By
Asok Nadhani
Share Capital
6.1 Share
i.
A share is the smallest unit into which the share
capital of a company is divided. The share belonging to one class shall be of
the same value, generally called as nominal value, or face value
or per value.
ii.
A share entitles a shareholder:
a.
To receive Dividend (if declared)
b.
Rights available to every shareholder as per the
Act and Articles.
c.
Right in the surplus assets in the event of winding
up of the company
iii.
The term share includes stock except where a
distinction between stock and shares is expressed or implied [Sec. 2(46)]. [Commr.
of Income tax v. Standard Vacuum Oil Co. Ltd.]
iv.
Share is a movable property
& transferable in the manner provided by the Articles of the company.
(Sec. 82)
v.
Kinds of Shares: A public
limited company can issue only two types of shares, namely –
a. Equity shares
(with voting rights or any other differential rights as may be prescribed)
b. Preference
shares.
6.2 Share
Capital
i.
Share capital is the capital raised by a company
(limited by shares) by the issue of shares. The share capital of a company is
divided into large number of small units with a specific face value. Each of
these small units is called a share
identified by a distinctive number (s.83). Therefore, a share is a part
of the share capital. [Free Wheel (India
ii.
Types of Share Capital
a.
Authorised
Capital : The Capital specified in the Memorandum of Association and which the
company is registered is known as authorised capital (until increased).
This is the maximum amount of nominal value of share which a company is
authorised to raise by the issue of shares.
b.
Issued Capital : The part of
the authorised capital which has been issued by the company for public
subscription.
c.
Subscribed Capital
: The part of the Issued Capital which has been subscribed by the
public.
d.
Called up
Capital : The part of the subscribed capital which is called up for payment.
e.
Paid -up –
Capital : The part of the called up capital paid up by the share holders (Called
Up – Calls in Arrears or Unpaid Capital).
f.
Uncalled Capital
: This is the remainder of the issued capital which has not been called by
the company (Subscribed – Called Up). The company may call this amount any time
subject to the terms of issue of shares and the provisions of the Articles.
g.
Reserve Capital : Part of the
Uncalled Capital which can be called only in the event of winding up. It is
available only to the creditors on winding up. (s. 99)
iii.
Publication of Capital: Any statement containing
the amount of authorized capital of the Company (like in Advertisement,
booklet, report etc) must also contain subscribed and paid up capital, with
equal prominence. (s. 148)
6.3 Stock
Stock denotes
consolidation of fully paid share values (s. 94). Stock is the bunch of fully
paid shares.
i. Conversion of Shares into Stock : A company
limited by shares can convert fully paid shares into stock if the Articles of
Association of a company permit such conversion. The fact of the conversion
must be intimated to the Registrar within 30 days of conversion. (s.95)
ii.
Mode of conversion
: A company may, by ordinary resolution, convert its shares into stock of
any value or can reconvert any stock into paid-up shares.
iii.
Transferability : The holder of
stock may transfer the stock or any part thereof in the same manner as the
shares. The Board of directors may fix the minimum amount of stock (not
exceeding nominal amount of shares from which the stock arose) transferable.
iv.
Applicability of
Rules : The regulations of the company (other than those relating to share
warrants) applicable to fully paid-up shares also apply to stock.
v.
Effect of
conversion (s. 96): All the provisions of the Companies Act which are
applicable to shares only, shall cease to apply to share capital which is
converted into stock.
vi.
Rights and
privileges of stockholder : The holder of stocks enjoys
the same rights and privileges as share holder as if they held the shares from
which the stock arose .
6.3.1
Distinction between shares and stocks
Shares
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Stock
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i.
A share may be partly or fully paid-up.
ii.
A share has a distinct number, a face (or
nominal) value and a denomination.
iii.
Shares cannot be issued and transferred in
fractions.
iv.
A company with share capital can issue
shares at its very inception for
raising
capital.
v.
Shares can be offered directly for public
subscription.
vi.
Shares can be issued by unlimited
companies also.
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i.
A stock must be fully paid-up.
ii.
A stock neither has a face value nor any
such number or any denomination.
iii.
A stock can be transferred in any monetary
fraction, subject to a minimum limit stated in the Articles.
iv.
Stocks cannot be issued initially.
v.
Stocks cannot be offered to public
subscription.
vi.
Only a limited company can convert its fully paid
shares into stock.
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6.4 Equity
Shares
The shares other
than preference shares are called as equity shares. [Sec. 85 (2)]
a.
Voting rights: These shares
entitle the Shareholder to exercise the voting rights in the general meetings.
b.
No fixed dividend. Equity shareholders are
paid dividend only from the profit remaining after dividend has been paid to
preference shareholders.
c.
No priority in distribution of surplus assets. In winding up
of the company, equity shareholders are repaid the capital contributed by them
only out of surplus assets remaining after repayment of capital to preference
shareholders.
6.4.1 Equity
shares with Differential voting rights (Sec.86)
a.
A company limited by shares may issue equity shares
with differential rights as to dividend, voting or otherwise, subject to the
following conditions:
i.
Articles: The articles
must have authorise the issue of shares with differential voting rights.
ii.
Distributable
Profit: The company must have distributable profits and must not have defaulted
in filling of annual accounts and annual returns for three financial years.
iii.
Payments
Default: The company must not have made any default in repayment of debentures
or any deposits or any interest thereon.
iv.
Prohibition: The company has
not been convicted of any offence arising under SEBI Act, 1992, Securities
Contracts (Regulation) Act, 1956 and FEMA, 1999 or not defaulted in addressing
Investors Grievances.
v.
Approval: The company
shall take the approval of the shareholders regarding such issue in the general
meeting by the ordinary resolution. The notice of such general meeting should
contain particulars of proportion to which the voting rights of such shares
shall vary. In case of listed company, the approval of shareholder shall be
obtained by postal ballot.
b.
Conditions for
Equity with Differential voting rights
i.
Conversion: The company
shall not convert its equity capital with voting rights into equity share
capital with differential voting rights and vice versa.
ii.
Proportion: The shares with
differential voting rights shall not exceed 25% percent of the total share
capital issued.
iii.
Rights: The holders of
the equity shares with the differential voting rights shall be entitled to
bonus shares, right shares of the same class.
iv.
Particulars of
Rights: The register of members shall contain the particulars of differential
rights to which the holders of such shares is entitled to.
6.4.2 Sweat Equity Shares
i.
‘Sweat Equity Shares’ are also a kind of equity
shares issued by the company to directors
a.
at a discount,
b.
for consideration other
than cash.
ii.
This type of share are
issued for providing know-how or making available rights in the nature of
intellectual property rights or value additions by whatever name called.
iii.
All limitations, restrictions and provisions
relating to equity shares are applicable to sweat equity shares also.
6.4.2.1 Issue of
Sweat Equity Shares (Sec. 79-A)
i. Though issue of shares at discount is restricted u/s 79, a company may
issue sweat equity shares subject to the following conditions:
a.
The company
shall pass a special resolution in the general meeting authorising such
issue.
b.
The
resolution shall specify the following particulars :
i.
the number of shares to be issued
ii.
current market price
iii.
consideration, if any for issue of sweat equity
shares
iv.
the classes of directors or employees to whom such
equity shares are to be issued
v.
At the date of issue, at least 1 year must have
elapsed since the date on which the company was entitled to commence business
vi.
SEBI listed company may issue in accordance with
the regulations [Sec. 79-A (1)].
ii.
All the provisions applicable to equity shares
shall equally apply to sweat equity shares [Sec. 79-A (2)]
6.5 Preference Shares [Sec. 85 (1)]
Preference
shares carry preferential rights in respect of :
a.
Payment of dividend. The dividend to
preference shareholders must be paid before payment to equity shareholders.
b.
Repayment of
capital. In case of winding up, the preference shareholder have preferential
right to repayment of capital.
6.5.1 Kinds of
Preference Shares
Preference
shares may be classified in following ways :
a.
As per Dividend Payment :
i.
Cumulative
ii.
Non Cumulative
b.
As per Profit Participation :
i.
Participating
ii.
Non-Participating
c.
As per Convertibility into Equity Shares
i.
Convertible
ii.
Non-Convertible
d.
As per Re-payment of Capital
i.
Redeemable
ii.
Irredeemable
6.5.2 Cumulative preference shares
a.
Accumulation
The Dividend, if not paid in any year, is carried
forward to succeeding years. The dividend goes on accumulated until paid. The
company must pay dividend if it has sufficient profits available for
distribution.
b.
Winding Up:
i.
In case the company goes into liquidation, arrears
of dividends are payable if the Articles contain express provision to this
effect, or give the preference shareholders a clear right to the dividend.
ii.
In case the winding up of the company is commenced,
the following rules shall apply:
a.
Dividend declared
before the commencement of winding up: such dividend
results in a debt owed to the shareholders by the company. So, the company
shall be liable to pay such dividend.
b.
Dividend not
declared before the commencement of winding up: the company
shall not be liable to pay such dividend, unless there is a provision to that
effect in the articles.
iii.
If any surplus remains after repayment in full of
preference and equity share capital, the company shall be liable to pay
dividend for every year for which no dividend was declared.
c.
Presumption
Preference shares are
presumed to be cumulative unless any specific provision to the contrary is
mentioned in the Articles.
6.5.3 Non-cumulative preference shares
i.
If dividends are not declared, in any year, these
shares get no dividend.
ii.
These shareholders cannot claim arrears of
dividends in subsequent years.
6.5.4 Participating preference shares
i.
Surplus Profit: These
shareholders are entitled to participate in the surplus profit (i.e. profit
after the claims of the equity shareholders) of the company, in addition to
their usual fixed rate of dividend. The surplus profits are distributed in a
certain agreed ratio between the holders of the participating preference shares
and equity share holders.
ii.
Surplus Asset: They are also
entitled to surplus asset in winding up, after payment of whole liabilities to
the equity shareholders.
6.5.5 Non-participating preference shares
i. Fixed Dividend: Preference shares on which only a fixed rate of dividend is
paid, is known as non-participating
preference shares.
ii. Surplus: They are not entitled to surplus:
a.
Profits remaining after payment of fixed preference
dividend; and
b.
Assets remaining after payment of whole of the
liabilities of the company.
6.5.6 Convertible preference shares
Shares which
entitle their holder to convert them into equity shares after a specified time.
6.5.7 Non-convertible preference shares
These shares do
not carry any right to convert into equity shares.
6.5.8 Redeemable preference shares
i.
These shares are repaid
on expiry of certain period or at option of the Company, as provided in the
Articles.
ii.
Maximum redemption period
of preference
share is 20 years from the date of its issue. Issue of redeemable preference shares must be
authorized by Articles of Association.
6.5.9 Irredeemable preference shares
Such preference shares cannot be redeemed unless the company is
liquidated. A company cannot issue
irredeemable preference shares.
6.5.10
Redemption of Preference Shares
a.
Redemption of
Redeemable Preference Shares (Sec. 80):
i.
Repayment: The holder of
the redeemable preference shares
can get back their capital on the expiry of a certain period or at the option
of the company, as provided in the Articles.
ii.
Conditions: Redeemable
preference shares may be redeemed subject to the following conditions:
a.
the shares to be redeemed must be fully paid-up.
b.
such shares can be redeemed out of profits or out
of fresh issue of share for the purpose of redemption
c.
any premium payable on such shares must have been
provided for out of the profits or out of the company's share premium account,
before the shares are redeemed.
d.
where redemption is made out of profits, a sum
equivalent to the nominal value of the shares redeemed must be transferred to
the 'capital redemption reserve account'.
iii.
Notice: Any redemption
of redeemable preference shares must be notified to the Registrar within 30
days of the date of redemption (s.95(1)(e)). The Registrar shall make necessary
alteration in Memorandum of Association.
iv.
Effect:
a.
Redemption of preference shares is not treated as
reduction of share capital. So, provisions of section 100 to 104 are not
applicable for redeeming preference shares.
b.
Fresh issue shall not be considered as increase in
Authorised Capital if-
-
Raised after Redemption of Shares, or
-
Raised before Redemption but Preference Shares are
redeemed within 30 days from the date of such issue.
v.
Default: Any default in complying with the provisions of Sec. 80,
shall be punishable with fine extending to Rs.10,000.
b.
Redemption of
irredeemable preference shares (Sec. 80-A):
i.
Time: Irredeemable
preference share issued before the commencement of the Companies (Amendment)
Act, 1988 shall be redeemed as follows:
a.
they shall be redeemed within a period of 5 years
from such commencement
b.
Irredeemable shares before the expiry of 10 years
from the date of issue shall be redeemed by due date of redemption or within a
period of 10 years from such commencement, whichever is earlier. So, the
maximum redemption period of the existing preference shares is 10 years
ii.
Penalty: Penalty for any default in compliance
of provisions of redemption of irredeemable preference shares u/s 80-A, the
defaulting company may be punishable with fine extending to Rs. 10,000 for
every day of default. Every defaulting officer of the company may be punishable
with imprisonment upto 3 years and / or fine.
c.
Utilisation of Capital Redemption Reserve Account:
i.
Any sum transferred to Capital Redemption Reserve
Account may be used for:
a.
Issuing fully paid bonus shares to the members.
b.
Any other purpose subject to compliances as
applicable to reduction of share capital.
ii.
Thus, Capital Redemption Reserve Account shall be
treated as if it were the paid up share capital of the company. Its use for any
purpose other than for issue of bonus shares, shall amount to reduction of
capital, unless the provisions relating to reduction of share capital under
section 100 to 104 are complied with.
6.5.11 Distinction between Preference shares and Equity
shares
Basis
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Preference shares
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Equity shares
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Privilege
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Preference
shares carry preferential rights in respect of payment of dividend and return
of capital.
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Equity shares
carry no special privilege.
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Payment of dividend
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Dividend is
paid in priority to equity shares. Arrears of dividend may accumulate.
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Dividend is
paid to the equity share holders only after the payment of preference
dividend. No accumulation if dividend not paid.
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Rate of dividend
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The rate or the
amount of dividend is fixed.
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The rate or the
amount of dividend varies.
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Voting rights
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Except in
certain cases, the preference shareholders have no right to vote in a general
meeting.
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Equity
shareholders have right to vote in every general meetings.
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Privilege of Bonus share
and right share
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No privilege is
given in respect of Bonus & Rights shares.
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Entitled to
bonus and right shares.
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Redemption
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May be
redeemed.
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No redemption
until Preference Shares are repaid. Buy-Back u/s 77A permitted.
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Management
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No right to
take part in management.
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Have rights to
control management of the Company.
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6.6 Application and Allotment of Shares
a.
Application for shares is an offer by a person to
take shares of a Company, whereas allotment is the acceptance of that offer by
the company. So, the allotment results in a binding contract between the
company and the applicant. [Spitzel v.
Chinese Corpn.], [House hold Fire Insurance Co. Ltd Vs Grant]
b.
Rules of
Application and Allotment: The rules of application and allotment of
shares are as follows:
i.
Minimum subscription [Sec. 69 (1)]:
It is the Minimum Amount
stated in the Prospectus, which must be raised by issue of share capital to
start with. In case of offer to the public for subscription, no allotment shall
be made unless the minimum subscription stated in the prospectus has been
subscribed & received within 120 days of first issue of Prospectus.
ii.
Application money: [Sec. 69 (3) to (6)] :
The amount payable on
application on each share shall not be less than 5 per cent of the nominal
amount of the share.
iii.
Deposit of
Application Money :
a.
All moneys received from applicants for shares
shall be deposited in a separate bank account with a Scheduled Bank and shall
not be withdrawn until :
i.
the certificate to commence business is obtained
ii.
the company has received
minimum
subscription (the company already having obtained the certificate of
commencement)
iv. If the above conditions are not complied [Sec.
69(5)]:
a. The entire
Application Money received shall be repaid to the applicants within 120 days
without interest.
b. If any money is
not repaid within 130 days after the issue of the prospectus, then such money
shall be repaid with the interest at the rate of 6 per cent per annum from the
expiry of 130 days.
v.
Allotment (Sec.
72, 74):
a.
Allotment can be made only after the beginning of
the 5th day (not considering Public Holidays) from the date of the issue of the
prospectus (or later as specified in the prospectus), referred as '’Opening of
the subscription list”.
b.
Irregular
Allotment: The allotment of shares is deemed to be irregular where :
i.
shares are
allotted without raising the minimum subscription amount
ii.
allotment is made but still the application money
has not been collected
iii.
money received in respect of subscription of shares
has not been kept in a separate bank account with a Scheduled Bank
iv.
Where a company not having issued a prospectus,
allots the shares without filling the statement in lieu of prospectus at least
3 days before the first allotment of shares.
c.
Effects of
Irregular allotment (Sec. 71) :
i. Allotment is
voidable: Irregular allotment is voidable at the option of the applicant. [Mahendra Gopal Mukherji Vs Lachman Prasad and
others]
a. The option to
avoid the allotment must be exercised within 2 months of allotment.
b. If the allotment
is made before the statutory meeting, the allotment may be avoided within 2
months of holding the statutory meeting.
c. The allotment is
voidable even if the company is in the course of winding up.
ii.
Compensation: The directors responsible
for the default are also liable to compensate the company and the allottee
respectively for any loss caused to them.
vi.
SEBI Guidelines of Application and Allotment
a.
The minimum subscription shall be 90% of the shares
offered to the public for subscription, which must be received by the company-
b.
If the minimum subscription is not so received
within specified time, the amount received on application shall be refunded
within next 8 days, else the company shall be liable of refund the money along
with interest at rate prescribed under section 73.
c.
Allotment should be made by directors and cannot be
delegated except in accordance with the Articles.
d.
Allotment should be completed within 60 days of
closure of issue.
e.
In case of listed companies, Initial Public Offer
of Rs.10 crore or more must be made in dematerialised form complying with
Depositories Act, 1996.(s.68B)
vii. Application and allotment in fictitious names (Sec.
68-A):
a.
Any person making application in fictitious name or
inducing a company to allot shares in fictitious name, may be punished with
imprisonment extending upto 5 years.
b.
This provision should be prominently printed in
every application form of subscription of shares / debentures.
viii. Provisions of
s.85, 86, 88 & 89 do not apply to shares issued before commencement of the
Act. S.85 to 89 do not apply to Private Company. (s.90)
ix.
If a person deceitfully acquires shares, coupons or
warrants or money thereon, he may be punishable with imprisonment upto 3 years
and fine. (s.116)
c.
Filing of Return
of Allotments (Sec. 75)
i.
The company shall file 'Return of allotments' with
the Registrar within 30 days of allotment of shares, showing particulars about
:
a.
Shares allotted for cash (cash having been actually
received) with the names, addresses, occupations of the allottees & the
amount paid on each share.
b.
Shares allotted other than cash :
i.
shares (not being bonus shares) allotted as fully
or partly paid up for any consideration other than cash.
ii.
bonus shares and the names, addresses and
occupations of the allottees and a resolution authorising the issue of such
shares.
ii.
A copy of the resolution passed by the company
authorising issue of shares at a discount, if any, and a copy of the Company
Law Board's order sanctioning the issue.
6.7 Listing of
Shares and debentures in a stock exchange (Sec. 73)
The rules
regarding listing of Shares and debentures in a stock exchange by a company are
as follows:
a.
Application for
Listing
Where the shares are
offered through issue of prospectus, the company shall, before such issue, make
an application to one or more recognized stock exchanges for obtaining
permission for listing of the shares and also state the name of such stock
exchanges in the prospectus.
b.
Separate bank
account
i.
All moneys received from applicants for shares
shall be kept in a separate bank account maintained with a scheduled bank until
the permission for listing of shares has been granted.
ii.
Where the permission has not been applied for as
aforesaid or has not been granted, the money standing in the separate account
shall be repaid within the time and in the manner specified in Sec. 73 (3).
iii.
Where an appeal has been preferred against the
refusal to grant such permission, the money shall be so kept until the disposal
of the appeal.
c.
Return of excess
money [sec. 73(2A)]
Where permission has been
granted by the recognised stock exchange for listing of shares:
i.
company shall return the excess money received
without interest,
ii.
if such excess money is not repaid within 8 days,
then the company along with every director shall be liable to repay the money
with interest from the expiry of the 8th day, at prescribed rate (not less
than 4 per cent and not more than 15 per cent).
d.
Refusal of
Permission [sec.73 (2)]
Where the permission has
not been granted by the respective stock exchanges:
i.
the company shall forthwith repay without interest
all moneys received from applicants
ii.
if any such money is not repaid within 8 days of
the company becomes liable to repay it, the company and every defaulting
director shall be jointly and severally liable to repay the money with interest
at prescribed rate (not less than 4 per cent and not more than 15 per cent).
e. Appeal on Refusal of Permission
i.
Where a stock exchange refuses to grant an
application or fails to dispose it of within 10 weeks (in which case it will be
deemed to have been rejected), the company may appeal to the Central Government
within a prescribed time against the refusal.
ii.
The Central Government may, after hearing the
Company may grant, refuse, vary or set aside the decision of the stock exchange.
6.8 Calls on
Shares
a.
Calls on Shares
i.
A call is a demand by a company on its shareholders
to pay the whole or part of the unpaid amount on each share.
ii.
A call on shares can be made by the Board through a
resolution at a Board meeting as per terms of the Articles.
iii.
A shareholder is liable to pay the call on demand
by the company. Joint shareholders are jointly and severally liable in respect
of calls.
b.
Rules relating to Calls
- Board Resolution [Sec. 292 (1)]:
The Board meeting in which
the resolution for Call is passed must comply the following :
a.
directors making it are duly appointed and duly
qualified,
b.
meeting of directors has been duly convened,
c.
proper quorum is present and resolution making the
call is duly passed, in accordance with the Articles
d.
must specify the amount of the call and the time
and the place of payment.
- Bonafide: The call
must be made in good faith and for the benefit of the company. Any call
made for the personal benefits of the directors is invalid.
- Uniform basis (Sec. 91): The calls
shall be made uniformly on all the shares of a class (shares on which
different amount has been paid-up are not treated as same class). Any
discrimination regarding calls are invalid.
- Calls in Arrears: When a
call is made by the company, it becomes a debt payable by the member to
the company. If a call is not paid by the member, the company is entitled to
charge interest on calls in arrears as authorized by the articles.
c.
Calls in advance
i. Authorised by articles: A company may
accept from any member the amount of any call not yet been made by the company
(referred as calls in advance), if authorized by the articles. (s. 92)
ii. Payment of interest: A company may
pay interest on calls in advance as specified in the articles. (Table A permits
interest at 6% per annum).
iii. Voting: A member is not
entitled to any voting rights in respect of ‘calls in advance’. (s. 92)
iv. Dividend: The dividend is
paid only on the nominal value of a share. However, the Articles may
provide that the member shall be entitled to receive dividends in proportion of
the amount paid up on the shares held by them. (s. 93) (Table A, does
not permit dividend be paid on Calls in Advance).
v. Effects of ‘calls in
advance’
a.
The Member becomes an unsecured creditor of the
company in respect of the money paid as calls in advance.
b.
Amount paid as calls in advance is non-refundable
and is appropriated against his liability to pay the future calls (as and when
made by the company).
c.
In case of winding up of the company, the member is
liable to pay the calls made on shares, even though he might have already paid
such calls in advance (as in respect of calls in advance) he is treated as an
unsecured creditor of the company.
d.
In case of surplus in winding up, before repayment
of capital to the members, the amount paid as calls in advance along with
interest is to be refunded to the member.
6.9 Share Certificate
i.
Evidence of
title: A Share Certificate is a document issued by the company to its
shareholder, declaring interest held by the shareholder in the capital of the
company. It is a prime facie evidence
of title of the member to the shares specified in the certificate.
ii.
Common seal: Every company
must issue share certificate under its common seal, to every person whose name
is entered as a member in the register of members of a company. (Sec. 84)
iii.
Particulars: A
share certificate shall specify the :
a.
shares to which it relates (name of the company,
date of issue of shares etc.),
b.
amount paid up thereon,
c.
name of the holder of the shares.
iv.
Signature: The share
certificate shall be signed by at least 2 directors (one must be a person other
than M.D. or whole time directors) and the secretary (or any person authorized
by Board).
v.
Estoppel: A share
certificate of a company creates two kinds of estoppel against the
company,
a.
Estoppel as to title:
The company cannot deny the validity of title of the person to the shares whose
name is mentioned in the share certificate.
However,
the estopped will be applicable when
i.
Shares were taken
honestly and in good faith
ii.
Certificate is issued
only under proper authority
iii.
Shares were not acquired
through forgery
b.
Estoppel as to payment:
The company shall be estopped from denying that the amount specified as being
paid up on the shares has not been actually paid up.
vi.
It is subject to stamp
duty as per the state in which registered office of the company is situated.
6.9.1 Issue of
share certificate (Sec. 113)
i.
Time: The share
certificate must be issued within :
a.
3 months of the date of allotment of shares, or
b.
2 months after the application for registration of
the transfer of any such shares.
ii.
Authority: Issue of share
certificates is subjected to the provision of law or order of any Tribunal or
other authority.
iii.
Notice: If a company
makes a default in issue and delivery of a share certificate within the
prescribed time, the person entitled to the share certificate may serve a
notice on the company.
iv.
CLB Order: If the company
fails to make good the default within 10 days of receipt of such notice, the
person may make an application to the Company Law Board.
The Company Law Board may
then:
a.
make an order directing the company and any officer
of the company to make good the default within specified time.
b.
order that costs of application be borne by the
company or by any responsible officer of the company.
v.
Depository
system: In case of depository system:
a.
No share certificate shall be issued;
b.
The company shall intimate the details of allotment
of securities to depository immediately on allotment of such securities.
vi.
Duplicate Share Certificate: A duplicate share certificate may be issued to a member if: (s.84)
a.
Proved that share certificate has been lost or
destroyed.
b.
Proper evidence and indemnity is furnished to the
company.
c.
Fees for issue of duplicate share certificate is
paid to the company.
d.
The Board has authorized the issue of duplicate
share certificate.
vii.
Renewed Share Certificate: (s.84)
- A renewed certificate may
be issued when, it is mutilated or torn and the damaged certificate is
returned to the company for issue of a fresh one.
- Fees for renewal of
share certificate is paid to the company.
- The Board has
authorized the issue of renewed share certificate.
- A Duplicate or renewed
certificate may be issued when the original certificate is surrendered to
the company (for consolidation, sub-division or Part Transfer).
viii.
Rules of
Duplicate Certificate: The rules of issue of Renewed & Duplicate
certificate may provide the following: (s.84(4))
a.
The manner of issue of a renewed or duplicate share
certificate.
b.
The form of a share certificate
c.
The form of renewed or duplicate share certificate
d.
The particulars to be entered in the register of
members or in the register of renewed or duplicate certificates
e.
The form of register of renewed or duplicate share
certificates
f.
The fee required to be paid for issue of a renewed
or duplicate share certificate.
g.
The terms and conditions for issue of a renewed or
duplicate share certificate.
h.
The nature of evidence and indemnity that a company
may ask for issuing a renewed or duplicate share certificate.
i.
The payment of out-of-pocket expenses incurred by a
company in investigating evidence.
j.
The word ‘Duplicate’, the reference of original
certificate and reason for issue should be stated in the duplicate certificate.
6.10 Share Warrant (Secs. 114 and 115)
a.
Meaning: A Share Warrant
is a document issued by a public company which states that the bearer of the
share warrant shall be entitled to the shares specified therein.
b.
Nature:
i.
It is a bearer or negotiable instrument and the
holder of a share warrant can transfer (without requiring registration of
shares) the shares to any other person by mere delivery of the warrant.
ii.
Though holder of share warrant is not a member, Articles
may give power to exercise rights of a member.
iii.
Shares specified in warrant cannot be considered for
Director’s Qualification share.
c.
Issue of share warrants (Sec. 114):
i.
Issue: A company
cannot make an original issue of share warrants. A Public Limited company may
cancel the share certificates issued to the members, and in place of share
certificates, it may issue share warrants to the member (a private company
cannot issue share warrants).
ii.
Conversion: A public
limited company may convert its fully paid-up shares into share warrants under
the following conditions:
a.
the shares are fully paid up.
b.
the Articles authorise the issue of share warrants.
c.
approval of the Central Government is obtained.
d.
the share warrants are issued under the common seal
of the company.
d.
Particulars in Members Register:
i.
Members
Register: On issue of share warrant, the company shall strike out the name of the
member from Register of members (s.115). Accordingly, the term ‘member’ does
not include a bearer of a share-warrant [s. 2(27)].
ii.
Particulars: The company
shall enter the following particulars in the register of members.
a.
The fact of the issue of the warrant.
b.
Number of shares contained in the warrant,
distinguishing each share by its number.
c.
The date of issue of share warrant.
6.11 Distinction
between share warrant and share certificate
Share Certificate
|
Share warrant
|
i.
Issue of share
certificate is compulsory for every company whether private or public.
|
i.
It is optional for a public company to issue
share warrants.
|
ii.
It can be issued both
for fully or partly paid shares.
|
ii.
Can be issued only for fully paid up shares.
|
iii.
A shares certificate
entitles the person named to the shares specified in it.
|
iii.
It entitles the bearer of the share warrant to the shares specified in the share warrant.
|
iv.
It is not a negotiable
instrument.
|
iv.
It is a
negotiable instrument.
|
v.
The shares can be
transferred by executing a proper transfer deed.
|
v.
The shares can be
transferred by mere delivery of the share warrant.
|
vi.
The holder of a share
certificate is a member of the company.
|
vi.
The holder of a share
warrant is not a member unless the Articles otherwise provide.
|
vii.
Stamp duty is payable
on transfer of shares specified in a share certificate.
|
vii.
No stamp duty is
payable on transfer of a share warrant.
|
viii.
No approval of
Government is required to issue a share certificate.
|
viii.
Approval of the Central
Government is needed to issue share warrant.
|
ix.
A holder of a share
certificate is entitled to present a petition for compulsory winding up.
|
ix.
The holder of a share
warrant cannot do so.
|
x.
Dividend is paid to the
registered holder by way of dividend warrant.
|
x.
Dividend is paid to the
bearer of the coupons attached with the share warrants.
|
xi.
Share certificates are considered for qualification
shares.
|
xi.
Share warrants are not considered for
qualification shares.
|
xii.
A share certificate must be issued within 3
months of allotment of shares, or 2 months of submission of a valid transfer
deed to the company, as the case may be.
|
xii.
The issue of share warrant is not compulsory.
Therefore, there is no time limit for issue of share warrant.
|
xiii.
A share certificate can be issued originally,
i.e., at the first instance.
|
xiii.
A share warrant cannot be issued originally, it
can be issued by canceling the existing share certificate.
|
For more details, refer to Business & Corporate Laws, by
Asok Nadhani, BPB Publications-ww.bpbonline.com, bpbpublications@gmail.com
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