Learn laws related to issue of capital... in the easy way

1. PROVISIONS OF LAW RELATING TO ISSUE OF CAPITAL
Group No 2
Members:
Manik Madan (2626)
Varun Kaushik (2642)
Mayank Methi (2650)
Anmol Toppo (2662)
Ajay Singh (2623)
Gurpreet Singh Bhatti (2628)

2. MEMORANDUM OF ASSOCIATION
 As per Section 2(28) of the Companies Act, 1956”
Memorandum means Memorandum of Association of a
company as originally framed or as altered from time to
time in pursuance of any previous companies law or of
this act.”
 It defines as well as confines the power of the company.
If anything is done beyond these powers, that will be
“Ultra Vires”(beyond powers of) the company, and
therefore void.

3. CAPITAL CLAUSE
 As per Section 13(4)(a), this clause states the amount of
share capital with which the company is registered,
along with the number of shares into which the capital is
divided, and the amount/denomination of each share.

4. ALTERATION OF CAPITAL CLAUSE
 Alteration of share capital(Section 94,95,97)
 Reduction of the share capital(Section 100 to 105)
 Variations of the rights of shareholders (Section 106 to 107)
 Rearrangement of share capital(Section 391)

5. ALTERATION OF SHARE CAPITAL
 Increase in the share capital by issuing new shares.
 Consolidate or sub divide all or any of its share capital
into shares of larger or smaller denominations than its
existing shares.
 Convert all or any of its fully paid up shares into stock or
vice versa.
 Cancel shares which has not been subscribed.

6. ALTERATION OF SHARE CAPITAL(CONTD.)
Procedure: Any of the above forms of altering the share capital
requires simply the passing of an ORDINARY RESOLUTION,
provided the articles permit to do so. If the articles do not permit,
then the articles can be altered by passing the special resolution.

7. REDUCTION OF SHARE CAPITAL
 Section 100(1)(a): The company may extinguish or
reduces the liability on any of its shares in respect of
share capital not paid up, or uncalled capital.
 Section100(1)(b): It may either with or without
extinguishing liability on any of its shares, cancel any
paid up share capital, which is lost or unrepresented by
available assets.
 Section 100(1)(c): It may either with or without
extinguishing or reducing liability on any of its shares,
pay off any paid up share capital which is in excess of
the wants of the company.

8. REDUCTION OF SHARE CAPITAL(CONTD.)
Procedure:
 Sanction of the articles and passing of Special Resolution
 Application to the Tribunal by way of petition to confirm
the reduction
 Registration of the Tribunal’s order
 Members liability after reduction

9. REDUCTION OF SHARE CAPITAL(CONTD.)
Reduction without Sanction of Tribunal
 Forfeiture of shares for non payment of calls.
 Surrender of shares which is accepted only under
circumstances where forfeiture is justified.
 Diminution of capital where a company cancels shares which
have not been subscribed or agreed to subscribed.
 Redemption of redeemable preference shares.
 Purchase of its own shares by a company.

10. VARIATION IN THE RIGHTS OF SHAREHOLDERS
 Section 106: Permission of the Memorandum and Articles of
Association is necessary to amend the rights attached to one
or more classes of shares. If memorandum and articles
authorise then no Special Resolution is required, otherwise it
is required.
 Section 106(b): If the terms of the issue of particular class of
shares prohibits variation then no variation can be made.

11. VARIATION IN THE RIGHTS OF SHAREHOLDERS(CONTD.)
 Section 107: Rights of Dissenting Shareholders
If the rights attached to any class of shares are to be
varied then dissenting shareholders constituting not less
than 10% of holders of the issued shares of that class,
can appeal to Tribunal to have the variation cancelled
within 21 days of passing the resolution. The Tribunal
after hearing the applicants may disallow the variation,
if it is satisfied that the variation would unfairly
prejudice the shareholder.

12. PROSPECTUS

13. OFFICIAL DEFINITION
A prospectus means any document described or issued
as prospectus and includes any notice, circular,
advertisement or other document inviting deposits from
the public or inviting offers from the public for the
subscription or purchase of any shares in or debentures
of a body corporate. (Section 2 (36))

14. WHAT IT EXACTLY MEANS ?
 In essence, it means that a prospectus is an invitation
issued to the public to take shares or debentures of the
company or to deposit money with the company.

15. “OFFER FOR SALE” - PROSPECTUS
When the complete share capital of a company is allotted to
an intermediary or an Issue House, which then issues then
shares to the public by means of an advertisement of its own,
a document by which such an offer for sale to the public is
made shall be deemed to be a prospectus by implication,
given that:
 The public offer is made within 6 months of the agreement
between the issue house and the primary company.
 At the date of offer to the public, the whole consideration in
respect of the shares has not been received by the company.
Section 64

16. OFFER TO THE PUBLIC
 A document is considered to be a
prospectus or not is defined by
“Offer to the Public”.
 What is Public ?
 Friends and relatives of the
directors?
 Offer is made to only 2 people?
According to the amendment in the
Section 67 in the year 2000, public
can be defined as:
 Offer made to 50 or more persons,
even though specific 50 persons,
they are considered to be public.
 It is a general offer to persons other
than those receiving the offer, it is
deemed to have been made to the
public.
 Offer made to the public to
exchange securities for securities is
not a valid public offer.

17. EXCEPTIONS
 The NBFC or Public Financial Institutions defined under
Section 4A are free to offer securities through “Private
Placement”

18. ISSUE OF PROSPECTUS
 Guidelines of SEBI should be compiled along with the
proposed issue of shares to the public.
 A copy of prospectus signed by all directors should be
registered with the Registrar. (expert’s consent, material
contract, statement of adjustment by the auditors, legal
advisor’s content)
 Issue prospectus within 90 days of registering with the
Registrar.

19. CONTENTS OF A PROSPECTUS
 In order to protect the investors and enable them to take informed
decisions, the governing body has specified the format of the
prospectus. It should contain:
1. Company’s name and address;
2. Names and addresses of the promoters of the firm;
3. Main objects of the firm, its past and present business;
4. Details of the Directors and Managers;
5. Details of the legal advisors, other experts;
6. Size of present value;
7. Consent of directors, bankers to the company etc. ;
8. Names of Regional and other stock exchanges where application
has been made for listing the issue;
9. Nature of the Product and industry details with future prospects;
10. Details of outstanding litigation and criminal charges, if any;
11. Credit Ratings obtained or not, risk involved;

20. MISLEADING PROSPECTUS AND ITS CONSEQUENCES
 A prospectus containing false, misleading, ambiguous or
fraudulent statements of material facts, or suppressing
material facts is termed as a “Misleading Prospectus”.
 There has to be a misinterpretation of facts and not law.
Example: Section 79 states that shares can not be issued
at a discount exceeding 10% but the company states
that its shares will be issued at half the nominal Value

21. REMEDIES FOR MISSTATEMENTS IN A PROSPECTUS
 Remedies against the company:
a) Rescission of Contract
b) Claiming the charges
 Remedies against the Directors, Promoters and
Experts:
The subscriber can make any or all of the above
mentioned persons liable to pay compensation.

22. DEFENSE AVAILABLE TO THE DIRECTORS AND EXPERTS
 If the Directors/Expert proves
that he had removed their
letter of consent before the
publishing of the prospectus,
he may escape legal actions.
Fraudulently inducing persons
to invest money:
 If anyone promises or
forecasts, what is false,
knowingly or recklessly and
forces someone to buy the
shares is bound to get five
years imprisonment with a
fine.

23. SHELF PROSPECTUS
 When a financial institution wants financing from the
Central Government in India, it must provide a shelf
prospectus to the Registrar of Companies. A shelf
prospectus contains one or more issues of the securities
listed in the prospectus. It is a notification to the public
of the transaction the institution plans to do, and it is the
company's way into the primary market.

24. INFORMATION MEMORANDUM
 An Information Memorandum is a document provided
by a company to prospective investors after the
investors have reviewed a brief Investment Summary, or
“teaser”, and signed a Confidentiality Agreement.
 Some business owners and financial advisors look at an
Information Memorandum as a marketing document
which provides a selective overview of the attractive
features of a company.

26. AIM OF THE PRESENTATION
This presentation is a serious attempt to make you all familiarise
with the following details :
1. When is a public company entitled to proceed to initial
allotment of its shares ?
2. What are the statutory restrictions as to allotment of
shares?
3. What is meant by ‘irregular allotment’ of shares?
4. What are the provisions of the Companies Act regarding
valid allotment of shares ?
5. What is minimum subscription?
6. What is meant by Return of allotment ?

27. ALLOTMENT OF SHARES
A prospectus issued by a company is not an
“offer” in the contractual sense, but merely an
Invitation to Offer.
It is up to the Board of Directors to accept the
offer or to reject it. If the offer is accepted by
the company by making the allotment of shares,
it results in a valid and binding contract
between the applicant and the company, and
the applicant becomes a shareholder of the
company.

28.  The provisions governing allotment of shares may be studied under
the following two heads :
General provisions Special provisions
(Indian Contract Act) (Companies Act)
1) General Provisions
A valid allotment must be in conformity with the general provisions
of the Indian Contract Act relating to Acceptance of an Offer. Thus :
1) Allotment must be made by proper authority.
2) Within reasonable time.
3) Must be communicated.
4) Absolute and unconditional.

29.  Effect of non-compliance of ‘general provisions’ :
If they are not complied with, the allotment is null and void.
2) Special Provisions
At the very outset it may be mentioned that the Companies
Act doesn’t prescribe any restrictions as to the allotment of
shares in the case of private companies. The Act, however, lays
down certain restrictions regarding the allotment of shares by
Public companies. For a clear understanding we shall be
discussing these restrictions under the following two heads :
1) When no public offer is made.
2) When an offer to public is made.

30. 1. When no public offer is made :
There is only one restriction as to the allotment of
shares in the case of a public co. which doesn’t offer
them to the public for subscription (i.e., which
manages to obtain its capital privately). As provided
by Section 70, such a co. can’t proceed to make a
valid allotment of any shares unless at least three
days before the first allotment it has filed with the
Registrar a ‘Statement in lieu of Prospectus’.
Effect of non-compliance :
If the above requirement is not complied with, the
allotment shall be ‘Irregular Allotment’ voidable
at the option of the allottee , and the co. and every
director of the company who wilfully authorises or
permits the contravention, shall be punishable with
fine which may extend to Rs. 10,000 {Sec. 70(4)}.

31. 2) When an offer to public is made :
In the case of a public co. which offers shares to the public for
subscription, all the provisions applicable to the first allotment of
shares aren’t applicable to subsequent allotment of shares. Hence, we
shall be studying these provisions under appropriate heads :
First allotment of shares
Before a public co. which offered shares to the public for subscription
proceeds to initial allotment of shares, the following statutory
restrictions must be complied with :
1) A copy of the prospectus must be duly filed with the Registrar for
registration [Sec. 60]
2) The Co. must receive at least 5% cash, of the nominal value of
shares, as applicable money [Sec. 69(3)].
3) The minimum subscription amount as disclosed in the prospectus
must be received within 120 days of the issue of prospectus.

32. 4) Application money must be deposited in a scheduled bank
and it cannot be withdrawn till the company secures the
“certificate to commence business,” i.e., the ‘trading
certificate’ or where such certificate has already been
obtained (by filing a statment in lieu of prospectus) until the
entire amount payable on applications for shares in respect
of minimum subscription has been received by the company
[Sec. 69(4)]. The object of this provision is to ensure safety of
Subscribers’ money.
5) The co. shall not proceed to allot shares until the beginning
of the fifth day from the date of the issue of prospectus or
such a later date as may be specified in the prospectus.
6) Shares and debentures to be dealt in on Stock Exchange :
Sec. 73 makes it compulsory for every co. intending to offer
shares or debentures to the public for subscription by the
issue of a prospectus, before such issue, to make an
application to one or more recognised Stock exchanges for
permission for the shares or debentures intending to be so
offered to be dealt with in the Stock exchange or each such
Stock exchange.

33. 7) Initial offer of securities to be in the demat form in certain
cases : The Companies (Amendment) Act, 2000 has
inserted Sec. 68B which provides that every listed public
co. , making intial public offer of any security for a sum of
rupees ten crore or more, shall issue the same only in
dematerialised form by complying with the requisite
provisions of the Depositories Act, 1996 and regulations
made thereunder.
Subsequent allotment of shares :
All the “Special Provisions” regarding the ‘First Allotment of
Shares’ (discussed above), except No. 3(min. Subs. Must be
recd.) and No. 4 (application money must be deposited in a
scheduled bank) apply equally to any subsequent
allotment of shares offered to the public for subscription
by a public co. [Sec. 69(7)].

34. SEBI GUIDELINES REGARDING MINIMUM SUBSCRIPTION
It is important to note that in all cases of public/rights issues of shares, the
“guidelines for disclosure and investor protection” issued by SEBI must
also be complied with. These guidelines, inter alia, provide that the
requirement of 90% min. Subs. is mandatory in all cases of public issues
of capital.
Thus, a co. making any public/rights issue of securities wouldn’t be
allowed to make the allotment of the shares, whether initial or
subsequent, unless it has recd. a min of 90% subscription against the
proposed issue.
Effect of Non-compliance of Special Provisions
Now the question arises : What will be the result if an allotment is made by
a co. making an offer to the public for subscription in the contravention
of the above statutory restrictions ??

35. The answer to this may be stated as follows :
1) If restriction no. 1 (reg. of prospectus) and no. 5 (opening of
subscription lists) are not complied with, the validity of
allotment is not affected and only fine is imposed on the co.
and every defaulting officer as per Sec. 60(5) and 72(3)
respectively. The amt. of fine may extend up to Rs. 50,000 .
2) If restriction no. 6 (shares to be dealt in on a stock exchange) is
not complied with the allotment is void.
3) If restriction no. 7 (initial offer of Rs. 10 crore or more to be in
demat form only) is not complied with, the validity of
allotment is not affected and only fine is imposed on every
dafulting officer. The amt. of fine may extend up to five
thousand rupees as per Sec. 629A.
4) If restriction no. 2 (at least 5% of the face value of shares to
be received as application money in cash), no. 3 (minimum
subscription amount must be received) and no. 4 (application
money to be deposited in a scheduled bank) are not complied
with, the contract of allotment shall be voidable at the option
of the allottee and the allotment is termed as ‘Irregular
allotment’ (Sec. 71)

36.  Irregular Allotment & its effect (Sec. 71)
As already observed, an allotment of shares is irregular:
1) When it has been made a public co. which invites public to subscribe its
shares , (a) without receiving at least 5% cash of the nominal value of
shares, as application money; or (b) without receiving the minimum
subscription amount within 120 days of the issue of prospectus; or (c)
without depositing the application money in a scheduled bank. It may be
noted that for making a subsequent allotment irregular, conditions (b) &
(c) are irrelevant.
2) When it has been made by a public co. which doesn’t invite public to
subscribe its shares, without filing with the Registrar the ‘statement in
lieu of prospectus’ at least 3 days before the first allotment of shares.
The effects of an irregular allotment are as follows :
1) Voidable at the option of the allottee.
2) Directors’ liability.
3) Fine.

37. ALLOTMENT PROCEDURE
After the Directors are fully satisfied that the statutory conditions for valid allotment
have been duly conformed to, they proceed with the work of allotment. A meeting
of the Board Of Directors is called and the completed ‘ Application And Allotment
Lists’ are placed before them. If the issue is under-subscribed or just fully
subscribed, the Board can allot to each applicant the actual no. of shares applied for.
It is worth noting here that inspite of under-subscription, the Board is under no
obligation to allot shares to each each applicant. For, subject to the Articles of
Association, the directors have an unfettered discretion to accept or reject any
application in whole or in part without assigning any reason provided they do not
act in bad faith or capriciously.
If there is over-subscription, i.e., applications for larger no. of shares than offered for
subscription have been received, there arises the problem of deciding the allotment
policy. The BOD generally appoints a sub-committee of directors to consider and
report on the basis of allotment to be adopted in such a case. In the case of unlisted
shares some of the more common basis of allotment are:
(i) The allotment may be settled by lottery; or
(ii) The allotment may be made on prorata basis; i.e., by alloting shares to each
applicant in proportion to the no. of shares applied for; or
(iii) Small applications may be given preferential treatment.

38. The Return as to Allotments (Sec. 75)
This is the only section relating to allotment which applies to private
companies as well. Within 30 days of allotment of shares every
company, public and private, having a share capital, is required to
send to the Registrar a document known as the “Return of
Allotments”. It must contain the following particulars & must be
accompanied by the documents specified below :
1) The no. & nominal amount of the shares allotted for cash, the
names, addresses and occupations of the allottees and the amount
paid on each share. It is important to note that the co. shall not
show in such ‘return’ any shares as having been allotted for cash if
cash has not actually been received in respect of such allotment.
2) Where shares are allotted fully or partly paid up otherwise than in
cash, actual contracts in writing constituting the title of the allottee
to the shares together with the relevant contracts of sale or
services must be produced for examination of the Registrar and
verified copies in the prescribed manner of all such contracts must
be filed with him. The company shall also file with the Registrar a
return stating the no. & nominal amount of the shares so allotted,
the extent to which they are paid-up, and the consideration for
which they have been allotted.

39. 3) Where bonus shares have been issued, the return must
state the no. and nominal amount of such shares, the
names, addresses and occupations of the allottees and
must be accompanied by a copy of the resolution
authorising the issue of such shares.
4) Where the shares have been issued “at a discount”, the
return must be accompanied by a copy of the ordinary
resolution authorising such issue, and a copy of the
Company Law Board’s order sanctioning the issue.
 The return of allotment must be duly dated and
signed by a director or the secretary. If default is made
in complying with this section, there is a fine on every
officer in default which may extend to Rs. 5,000 for
every day during which the default continues, but the
validity of the allotments is not affected.

40.  It should be remembered that no return as to allotment shall
be filed when forfeited shares are reissued or allotted to a new
buyer because reissue of forfeited shares is not an allotment
of shares in the strict legal sense but only a sale.
(Sri Gopal Jalan & Co. Vs Calcutta Stock Exchange Association
Ltd)

42. SHARES AND SHARE CAPITAL

43. SHARES
 The companies act defines a share as “share in the share
capital of the company, and includes stock except where
a distinction between stock and share is expressed”.

44. STOCKS
 Share clubbed together is known as STOCK.
 When company issue share certificate, then it is STOCKS

45. DISTINCTION BETWEEN SHARE AND STOCK
 Stocks are fully paid up whereas shares may be fully paid
up or partly paid up.
 Shares may be issued when a company is incorporated
but stock cannot be issued under such circumstances.
Only fully paid shares can be converted into stock.
 Stocks is convenient method of transferring because it
can be issued or transferred in fractional parts whereas
shares cannot be divided below the face value of each
share.
 Stocks are not numbered whereas shares are serially
numbered.a
 Shares are always registered and not transferable by
mere delivery but stock man may be registered or
unregistered or unregistered stock can be transferred by
mere delivery.

46. TYPES OF SHARES
 Before passing companies act, 1956, shares use to be of
three types:
 Ordinary shares
 Preference shares
 Deferred share
 After companies act, companies issued only two types
of shares:
 Preference shares
 Equity shares

47. SHARE CAPITAL
 Share capital means the capital raised by a company by
the issue of shares.

48. KINDS OF SHARE CAPITAL
 Preference share capital: in case of a company limited by
shares, that part of the capital of the company, which
carries a preferential right as to payment of divident
during the lifetime of the company and repayment of
capital on wilding up of the company.
 Equity share capital: all the capital which is not
preference capital, i.e. which doesn't carry any
preferential rights.

49. KINDS OF PREFERENCE SHARES
 Cumulative preference shares
 Non-cumulative preference shares
 Participating preference shares
 Non-participating preference shares
 Convertible preference shares
 Non convertible preference shares
 Redeemable preference shares

50. KINDS OF EQUITY SHARES
 Equity shares with voting rights
 Equity shares with differential rights

51. TYPES OF SHARE CAPITAL
 Authorised capital
 Issued capital
 Subscribed capital
 Called up capital
 Un-called up capital
 Paid-up capital
 Reserve capital

52. FURTHER ISSUE OF CAPITAL
 By allotment of new shares[sec. 81(1) to (3)]: a public
company limited by shares may at any time, increase its
subscribed shares capital within the limit of authorized
capital by issuing new shares.
 By conversion of debentures or loans into shares[sec
81(4)to(7)]: where a company has taken loan from the
central government by issuing any debentures or
otherwise, the govt. may, in the public interest, convert
such debentures or loans into shares in the company.

53. REDUCTION OF CAPITAL
Under sec.100 a company limited by shares having a share
capital may reduce its share capital, subject to the
coonformation by the court, in any of the following
three ways:
 It may extinguish or reduce the liability on any of its
shares in respect of share capital not paid-up; or
 It may either with or without extinguishing or reducing
liability on any of its shares, cancel any paid-up capital
whhich is loss, or is unrepresented by available assets;
or
 It may, either with or without extinguishing or reducing
liability on any of its shares, pay-off any paid-up share
capital which is in excess of the wants of the company.

54. ISSUE OF BONUS SHARES
 Sufficient undistributed profits must be there.
 Article of association must contain a provision for
capitalisation of reserves.
 Suitable resolution by the board of directors must be
passed.
 Formal approval of the shareholders in AGM must be
secured.
 The guidelines regarding the issue of bonus shares
prescribed by the SEBI must be compiled with.

55. SHAREHOLDERS OR MEMBER
The ‘members’ or ‘shareholders’ of a
company are the persons who collectively
constitute the company as a corporate
entity.

56. DIFFERENCE B/W SHAREHOLDER & MEMBER
(1) A registered shareholder is a member but a registered
member may not be a shareholder because the company
may not have the share capital.

57. (2) A person who owns a bearer share warrant is a
shareholder but he is not a member as his name is
struck off the register of members.

58. (3) A legal representative of a deceased member is not a
member until he applies for registration. He is,
however, a shareholder even though his name does
not appear in the register of members.

59. (4) A person who has transferred his shares ceases to be a
holder of those shares as from sale of the transfer but
he continues to be a member till such time the
transfer is registered in the name of the transferee in
the books of company.

60. METHODS OF BECOMING A MEMBER
 By allotment
 By subscribing to the memorandum
 By agreeing to purchase qualification shares
 By transfer
 By transmission or succession
 By principle of estoppel

61. WHO MAY BECOME A MEMBER?
 All persons who are competent to contract may, in
general, become members of a company. There are,
however, some special considerations to which
reference must be made.
(1) Company
(2) Hindu undivided family
(3) Partnership firm

62. CONTD..
(4) Joint-holders
i. Re issue of share certificate
ii. Re liability for calls
iii. Re transmission of shares
iv. Re voting power
v. Re payment and receipt of dividends, etc
(5) Foreigners
(6) Trustee
(7) Registered society
(8) Insolvent
(9) minor

63. TERMINATION OF MEMBERSHIP
 By transfer of shares.
 By forfeiture of shares.
 By surrender of shares.
 By insolvency.
 By death; name of deceased member continues till
shares are registered in the name of his legal
representative.
 By rescission of the contract to take shares on the
ground of misrepresentation in the prospectus.
 By sale of shares by company after it exercises its right
of lien on the shares or in other legal way.

64. RIGHTS OF MEMBERS
 To receive notices of all general meetings.
 To attend & vote at general meetings, appoint directors
& auditors.
 To receive copies of accounts of company.
 Entitled to a copy of report of a statutory meeting.
 To inspect the minutes of proceedings of any general
meeting.
 To inspect the register, index of members, debenture
holders.
 To transfer his shares.

65. CONTD..
 Priority to have shares offered if there is increase of capital by
the company.
 To receive share certificate.
 To receive dividends in case of preference shares.
 To make an application to the Central Government for
ordering investigation into the affairs of the company.
 To apply to CG to convene the AGM when Board of Directors
fail to convene the same.
 To present a petition to the Court for winding up of company.
 Right to share in the assets of the company on its winding up,
after distribution to the creditors etc.

68. SHARE CERTIFICATE
 A share certificate is a registered ‘evidence of title’ to the
shares, issued by the company under its common seal, duly
stamped and signed by one or more directors and
countersigned by the secretary of the company, as per
Articles.
 A shareholder is entitled to have one share certificate in
respect of shares registered in his name from the company
free of charge, certifying that he is the holder of the
specified no. of shares in the company.
 A share certificate is not a ‘document of title’, for, the
rights under it are not transferable by a mere endorsement
and/or delivery of the certificate. In order to transfer
shares evidenced by a share certificate an ‘instrument of
transfer’ duly completed must be lodged with the company
for approval by the Board of Directors.

69. ISSUE OF CERTIFICATES
 As per sec. 113, a share certificate must be issued or
despatched to the allottee within three months after the
date of allotment or within two months after the
application for the registration of the transfer.
 However, the Company Law Board has been empowered
to extend the aforesaid periods in appropriate cases for a
further period not exceeding nine months. Under the
Securities Contracts (Regulation) Rules, 1957, a listed
company is required to issue certificates within one month
after the application for the registration of the transfer is
received by the company.
 With the introduction of the ‘Depository System’ there is
no need to issue share certificates for the shares registered
in the name of the ‘depository’. Instead, the co. should
intimate the details of allotment of shares to the depository
immediately on allotment of such shares.[New sub-section
(4) of Sec. 113 inserted by the Depositories Act, 1996]

70. LEGAL EFFECTS OF SHARE CERTIFICATE
The legal effects of the issue of a share certificate
are mainly two :
1. Estoppel as to title to the shares : A share
certificate is a prima facie evidence of title;
i.e., it estoppes the company from denying the
title of the person, to the shares, whose name
is mentioned therein, provided he acquires
the shares in good faith, for value and under
genuine transfer.
2. Estoppel as to payment : Secondly, if the share
certificate states that the full amount on the
shares has been received, the company is
estopped, as against a bona fide purchaser of
shares for value, from alleging that the shares
aren’t fully paid-up.

71. ISSUE OF DUPLICATE SHARE CERTIFICATE
The directors are empowered to issue new duplicate share
certificate in place of original certficate if such certificate :
(a) Is having to have been lost or destroyed, or
(b) Having been defaced or multilated or torn is
surrendered to the company [Sec. 84(2)].

72. Penalty for fraudulent renewal :
If a company with intent to defraud renews a certificate or
issues a duplicate thereof, the company shall be punishable
with fine which may extend to Rs. 10,000 and every
defaulting officer shall be punishable with imprisonment up
to six months or fine up to one lakh rupees or with both
[Sec. 84(3)].
Penalty for personation of shareholder :
(Sec. 116) If any person falsely and deceitfully personates a
shareholder or the owner of a share warrant, and thereby
obtains or attempts to obtain any such share certificate or
any such share warrant or receives or attempts to receive any
money due to any such owner, he shall be punishable with
imprisonment for a term up to 3 years and shall also be liable
to fine.

74. SHARE WARRANT
 A Share Warrant is a document in which it is stated that the
bearer of the warrant is entitled to the shares specified
therein. A definition may, thus, be given as follows :
“ A share warrant is a bearer ‘document of title’ to the
shares, issued by the company under its common seal, duly
stamped and signed by one or more directors of the
company, as per Articles”.
 A share warrant is just like a negotiable instrument. The
shares specified therein may be transferred by delivery of the
warrant only, [Sec. 114(3)] and any bona fide holder for value
will obtain a perfect title to the shares.
In other words, a share warrant represents a bearer share
and a bearer share is just like a bearer cheque. Share
warrants are not popular in practice because the risk of loss is
great. Once it is lost, there are very few chances of recovering
the ownership of shares.

75. CONDITIONS OF ISSUE
Sec. 114 lays down the following provisions for the issue of share
warrant :
1. Only a public company limited by shares can issue share
warrants.
2. Share warrants cannot be issued originally. Only share
certificates for fully paid shares can be converted into warrants.
3. The Articles of Association must authorise the issue of share
warrants.
4. Approval of Central Government must be obtained for issuing
warrants.

76. EFFECTS OF ISSUE OF SHARE WARRANTS
The various effects of the issue of share warrants may be
enumerated as follows :
1. The company shall strike out of its Register of Members the
name of the member then entered therein as holding the
shares specified in the warrant, just as if he had ceased to be
member, & shall enter in that register the following
particulars :
(a) The fact of the issue of the warrant;
(b) A statement of the shares specified in the warrant,
distinguishing each share by its no.; and
(c) The date of the issue of the warrant[Sec. 115(1)].

77. 2. By virtue of Sec. 115(5) the bearer of share warrant
may or may not be granted all the rights of
membership. As such, if the articles so provide, he
may be deemed to be a member to the extent and for
the purposes defined in the Articles. His rights of
membership are usually curtailed, e.g., he cannot
present a petition for the winding up of the company.
He may not be granted the right to attend general
meetings, the right to vote, etc.
3. The share warrant will not constitute the
qualification shares for the directors, where one is
imposed by the Articles[Sec. 270(4)]. In other words,
a holder of share warrant cannot qualify himself for
the appointment of a director.
4. The Annual Return must give particulars of share
warrants.

78. DIVIDENDS ON SHARE WARRANTS
 Sec. 114(1) expressly authorises the company
to provide for the payment of dividends on the
share warrants by attaching coupons for
dividends with the warrants. Dividend is paid to
the person who presents that appropriate
coupon.

79. ISSUE OF DUPLICATE WARRANTS
In case the original share warrant is defaced,
multilated or torn, a duplicate share warrant
may be obtained, on surrendering the original
one for cancellation to the company, just like in
the case of a share certificate. But where the
original warrant is lost, stolen or destroyed the
duplicate is rarely issued and that too upon
satisfactory evidence and indemnity.

80. SURRENDER OF SHARE WARRANTS
Sec. 115(2) provides that subject to the Articles, the bearer
of a share warrant may surrender his warrant to the
company for cancellation and have his name entered in
the Register of Members. The share warrant must be
surrendered and cancelled before the name of the
holder of the share warrant is entered in the Registrar of
Members; otherwise, the company shall be responsible
for any loss incurred by any person[Sec. 115(3)].

81. Difference between share certificate and
share warrants?

82. Answer:
1. Share Certificate[SC] is a registered evidence of title.
Share warrant[SW] is a bearer document of title.
2. SC is not a negotiable instrument.
SW is a negotiable instrument.
3. Both Private & Public Company can issue Share Certificate.
Only Public company can issue Share Warrant.
4. Issue of SC doesn't require approval of Central Government.
Issue of SW requires approval of Central Government.
5. Holder of SC has full rights(voting, participation in management, etc.) in
a company.
Holder of SW doesn't have has full rights in a company.
6. SC is issued in respect of partly paid or fully paid shares.
SW is issued in respect of only fully paid shares.
7. Dividend is paid through dividend warrants posted by the company at the
registered address of the member in the case of SC whereas; in the case SW
the dividend is paid through bearer dividend coupons.

83. TRANSFER AND TRANSMISSION OF SHARES

84. CONTENTS
1. Introduction of transferability of shares
2. Requirement for transfer of shares
3. Difference for Private and Public company
4. Common grounds for refusal
5. Nomination of shares
6. Transmission of shares
7. Difference between Transfer and Transmission

99. CALLS AND FORFEITURE OF SHARES

100. BASIC REQUIREMENT FOR VALID CALLS
 For each call at least 14 days notice period must be given
to the members
 stock exchange shall be advised of the proposal at least 2
days before the board meeting. The sock exchange
normally stipulates that no call shall be made payable
within one month after the call was made but no later than
one year from the date of issue
 An interval of thirty days is required between two
successive calls and not more than twenty five per cent of
the nominal value of shares can be called at one time.
 The board of directors has the power to revoke or
postpone a call after it is made

101.  Provision for payment of call in installments can be made
only by a resolution of boards
 Joint share holders are jointly and severally liable for
payment of calls
 If a member fails to pay money he is liable to pay interest
not exceeding the rate specified in the article or terms of
issue.
 If any member desires to pay the call money in advance
the directors may at their discretion accept and pay
interest not exceeding the rate specified in the articles.
 A defaulting member will not have ant voting right till call
money is paid by him.

102. FORFEITURE OF SHARES
 Meaning: Forfeiture means termination of membership as a
sort of penalty for the non-payment of calls on the due date.
To forfeit means to take away or to withdraw the rights of a
person. Forfeiture of share refers to the cancellation or
termination of membership of a share holder by taking away
the shares and rights of membership.

103.  Procedures regarding forfeiture of shares:
(1) Provision in the Articles of Association: The secretary has
to check if there is a provision in the Articles of Association
regarding forfeiture of shares. If there is a provision in the
Articles, the company can go ahead regarding forfeiture of
shares. If there is no provision in the Articles, the company
cannot go ahead regarding forfeiture of shares.
(2) Preparing the list of defaulters: As soon as the due date of
payment of call money is over, the secretary prepares a list of
defaulting members. He, then calls a meeting of the Board of
Directors and places the list of defaulters for consideration
and suitable decision and action by the Board.

104.  (3) Board Meeting and Resolution by Directors: The secretary
arranges the meeting of the Board Directors and in this
meeting a resolution will be passed whereby the secretary
will be authorized to send reminders to the defaulters. Such
call reminders contain a request to pay the call amount due,
within a specified period with interest. This letter also
intimates the defaulters that his shares are liable for
forfeiture in case the default in payment of the amount
continues.
(4) Issue of Warning Letter: Even after reminders have been
sent to the defaulters, no heed has been taken to pay the call
money, the secretary has to issue a warning notice under the
authority of the Board's resolution and the Articles. The
warning notice is for asking the defaulting members to pay
the dues within 14 days from the date of notice. Warning is
also given that failure to pay within the stipulated time will
make the shares liable for forfeiture.

105.  (5) Board Meeting for resolution on forfeiture: If the
default continues even after 14 days warning notice, the
secretary has to arrange a meeting of the Board of
Directors. In this meeting a resolution will be passed by
the Board of Directors to forfeit the shares of the
defaulting members.
(6) Notice of the forfeiture: The secretary has to send a
formal notice to the defaulting members informing them
about the forfeiture and asking them to surrender the
forfeited shares. Such notice of forfeiture or letter of
forfeiture is required to be sent by registered post to the
individual share holders concerned. Usually, the fact of
forfeiture is also notified in the press and the public is
cautioned against dealing in the said shares. The amount
of forfeited shares is transferred to a Forfeited Shares
Account in the financial books of the company.

106.  (7) Removal of names from the register of members:
Finally, the secretary has to remove the name of
defaulters, from the register of members and enter the
same with other particulars in the register of forfeiture
of shares.
These were the procedures by which the company
forfeits the shares of a defaulting share holder.

107. SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000
CHAPTER: IV - PROMOTERS CONTRIBUTION AND LOCK-IN REQUIREMENTS
Promoters Contribution in a Public Issue by Unlisted Companies
In a public issue by an unlisted company, the promoters shall
contribute not less than 20% of the post issue capital. The
promoters shareholding after offer for sale shall not be less than
20% of the post issue capital.
In case of public issues by listed companies, the promoters shall
participate either to the extent of 20% of the proposed issue or
ensure post-issue share holding to the extent of 20% of the post-
issue capital
In case of composite issues of a listed company, the promoters
contribution shall at the option of the promoter(s) be either 20%
of the proposed public issue or 20% of the post-issue capital.
Rights issue component of the composite issue shall be excluded
while calculating the post-issue capital.

108. Promoters Participation in Excess of the Required Minimum
Contribution to be Treated as Preferential Allotment
 In case of a listed company, participation by promoters in
the proposed public issue in excess of the required
minimum percentage shall attract the pricing provisions
of Guidelines on preferential allotment, if the issue price
is lower than the price as determined on the basis of said
preferential allotment guidelines.

109. Exemption from Requirement of Promoters Contribution
The requirement of promoters contribution shall not be applicable -
 in case of public issue of securities by a company which has been listed
on a stock exchange for at least 3 years and has a track record of
dividend payment for at least 3 immediately preceding years. Provided
that if the promoters participate in the proposed issue to the extent
greater than higher of the two options referred earlier, the subscription
in excess of such percentage shall attract pricing guidelines on
preferential issue, if the issue price is lower than the price as
determined on the basis of said guidelines on preferential issue.
 in case of companies where no identifiable promoter or promoter
group exists.
 in case of rights issues.
 Provided, in case of (a) and (c) above, the promoters shall disclose their
existing shareholding and the extent to which they are participating in
the proposed issue, in the offer document.

110. LOCK-IN REQUIREMENTS
 In case of any issue of capital to the public the minimum promoters
contribution shall be locked in for a period of 3 years. The lock-in shall start
from the date of allotment in the proposed public issue and the last date of
the lock-in shall be reckoned as three years from the date of commencement
of commercial production or the date of allotment in the public issue
whichever is later.
 In case of a public issue by unlisted company, if the promoters contribution in
the proposed issue exceeds the required minimum contribution, such excess
contribution shall also be locked in for a period of(one year). In case of a public
issue by a listed company, participation by promoters in the proposed public
issue in excess of the required minimum percentage shall also be locked-in for
a period of (one year) as per the lock-in provisions as specified in Guidelines on
Preferential issue.
 Provided that excess promoters contribution shall not be subject to lock-in in
case of public issue of securities by a company which has been listed on a stock
exchange for at least 3 years and has a track record of dividend payment for at
least 3 immediately preceding years.
 In case shortfall in the firm allotment category is met by the promoter such
subscription shall be locked in for a period of (one year).

111. Securities Issued Last to be Locked-in First
The securities forming part of promoters contribution and
issued last to the promoters shall be locked in first for the
specified period. Provided that the securities issued to the
financial institutions appearing as promoters, if issued last,
shall not be locked-in before the shares allotted to the other
promoters.