Board Meeting for allotment of the shares 15. Complete all other proceedings for the issue of certificates of shares with differential voting rights making necessary entries in various registers. 16. Make necessary changes in every copy of the Memorandum and Articles of Association and in all other papers and documents immediately after the paid-up share capital is increased. 17. Maintain a register as required under section 150 containing the particulars of differential rights to which the holder is entitled.

ISSUE OF SHARES ON PREFERENTIAL BASIS/PRIVATE PLACEMENT

1. To ensure that the issue is within the authorized share capital of the company; otherwise to increase the same by following the proper procedure. 2. If the company is an unlisted public company, then follow the provisions of Unlisted Public Companies (Preferential Allotment) Rules, 2003. 3. Call a Board Meeting after giving notice to all the directors of the company as per section 286 to fix up the date, time, place and agenda for a General Meeting to pass an Ordinary or Special Resolution as the case may be. 4. In case of a public company, a Special Resolution or an Ordinary Resolution followed by the Central Government's approval under Section 81 should be passed unless the allotment is made within two years from the formation of company or within one year from the allotment of shares made for the first time after formation, whichever is earlier. 5. In case of first allotment, the provisions of Section 70 should also be complied with. 6. In case of a private company, to pass an Ordinary or a Special Resolution, if the Articles so require; otherwise the Board can issue the shares. 7. Issue notices in writing at least twenty-one days before the date of the General Meeting proposing the Special or Ordinary Resolution as the case may be with suitable Explanatory Statement.

8. Hold the General Meeting and pass the resolutions. If an Ordinary Resolution under Section 81 is passed, proceed to obtain the Central Government's approval in accordance with that section. 9. If any Special Resolution is passed, file the same with the concerned ROC in e-Form No. 23 within thirty days of the passing after paying the requisite fee prescribed under Schedule X to the Act. Action on any resolution passed at a meeting of shareholders of a company granting consent for preferential issue of any financial instrument shall be completed within a period of 15 days from the date of passing of the resolution. If such resolution is not acted upon within the said period, a fresh consent of the shareholders will have to be obtained. 10. Receive applications by private negotiations and complete proceedings regarding allotment of shares. 11. If shares are to be allotted on direct/private placement to Central/ State Government, their agencies, public financial institutions and Mutual Funds, obtain their agreement to the proposed investment. 12. Proceed to complete other formalities such as issue of allotment letters, share certificates, filing of allotment return, making entries in various registers etc. 13. File return of allotment in e-Form No. 2 within thirty days from the date of allotment with necessary details and enclosures with the concerned ROC 14. Send allotment letters or share certificates as the case may be within three months from the date of allotment to the allottees.

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15. If the company is a listed company then in addition to the aforesaid requirements, the provisions of Chapter VII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 are also required to be followed.

EMPLOYEE STOCK OPTIONS

1. Ensure that securities are not issued to promoters under the Employees Stock Option Scheme (ESOS) even if the promoters are employees of the company or belong to the promoters group of the company. Check eligibility of employee participating in the scheme. 2. Constitute a Compensation Committee for administrative and superintendence of the ESOS which should be a Committee of the Board of Directors consisting of a majority of independent directors by passing a Board Resolution. 3. Before offering ESOS, disclosures as specified in Schedule IV are required to be made by the company to the prospective option grantees. 4. There should exist a minimum period of one year between the grant of options and vesting of options. 5. Convene a Board Meeting to consider the proposal and to convene the General Meeting 6. Obtain approval of shareholders by way of separate resolution in case of grant of option to employees of subsidiary or holding company and also in case of grant of option to identified employees, during any one year, equal to or exceeding 1 % of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option. 7. Hold the General Meeting and pass the Special 8. Prior and subsequent intimation to the Stock Exchange. 9. File e-Form No. 23 and e- Form 2 within thirty days of passing of the resolution 19.

10. A company may reprice the options which are not exercised if ESOSs were rendered unattractive due to fall in the price of the shares in the market. Provided that the company ensures that such re-pricing shall not be detrimental to the interest of employees and approval of shareholders in General Meeting has been obtained for such re-pricing. 11. Forfeit the amount payable by the employee if any, at the time of grant of option if the option is not exercised by the employee within the exercise period. 12. Refund the amount to the employee if the options are not vested due to non- fulfilment of condition relating to vesting of option as per the ESOS. 13. Ensure that in the event of the death of employee while in employment, all the options granted to him till such date are vested in the legal heirs or nominees of the deceased employee. 14. Ensure that the Board of Directors, discloses either, in the Directors Report or in the Annexure to the Directors' Report, the details of ESOS as prescribed: 15. Until all options granted in the three years prior to the IPO have been exercised or have lapsed, disclosure shall be made either in the Directors Report or in an Annexure thereto of the impact on the profits and on the EPS of the company if the company had followed the accounting policies specified in Schedule I of the Guidelines In the case of every company that has passed a resolution for an ESOS, the Board of Directors shall at each annual general meeting place before the shareholders a certificate from the auditors of the company that the scheme has been implemented in accordance with these guidelines and in accordance with the resolution of the company in the general meeting. 16. Further ensure that the Board of Directors of the company place before the shareholders of each annual general meeting, a certificate from the auditors of company that the Scheme has been implemented in accordance with these guidelines and in accordance with the resolution passed at company's general meeting.

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II. Employees Stock Purchase Scheme (ESPS) 1. Check eligibility of employee participating in the scheme. 2. Make arrangements for holding the general Meeting to approve the Scheme by passing a special resolution. 3. Approval of shareholders must be obtained by way of separate resolution in the general meeting in case of (a) allotment of shares to employees of subsidiary or holding company and; (b) allotment of shares to identified employees, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of allotment of shares. 4. Every company passing a resolution for the scheme must comply with the accounting policies as specified in Schedule II to SEBI (Employee Stock Option Scheme and Employee Stock Purchase) Guidelines, 1999. 5. The shares arising pursuant to an ESOS and shares issued under an ESPS are required to be listed immediately upon exercise in any recognized stock exchange where the securities of the company are listed subject to compliance of the following: (a) The ESOS/ESPS is in accordance with these Guidelines. (b) In case of an ESOS the company has also filed with the concerned stock exchanges, before the exercise of option, a statement as per Schedule V and has obtained inprinciple approval from such Stock Exchanges. (c) As and when the concerned Schedule VI. 6. ESOS/ESPS are exercised the company has notified Stock Exchanges as per the statement as per

For listing of shares issued pursuant to ESOS or ESPS the company is required to make application to the Central Listing Authority as per SEBI (Central Listing Authority) Regulations, 2003 and obtain the in-principle approval from Stock Exchanges where it proposes to list the said shares.

7. The listed companies is required to file the ESOS or ESPS Schemes through EDIFAR filing. 8. The company is required to appoint a registered Merchant Banker for the implementation of ESOS and ESPS as per these guidelines. ESOS/ESPS Through Trust Route In case ESOS/ESPS are administered through a Trust Route, the accounts of the company shall be prepared as if the company itself is administering the ESOS/ ESPS.

SWEAT EQUITY SHARES

Procedure to Issue Sweat Equity Shares (In case of Listed Companies) [Section 79A] 1. Ensure that at least 1 year has elapsed since the date on which the company was entitled to commence business. 2. Decide before convening a Board Meeting, the number of shares, their current market price and consideration, if any, and the class or classes of directors or employees to whom such of Sweat Equity Shares are proposed to be issued. 3. Convene a Board Meeting to consider the proposal of issue of Sweat Equity Shares and to convene the General Meeting 4. Listed companies must pass the special resolution in its general meeting, for issue of sweat equity shares to employees and directors. 5. If the sweat equity shares are to be issued by a listed company to its promoters, as defined in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, obtain

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the approval of shareholders: (a) by simple majority in general meeting; and (b) also through postal ballot as specified under the Companies (Passing of Resolution by Postal Ballot) Rules, 2001 6. Hold the General Meeting and pass the Special Resolution. 7. File e- Form No. 23 with ROC 8. Prior and subsequent intimation to Stock Exchange 9. If the shares of the company are listed with any of the recognised Stock Ex change, then issue the Sweat Equity Shares in accordance with the Securities Exchange Board of India (Issue of Sweat Equity) Regulations, 2002. 13. If the company's equity shares are not listed on any recognised Stock Exchange then issue the Sweat Equity Snares in accordance with the Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003. Procedure to Issue Sweat Equity Shares (in case of unlisted companies) [Section 79A] 1. Approval of shareholders by way of separate resolution in the general meeting shall be obtained by the company in case of grant of shares to identified employees and promoters, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversion) of the company at the time of grant of the sweat equity shares. 2. Maintain a Register of Sweat Equity Shares in the Form specified in Schedule annexed to the Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003. 3. The company should not issue sweat equity shares for more than 15% of total paid up equity share capital in a year or shares of the value of 5 crores of rupees, whichever is higher except with the prior approval of the Central Government. 4. The following details of issue of sweat equity shares are required to be disclosed either in the Director's Report or in the annexure to the Director's Report,: (a) Number of shares to be issued to the employees or the directors; (b) conditions for issue of sweat equity shares; (c) the pricing formula; (d) the total number of shares arising as a result of issue of sweat equity shares; (e) money realised or benefit accrued to the company from the issue of sweat equity shares; (f) diluted Earnings Per Shares (EPS) pursuant to issuance of sweat equity shares. 5. The price of sweat equity shares to be issued to employees and directors shall be at a fair price calculated by an independent valuer. 6. If the company proposes to issue sweat equity shares for consideration other than cash, it shall comply with following : (a) The valuation of the intellectual property or of the know-how provided or other value addition to consideration at which sweat equity capital is issued, shall be carried out by a valuer; (b) the valuer shall consult such experts, as he may deem fit, having regard to the nature of the industry and the nature of the property or the value addition; (c) the valuer shall submit a valuation report to the company giving justification for the valuation; (d) a copy of the valuation report of the valuer shall be sent to the share holders with the notice of the general meeting; (e) the company shall give justification for issue of sweat equity shares for consideration other than cash, which shall form part of the notice sent for the general meeting; and

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(f) the amount of Sweat Equity shares issued shall be treated as part of managerial remuneration for the purposes of sections 198, 309, 310, 311 and 387 of the Companies Act, 1956 if the following conditions are fulfilled: (i) the Sweat Equity shares are issued to any director or manager; and (ii) they are issued for non-cash consideration, which does not take the form of an asset which can be carried to the balance sheet of the company in accordance with the relevant accounting standards. 7. A certificate is required to be placed at the annual general meeting from the auditors of the company or from a practising company secretary stating that sweat equity shares have been allotted in accordance with the resolution of the company in the general meeting and the said Rules.

ISSUE AND REDEMPTION OF PREFERENCE SHARES

Procedure to issue Redeemable Preference Shares Under Section 80 1. Articles of Association of the Company must authorise issue of redeemable preference shares; if not, steps should be taken to alter them accordingly. 2. Obtain 'credit rating' from any of the approved credit rating agencies. 3. Call a Board Meeting to take the decision of issuing redeemable preference shares and convene General Meeting 4. Prior and subsequent intimation to Stock Exchange 5. Hold the General Meeting and pass the resolution (if it is made on private placement basis, pass special resolution under section 81(1A) and if the issue is made on right basis, comply with section 81(1). 6. If the resolution passed is a Special Resolution, file the same with the ROC in e-Form No. 23 within thirty days of its passing. 7. If the issue of redeemable preference shares is to be made by issue of Prospectus, then prepare a draft Prospectus in consultation with the Lead Manager responsible for such drafting. Follow the procedure for Public Issue of Shares. 8. Make allotment by passing a resolution at a duly convened Board Meeting. 9. File a return of allotment in e-form 2 with ROC. Procedure to redeem Redeemable Preference Shares (a) Preference shares must be fully paid-up. The premium, if any, on such redemption, must be provided out of the profits or out of the security premium account of the company, before the shares are redeemed. (b) If these are redeemed out of distributable profits of the company, then, before such redemption, transfer a sum equal to the nominal amount of shares to be so redeemed to a reserve fund called the "Capital Redemption Reserve Account" from the distributable profits of the company. (c) Hold a Board Meeting by giving notice to all the directors of the company as per section 286. Decide about the number of preference shares to be redeemed, and the date of such redemption. Pass a resolution approving the redemption of redeemable preference shares. (d) If the redemption is to be made out of the proceeds of a fresh issue of shares, then: (i) Hold a Board Meeting by giving noticed to all the directors of the company as per section 286 and approve the issue of fresh shares up to the nominal amount of the shares to be redeemed by passing a resolution; (ii) Pass another resolution approving the redemption of preference shares out of the proceeds of a fresh issue of shares; (iii) Pass another Board resolution to issue fresh shares to the existing share holders; (iv) Redeem the preference shares within one month of the. issue of the new shares. (e) Carry out the redemption of preference shares in both the cases on such terms and in such manner as provided in the Articles of your company.

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(f) If the company's shares are listed on a recognized Stock Exchange, inform it about such redemption at least 21 days in advance and forward a copy of the Board resolution to them. (g) Inform the preference shareholders individually and also through a public notice in the newspapers about the proposed redemption.

STUDY V

ALLOTMENT OF SECURITIES
MEANING OF ALLOTMENT The term allotment has not been defined anywhere in the Companies Act, 1956. Allotment of shares means division, distribution or appropriation of shares in a company. ALLOTMENT OF SHARES Application moneys standing to the credit of the separate bank account shall not be utilised for any purpose other than the following purposes, namely : (a) adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange(s) specified in the prospectus; or (b) repayment of moneys received from applicants in pursuance of the prospectus, where shares have not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allotment of shares. It is obligatory to file with the concerned Registrar of Companies, return of allotment of the shares in e-form 2 within thirty days of the allotment along with the prescribed filing fee. The return should not show any shares as having been allotted for cash if cash has not actually been received in respect of such allotment. Shares Allotted for Consideration otherwise than in Cash File e-form 2 and contract copy with ROC verified by an affidavit of a responsible officer of the company stating that they are true copies. If the contracts are not reduced in writing, prescribed particulars of contract in e-form 3 duly stamped along with copy of board resolution approving allotment of shares otherwise than in cash are to be filed with the ROC within 30 days of the allotment. The original duly filled in and signed e-form 3 on stamp paper, in physical form are required to be sent to the concerned ROC office simultaneously, failing which the filing will not be considered and legal action will be taken. Return of Allotment of Bonus Shares In the case of allotment of bonus shares, the company is required to attach to the return of allotment, a certified copy of the ordinary resolution of the general meeting authorising the issue of such shares Return of Allotment of Shares Issued at Discount The company is required to attach to the return of allotment, a certified copy of the resolution passed by the company for the issue of shares at a discount together a copy of the order of the Company Law Board sanctioning the issue and where the minimum rate of discount exceeds ten percent, a copy of the order of the Central Government permitting the issue at a higher percentage. Disposal of Forfeited Shares No Allotment Return to be Filed A company is required to file a return of allotment of shares and not for re-issue of forfeited shares.

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Return of Allotment to be Filed in Respect of Every Allotment The duty of a company to file a return of allotment is not confined to the first allotment. The company has to file the return of allotment whenever it makes any allotment of shares. Allotment Procedure After the closure of the issue, the Registrar to the issue, to collect from the bankers to the issue, all the share applications along with their branch/city/town-wise schedules Registrar to the issue, in consultation with the company, should prepare basis of allotment. If the issue is fully subscribed or under-subscribed, preparing basis of allotment poses no problem. Communicate the basis of allotment to the regional stock exchange (SE), where the shares are proposed to be listed, for its approval. The stock exchange approves the basis of allotment, with or without modification. Immediately on receipt of the approved basis of allotment, get it published in newspapers and send copies of the same to the Securities and Exchange Board of India (SEBI) and all other stock exchanges where the shares are proposed to be listed. Obtain from the Registrar to the Issue, the register of share applications and allotment containing, in respect of each applicant all the prescribed particulars Convene a meeting of the Board of directors, for allotment of shares, and for transacting any other business which is required to be transacted at that meeting. The Board of directors of the company to hold its meeting and allot shares to the applicants as per entries in the register of share applications and allotment of shares, which has been prepared by the Registrar to the issue according to the approved basis of allotment. Within thirty days of the allotment of shares, file with the concerned Registrar of Companies, a return of allotment in the e-form 2 Thereafter, share certificates should be prepared, got stamped, signed, sealed as per the authority of the Board of directors of the company and the articles of association of the company and delivered to the allottees of the shares within three months after the allotment, However, in the case of the applicants opting for demat mode (not to receive certificates for securities allotted), the Registrar should prepare the details of such applicants with their client Identification Number and depository participant nos. and intimate the details of such allottees as beneficial owner for the number of securities allotted. In such cases, the certificates shall not be issued. Pursuant to Section 152A, Register and Index or Beneficial owners should be prepared. The company should prepare a register and index of its members, enter all the relevant details therein and keep the same always in updated form at the registered office of the company. In this work, the Registrar to the issue may render some assistance. The company should cut off specimen signatures of the allottees from their application forms and have them pasted in the Members specimen signatures register for tallying the same at any point of time in future. The specimen signature can also be scanned and kept on specially designed software for tallying purposes.

ISSUE OF SHARE CERTIFICATES

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Issue of Original Share Certificates 1. Convene Board Meeting and approve the number of share certificates and authorise by resolution the printing of share certificates. 2. Where the shares are listed on a recognised stock exchange, the forms of certificate will be approved in advance by the stock exchange before printing. 3. Every certificate will specify the name(s) of the person(s) in whose favour it is issued, the shares/debentures to which it relates, the distinctive number and the amount paid up thereon. 4. The depository shall be informed immediately after the shares are issued in case there exists an arrangement with a depository. 5. Particulars of share certificates issued will be entered in the register of members in respect of each member. 6. The share certificates will be delivered within the time specified . Issue of Duplicate Share Certificates Board resolution is required and it is to be passed at a duly convened and held meeting of the Board of directors of the company. Issue of Share Certificates on Surrender of Letters of Allotment 1. Allottee has to pay the allotment money and also surrender the Letter of Allotment to the company 2. Convene Board Meeting for approval of issue 3. Share certificates to be prepared, stamped and signed and arrange for their delivery to the concerned shareholders. 4. The company has to ensure that the share certificates of those shares belonging to promoters, their relatives, friends and business associates, which are under a lock-in period, must bear rubber stamp clearly indicating that the shares are not transferable before a particular date and that endorsement must be subscribed on the Share Certificates and initialled by the company secretary or by any other responsible officer of the company. 5. The secretary has also to stamp all the duplicate share certificates before they are mailed. The stamp should clearly state that the share certificate has been Issued in lieu of share certificate No....... Share Certificates Issued on Splitting or Consolidation The old share certificates must be surrendered to the company before the Board may be requested to consider the issue of new share certificates after split or consolidation. All the defaced and mutilated share certificates should be stamped with a rubber stamp bearing in bold letters the endorsements: CANCELLED DU PLICATE SHARE CERTIFICATE NO...... DATED......ISSUED IN LIEU. Keep a separate register of renewed and duplicate certificates which must contain all the relevant details of the old and the new share certificates.

CANCELLATION OF SHARES 1. Articles of association of the company to contain a provision authorising it to cancel its shares.

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2. Convene and hold a Board meeting to approve the proposal and to convene the general meeting 3. Prior and subsequent intimation to Stock Exchanges 4. To hold the general meeting and have the resolution (ordinary or special, as the case may be) passed. 5. If the resolution passed is a special resolution, file with the ROC, e-form 23 along with a certified copy of the resolution within thirty days of the passing of the resolution 6. File e-form 5, within thirty days of the passing of the resolution, along with an amended copy of the Memorandum & Articles of Association of the Company and the prescribed filing fee specifying the shares cancelled with the ROC. 7. The company shall submit the original stamped copy of e-form 5 at the ROC Office for registration together with the amended copy of the Memorandum and Articles of Association.(where e-stamping is not applicable) 8. Make necessary changes in all the copies of the memorandum of association of the company lying in the office of the company so that no unaltered copy is issued to any person. FORFEITURE OF SHARES 1. A forfeiture of any share must be done on the authority of the Board of Directors or, of a Committee of the Board if authorised by articles of association for the purpose, by its resolution. 2. The notice threatening forfeiture in pursuance of the Board resolution must be given in accordance with the provisions of the articles and the Act. 3. The notice threatening forfeiture must be served in accordance with the provisions of section 53 of the Companies Act. 4. If the call money is not paid in response to such notice threatening forfeiture, the company may, at any time thereafter, before the payment required by the notice has been made, forfeit the shares by a resolution of the Board to that effect. 5. It is common practice to publish a notice of forfeiture in newspapers so that the members of the public are made aware of the forfeiture and cautioned not to deal in the forfeited shares. 6. A further notice after the shares are forfeited is not necessary. However, it is advisable and a common practice to give a notice of the shares having been forfeited to the concerned shareholders by registered post. 7. 8. The fact of the forfeiture will be entered in the Register of Members and the name of the concerned shareholder as a member of the company will be deleted from the register. Notify the Stock Exchange at which the securities of the Company are listed about such forfeiture of shares.

SURRENDER OF SHARES Surrender means to hand over; relinquish possession of, especially on compulsion or demand. There is difference between surrender and forfeiture of shares. There is no reference in the Act to surrender of shares; but these have been admitted by the courts, upon the principle that they have practically the same effect as forfeiture, the main difference being that the one is a proceeding against an unwilling party and the other a proceeding taken with the assent of the shareholder who is unable to retain and pay future calls on the shares. One is voluntary and the other is due to breach of contract.

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The Act permits forfeiture of shares on certain grounds; but to give an unlimited and wide power to a company to accept surrender of shares is opposed to the principle that a company cannot buy its own shares and to the principle that a company can reduce its capital only with the permission of the court and on such terms and conditions as the court may impose. A surrender of shares releasing the shareholder from equivalent to a purchase of the shares by the company, Thus, a surrender of shares is not valid merely because Board to accept surrender of shares, unless it can be circumstances, which would have justified a forfeiture. further liability in respect of the shares, is and is therefore illegal and null and void. the articles of the company authorise the shown that the surrender took place in

There can be no valid surrender of shares that are not fully paid except where shares are lawfully forfeited, as it involves reduction of capital requiring the sanction of the court. A surrender of shares amounts to a reduction of capital, which is unlawful unless sanctioned by the court. Where a company's articles give the directors power to accept a surrender of shares, this power will be recognised as valid if it is used merely to avoid the formalities of forfeiture. Subject to the provisions allowing companies to acquire their own shares, a company cannot accept a surrender if the shares are not liable to forfeiture, so that such a surrender of partly paid shares would not relieve the shareholder from his uncalled liability; such a surrender would amount to an unauthorised purchase by the company of its own shares, or a reduction of capital without the court's sanction, and is invalid. It is, however, valid to accept the surrender of partly paid shares from an insolvent member and discharge liability for future calls thereon, if this represents bona fide compromise of the company's on him. The effect of a valid surrender is the same as forfeiture, provided the articles authorise it. Also there is a difference between surrender of shares and purchasing by a company its own shares. A company cannot make any payment or give any valuable consideration for the surrender. This is because a surrender of shares in consideration of a payment in money or money's worth by the company is a purchase by it of its own shares and is ultra vires that is to say, unless confirmed by the court as a reduction of capital. Like forfeiture, surrender also does not involve any payment out of the funds of the company. If the surrender were made in consideration of any such payment it would be neither more nor less than a sale, and open to the same objections as purchase by the company of its own shares. If it were accepted in a case when the company were in a position to forfeit the shares, the transaction would be perfectly valid. However, surrender of shares to the company for consideration may valid if the circumstances are very special, e.g. where the surrender is part of a compromise. CONVERSION OF SHARES INTO STOCK be

The power to convert shares into stock and reconvert stock into shares is conferred on a company by section 94, if authorised by the articles, which power should be exercised by an ordinary resolution. In either case a notice must be given to the Registrar in e-form No. 5 within thirty days after doing so. STUDY VI

ISSUE AND REDEMPTION OF DEBENTURES

DEBENTURES Section 2(12) of the Companies Act, 1956 defines debenture as follows: Debenture includes debenture stock, bonds and any other securities of a company, whether

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constituting a charge on the assets of the company or not. Debenture is a document evidencing a debt or acknowledging it and any document which fulfills either of these conditions is a debenture. The important features of a debenture are: 1. It is issued by a company as a certificate of indebtedness. 2. It usually indicates the date of redemption and also provides for the repayment of principal and payment of interest at specified date or dates. 3. It usually creates a charge on the undertaking or the assets of the company. In such a case the lenders of money to the company enjoy better protection as secured creditors, i.e. if the company does not pay interest or repay principal amount, the lenders may either directly or through the debenture trustees bring action against the company to realise their dues by sale 269 as security for the debt. of the assets/undertaking earmarked Debentures are issued in the following forms: (a) Naked or unsecured debentures. (b) Secured debentures. (c) Redeemable debentures. (d) Perpetual debentures. (e) Bearer debentures. (f) Registered debentures. Their features are as follows: (a) Naked or unsecured debentures: Debentures of this kind do not carry any charge on the assets of the company. (b) Secured debentures: Debentures that are secured by a mortgage of the whole or part of the assets of the company are called mortgage debentures or secured debentures. The mortgage may be one duly registered in the formal way or one which is secured by the deposit of title deeds in case of urgency. (c) Redeemable debentures: Debentures that are redeemable on expiry of certain period are called redeemable debentures. Such debentures after redemption can be reissued in accordance with the provisions of Section 121. (d) Perpetual debentures: If the debentures are issued subject to redemption on the happening of specified events which may not happen for an indefinite period, e.g. winding up, they are called perpetual debentures. (e) Bearer debentures: Such debentures are payable to bearer and are transferable by mere delivery. The name of the debenture holder is not registered in the books of the company, but the holder is entitled to claim interest and principal as and when due. A bonafide transferee for value is not affected by the defect in the title of the transferor. (f) Registered debentures: Such debentures are payable to the registered holders whose names appear on the debenture certificate/letter of allotment and is registered on the Companys register of debentureholders maintained as per Section 152 of the Act. Kinds of Debentures Debentures may be of different kinds which are as follows: 1. Redeemable Debentures: Debentures are generally redeemable, that is to say, they are issued on the terms that the company is bound to repay the amount of the debenture, either at a fixed date, or upon demand, or after notice, or under a system of periodical drawings. Redeemable debentures can be re-issued. 2. Perpetual or Irredeemable Debentures: A Debenture in which no time is fixed for the company to pay back the money, although it may pay back at any time it chooses, is an irredeemable debenture. 3. Registered and Bearer Debentures: Registered debentures are made out in the name of a

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particular person, whose name appears on the debenture certificate and who is registered by the company as holder on the Register of debenture holders. Such debentures are transferable in the same manner as shares by means of a proper instrument of transfer duly stamped and executed and satisfying the other requirements specified in Section 108 of the Act. Bearer debentures, on the other hand, are made out to bearer, and are negotiable instruments, and so transferable by mere delivery like share warrants. The person to whom a bearer debenture is transferred become a holder in due course and unless contrary is shown, is entitled to receive and recover the principal and the interest accrued thereon. 4. Secured and unsecured or Naked Debentures: Where debentures are secured by a mortgage or a charge on the property of the company, they are called secured debentures. Where they are not secured by any mortgage or charge on any property of the company they are said to be naked or unsecured debentures. 5. Convertible Debentures: Where the debentures are convertible, partly or wholly, into the shares of a company after a specified time, either as a result of exercise of option or in terms of the issue, they are called convertible debentures. Based on convertibility, debentures can be classified under three categories: 1. Fully Convertible Debentures (FCDs). 2. Non Convertible Debentures (NCDs). 3. Partly Convertible Debentures (PCDs). 1. Fully Convertible Debentures (FCDs): These are converted into equity shares of the company with or without premium as per the terms of the issue, on the expiry of specified period or periods. If the conversion is to take place at or after eighteen months from the date of allotment but before 36 months, the conversion is optional on the part of the debenture holders in terms of SEBI Guidelines. Interest will be payable on these debentures upto the date of conversion as per transfer issue. 2. Non Convertible Debentures (NCDs): These debentures do not carry the option of conversion into equity shares and are therefore redeemed on the expiry of the specified period or periods. 3. Partly Convertible Debentures (PCDs): These may consist of two kinds namely - convertible and non-convertible. The convertible portion is to be converted into equity shares at the expiry of specified period. However, the non convertible portion is redeemed at the expiry of the stipulated period. If the conversion takes place at or after 18 months, the conversion is optional at the discretion of the debenture holder. The distinctions between fully convertible and partly convertible debentures are Characteristics Suitability Partly convertible debentures Better suited for companies with established track record Relatively lower equity capital on conversion of debentures Favourable debt equity ratio Convertible portion classified as equity and non-convertible portion as debt Not so popular with investors Fully convertible debentures Better suited for companies without established track record Higher equity capital on conversion of debentures Highly favourable debt equity ratio Classified as equity for debt-equity computation

Capital base

Flexibility in financing Classification for debt-equity ratio computation

Popularity

Highly popular with investors

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Servicing of equity Relatively lesser burden of equity servicing Higher burden of servicing of equity

DEBENTURE TRUST DEED AND ITS DRAFTING Trust deed is a written instrument legally conveying property to a trustee often for the purpose of securing a loan or mortgage. It is the document creating and setting out the terms of a trust. It will usually contain the names of the trustees, the identity of the beneficiaries and the nature of the trust property, as well as the powers and duties of the trustees. It constitutes trustees charged with the duty of looking after the rights and interests of the debenture holders. The debenture holders can, through the trustees, enter and sell the property comprised in the security. The trust deed should be in the form and be executed within such period as may be prescribed. Besides, the SEBI (Debenture Trustees) Regulations, 1993 are applicable to the listed companies. The aforesaid Regulations provide that a debenture trustee should be registered with SEBI by obtaining a certificate of registration in accordance with the conditions provided therein. The aforesaid Regulations inter alia provide procedure for registration, responsibilities and obligations of debenture trustees and also prescribe contents of trust deed. Any term in the trust deed which exempts the trustee from his liability to indemnify for breach of trust is void and has no legal effect. Contents of a debenture trust deed The trust deed lays down exactly what the consequences of certain events are, There is usually an agreement called Trustee Agreement. Under Companies Act, the main terms of the trust deed are specified Under SEBI Regulations, the main terms of the trust deed are specified. According to regulation 14 of the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, a debenture trust deed should contain, amongst others, the matters specified in Schedule IV to the Regulations

Execution of trust deed and stamp duty The following provisions of the Registration Act and the Stamp Act are relevant: (a) In the case of English Mortgage, the mortgage deed or the trust deed will attract 'ad valorem' stamp duty. After execution, such deeds will also have to be registered with the Sub-registrar of Assurances. Therefore, in addition to the stamp duty, registration charges will also have to be paid. (b) Under section 30(2) of the Registration Act, 1908, the Registrar of Delhi District has been empowered, at his discretion, to receive and register any document registerable under that Act, without regard to the situation in any part of India of the property to which the document relates. (c) For the purpose of registration of a document in Delhi the document should first be got 'adjudicated' from the Collector of Stamps in Delhi, then the stamp duty should be paid there and the document registered. (d) If the stamp duty payable on the document in the State where the property is situate is more than the duty payable in Delhi, the difference in duty will have to be paid in the State concerned within 3 months. (e) Once the stamp duty is paid on the debenture trust deed, no more stamp duty is required to be paid on the debenture certificate which in such a case can be issued without affixing any stamp thereon.

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(f) In the case of equitable mortgage if no document, deed, note, memorandum, etc. is signed then nothing is required to be registered with the Sub-registrar of Assurances. If, however, such a note, memorandum, letter regarding deposit of title deeds is made or written, then it will attract stamp duty, e.g. Article 6 of the Bombay Stamp Act, 1958. Such a note, letter, memorandum, deed, etc., duly stamped may have to be registered with the Sub-registrar of Assurances. In that case, no further stamp duty may have to be paid on the debenture certificate. According to article 27 of Schedule to the Indian Stamp Act, 1899, the stamp duty at the rates specified therein is payable on 'debenture' (whether a mortgage debenture or not) being a marketable security by endorsement or by a separate instrument of transfer or by delivery. In terms of the exemption clause to Article 27, where a mortgage is created by a registered mortgage deed, i.e., English mortgage, no further stamp duty will be payable on 'debenture' under the said article 27. The object of the exemption is that duty should be payable only once. If it is paid on the mortgage deed, no duty is necessary on the separate debentures issued in conformity with it. A debenture trust deed is not a deed of mortgage or bond, but a deed of trust, and, therefore, the stamp duty chargeable is that under a deed of trust. APPOINTMENT AND DUTIES OF DEBENTURE TRUSTEES Every Company issuing debentures is required to appoint one or more debenture trustees for such debentures and the company has to , on the face of the prospectus or the letter of offer, state that the debenture trustee or trustees have given their consent to the company to be so appointed. The functions of the debenture trustees shall generally be to protect the interest of holders of debentures (including the creation of securities within the stipulated time) and to redress the grievances of holders of debentures effectively The duties of a debenture trustee have been described in detail in the Regulation 15 of the SEBI (Debenture Trustee) Regulations, 1993. In appointment of a Debenture trustee, the above conditions are required to be complied with. Where the company is a listed company, the SEBI Regulations should also be followed. LIABILITY OF COMPANY TO CREATE SECURITY AND DEBENTURE REDEMPTION RESERVE (1) Where a company issues debentures after the commencement of this Act, it shall create a debenture redemption reserve for the redemption of such debentures, to which adequate amounts shall be credited, from out of its profits every year until such debentures are redeemed. (2) The amounts credited to the debenture redemption reserve shall not be utilised by the company except for the purpose aforesaid. (3) The company referred to in Sub-section (1) shall pay interest and redeem the debentures in accordance with the terms and conditions of their issue. (4) Where a company fails to redeem the debentures on the date of maturity, the Company Law Board may, on the application of any or all the holders of debentures shall, after hearing the parties concerned, direct, by order, the company to redeem the debentures forthwith by the payment of principal and interest due thereon.

The debenture redemption reserve is required to be created for both, accrued and unaccrued debentures. In the case of partly-paid debentures, Debenture Redemption Reserve is to be created for non-convertible portion only. ISSUE OF DEBENTURES 1. SEBI (Issue and Listing of Debt Securities) Regulations, 2008 will be applicable, in case the Company wants to make (a) public issue of debt securities; and

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(b) listing of debt securities issued through public issue or on private placement basis on a recognized stock exchange. 2. Call a Board Meeting to decide about the issue of debentures and the steps to be taken in that regard 3. Make an application to one or more recognized stock exchanges for listing of such securities before the date of filing of draft offer document and final offer document, 4. Before filing of draft offer document, the company should have obtained in-principle approval for listing of its debt securities on the recognized stock exchanges 5. Obtain credit rating from at least one credit rating agency registered with the Board and is disclosed in the offer document 6. Enter into an arrangement with a depository registered with the Board for dematerialization of the debt securities that are proposed to be issued to the public, in accordance with the Depositories Act,1996 and regulations made there under. 7. In case, the company is a public company or its subsidiary, then obtain the permission of the General Meeting by Ordinary Resolution unless borrowing by issue of debentures is within the borrowing limits already sanctioned under Section 293(l)(d). 8. Also obtain the permission of the General Meeting by Ordinary Resolution under Section 293(l)(a), if the whole or substantially the whole of any of the company's undertaking is proposed to be charged against the debentures by usufructuary mortgage. 9. If Ordinary Resolutions are passed as aforesaid by the company then file them in e-form No. 23 within thirty days of their 10. Prior and subsequent intimation to Stock Exchanges 11. Appoint one or more merchant bankers who are duly registered with the Board. One of them should be a lead merchant banker. 12. Obtain consent of the proposed trustees if the debentures are proposed to be issued under a trust deed. 13. The Company should then appoint one or more debenture trustees 14. Prepare the draft trust deed and get the same approved by your Board authorizing some one to execute the same 15. Execute the trust deed within 3 months of the date of closure of the issue after proper stamping and get the same registered with the registration authorities of the appropriate State. 16. The offer document must contain all material disclosures which are necessary for the subscribers of the debentures to take an informed investment decision. 17. A draft offer document is required to be filed by the Company with the designated stock exchange through the lead merchant banker. 18. Public comments are then invited by posting the draft offer document filed with the designated stock exchange on the website of the designated stock exchange for a period of seven working days from the date of filing the draft offer document with such exchange 19. The draft offer document may also be displayed on the website of the issuer, merchant bankers and the stock exchanges where the debt securities are proposed to be listed. 20. It should be ensured by the Lead Merchant Banker that all comments received on the draft offer document are suitably addressed prior to the filing of the offer document with the Registrar of Companies 21. A copy of draft and final offer document is also required to be forwarded to the Board for its records, simultaneously with filing of these documents with designated stock exchange. 22. The lead merchant banker is required to furnish to the Board a due diligence certificate as per Schedule II of the regulations before filing of the offer document with the Registrar of Companies. 23. The debenture trustee is also required to furnish to the Board a due diligence certificate as per Schedule III of these regulations, before opening of the public issue.

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24. The offer document is required to be filed with the designated stock exchange, simultaneously with filing thereof with the Registrar of Companies, for dissemination on its website prior to the opening of the issue.

25. Make a advertisement in an national daily with wide circulation, on or before the issue opening date and 26. In case of a private offer, obtain applications by private negotiations. 27. On receipt of applications, complete proceeding regarding allotment. If the debentures are to be enlisted, get the allotment scheme first approved by the Stock Exchange concerned. 28. In case, the Company has not received the minimum subscription, if decided, all the application moneys received in the public issue is required to be refunded forthwith to the applicants. 29. For securing the issue of debenture, a trust deed should be executed by the Company in favour of the debenture trustee within three months of the closure of the issue. 30. The Company should create debenture redemption reserve, for the redemption of the debt securities, in accordance with the provisions of the Companies Act, 1956 and circulars issued by Central Government in this regard 31. File e-Form No. 10 with the concerned ROC. The ROC will issue the certificate of registration which shall be endorsed on every debenture certificate. 32. The issue proceeds should be kept in an escrow account until the documents for creation of security as stated in the offer document, are executed 33. Complete all other proceedings such as issuing letters of allotment, debenture certificates, making entries in various registers, etc., etc. Role of Company Secretary under Listing Agreement for Debt Securities The Debt Listing Agreement authorizes Company Secretaries to issues half yearly certificate regarding maintenance of 100% security cover in respect of listed secured debt securities. Further Clause 22 of the Debt Listing Agreement requires the issuer to designate Company Secretary or any other person as Compliance Officer responsible for ensuring compliance with the regulatory provisions applicable to such issuance of debt securities, reporting to various authorities etc. Redemption and roll-over In case, the Company desires to roll-over the debt securities issued by it, it shall do so only upon passing of a special resolution of holders of such securities and give twenty one days notice of the proposed roll over to them. The notice referred above shall contain disclosures with regard to credit rating and rationale for roll-over. The Company should prior to sending the notice to holders of debt securities, file a copy of the notice and proposed resolution with the stock exchanges where such securities are listed, for dissemination of the same to public on its website. The debt securities issued can be rolled over subject to the following conditions: (a) The roll-over is approved by a special resolution passed by the holders of debt securities through postal ballot having the consent of not less than 75% of the holders by value of such debt securities; (b) atleast one rating is obtained from a credit rating agency within a period of six months prior to the due date of redemption and is disclosed in the notice referred to in sub-regulation (2); (c) fresh trust deed shall be executed at the time of such roll-over or the existing trust deed may be continued if the trust deed provides for such continuation; (d) adequate security shall be created or maintained in respect of such debt securities to be rolled-over. The issuer shall redeem the debt securities of all the debt securities holders, who have not given their positive consent to the roll-over. Re-issue of redeemed debentures

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Under Section 121 of the Act, the company has powers to keep alive the redeemable debentures either by re-issuing the same debentures or by issuing fresh debentures in their place unless: (a) there is any provision to the contrary, whether express or implied contained in the articles/memorandum or in the conditions of issue or in any contract entered into by the company; or (b) the company has manifested its intention to cancel the debentures by a resolution to that effect or by some other act. ISSUE OF CONVERTIBLE DEBT INSTRUMENTS SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 specifically provide the following in relation to Convertible Debt Instruments: 1. No issuer shall make a public issue of convertible debt instrument (a) if the issuer, any of its promoters, promoter group or directors or persons in control of the issuer are debarred from accessing the capital market by the Board; (b) if any of the promoters, directors or persons in control of the issuer was or also is a promoter, director or person in control of any other company which is debarred from accessing the capital market under any order or directions made by the Board; (c) if the issuer of convertible debt instruments is in the list of wilful defaulters published by the Reserve Bank of India or it is in default of payment of interest or repayment of principal amount in respect of debt instruments issued by it to the public, if any, for a period of more than six months; (d) unless it has made an application to one or more recognised stock exchanges for listing of specified securities on such stock exchanges and has chosen one of them as the designated stock exchange: Provided that in case of an initial public offer, the issuer shall make an application for listing of the specified securities in at least one recognised stock exchange having nationwide trading terminals; (e) unless it has entered into an agreement with a depository for dematerialisation of specified securities already issued or proposed to be issued; (f) unless all existing partly paid-up equity shares of the issuer have either been fully paid up or forfeited; (g) unless firm arrangements of finance through verifiable means towards seventy five per cent. of the stated means of finance, excluding the amount to be raised through the proposed public issue or rights issue or through existing identifiable internal accruals, have been made. 2. The lead merchant bankers shall submit to the Board along with the draft offer document a due diligence certificate from the debenture trustee 3. The lead merchant bankers shall submit to the Board along with the offer document in case of a fast track issue of convertible debt instruments, a due diligence certificate from the debenture trustee 4. Additional requirements for issue of convertible debt instruments (Regulation 20) (1) In addition to other requirements laid down in these regulations, an issuer making a public issue or rights issue of convertible debt instruments shall comply with the following conditions: (a) it has obtained credit rating from one or more credit rating agencies; (b) it has appointed one or more debenture trustees in accordance with the provisions of section 117B of the Companies Act, 1956 and Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993; (c) it has created debenture redemption reserve in accordance with the provisions of section 117C of the Companies Act, 1956;

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(d) if the issuer proposes to create a charge or security on its assets in respect of secured convertible debt instruments, it shall ensure that: (i) such assets are sufficient to discharge the principal amount at all times; (ii) such assets are free from any encumbrance; (iii) where security is already created on such assets in favour of financial institutions or banks or the issue of convertible debt instruments is proposed to be secured by creation of security on a leasehold land, the consent of such financial institution, bank or lessor for a second or pari passu charge has been obtained and submitted to the debenture trustee before the opening of the issue; (iv) the security/asset cover shall be arrived at after reduction of the liabilities having a first/prior charge, in case the convertible debt instruments are secured by a second or subsequent charge. (2) The issuer shall redeem the convertible debt instruments in terms of the offer document. Roll over of non convertible portion of partly convertible debt instruments. (1) The non-convertible portion of partly convertible debt instruments issued by a listed issuer, the value of which exceeds fifty lakh rupees, may be rolled over without change in the interest rate, subject to compliance with the provisions of section 121 of the Companies Act, 1956 and the following conditions: (a) seventy five per cent. of the holders of the convertible debt instruments of the issuer have, through a resolution, approved the rollover through postal ballot; (b) the issuer has, along with the notice for passing the resolution, sent to all holders of the convertible debt instruments, an auditors certificate on the cash flow of the issuer and with comments on the liquidity position of the issuer; (c) the issuer has undertaken to redeem the non-convertible portion of the partly convertible debt instruments of all the holders of the convertible debt instruments who have not agreed to the resolution; (d) credit rating has been obtained from at least one credit rating agency registered with the Board within a period of six months prior to the due date of redemption and has been communicated to the holders of the convertible debt instruments, before the roll over; (2) The creation of fresh security and execution of fresh trust deed shall not be mandatory if the existing trust deed or the security documents provide for continuance of the security till redemption of secured convertible debt instruments; Provided that whether the issuer is required to create fresh security and to execute fresh trust deed or not shall be decided by the debenture trustee. Conversion of optionally convertible debt instruments into equity share capital. (1) An issuer shall not convert its optionally convertible debt instruments into equity shares unless the holders of such convertible debt instruments have sent their positive consent to the issuer and non-receipt of reply to any notice sent by the issuer for this purpose shall not be construed as consent for conversion of any convertible debt instruments. (2) Where the value of the convertible portion of any convertible debt instruments issued by a listed issuer exceeds fifty lakh rupees and the issuer has not determined the conversion price of such convertible debt instruments at the time of making the issue, the holders of such convertible debt instruments shall be given the option of not converting the convertible portion into equity shares: Provided that where the upper limit on the price of such convertible debt instruments and justification thereon is determined and disclosed to the investors at the time of making the issue, it shall not be necessary to give such option to the holders of the convertible debt instruments for converting the convertible portion into equity share capital within the said upper limit.

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(3) Where an option is to be given to the holders of the convertible debt instruments in terms of sub-regulation (2) and if one or more of such holders do not exercise the option to convert the instruments into equity share capital at a price determined in the general meeting of the shareholders, the issuer shall redeem that part of the instruments within one month from the last date by which option is to be exercised, at a price which shall not be less than its face value. (4) The provision of sub-regulation (3) shall not apply if such redemption is in terms of the disclosures made in the offer document. Issue of convertible debt instruments for financing. No issuer shall issue convertible debt instruments for financing replenishment of funds or for providing loan to or for acquiring shares of any person who is part of the same group or who is under the same management:

Provided that an issuer may issue fully convertible debt instruments for these purposes if the period of conversion of such debt instruments is less than eighteen months from the date of issue of such debt instruments.
STUDY VII

MEMBERSHIP AND TRANSFER/TRANSMISSION OF SHARES

WHO ARE MEMBERS The members of a company are the persons who, for the time being, constitute the company, as a corporate entity. In the case of a company limited by shares, the shareholders are the members. The terms members and shareholders are usually used interchangeably. Generally speaking every shareholder is a member and every member is a shareholder. However, there may be exceptions to this statement. In a company limited by guarantee, the persons who are liable under the guarantee clause in its memorandum of association, are members of the company. In an unlimited company, the members are the persons who are liable each in proportion to the extent of their interests in the company, to contribute the sums necessary to discharge in full, the debts and liabilities of the company, in the event of its being wound up. Definition of Member There are two important elements which must be present before a person can acquire membership of a company viz., (i) agreement to become a member; and (ii) entry of the name of the person, in the register of members of the company. Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company. Section 2(27) excludes a bearer of a share-warrant of the company to be a member. Member of Producer Company is a person or producer institution (whether incorporated or not) admitted as a member of a Producer company and who retains the qualification necessary for continuance as such.

MODES OF ACQUIRING MEMBERSHIP A person may acquire the membership of a company: (a) by subscribing to the memorandum of association, (b) by agreeing to become a member: (i) by making an application to the company for allotment of shares, or (ii) by executing an instrument of transfer of shares as transferee, or

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(iii) by consenting to the transmission of shares of a deceased member in his name; or (iv) by acquiescence or estoppel and on his name being entered in the register of the members of the company, (c) by holding equity share capital of the company and on his name being entered as beneficial owner in the records of the depository. Procedure for Becoming a Member through above stated modes (i) By subscribing to the Memorandum of Association (a) The selection of subscribers is made by the promoters of a Company; (b) The subscribers (minimum, two for a private company and seven for a public company) have to agree to take minimum one share in share capital of the company to be registered and state the number of shares agreed to be taken in the column meant for this purpose in the Memorandum of Association; (c) The subscriber has to sign and write in his/her hand name in full, fathers/husbands name, address in full, occupation in the column meant for this purpose; (d) On registration of the company, the subscribers become members of the company; (e) The subscribers has to pay the money for the shares agreed to be taken by them; (f) The names of the subscribers shall be placed on the register of members on registration of the company. (ii) Making an Application for allotment of shares (a) Complete the application form in all respects and arrange to deposit the amount of share application in full as per the terms of the Issue. (b) Keep a photo copy of the Application form for records. (c) On allotment, the applicant becomes a member of the company for the shares so allotted in response to the application. (d) On becoming a member, he/she shall have all the rights to which a member is entitled to. (iii) By Transfer of Shares bought from the existing member(s) (a) After deciding to buy shares of a company, the investor (buyer) should check up whether the shares of such company are under compulsory or optional demat form or are in physical form only. (b) Place order with share broker for the number of shares decided to be bought and also inform Depository Participant No. and Client No. for crediting to account with depository Participant in case of demat shares. (c) If the shares are bought in physical form on receipt of the transfer deeds and share certificates, the transfer deeds are to be completed in all respects and share transfer stamps of requisite value are affixed on the reverse of the transfer deeds in accordance with the consideration of the shares bought. In case the shares are in demat form, the delivery instructions of the seller is required to be given to the respective DP by the seller with the details of the buyer's, Client ID & DP No. and the shares are automatically transferred to the buyers demat account. (d) Keep photo copies of the transfer deeds and share certificates (both sides) for record. (e) Send the transfer deeds and share certificates to the Company at its Registered office or to its Share Transfer Agents for registration of transfer in the name of transferee(s) by registered post with acknowledgement due. (f) On credit of shares in account with Depository Participant (DP) in case of demat shares the

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buyer shall become the beneficial owner of the company and have all the rights of a member in that company. Or On share duly registered in the name(s) of the buyer(s), the buyer(s) shall become the member of the company and have all rights of a member in that company. (iv) By Transmission of shares in his name on succeeding to the estate of deceased or bankrupt member as successor/nominee or creditor (a) On the death of a member of the company, the successor/nominee of the deceased has to inform the company/the Depository Participant together with a certified copy of the death certificate and probate of the will/ Succession Certificate for requesting transmission of the shares held by the deceased in his name. (b) On receipt of the reply from the company/the (DP), the successor/nominee shall have to follow the procedure as may be advised for the transmission of the shares. (c) In case of nominee, if nominee decides to become a member of the company for the shares of the deceased, an application is to be made to the company/the DP. If such nominee has already opened a Demat Account with a DP, the nominee should mention DP No. and Client No. in the Application to the DP of the deceased. If such nominee has no Demat Account with any DP, the nominee should open a Demat A/c with a DP and apply for transmission of the shares. (d) In case of successor to the deceased, the successor has to send succession certificate/together with an application for transmission of the shares to the company/the DP with whom the deceased had account. If the successor has no Demat Account, an account should be opened with the same DP of the deceased. (e) On completion of all the requirements for transmission of shares held by the deceased, the nominee/successor should receive share certificate(s) duly endorsed on transmission or statement of the shares from the DP. (f) Thereafter, the nominee/successor shall become a member of the company and shall have all the rights of a member in that company. Note: In case of a bankrupt member, the creditor shall have to follow the same procedure for becoming a member for shares held by the bankrupt member in the company except that a certified copy of the order of the Court shall be sent to the company/the DP of the bankrupt member. The rest of the procedure specified above remains the same. (v) By acquiescence or estoppel A person can also become a member of the company under the doctrine of the acquiescence or estoppel. If any person allows his name without sufficient cause, to be on the register of members of the company or otherwise holds himself out or allows himself to be held out as a member, he will become member of the company. In such a case, such person is estopped from denying his membership. 3. MEMBERSHIP AND VOTING RIGHTS OF PRODUCER COMPANY In case of a Producer Company, the membership and voting rights shall be as follows: (1) Where membership of a Producer Company consist solely of individual members, the voting rights shall be based on a single vote for every member (2) Where the membership of Producer Company consists solely of Producer Institutions, the voting rights of such Producer Institutions shall be determined on the basis of their participation in the business of the Producer Company in the previous year, as may be specified by articles. However, during the first year of its registration, the voting rights in a Producer Company shall be determined on the basis of shareholding by such Producer Institutions.

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(3) Where the membership consists of individuals and Producer Institutions, the voting rights shall be computed on the basis of a single vote for every member. (4) The articles of Producer company may provide for the conditions, subject to which a member may continue to retain his membership, and the manner in which voting rights shall be exercised by the members. (5) The Articles may however, authorise the Producer company to restrict the voting rights to active members in any special or general meeting. Active members for this purpose is a member fulfilling the quantum and period of patronage of Producer company. (6) No person, who has any business interest which conflicts with the business of Producer company, shall become a member of that company and if subsequently a member acquires any business interest which is in conflict with the business of the Producer company, he shall cease to be a member. (Section 581D) PROCEDURE FOR CESSATION OF MEMBERSHIP A member ceases to be a member of a company soon after his name is removed from the register of members or register of beneficial owners. Some of the methods by which Cessation of membership may occur are as follows: (i) The member transfers his shares by sale or otherwise (a) The member signs the transfer deed(s) and delivers it together with relevant share certificate(s) to the person to whom he intends to transfer the shares or broker as the case may be. In case of the shares held in the demat form, the members issue Delivery Instruction on the prescribed form to the Depository Participant (DP) with whom he has his Account for such shares. (b) In the case of demat form, the name of the member shall be removed from the Register of beneficial owners. In the case of Physical Form, the name of the member shall be removed from the register of members only on registration of the shares in the name of the transferee. (ii) Forfeiture of the shares If a member does not pay the allotment/call money on the shares held by him in the company, the company is empowered to forfeit such shares for non payment of the due amount by the member after complying with the relevant procedure in this regard. The procedure for forfeiture is covered in the earlier study

(iii) Sale of shares under lien If company has exercised lien on the shares of a member in accordance with its Articles of Association, the member ceases to be a member on removal of his name from the register of members/beneficial owners if the company enforces its lien by way of sale of such shares. The procedure shall be the same as stated in case of forfeiture of shares. (iv) Death/Insolvency A member ceases to be a member of the company on removal of his name from the register of members/beneficial owners and entering the name of the nominee/ successor or creditor in the register of member/beneficial owners in his place. The nominee/successor or creditor shall follow the same procedure as stated herein above in case of transmission of shares.

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(v) Conversion of shares into share warrants/stocks If a company subject to its Articles of Association and the provisions of the of the Companies Act 1956 converts its fully paid equity shares into share warrants or stock, the names of the members are struck from the register of members/beneficial owners. Consequently, the members cease to be members of the company on and from the date of such conversion. (vi) Buy back of shares If a company, subject to its Articles of Association and the provisions of Section 77A of the Companies Act, 1956, buys back its own shares from its existing members, then such members who offer all their shares in the company for sale cease to be members of the company on cancellation of such bought out shares. Procedure for buy-back of shares is as under: 1. Articles to authorise such buy-back 2. Decide whether the buy-back of shares or specified securities will be made from the existing security holders on a proportionate basis or from the open market or from odd lots or by purchasing the securities issued to employees of the company pursuant to scheme of stock option or sweat equity. 3. Make sure that buy-back is out of free reserves or the securities premium account or the proceeds of any shares or other specified securities of the company. However, buy-back should not be made out of proceeds of an earlier issue of the same kind of shares or same kind of other specified securities. 4. Board Meeting for considering the proposal and convening general meeting if the amount of buyback requires general meeting resolution to be passed 5. Prior and subsequent intimation to Stock Exchange 6. File with ROC the special resolution in e-Form No. 23 within thirty days from the date of passing the resolution. 7. After passing the board or special resolution but before making buy-back, file with the Registrar of Companies and also with SEBI, if the Company is a listed company, a declaration of solvency in prescribed form i.e. Form No. 4A. In the e-filing scenario, Form 4A is to be filed as an attachment of e-Form 62. 8. Extinguish and physically destroy the securities so bought back within seven days of the last date of completion of buy-back. 9. Maintain a register of securities so bought back, the consideration paid for the securities bought back, the date of cancellation of securities, the date of extinguishing and physically destroying of securities and such other particulars in Form No. 4B. 10. File with the Registrar of Companies and the SEBI, a return containing such particulars relating to buy-back within 30 days of completion of the buy-back as given in e-Form No. 4C. 11. Further, if the shares of company are listed with the Recognised Stock Exchange then SEBI (Buy-back of Securities) Regulations, 1998 should be complied with otherwise Private Limited Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999 should be complied with. (vii) Purchase of Shares under the Court order If the shares of a member are purchased by another member or the Company, itself under the order of the Court under Section 402 of the Companies Act, 1956, such member ceases to be a member of such company on removal of his name and placing of others name in the register of member/beneficial owner.

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(viii) Dissolution/Winding up/Striking off the name of the Company If a company is dissolved, wound up or its name has been stuck off from the register of the Companies by the Registrar of Companies, the members cease to be the members of such a company. (ix) Cancellation of Contract of membership If a member rescinds the contract of membership on the ground of fraud, misrepresentation, genuine mistake or irregular allotment, such member ceases to be a member of the company on removal of his name from the register of members/ beneficial owners. In the case of winding up of a company, the members cease to be members of such company but they remain liable as contributory and/or entitled to claim share in the surplus, if any. DISPUTE REGARDING TITLE OF SHARES AND ITS RESOLUTION Under section 41, a person cannot be made a member unless his name is entered on the register as a member. If one is a member in the books of the company, it is he alone who would be entitled to exercise the rights of a shareholder, viz. to vote as such or to receive the dividend payable in respect of the share and it certainly follows that he alone is liable for share calls or to be put on the list of contributories in case the company is wound up. Although a member be merely a trustee to the knowledge of the company, he is liable for calls and other obligations of his membership. In another case, Company Law Board has prescribed certain tests to be applied in case of dispute as to title. CLB has held that in case of a dispute as to whether the petitioner is a shareholder or not, when the name is not shown on the register of members; certain tests are to applied as to (1) whether the person is in possession of the original share certificates to claim the membership, (2) whether there are independent records to establish that he is a member of the company, (3) whether the company has treated the petitioner as a member of the company in the past. It is stated that the Directors of a company may rectify the register of members without any application to the court if there is no dispute and the circumstances are such that the court would order rectification. Where a person on the register of members has a right to rectification and the company itself recognises that right, it is not essential for a valid rectification of the register that an order of the court should be sought and obtained. RECTIFICATION OF REGISTER OF MEMBERS Private company may by its Articles or otherwise refuse to register the transfer or transmission of shares. However in case of a public company, shares are freely transferable and it can not refuse transfer of shares. In case of refusal by public limited company, the Company Law Board is empowered to direct rectification of register of members to give effect to the transfer within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the company, as the case may be. Procedure for obtaining a direction from the CLB for the rectification of the Register of Members 1. In case a public company refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer is delivered to the company, make an appeal by way of petition which is to be prepared in Form No. 1 of the Company Law Board Regulations, 1991. 2. The aforesaid petition should be addressed to the Bench Officer, Company Law Board 3. The petition should enclose the following: (i) Documentary evidence, if any, in support of the statements made in the petition, including a copy of the letter written by the petitioner to the company in this regard and the companys letter of the refusal. (ii) Copies of the documents returned by the company. (iii) Affidavit verifying the aforesaid petition which should be prepared on a non-judicial stamp

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paper of the requisite value prevalent in the State and should be either notarised by the Notary Public or sworn before the Oath Commissioner. (iv) Demand draft evidencing payment of the fee of Rs. 500/-. (v) Memorandum of Appearance in Form No. 5 of the Company Law Board Regulations, 1991 with certified true copy of the Board Resolutions or executed Vakalatnama as the case may be.

4. A court-fee stamp of the requisite value shall be affixed on the petition before submission. 5. The filling fee of Rs. 500/- shall be paid EXPULSION OF A MEMBER A question had arisen as to whether a public limited company has powers to insert a clause in its articles of association relating to expulsion of a member by the Board of directors of the company where the directors are of the view that the activities or conduct of such a member is detrimental to the interests of the company. The then Department of Company Affairs (Now Ministry of Corporate Affairs) clarified that an article for expulsion of a member is opposed to the fundamental principles of the Company Jurisprudence and is ultra vires the company, the reason being that such a provision militates against the provisions of the Companies Act relating to the rights of a member in a company, the powers of the Central Government as an appeallate authority under Section 111 of the Act and the powers of the Court under Sections 107, 395 and 397 of the Companies Act, 1956. The Department of Company Affairs has, therefore, clarified that any assumption of the powers by the Board of directors to expel a member by alteration of articles of association shall be illegal and void. (Circular No. 32/7 dated November 1, 1975). VARIATION OF MEMBERS' RIGHTS The members rights are determined by the Companies Act, 1956, Memorandum of Association, Articles of Association of the company and the terms of issue of shares. Members rights relate to payment of dividend, voting at the members meetings and return of capital and participate in the surplus assets on winding up of the company. The equity share capital may be issued with voting rights or with differential rights as to dividend, voting or otherwise in accordance with such rules and subject to such conditions as may be prescribed. 1. Memorandum and Articles of Association of the company to authorise the company to vary the rights attached to any class of shares and such rights of the company are not prohibited by either of them and also by the terms of issue of that class of shares. 2. Convene a Board Meeting for considering the proposal and decide as to which of the following ways to adopt for variations (a) obtaining written consent of the holders of not less than three fourths of the issued shares of that class; or (b) convening a separate meeting of the holders of the issued shares of that class for passing a special resolution thereat. 3. If the Board approves the first method as mentioned above, then also (i) approve the resolution for circulation among the holders of the issued shares of that class, and (ii) circulate such resolution amongst the holders and obtain their approval in writing of at least three fourths of the issued shares of that class.

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4. If the Board approves the second method as mentioned in 3.1(b) above, or the company fails to obtain written approval from the holders of not less than three fourths of the issued shares of that class then (i) authorize the company secretary to convene a separate meeting of the holders of the issued shares of that class; and (ii) approve the notice of such meeting containing special resolution with an explanatory statement relating thereto and a proxy form. 5. Give twenty one days prior notice of the meeting to the holders of shares of that class and also to the stock exchanges where such shares are listed in accordance with the listing agreement. 6. Hold the separate meeting of the holders of issued shares of that class and pass special resolutions so proposed by three fourths majority of the holders present. 7. In both the cases, file e-Form No. 23 with certified copy of the resolution so approved or certified copy of the special resolution and explanatory statement within thirty days from the date of approval or the date of passing resolution, as the case may be together with requisite filing fees with the concerned Registrar of Companies. 8. Inform the stock exchange where the shares of that class are listed about the variation in the members rights thereof. 9. If variation affects the rights of the holders of other class of shares, simultaneously obtain consent or approval from them. 10. On variation becoming effective, make necessary changes in all the papers, documents, registers etc.

CANCELLATION OF THE VARIATION IN THE MEMBERS RIGHTS Under Section 107 of the Act, such variation in the members rights can be cancelled by the holders of the issued shares of that class, holding in the aggregate not less than ten percent of the issued shares of that class, who did not consent to or vote in favour of the resolution for variation. 1. Ensure that the application to the concerned High Court by way of a petition is made by the holders of not less than ten percent of the issued shares of that class who did not consent to or vote in favour of the resolution for the variation. For brevity, such holders are called as dissentient shareholders. 2. The heading of the petition is to be in Form No. 1 of the Companies (Court) Rules, 1959. 3. The petition is required to be made within twenty-one days after the date on which the consent was given or the special resolution was passed. 4.1 The petition may be made by all the dissentient shareholders or by one or more on behalf of the other dissentient shareholders. 4.2 If the petition is made by one or more of them, then the letter of authority from other dissentient shareholders should be annexed to the petition. 4.3 The names, addresses and the number of share held by each one of them are to be set out in the petition or a list of them may be annexed as an Annexure to the petition. 4.4 Ensure that the petition should set out the following particulars of registration of the company; authorised capital of the company and different classes of shares in which it is divided and the rights attached to each class of shares; provisions of the Memorandum of Association or Articles of Association authorising the

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variation of the rights attached to the various classes of shares; total number of shares of the class whose rights have been varied; nature of variation made and so far as may be ascertained by the petitioner; number of the shareholders of the class who have given their consent to the variation or who voted in favour of the special resolution for variation and the number of shares held by them; number of shareholders who did not consent to the variation or who voted against the special resolution and the number of shares held by them; date or dates on which consent was given or the date when the special resolution for variation was passed; reasons/grounds for opposing the variation; prayer for cancellation of the variation so consented or passed as the case may be. 5. Draw an affidavit verifying the petition in Form No. 3 of the Companies (Court) Rules, 1959 and it is to be made by the petitioner if there is one or by one of the petitioners if they are more than one. 6. Annex a true copy of the Memorandum and Articles of Association of the Company to the petition. 7. Affix requisite court fee stamp on the petition before filing thereof. 8. On receipt of the order of the High Court, file a Certified true copy thereof within thirty days from the date of obtaining the copy of the Order alongwith e-Form No. 21 with the requisite filing fees with the concerned Registrar of Companies. TRANSFER OF SHARES OF A COMPANY Under Section 82 of the Companies Act, 1956, the shares of any member in a company are moveable property, transferable in the manner provided by the articles of association of the company. Registration of Share Transfer Section 108 of the Companies Act, 1956 regulates the registration of transfer of shares in a company. Sub-section (1) lays down that a company shall not register transfer of its shares unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee. Cancellation of Share Transfer Stamps is must for Registration of Transfer The share transfer stamps so affixed on a share transfer form are required to be cancelled either at the time of affixing them or at the time of execution of the deed by the transferee. Loss of Duly Executed Share Transfer Form However, according to the first proviso to Section 108, where an application in writing has been made to the company by the transferee and bearing the share transfer stamps of appropriate value required for an instrument of transfer and it is proved to the satisfaction of the Board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the Board of directors of the company may register the transfer on such terms as to indemnity as it may think fit. Signature of Transferor not Tallying with Those in Record Quite often signatures of transferors on the share transfer forms do not tally with those available in the record of the company. In such a situation if the signature on a share transfer form is attested by an authorised person specified in the form itself, the company cannot refuse to register transfer of the shares on the ground that the signature of the transferor do not tally with that on the record of the

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company. Validity Period of the Transfer Instrument Every instrument of transfer shall be in Form No. 7B, and in case of a company whose shares are listed on OTC exchange of India, the instrument of transfer shall be in Form 7BB. However, as per the provisions of Section 108(1A): (a) every share transfer form shall, before it is signed by or on behalf of the transferor and before any entry is made therein, be presented to the prescribed authority (ROC), who shall stamp or otherwise endorse thereon the date on which it is so presented, and (b) every instrument of transfer in the prescribed form with the date of such presentation stamped or otherwise endorsed thereon shall, after it is executed by or on behalf of the transferor and the transferee and completed in all other respects, be delivered to the company (i) in the case of shares dealt in or quoted on a recognised stock exchange, at any time before the date on which the register of members is closed, in accordance with Section 154 of the Act, for the first time after the date of presentation of the form to the prescribed authority or within twelve months from the date of such presentation, whichever is later; (ii) in any other case, within two months from the date of such presentation. The instrument of transfer in such form duly completed in all respects and duly stamped to the effect, as the case may, is delivered within two months from the date so stamped or endorsed. Sub-section (3) of section 108 provides that the provisions of this section also do not apply to transfer of a security effected by the transferor and the transferee both of whom are entered as beneficial owners in the records of a depository. TRANSFERABILITY OF SHARES OF PRODUCER COMPANY A member of the Producer Company may, after obtaining the previous approval of the Board, transfer the whole or part of his shares along with any special rights, to an active member at par value. Within three months from the date of his becoming a member, such person shall nominate his nominee, to whom the shares shall vest in the event of his death. However where such nominee is not a producer, the Board shall direct the surrender of shares together with special rights, if any, to the Producer Company at par value or such other value as may be determined by Board. Further where the Board is satisfied that any member has ceased to be a primary producer or any member has failed to retain his qualifications to be a member as specified in articles, the Board shall direct the surrender of shares together with special rights, if any, to the Producer Company at par value or such other value as may be determined by the Board. However the Board shall not direct such surrender unless the member has been served with a written notice and given an opportunity of being heard.

PROCEDURE FOR REGISTRATION OF TRANSFER OF SHARES Registration of Partly-Paid Shares If the instrument of transfer and the share certificates have been received from a person other than the transferee and the shares are partly paid, the company must send a notice to the transferee and also to the transferor to ensure that the transfer is genuine and the transferee has agreed to pay the balance amount due on shares as and when called for by the company. Lodgement of Transfer within the Validity Period of the Share Transfer Instrument The company must ensure that the instrument of transfer has been lodged with it within the period of its validity according to the date/stamp of the prescribed authority affixed on it as per requirement of

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Sub-section (1A) of Section 108 of the Act. Any share transfer form received by the company after its validity period has expired, the company should return the form to the person who had lodged the same with the company. The transferee should be advised to get the same revalidated. Seeking Extension of Time on the Share Transfer Form Under the simplified procedure, the applicant has to submit an application in Form No. 7C to the Registrar of Companies (either before or after the expiry of the validity period) along with a fee of Rs. 50/- where the nominal value of the shares is upto Rs. 5,000/-, and Rs. 100/- where the nominal value of shares exceeds Rs.5,000/-. The Registrar or the Assistant Registrar makes an endorsement on the transfer deed with the help of a rubber stamp on the day of receipt of the application and returns the same to the investor concerned across the table. Transfer of Shares in the Name of a Company The instrument of transfer and the relevant share certificate(s) must have been lodged with the company along with a certified copy of the memorandum of association of the buying company and a certified copy of the Board resolution authorising a director or the other person who has signed the share transfer form on behalf of the company as transferee. The company must also ensure that the memorandum of association of the buying company contains an objects clause authorising the company to invest in the shares of other companies. Transfer of Shares in the Name of a Trust Under Section 153 of the Act, no notice of any trust, express, implied or construction shall be entered on the register of members or of debenture holders. Period during which a Transfer must be Registered The Companies Act allows two months time within which the share transfer should be registered, but the listing agreement of the stock exchanges require that all transfers must be registered within one month from the date of lodgement. Registration of Transfer of Shares in the Name of Minor A minor, being incapable of contracting, cannot become a member of a company in his own name. His name may be entered in the register of members of the company through a guardian. Consideration and Approval by Board All the details of the transfers will be entered in the Register of Share Transfers After fixed intervals, which must be less than thirty days as per the stock exchange requirements, the same along with the share transfer applications, should be placed before the Board or the Share Transfer Committee of the Board or the Company Secretary or Share Transfer Agent as may be authorised by the Board for its consideration and approval. The Board or the Committee is required to pass a resolution approving the registration of transfer of shares. Transfers approved by the Committee or Company Secretary or Share Transfer Agents should be placed before the next Board meeting for recording.

CHECKLIST FOR SHARE TRANSFERS The following checklist has been designed to help a company secretary in his work of processing of cases of share transfers : 1. Each column of transfer deed is properly and adequately filled in. 2. Names of the recognised stock exchange, where dealt in, if any, have been given in the Instrument. 3. Name of the company is correctly given. 4. Description of shares, viz., equity, preference etc. is correctly given.

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5. Relevant share certificate(s) is/are enclosed. 6. Corresponding share certificates numbers have been entered in the Instrument. 7. Distinctive numbers of the shares given in the Instrument are same as are given in the enclosed share certificate. 8. Register of Members Folio number as given in the enclosed share certificate(s) is correctly entered in the form. 9. Whether the shares proposed to be registered in the name of the transfer are registered in the name of the transferor(s) in the register of members of the company and the name(s) of the transferor(s) has/have been correctly entered in the transfer deed and is/are same as are given in the enclosed share certificates. 10. Signature(s) of the transferor(s) agree with the one(s) available with the company. 11. Name and address of the witness to the signature(s) of the transferor(s) are legibly written in the transfer deed and the witness has signed the transfer deed. 12. If the Instrument has been signed and executed by or on behalf of the transferor(s), whether a duly executed power of attorney has been received, and if so, the same has been checked and found in order. 13. If the Instrument has been attested, the name, address and seal of the attestator of the signature(s) of the transferor(s) have been legibly given in the Instrument and the attestator has signed the Instrument. 14. Name(s), occupation(s), address(es), name of father/husband, his existing Folio No., if any, and the value of share transfer stamps affixed have been legibly entered in the Instrument. 15. The transferee(s) or the buyer(s) has/have signed the Instrument. 16. The transferee(s) or the buyer(s) has/have also signed the Instrument for the purpose of preservation of his/their signature(s) as specimen(s) in the signature card index maintained by the company for future use. 17. Share Transfer Stamps of appropriate value have been affixed on the Instrument and they have been property cancelled by a rubber stamp or defaced otherwise. If the shares are listed, the valuation of the Share Transfer Stamps is to be determined on their quoted value. At present the stamp duty on transfer of shares is at the rate of twenty five paise w.e.f. 28.01.2004 for every hundred rupees of value of the shares on the date of sale, or part thereof as per Article 62(a) of Schedule I to the Indian Stamp Act, 1899. 18. The Instrument has been dated, which date should be a date subsequent and not, in any case, prior to the date of presentation to the prescribed authority, as per clause (a) of Subsection (1A) of Section 108 of the Companies Act, 1956. 19. Whether the Instrument along with the corresponding share certificate(s) or the letter of allotment, where no share certificates have been issued, has been lodged with the company within the validity period of the Instrument as per clause (b) of Sub-section (1A) of Section 108 of the Companies Act, 1956. 20. Where the transfer is proposed to be in the name of the minor(s), whether the articles of association of the company permit such registration of transfer and the shares are fully paid. 21. Whether the transferor(s) and/or transferee(s) is/are non-resident Indians and if so, whether the deal is permitted under the Foreign Exchange Management Act, 1999, and if not, whether specific permission of the Reserve Bank of India has been obtained. 22. If applicable, whether prior approval of the Central Government has been obtained under sections 108A, 108B or 108C of the Companies Act, 1956. 23. Where the Central Government has granted extension of time under Section 108(1D) of the Act for filing an executed Instrument, check whether the Instrument has been lodged with the company within the extended period of time.

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24. Whether the shares under registration are subject to a lien of the company and is so the company has lifted the lien. FORGED TRANSFERS The company secretaries and/or those who are entrusted with the responsibility of matching signatures of the transferor(s) on the share transfer forms with those that are available in the records of companies, have to be very careful in checking the signature(s) of transferor(s) on the share transfer deeds. Even on the slightest doubt they should not entertain the documents and immediately send a notice to the transferor(s) A copy of such a notice should also be endorsed to the regional stock exchange, where the securities of the company are listed, for its information and record.

Consequences of Forged Transfer A forged transfer is a nullity. Therefore, the registered holder of the shares [i.e. the transferor(s)] continues to be the owner and holder of the said shares and if the company has already acted on the forged transfer and has registered the share transfer in the name of the person who has lodged the forged instrument, the company is bound to restore the name of the original shareholder on the register of members [Peoples Ins. Co. v. Wood and Co; 1961 (31) Com. Cas. 61].

POST APPROVAL PROCESSING The share certificates are endorsed in the names of the transferees and despatched to them at the addresses given in their share transfer forms, by registered post. Specimen signatures of the transferees on the share transfer forms are cut off and pasted on the members specimen signature register or scanned on the specifically designed software for future use and the forms are bound in the form of registers according to the transfer registration serial numbers and preserved in safe custody for record and any possible use at a future date. In the cases where the Board or the Committee or the Company Secretary or the Share Transfer Agent do not approve the registration of transfers, the company is obliged to send notice to the transferors and the transferees as per provisions of the Companies Act. If the defects are technical in nature, e.g., the share transfer forms are not stamped or under-stamped, signatures of the transferors do not tally with those available in the companys record, the parties concerned are requested to rectify them and their cases are placed before the Board or the Committee at its next meeting for reconsideration and approval. In other cases the share transfer forms and also the relevant share certificates are sent back by registered post to the persons who had lodged them with the company with a covering letter giving detailed reasons for refusal to register transfer of the shares contained in the share transfer forms within two months or one month as the case may be.

TRANSFER OF DEBENTURES In the case of debentures, the transfer instrument is not required to be dated by the prescribed authority nor the transfer is subject to any statutory period within which the registration has to be effected. However, stamp duty is payable for transfer of debentures and the duty varies from State to State. After registering the transfer, the particulars thereof have to be recorded in the Debenture Transfer Register and should be initialled by the appropriate authority. After making appropriate endorsements, the debenture certificate may be sent to the party concerned.

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TRANSFER OF SHARE WARRANTS A share warrant is transferable by mere delivery of the warrants without execution of any written instrument of transfer being registered by the company. The bearer of a share warrant is not a member of the company unless otherwise so provided in the articles of the company in terms of Section 115(5) of the Act and, therefore, such a bearer of share warrants does not impliedly convenant to observe the provision of the companys memorandum and articles. CERTIFICATION OF TRANSFER The procedure outlined above is slightly varied when a shareholder sells only a part of the shares (and not all of them) mentioned in the share certificate. In such circumstances: The transfer instrument, after being signed by the transferor, is not sent to the transferee, nor is the transferors share certificate handed over to the transferee. Both these documents are lodged by the transferor at the companys registered office. The company retains the share certificate but issues to the transferor a balance ticket in respect of the shares which he is retaining, An officer of the company, usually the secretary, certifies the transfer by endorsing on the transfer instrument a signed statement certificate lodged or words to that effect and mentions the number of shares which it is lodged. This is called Certification of transfer The transferee of shares signs it and forwards it to the companys registered office with a request for registration. When the transfer has been registered, the company cancels the old share certificate and issues two new certificates; one to the transferee in respect of the shares transferred and the other to the transferor, in exchange for the balance ticket in respect of the shares retained by him. Certification is also necessary when a shareholder disposes of the whole of his holding to two or more transferees. In such a case, each transfer instrument is certified but no balance ticket is issued because the transferor has not retained any shares for himself.

TRANSPOSITION OF NAMES In the case of joint-shareholders, one or more of them may require the company to alter or rearrange the serial 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 takes place on such transposition, the question of insisting on filling transfer deed with the company, may not arise. Transposition does not also require 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 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.

DEATH OF TRANSFEROR OR TRANSFEREE BEFORE REGISTRATION OF TRANSFER If transferor dies after execution of transfer deed, the company would register transfer of shares

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If transferee dies before registration, and company has notice of his death, transfer of shares cannot be registered in the name of the transferee who has already deceased. With the consent of the transferor and the legal representatives of the transferee, the transfer may be registered in the name of the legal heirs of the transferee (who has already died) or his nominee, if any. But if there is a dispute, an order of the Court will be insisted by the company before effecting the transfer. In case, the death of transferee is not notified to the company, the company can register the transfer in the name of the deceased transferee, in as much as the company is not aware of the death of the transferee and the transfer is done bonafide by the company, as per the information available with it. REGISTRATION OF TRANSMISSION OF SHARES Transmission of shares is a process by operation of law, whereunder the shares registered in a company in the name of a deceased person or an insolvent person are registered in the name of his legal heirs by the company on proof of death or insolvency and on the establishment of right and title of the heirs on the deceased members shares. Articles of association of almost every company contain detailed provisions for regulating transmission of shares. NOMINATION OF SHARES Every holder of shares in, or holder of debentures of, a company may, at anytime nominate in the prescribed Form No. 2B a person to whom his shares in or debentures of, the company shall vest in the event of his death. Where the shares in or debentures of a company are held by more than one person jointly, the joint holders may together nominate, in the prescribed Form No. 2B, a person to whom all the rights in the shares in or debentures of the company shall vest in event of death of all the joint holders. Where the nominee is a minor, it is necessary to specify the guardian. In all the circumstances, the nominee shall become entitled to all the rights in the shares or debentures of the company to the exclusions of all other person(s) unless the nomination is varied or cancelled in the prescribed manner. Procedure for Transmission of Shares (in case nomination by member was not made) A company which receives an intimation about the demise or insolvency of a registered shareholder, is required to follow the procedure as detailed below for effecting registration of transmission of the shares at that point of time registered in the name of the deceased member: 1. On receipt of the intimation about the death or lunacy or insolvency of a member, the company should write to the person who intimated the company about the death or lunacy or insolvency of the member, to enquire whether the deceased member had left a Will or there has been a proper order by a competent Court of law in the event of the members insolvency or lunacy, and whether the heirs of the deceased member had applied to a Court and obtained or would be applying to Court of law for the issue of a succession certificate 2. In the event of insolvency of a member, his shares vest in the Official Receiver, who may get himself registered as holder of the shares or dispose them of. He is also entitled to disclaim partly-paid shares or fully paid shares which are subject to charge, hypothecation or any other encumbrance. 3. If shares are jointly held and one of the joint holders passes away, the company may transmit the shares in the name of the surviving holder. If there are more than one surviving holders, the company must insist on all of them jointly signing the application for such transmission. However, the course of action to be adopted by the company should be decided according to the provisions contained in its articles of association. 4. It is important to note that in the case of transmission of shares in a company (i) no formal instrument of transfer is required since the registered shareholder either does not exist to execute the share transfer form as transferor or reasons of his incapacity to execute the instrument because of his lunacy or insolvency;

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(ii) no share transfer stamps are required to be affixed on the application for transmission of shares because transmission is not transfer. Transfer is the result of free will of both the parties, whereas in the event of transmission of shares, only the transferee is present and the State or the law acts as the transferor of the shares, which is known as transfer by operation of law. 5. The company must thoroughly check the application for transmission of shares with specific attention to the following: (a) Whether the application for transmission contains correct details of the deceased member, e.g., his name, address, occupation, fathers/ husbands name, his shareholding and is accompanied by the relevant share certificates. (b) Whether the applicant has sent along with the application (i) death certificate, along with a certified true copy, of the deceased member; (ii) succession certificate, if the deceased member has left no Will; (iii) if the deceased member has left a Will, probate thereof or letter of administration; (iv) affidavit by the legal heir declaring his right in the shares; and (v) indemnity bond binding him and his heirs, assigns etc. to indemnify the company in the event of the company having to face any proceedings, incur some loss etc. 6. If the application is accompanied by a succession certificate, the company should ensure that the particulars of heir(s) have(s) been correctly given in the certificate and the certificate contains details of the shares to which the applicant has staked his claim. 7. The company must receive attested signature(s) of the applicant heir(s) duly certified by a competent person, e.g., a Magistrate, a Judge of a High Court, a Gazetted Officer, a Notary Public, an Oath Commissioner, a Bank Manager, or a member of a recognised stock exchange, for its record. 8. If the succession certificate entitles more than one heir to the properties of the deceased member including the shares in the company, the company must register the shares in the joint names of all the heirs. However, if they want the shares to be registered in the name of one of them, then the company must obtain from the remaining heirs a letter of disclaimer on a non-judicial stamp paper of the value applicable in the State where the disclaimer is signed and executed, disclaiming their rights in the shares and entitling the said heir to have the shares transmitted and the transmission registered in his name. Alternatively, the shares must first be registered in the joint names of all the heirs and thereafter the disclaiming heirs may transfer their respective share in the shares under reference by means of a regular share transfer. 9. After having ensured the above, the company secretary should place the application for transmission of the shares along with the relevant documents received therewith, before the Board of directors of the company or the Share Transfer/Transmission Committee, if there is one, for its consideration and approval. 10. As soon as the transmission is approved by means of a resolution of the Board or the Committee, the secretary should enter the name(s) of the authorised heir(s) in the register of members of the company and send the share certificates to the registered members, after appropriatly endorsing them in their names.

Transmission of Shares to Nominee (1) The Company Secretary shall keep and maintain a register of nominations received from its shareholders. On receipt of nomination in the prescribed Form No. 2B the company secretary shall verify the details filled in Nomination Form and also tally the signatures of the shareholders with the specimen available with the company. On verifying the particulars, the same shall be recorded in the register of nominations and/or Register of members. (2) The company on coming to know about death of its shareholder, should check whether the deceased shareholder had submitted nomination form and the same was valid on the date of death. If so, the company should send a notice to the nominees to elect either to be

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registered holders thereof or to transfer the shares as the deceased holder could have made. (3) The company may also receive a notice from the nominee to elect either to be registered holder or to transfer the shares as the deceased could have done, alongwith required documents i.e. death certificates, share certificates and an application containing full particulars of the nominee such as name in full, fathers/husbands name, occupation, age, address in full, specimen signature duly attested by the magistrate/notary public or Banker of the nominee with Bank account number etc. (4) The company can act upon such notice after having been satisfied as to the request of the nominee as shareholder in place of the deceased as elected by him or if the nominee has elected to transfer the shares of the deceased, the company can register the transfer of such shares of the deceased to the transferee(s). TRANSFER AND TRANSMISSION OF DEBENTURES For transfer of debentures there is no necessity to present the instrument of transfer before the prescribed authority. There is no time limit prescribed for lodgement for transfer deed with the company. Stamping depends on the State where the registered office of the company is situated DEMATERIALISATION OF SHARES OF A COMPANY Procedure for a Shareholder to get his Shares Dematerialised The shareholder has to enter into an agreement with a depository through a participant in the manner specified by the bye-laws, for availing of its services Surrender the certificate of the shares, for which he seeks to avail the services of a depository The company, on receipt of the share certificate from such a shareholder, shall cancel the certificate, (which action is referred to as dematerialisation of shares) and substitute in its records, the name of the depository as the registered owner in respect of those shares and accordingly inform the depository. On receipt of the information from the company the depository shall enter the name of the shareholder in its records as the beneficial owner of the shares and inform the company, who shall in turn inform the shareholder that his shares have been dematerialised and his name has been entered in the depositorys electronic records A Dematerialisation Request Form (DRF) issued by the Depository Participant is to be filled and deposited with the concerned DP together with certificates after writing Surrendered for Dematerialisation on the face of each certificate The DP will send DRF along with the certificates to the concerned company for confirmation of its genuineness simultaneously to Share Transfer Agents electronically through the Depository (NSDL or CDSL as the case may be). After checking the genuineness of the certificates and DRF the company/ Share Transfer Agents destroy the certificates and send a confirmation to the NSDL or CDSL which, in turns, confirm the dematerialisation of securities to DPs. DPs on receipt of such confirmation should inform the investor accordingly.

Procedure for a Company to have its Shares Dematerialised A company proposing to have its shares dematerialised is required to take the following procedural steps: Ensure that its articles of association do contain an article which authorises the company to have its securities dematerialized Approach a depository for the purpose. The depository shall enter into an agreement with the company in respect of securities that are to be declared as eligible to be held in

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dematerialised form If the company has appointed a Registrar to the issue, in case of a new issue, or a share transfer agent for transfer/transmission of its existing shares, the depository shall enter into a tripartite agreement with the company and the registrar to the issue or share transfer agent The shareholders may surrender their share certificates to the company and the company shall inform the depository accordingly. The Company shall cancel the certificates, (which action is referred to as dematerialisation of shares) and substitute in its records, the name of the depository as the registered owner in respect of all those shares and accordingly inform the depository. On receipt of the information from the company, the depository shall enter the names of the shareholders in its records as the beneficial owners of the shares and inform the company, who shall in turn inform the shareholders that their shares have been dematerialised and their names have been entered in the depositorys electronic records as beneficial owners of the shares

Registration of Transfer of Shares with Depository Every depository shall, on receipt of intimation from a participant, register the transfer of shares in the name of the transferee and where the beneficial owner or a transferee of any shares seeks to have custody of such shares, the depository shall inform the issuer accordingly. Option to Receive Share Certificate on Subscription or hold Shares in Electronic Form with depository Every person subscribing to shares offered by a company shall have the option either to receive the share certificates or hold shares with a depository in electronic form. Where a person opts to hold his shares with a depository, the company shall intimate such depository the details of allotment of the shares and on receipt of such information the depository shall enter in its records the name of the allottee as the beneficial owner of the shares Every initial offer of rupees ten crore or more shall be made only in dematerialised form in accordance with the provisions of the Depositories Act, 1996 and the regulations issued thereunder.

Shares in Depositories to be in Fungible Form Section 9 of the Act clarifies that all the securities held by a depository shall be dematerialised and shall be in a fungible form. Rights of Depositories and Beneficial Owners A depository shall be deemed be the registered owner of the shares for the purposes of effecting transfer of ownership of the shares on behalf of a beneficial owner and the depository as a registered owner shall not have any voting rights or any other rights in respect of the shares held by it. It is only the beneficial owner of the shares who shall be entitled to all the rights and benefits and be subject to all the liabilities in respect of his shares held by a depository. Register of Beneficial Owners Every depository shall maintain a register and an index of beneficial owners Pledge or Hypothecation of Shares Held in a Depository A beneficial owner may, with the prior approval of the depository, pledge or hypothecate his shares held in a depository. Upon receipt of intimation from the beneficial owner about the pledge or hypothecation of his shares, the depository shall accordingly make entries in its records. Such an

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entry in the records of a depository shall be evidence of a pledge or hypothecation [Refer Section 12]. Transfer-cum-Demat Scheme SEBI had introduced compulsory dematerialized trading in select shares for all investors with effect from January, 1999. At this time, transfer and demat were two separate processes and the investors were required to submit the transferred shares to the share transfer agent, through their DPs, for dematerialisation. This entire process involved anywhere from 1-3 months and the investors could not sell the shares during this period. Accordingly, the transfer-cum-demat scheme was introduced by the depositories to counter the problems faced by the investors in the transition phase of moving from physical to demat trading mode, to decrease the time period involved in transfer and demat. Phasing out of Transfer-cum-Demat Scheme With time, an increasing number of shares were added to the list of compulsory dematerialized trading and there was far less pressure on the companies/the share transfer agents. It was then felt that the Transfer-cum-Demat scheme had outlived its utility*. Accordingly SEBI vide its circular SEBI/MRD/Cir-10/2004 dated February 10, 2004, withdrew the Transfer -cum-Demat Scheme. With this, once again transfer of shares and dematerilisation of shares have become two separate processes. Each of them involving different set of formalities. PROCEDURE FOR REMATERIALISATION Rematerialisation is conversion of electronic securities into physical certificates of such securities. This can be done in the following manner: 1. Beneficial owner sends request to DP. 2. DP intimates Depository (NSDL or CDSL) of such request through electronically. 3. Depository (NSDL/CDSL) confirms rematerialisation request to the companys Share Transfer Agents. 4. Share Transfer Agent updates accounts and prints certificates and confirm the Depository (NSDL/CDSL). 5. Depository (NSDL/CDSL) updates accounts and downloads the details to the DP. 6. Share Transfer Agent dispatches certificates to holder thereof.

7.

The DP also sends intimation about rematerialisation to its client.

* Withdrawal of the scheme would not cause any undue inconvenience and/or delay to the investors.

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