Shares and Share Capital – Company Law Important Questions

Shares and Share Capital – Company Law Important Questions

Question 1.
Distinguish between Reserve Capital and Capital Reserve. (December 2009) (June 2012) (December 2012)(4 marks)
Or
‘Reserve Capital’ and ‘Capital Reserve’ are one and the same. (December 2014) (5 marks)
Answer:
Following are the main points of distinction between reserve capital & capital reserve:

Points Reserve Capital Capital Reserve
Meaning Reserve capital is that part of the uncalled capital of a company which the limited company has decided by special resolution not to call except in the event and for the purpose of the company being wound up. Capital reserves are created out of capital profit. Capital Reserve may be a statutory capital reserve or nonstatutory capital reserve.
Need of Creation The creation of reserve capital is not mandatory. The creation of capital reserve is mandatory in certain cases.
Balance Sheet Dis-closure There is no need to disclose reserve capital in the balance sheet. Capital reserves are disclosed in the balance sheet under the head “Reserves & Surplus”.
Writing Off Capital Losses Reserve Capital cannot be used to write off capital losses. Capital reserves can be used to write off capital losses.
Created out of Authorized capital Capital profits
Specific condition Special Resolution should be passed at ACM No such conditions

Question 2.
Distinguish between sweat equity and the issue of capital on a preferential basis. (December 2009) (4 marks)
Answer:
Following are the main points of distinction between sweat equity & the issue of capital on preference allotments:

Points Sweat Equity Shares Issue of capital on preferential basis
Meaning Sweat equity Shares mean equity shares by a company to its employees or directors at a discount or for consideration, other than cash for providing know-how or making available right in the nature of intellectual property rights or value additions, by whatever name called. A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 which is neither a rights issue nor a public issue.
To Whom Issued Sweat Equity Shares are issued to employees or directors. A preferential issue is an issue to a select group of persons.
How Issued Sweat equity shares are issued at a discount or for consideration, other than cash. A preferential issue at par or at a premium.

Question 3.
Distinguish between: ESOS and ESOP. (December 2009) (4 Marks)
Answer:
Following are the main points of distinction between “Employee Stock Option Scheme” & “Employee Stock Purchase Scheme”:

Points Employees Stock Option Scheme Employee Stock Purchase Scheme
Meaning “Employee stock option scheme or ESOS” means a scheme under which a company grants employee stock options directly or through a trust. “Employee stock purchase scheme or ESPS” means a scheme under which a company offers shares to employees, as part of a public issue or otherwise, or through a trust where the trust may undertake secondary acquisition for the purposes of the scheme.
Purchase of Shares Under ESOS employees are given an option to purchase shares at a later date Le. after the vesting period. Under ESPS employees are given an option to purchase shares on the spot at a discounted price.
Lock-in The company may specify the lock-in period for the shares issued pursuant to the exercise of the option. Shares issued under an ESPS shall be locked in for a minimum period of one year from the date of allotment.
Public Issue ESOS has to be approved separately by the company in a general meeting by passing a special resolution. It cannot be part of a public issue. Shares under ESPS can be issued as a part of a public issue.
Vesting Period The minimum vesting period for ESOS is one year. No vesting periods for ESPS as shares are offered on the spot.

Question 4.
Distinguish between nominal capital and subscribed capital. (June 2010) (4 Marks)
Answer:
1. Nominal capital. The amount of capital with which a company is regis¬tered with the Registrar of companies (the body responsible for the registration of companies). It is the maximum amount of capital that a company can raise through shares ie. shared capital can be maximum up to the authorized capital and not beyond. Due to this reason companies are registered with such authorized capital which is well above their current needs of financing so that if more is needed in the future then it is easily possible. Authorized capital is also called registered capital or authorized capital.

2. Section 2(8) of the Companies Act, 2013: “Authorised capital” or “nom¬inal capital “means such capital as is authorized by the memorandum of a company to be the maximum amount of share capital of the company;

3. Subscribed capital: The amount of capital (out of authorized capital) for which a company has received applications from the general public who are interested in buying shares. If this term is too technical to be understood then subscription is simply an application in which investors expresses his interest to buy shares in the company.

4. Section 2(86) of the Companies Act, 2013: “Subscribed capital” means such part of the capital which is for the time being subscribed by the members of a company.

Question 5.
Distinguish between bonus shares and right shares. (Dec. 2010) (June 2011)(4 marks)
Answer:

Basis of Distinction Bonus Shares
(Section 63 of the Companies Act, 2013)
Right Shares
(Section 62 of the Companies Act, 2013)
Meaning Bonus shares are shares issued by a company free of cost to its existing shareholders on a pro-rata basis out of the free reserve. When a company issues further shares to existing shareholders in the ratio of their holding such an issue is known as a right issue.
Cash Flow In case of a bonus issue, there is no cash flow. In case of the right issue, there is cash inflow to the company.
Consideration The company does not receive any consideration in case of a bonus issue. The company receives consideration as shares are issued against cash.
Authorization A bonus issue is made on the recommendation of the Board and authorization from the general meeting of the company. In case of the right issue, authori¬zation from members through ordinary or special resolution is necessary.
Market Value Issue of bonus shares does not affect the market value of the Company. Right Issue of shares affects the market value of the Company.

Question 6.
Distinguish between sweat equity shares and employees stock option scheme. (December 2010) (June 2015) (4 marks)
Answer:
Following are the main points of distinction between sweat equity shares & ESOS:

Basis of Distinction Sweat Equity Shares ESOS
Meaning Sweat Equity Shares means equity shares issued by a company to its directors or employees at a discount or for consideration, other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. Employees Stock option means the option given to the whole-time directors, officers, or employees of a company, which gives such directors, officers, or employees the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determined price.
Issue Sweat Equity shares can be issued at a discounted prices or free for know-how and services to the Company. Employee Stock options can be issued with the conversion right at a pre-determined price. The issue price can be less than the intrinsic value of the shares.
Consideration The consideration can be partly cash and partly IPRs/ value addition or fully non-cash consideration. The consideration has to be paid in cash.
Lock-in-period Sweat equity shares have a compulsory lock-in period of 3 years. Lock-in-period is not specified for the ESOS.

Question 7.
Distinguish between preference share capital and equity share capital. (December 2015) (4 marks)
Answer:
The main points of distinction between preference and equity share capital:

Points Equity Share Capital Preference Share Capital
Preference in Dividend Payment The dividend on equity shares is paid only after the preference dividend has been paid. Shareholders get a preference in dividend payment over equity shareholders.
In case of winding-up Shareholders get payment of capital after the payment of capital to preference shareholders. Shareholders get preference in capital payment in winding-up over equity shareholders.
Rate of dividend Depends upon the amount of profit available and the fund’s requirements of the Company. Entitled to a fixed rate of dividend.
Dividend Accumulation Cannot be cumulative. Maybe cumulative for cumulative preference shares.
Redemption No redemption of equity shares except under a scheme involving reduction of capital. Redeemable preference shares may be redeemed by the Company.
Voting rights An equity shareholder can vote on all matters affecting the company. A preference shareholder cannot vote on all resolutions.

Question 8.
Write a short note on sweat equity shares. (December 2014) (4 Marks)
Answer:
1. According to section 2( 88), sweat equity shares mean such equity shares issued by a company to its directors or employees at a discount or for consideration, other than cash for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

2. According to Explanation to rule 8(1) of Companies (Share Capital and Debentures) Rules, 2014:
For the purposes of this rule- The expressions “Employee” means:
(a) a permanent employee of the company who has been working in India or outside India;
(b) a director of the company, whether a whole-time director or not; or
(c) an employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India or outside India, or of a holding company of the company.

3. Section 54(1) provides that notwithstanding anything contained in Section 53, a company can issue sweat equity shares, of a class of shares already issued if the following conditions are satisfied:

  1. the issue has been authorized by a special resolution passed by the company in the general meeting.
  2. the following are clearly specified in the resolution:
    (a) number of shares
    (b) current market price;
    (c) consideration, if any; and
    (d) class or classes of directors or employees to whom such equity shares are to be issued.

(zz’z) Where shares are listed on a recognized stock exchange, the company issuing sweat equity shares should comply with the regulations made in this behalf by SEBI.

(z v) a company whose shares are not so listed should issue sweat equity shares in compliance with the rules made in this behalf by the Central Government i.e., Companies (Share Capital and Debentures) Rules, 2014.

Question 9.
Bonus issue may be viewed as a ‘right issue’ except that money is paid by the company on behalf of the investing shareholders from its reserves. Comment (December 2008) (5 Marks)
Answer:

  1. Rights Issue is an issue of capital to be offered to the existing sharehold¬ers of the company through a letter of offer
  2. Bonus Shares: When a company is prosperous and accumulates large distributable profits, it converts these accumulated profits into capital and divides the capital among the existing members in proportion to their entitlements. Members do not have to pay any amount for such shares. A company may, if its Articles provide, capitalize its profits by issuing fully-paid bonus shares
  3. In case of a bonus issue, reserves that belong to the shareholder are paid/ converted into equity shares.
  4. Hence, it is correct to say that the bonus issue may be viewed as a “right issue” except that money is paid by the company on behalf of the in¬vesting shareholders from its reserves.

Question 10.
Redeemable preference shares are not preference shares. Comment. (December 2010) (5 marks)
Answer:
As per Section 43(2) of the Companies Act, 2013, preference share capital with reference to any company limited by shares, means that part of the issued capital of the company which carries or would carry a preferential right with respect to:
(a) payment of dividend, either as a fixed amount or at a fixed rate, and
(b) repayment in the case of a winding-up or repayment of capital specified in the memorandum or articles of the company.
Thus, it is incorrect to say that redeemable preference shares are not preference shares.

Question 11.
Preference share are cumulative unless expressly stated to be non-cumulative. Comment (June 2011)(5 Marks)
Answer:

  1. A cumulative preference share confers a right on its holder to claim fixed dividend of the past and the current year and out of future profits.
  2. The dividend keeps on accumulating until it is fully paid.
  3. The non-cumulative preference share gives right to its holder to a fixed amount or a fixed percentage of dividends out of the profits of each year.
  4. If no profits are available in any year, the shareholders get nothing, nor can they claim, unpaid dividend in any subsequent year.
    [ Thus, Preference shares are cumulative unless expressly stated to be non-cumulative.

Question 12.
Every employee of the company is eligible to participate in Employee Stock Option Scheme (ESOS). Comment (December 2012) (5 marks)
Answer:
1. ‘Employee Stock Option’ (ESOP) has been defined under Section 2(37) of the Companies Act, 2013, according to which “employees’ stock option” means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price.

2. As per Section 62(1 )(b) of the Companies Act, 2013:
Following persons can participate:

  • a permanent employee of the company who has been working in India or outside India; or
  • a director of the company, whether a whole time director or not but excluding an independent director; or
  • an employee as defined in above mentioned points of a subsidiary, in India or outside India, or of a holding company of the company.

3. Following persons cannot participate:

  • An employee who is a promoter or a person belonging to the promoter group; or
  • A director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than ten percent of the outstanding equity shares of the company.

Hence, it is not correct to say that “Every employee of the company is eligible to participate in Employee Stock Option Scheme” (ESOS)

Question 13.
Whether equity shares already issued can be converted into redeem¬able preference shares? (December 2012) (4 marks)
Answer:
As per Chowgule & Co. (P.) Ltd. 1972 Tax LR 2163, St. James Court Estates Ltd. [1944] Ch. 6, it was held that where the equity shares are to be converted into redeemable preference shares it was necessary to adopt the process of Reduction of Capital under Section 66 of the Companies Act, 2013.

Yes, equity shares already issued can be converted into redeemable preference shares only when procedure of Reduction Of Capital under Section 66 of the Companies Act, 2013 is complied with.

Question 14.
In no circumstances a company can issue redeemable preference shares with a redemption period of 20 years. (June 2015) (5 marks)
Answer:

  1. Section 55 (1) states that no company limited by shares shall issue any preference shares which are irredeemable.
  2. Section 55(2) further states that a company limited by shares may, if so authorized by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue subject to such conditions as may be prescribed.
  3. Exception: Issue and redemption of preference shares by company in infrastructure projects:-
  4. A company engaged in the setting up and dealing with infrastructural projects may issue preference shares for a period exceeding twenty years but not exceeding thirty years, subject to the redemption of a minimum of ten percent of such preference shares per year from the twenty-first year onwards or earlier, on a proportionate basis, at the option of the preference shareholders.
  5. The term “infrastructure projects” means the infrastructure projects specified in Schedule VI.

Question 15.
Section 62 ensures pre-emptive rights of shareholder. Discuss (December 2012) (4 marks)
Answer:
1. To preserve the shareholders’ proportionate dividend, liquidation and voting rights, pre-emptive rights are often recognised, but their existence and scope can be affected by provisions in the articles.

However, Section 62 of the Companies Act, 2013 secures shareholders’ pre-emptive rights with regard to the further issue of share capital by the company.

2. As per Section 62(1) of the Companies Act, 2013, Existing Shareholder in proportion to the paid-up share capital on those shares by sending a letter of offer. Such right issue is subject to the following conditions:

3. The offer shall be made by notice specified in the number of shares offered, time for accepting an offer which may be a minimum of 15 days or such lesser number of days as may be prescribed.

4. The notice shall be dispatched through registered post or Speed Post or through electronic to all the existing shareholders at least three days before the opening of the issue.

5. If the offer is not accepted within the period specified it shall be deemed to have been declined.

6. The offer shall include the right to renounce the shares in a favour of any other person and this fact should be specifically mentioned in the notice.

7. After the expiry of the time specified in the notice or on receipt of earlier intimation from the person that he declines to accept the shares offered, the Board of directors may dispose of them in a manner that is advantageous to the shareholders and the company.

8. To employees under the scheme of employee stock option by passing special resolution and complying with prescribed conditions

9. To other persons by passing a special resolution either for cash or for consideration other than cash. The price of such shares has to be deter¬mined by the valuation report of a registered valuer subject to prescribed conditions.

Question 16.
Referring to the provisions of Companies Act, 2013, state that con-ditions required to be fulfilled before a company can issue bonus shares to the shareholders of the company. (June 2015) (4 Marks)
Answer:
Conditions for issue of Bonus Shares:
In terms of section 63(2), no company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares, unless:

  • it is authorised by its articles;
  • it has, on the recommendation of the Board, been authorised in the general meeting of the company;
  • it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
  • it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
  • the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up.

Question 17.
The Board of directors of Aakash Limited, a listed company, at its meeting held on 1 st April, 2015 announced a proposal for issue of Bonus shares to all equity shareholders of the company at 1:1 ratio. On 1st May, 2015, the directors at another meeting passed a resolution to reserve the proposal of bonus issue announced on 1st April, 2015. Discuss the validity of proposal and the reversal. (June 2012) (4 Marks)
Answer:

  1. In terms of the Provisions of the Rule 14 of the Companies (Shares & Debentures) Rules, 2014, the company which has once announced the decision of its board recommending a bonus issue shall not subsequently withdraw the same.
  2. A resolution passed by the director to reverse the bonus issue announced is not valid.
  3. The Board of directors of the Aakash Ltd. must issue of Bonus shares to all equity shareholders of the company at 1:1 ratio.

Thus, once proposed cannot be reversed such proposal of bonus issue.

Question 18.
Securities premium shall be utilised only for certain specific purposes only. Comment (December 2013) (4 Marks)
Answer:
Utilization of Securities Premium: In accordance with the provisions of Section 52(2) of the Act, the securities premium can be utilised only for:
(a) issuing fully paid bonus shares to members;
(b) writing off the balance of the preliminary expenses of the company;
(c) writing off commission paid or discount allowed, or the expenses incurred on issue of shares or debentures of the company;
(d) for providing for the premium payable on redemption of any redeemable preference shares or debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.

Question 19.
In view of provisions of Companies Act, 2013 relating to ‘securities premium’, state whether the amount lying in securities premium account of a company can be used:
(i) For issuance of Bonus shares; and
(ii) For payment of dividend declared by the company at its General Meeting. (December 2015) (4 Marks)
Answer:
Utilization of Securities Premium: In accordance with the provisions of Section 52(2) of the Act, the securities premium can be utilised only for:
(a) issuing fully paid bonus shares to members;
(b) writing off the balance of the preliminary expenses of the company;
(c) writing off commission paid or discount allowed, or the expenses incurred on issue of shares or debentures of the company;
(d) for providing for the premium payable on redemption of any redeemable preference shares or debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.

As discussed above, in relation to given case answer the following:
(i) Company can use the amount lying in securities premium for issuance of bonus shares.
(ii) Company cannot use the amount lying in securities premium for pay¬ment of dividend declared by the company at its general meeting.

Question 20.
Radhika Textile Limited has utilised the securities premium during the financial year 2016-2017 as follows:
(i) Rs. 15 lakhs against expense of foreign travelling of directors.
(ii) Rs. 5 lakhs for writing-off the balance of preliminary expenses of the company.
(iii) Rs. 10 lakhs distributed as dividend for the financial year ending 31st March, 2017.
You, being the secretarial Auditor of the company, referring to the provision of Companies Act, 2013 relating to securities premium account, examine the validity of the above. (June 2017) (8 marks)
Answer:
Utilization of Securities Premium: In accordance with the provisions of Section 52(2) of the Act, the securities premium can be utilized only for:
(a) issuing fully paid bonus shares to members;
(b) writing off the balance of the preliminary expenses of the company;
(c) writing off commission paid or discount allowed, or the expenses incurred on issue of shares or debentures of the company;
(d) for providing for the premium payable on redemption of any redeemable preference shares or debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.

As discussed above, in relation to given case answer the following:
(i) Balance in securities premium cannot be utilized for writing-off expenses of foreign travelling of directors.
(ii) Balance in securities premium can be utilized for writing-off preliminary expenses of the Company.
(iii) Balance in securities premium cannot be utilized for payment of dividend.

Question 21.
Board of directors of Progressive Limited decides to issue equity shares of a company with differential voting rights. Examining the provision of Companies Act, 2013, State the conditions to be complied with the company in this regard. (December 2016) (8 Marks)
Answer:
Conditions for issuing shares with differential rights (Rule 4) Compa¬nies (Share Capital and Debentures) Rules, 2014: Only a company limited by shares can issue equity shares with differential rights as to dividend, voting or otherwise.

Such company has to comply with the following conditions, namely:
1. the articles of association of the company authorizes the issue of shares with differential rights;

2. the issue of shares is authorized by an ordinary resolution passed at a general meeting of the shareholders.

3. when the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders through a postal ballot.

4. Though with Companies (Amendment) Act, 2017 coming into force, any item of business required to be transacted by means of postal ballot, may be transacted at a general meeting by a company that is required to provide the facility to members to vote by electronic means under section 108).

5. The shares with differential rights shall not exceed 74% of total voting power including voting power in respect of equity shares with differential rights issued at any point of time; (MCA Notification G.S.R. 574(E) dated 16th August 2019

6. the company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares.

7. the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of a dividend;

8. the company has not been penalized by Court or Tribunal during the last three years of any offense under the RBI Act, 1934, the SEBI Act, 1992, the Securities Contracts Regulations Act, 1956, the Foreign Ex¬change Management Act, 1999, or any other special Act, under which such companies being regulated by sectoral regulators.

9. The company has not defaulted:

  • in payment of the dividend on preference shares or
  • repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable or interest payable thereon or
  • dues with respect to statutory payments relating to its employees to any authority or
  • default in crediting the amount in Investor Education and Pro¬tection Fund to the Central Government;

However, a company may issue equity shares with differential rights upon expiry of five years from the end of the financial year in which such default was made good.

Question 22.
As a practising Company Secretary, advise your client company regarding the matter relating to issue of shares with differential rights, to be included in the Board of Directors Report. (June 2017) (4 Marks)
Answer:
As per Rule 4(4) of the Companies Act, 2013, The Board of Directors shall, inter alia, disclose in the Board’s Report for the financial year in which the issue of equity shares with differential rights was completed, the following details, namely:

  1. the total number of shares allotted with differential rights;
  2. the details of the differential rights relating to voting rights and dividends;
  3. the percentage of the shares with differential rights to the total post issue equity share capital with differential rights issued at any point of time and percentage of voting rights which the equity share capital with differential voting right shall carry to the total voting right of the aggregate equity share capital;
  4. the price at which such shares have been issued;
  5. the particulars of promoters, directors or key managerial personnel to whom such shares are issued;
  6. the change in control, if any, in the company consequent to the issue of equity shares with differential voting rights;
  7. the Diluted Earnings Per Share pursuant to the issue of each class of shares, calculated in accordance with the applicable accounting stan¬dards;
  8. the pre and post issue shareholding pattern along with voting rights.

Question 23.
A2Z Management Services Limited is a listed company quoted at Bombay Stock Exchange Limited. The company closed its register of debenture holders in June and August 2016 for 12 and 21 days respectively. The chief financial officer (CFO) of the company has informed the secretary of the company to consider closing the register in December for another 15 days for some strategic reasons. Referring to the provisions of Companies Act, 2013, examine the validity of action of the company. (June 2017) (4 Marks)
Answer:
1. Section 91 of the Companies Act, 2013 contains guidelines for closing the register of members:
A company may close the register of members or the register of debenture-holders or the register of other security holders for any period or periods not exceeding in the aggregate forty-five days in each year, but not exceeding thirty days at any one time, subject to giving of previous notice of at least 7 days or such lesser period as may be specified by Securities and Exchange Board for listed companies or the companies which intend to get their securities listed, in the prescribed manner.

2. Rule 10 of the Companies (Management and Administration) Rules, 2014 in relation to Closure of register of members or debenture holders or other security holders provides that a company closing the register of members or the register of debenture holders or the register of other security holders:

  • shall give at least seven days previous notice and in such manner, as may be specified by Securities and Exchange Board of India(SEBI), if such company is a listed company or intends to get its securities listed,
  • by advertisement at least once in a vernacular newspaper in the principal vernacular language of the district and having a wide circulation in the place where the registered office of the company is situated, and at least once in English language in an English newspaper circulating in that district and having wide circulation in the place where the registered office of the company is situated and publish the notice on the website as may be notified by the Central Government and on the website, if any, of the Company.

3. As per the abovementioned provisions and given facts of the case, A2Z Management Services Limited is a listed company quoted at Bombay Stock Exchange Limited. The company closed its register of debenture holders in June and August 2016 for 12 and 21 days respectively aggregate of 33 days (12+21).

As per professional advice CFO, register of debenture holder can be closed for further 12 days and not for 15 days so that aggregate period of closing should not exceed 45 days.

Question 24.
Distinguish between: Letter of Allotment & Letter of Renunciation. (December 2012) (4 Marks)
Answer:

Basis of Distinction Letter of Allotment Letter of Renunciation
Applicability Letter of allotment is applicable in all cases where shares arc allotted to persons. Letter of renunciation is applicable in case of right issue under Section 62 of the Companies Act, 2013.
Option Letter of allotment do not contain any option. Letter of renunciation contains an option to renounce the shares in favour of any other person.
Transfer of Shares Shares can be transferred with the help of letter of allotment if share certificate do not exists. Shares cannot be transferred with the help of letter of renunciation.
But right shares can be sub¬scribed by the persons in whose favour the right has been renounced.
Surrender Letter of allotment is required to be surrendered to company for issue of share certificate. Letter of renunciation is not required to be surrendered to company. In fact it is right to transfer to subscribe the right shares of the Company.

Que. 25:
Distinguish between: Brokerage and Underwriting Commission. (December 2012) (4 marks)
Answer:
Brokerage:
In general, A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed.

A broker undertakes only to find buyers who are willing to buy shares or debentures and does not guarantee the sale of shares or debentures and amount paid to brokers for their services is known as brokerage.

Underwriting Commission:
Underwriters undertake to find buyers who are willing to buy shares or debentures and guarantees the sale of shares or debentures and the amount paid to underwriters is known as underwriting commission.

Question 26.
What are the important rules relating to forfeiture of shares. (December 2010) (4 marks)
Or
Write a short note on conditions for valid for forfeiture of shares. (June 2014) (4 marks)
Answer:
1. Forfeiture of shares is the process by which the directors of a company cancel the power of a shareholder if he does not pay his call money when the company demands for it.

2. For a valid forfeiture following conditions is necessary:

  • The Articles of Association must authorise the forfeiture of shares.
  • The directors may pass a resolution forfeiting the shares.
  • The company will give 14 days’ notice; after 14 days if the shareholder does not pay the company will forfeit his shares and strike his name from the register of shareholders.
  • The power of forfeiture must be exercised bona fide and for the benefit of the Company.
  • Forfeiture of fully paid shares: The clause of Table F on forfeiture do not make specific provision for forfeiture of fully paid up shares. However, in Shyam Chandv. Calcutta Stock exchange Association [1945] 2.I.L.R. Cal 313.

Question 27.
A company has forfeited shares of a defaulting shareholder for non-payment of call money. However, the defaulting shareholder approaches the Board after forfeiture of shares to cancel the said forfeiture. What should the Board do? Give your advice. (June 2010) (4 marks)
Answer:

  1. In the given case, A company has forfeited shares of a defaulting shareholder for non-payment of call money. However, the defaulting shareholder approaches the Board after forfeiture of shares to cancel the said forfeiture.
  2. A Board is empowered to cancel forfeiture: In case, the defaulting shareholder approaches the Board after forfeiture to cancel the forfeiture, the board is empowered to cancel such forfeiture. Also, A Board is empowered to claim due amount with interest.

Question 28.
A public limited company incorporated under the Companies Act, 2013 may amend its articles of association so as to confer upon it power to forfeit the shares of those members who have defaulted in the payment of calls made by the company. Comment (December 2015) (5 marks)
Answer:

  1. Forfeiture of shares is the process by which the directors of a company cancel the power of a shareholder if he does not pay his call money when the company demands for it.
  2. For a valid forfeiture following conditions is necessary:
  3. The Articles of Association must authorise the forfeiture of shares.
  4. The directors may pass a resolution forfeiting the shares.
  5. The company will give 14 days’ notice; after 14 days if the shareholder does not pay the company will forfeit his shares and strike his name from the register of shareholders.
  6. The power of forfeiture must be exercised bona fide and for the benefit of the Company.
  7. Forfeiture of fully paid shares: The clause of Table F on forfeiture do not make specific provision for forfeiture of fully paid up shares. However, in Shyam Chanel v. Calcutta Stock exchange Association [1945] 2.I.L.R. Cal. 313.

Thus, a public limited company incorporated under the Companies Act, 2013 may amend its articles of association so as to confer upon it power to forfeit the shares of those members who have defaulted in the payment of calls made by the company.

Question 29.
Explain the manner in which calls on shares should be made by the company. (December 2012) (4 marks)
Answer:
Usually, Articles of association of companies provide for the manner in which calls should be made. They follow the pattern set out in Regulation 13 to Regulation 18 of Table F of Schedule I appended to the Companies Act, 2013:

  1. For each call at least 14 days notice must be given to members.
  2. An interval of 1 month is required between two successive calls and not more than one fourth of the nominal value of shares can be called at one time. However, company may have their own articles and raise the limit.
  3. The board of directors has the power to revoke or postpone a call after it is made.
  4. Joint shareholders are jointly and severally liable for payment of calls.
  5. If a member fails to pay call money he is liable to pay interest not exceeding the rate specified in the articles or terms of issue or such lower rate, as the board may determine. The directors are free to waive the payment of interest wholly or in part.
  6. If any member desires to pay the call money in advance, the directors may at their discretion accepted any interest not exceeding the rate specified in the articles.
  7. A defaulting member will not have any voting right till call money is paid by him.

Question 30.
Well-done Limited wants to make a first call of INR 30 on equity share of nominal value of INR 100 each on 16th October, 2011. Can it do so? Further, if the company proposes to make second call on 7th November, 2011, will it be permitted to do so? (December 2011) (4 marks)
Answer:
Usually, Articles of association of companies provide for the manner in which calls should be made. They follow the pattern set out in Regulation 13 to Regulation 18 of Table-F of Schedule-I appended to the Companies Act, 2013:

For each call at least 14 days notice must be given to members. ii An interval of 1 month is required between two successive calls and not more than one fourth of the nominal value of shares can be called at one time. However, company may have their own articles and raise the limit.

If Well-done Ltd. has adopted provisions of Table-F then, first call of INR 30 cannot be made as it exceeds 1 /4th of the nominal value of shares. Further, it cannot make second call on 7th November, 2001 as interval between two successive calls will be less than one month.

If Well-done Ltd. has its own article then it has to observe the provisions con¬tained in its Article.

Question 31.
On receipt of 85% of the minimum subscription stated in the pro-spectus, Little Stars Limited allotted 200 shares to Ranjit and the money was deposited in a scheduled bank. Later on, it was revealed that 40% of the amount withdrawn was for acquisition of fixed assets for the company. Ranjit, knowing these facts, refused to accept the allotment contending that the allotment was a irregular under the provisions of the Companies Act, 2013.
As an expert on company law advice Ranjit. (December 2014) (4 marks)
Answer:
1. As per Section 39, no allotment of any securities of a company offered to the public for subscription shall be made unless:

  • The amount stated in the prospectus as the minimum amount has been subscribed and
  • The sums payable on application for the amount so stated have been paid to and received by the company by cheque or other instrument.

As per Sebiicdr Regulation, the minimum subscription for public company issuing shares to public is 90%.

2. Minimum subscription received must be 90% of the public issue. If the subscription is less than 90%, shares cannot be allotted and application money received must be refunded as stated below:
(a) Non-underwritten issue: Within 15 days from the date of closure of the issue.
(b) Underwritten Issue: Within 70 days from the date of closure of the issue of underwriters fail to make up shortfall within 60 days of the closure of the issue.

If application money is not refunded within the period stated above, interest is payable for the delay.
Thus, allotment of shares to Ranjit is void and he can refuse to accept the shares.

Question 32.
Distinguish between: Beneficial owners under Depository Mode and Registered owners under depository mode. (December 2012) (4 marks)
Answer:
Registered Owner & Beneficiary Owner:

  1. All the public limited companies are required by the Companies Act, 2013 to maintain an index of members, wherein they are required to keep a record or the owners of the company.
  2. So, in the index of members of any company, there are only two registered owners, Le. the two depositories. The depositories keep a track of all clients through the depository participants.
  3. Therefore, the registered owners are the depositories whereas the bene¬ficiary owners are the people who are holding the securities at any given point of time.
  4. For having securities of a company in demat form, first a company has to opt for the same. A company can do so by getting itself registered with at least one of the depositories. For this, the company has to transfer all its shares to the depository. For differentiating among all the companies, International Securities Identification Number (ISIN) is assigned to them which are unique in nature.
  5. Whenever a company declares a bonus share, the securities are trans¬ferred in the name of two depositories and they further transfer it to the clients through their participants. Thus, the depositories are known as the registered owners and the investors are known as the beneficiary owners as they get the benefits of all the corporate actions.

Question 33.
Distinguish between “Transfer of Shares” and “Transmission of Shares”. (December 2016) (4 marks)
Answer:
The main points of distinction between transfer & transmission of shares:

Points Transfer of Shares Transmission of Shares
Nature The transfer is a normal course of transferring property. Transmission takes place on the death or insolvency of a shareholder.
Consideration Transfer of shares generally takes place for some consideration Transmission of shares generally takes place without any consideration.
Stamp duty Stamp duty is payable on the transfer of shares by a member. No stamp duty is payable on the transmission of shares.
Instrument of Transfer An instrument of transfer is required in case of transfer. No instrument of transfer is required in case of transmission.
Ways to do Transfer takes place by a voluntary act of the transferor. Transmission is the result of the operation of law.

Question 34.
Write a short note on Fungibility. (June 2013) (4 marks)
Answer:

  1. As per Section 9 of the Depositories Act, 1996, all securities held in a depository are fungible.
  2. That is all certificates of the same security are interchangeable in the sense that investors lose the right to obtain the exact certificate they surrender at the time of entry into depository.
  3. It is like withdrawing money from the bank without bothering about the distinctive number of the currencies.

Que. 35:
What do you understand by the transmission of shares? (December 2009) (2 marks)
Answer:
Transmission of shares refers to those cases where a person acquires an interest in property by operation of law, such as by right of inheritance or succession or by reason of the insolvency or lunacy of the shareholder or by purchase in a Court-sale.

Question 36.
What are the benefits of a depository system? (December 2010) (8 marks)
Or
Question: What are the benefits of a depository system of stock holding? (December 2012) (4 marks)
Answer:
The benefits from the depository system are following:

  1. It reduces the cost of issue and transfer of securities by eliminating stamp duty.
  2. It reduces the scope for theft forgery damage.
  3. It eliminates bad deliveries.
  4. It entitles all the rights associated with the securities immediately.
  5. It enhances the velocity and hence liquidity in the market. Investors can trade in securities immediately on allotment without waiting for the receipt of security certificates.
  6. It makes faster disbursement of rights, bonuses, etc. Possible.
  7. It reduces brokerage.
  8. It eliminates problems relating to the change of address of the investor, transmission, etc.
  9. It eliminates problems relating to selling securities on behalf of a minor.

Question 37.
Confident Limited has forfeited 50,000 equity shares of the com¬pany @ INR 10 each and same were re-issued. After the filing of the annual return, of the Registrar of Company (ROC) has issued Show Cause Notice to the company for default of provision of section 39 of the Companies Act, 2013. Is the action of the ROC tenable under the provision of Companies Act, 2013? Discuss with relevant case law, if any. (June 2018) (4 marks)
Answer:
1. As per Section 39 of the Companies Act, 2013 read with Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, whenever a company having a share capital makes any allotment of its securities, the company shall file with the ROC a return of allotment in Form PAS-3 within 30 days.

2. The Supreme Court held that no return of allotment is required to be filed for forfeited shares when the same were re-issued. The Court observed that when a share is forfeited and re-issued, there is no allotment, in the sense of appropriation of shares out of the authorized and un-appropriated capital. [Sir Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd. 1963-(033)-Com Cases- 0862-SC]

Thus, Confident Ltd. need not file a return of allotment for reissue of forfeiture of 50,000 shares and action taken by the ROC is not tenable under the law.

Question 38.
Grace Limited, a public limited company has received an application from Rosy for transmission of certain shares in her name. Rosy, being a widow of a shareholder, applies for transmission of the shares standing in the name of her deceased husband without producing a succession certificate. Can the company transfer the shares of the deceased member? Discuss. (December 2009) (4 marks)
Answer:
If a widow applies for transmission of the shares standing in the name of her deceased husband without producing a succession certificate and if the article of association of the company so authorizes, the directors may dispense with the production of succession certificate, probate or letter of administration upon such terms as to indemnity as the directors may consider necessary, and transmit the shares to the widow of the deceased by obtaining an indemnity bond.

Thus, Grace Limited can transmit the shares of the deceased husband to a widow without producing a succession certificate.

Question 39.
In the case where the shares of a company are held in joint names of two persons Arpit and Rakshit and one of these joint-holders requests the company to split the shares equally between them by issuing fresh share certificates, what should the company do? (June 2010) (4 marks)
Answer:
1. Where the shares of the company are held in joint names and one of these joint holders makes a request to the company to split the shares among the joint-holders, the company shall not be bound to do so unless that transfer deed duly executed jointly by the all the joint-holders duly stamped and executed is lodged with the company together with relevant share certificate in terms of Section 56 of the Companies Act, 2013.

2. Thus, in the given case where the shares of a company are held in joint- names of two persons Arpit and Rakshit, and one of these joint-holders requests the company to split the shares equally between them by issuing fresh share certificates, the company is not bound unless transfer deed duly executed jointly by both joint holders duly stamped and executed are lodged with the company together with relevant share certificate in terms of Section 56 of the Companies Act, 2013.

Question 40.
Layman is a holder of a share warrant in Ontime Fliers Limited, a public limited company. Unfortunately, the layman is unaware of any of the formalities to be compiled for transferring the said share warrant. Advise him about the formalities to be completed in this regard. (June 2010) (4 marks)
Answer:

  1. A share warrant is transferable by mere delivery of the warrants without execution of any written instrument of transfer being registered by the company.
  2. The bearer of a share warrant is not a member of the company unless otherwise so provided in the articles of the company.

Thus, Layman is a holder of a share warrant in Ontime Fliers Limited, a public limited company that needs to comply with the above-discussed formalities.

Question 41.
1000 shares of Astro Limited are registered in the name of the three-person P, O, and R jointly. Interestingly, the articles of the company provide that the survivors shall be the person to be recognized by the company as having any title to the shares of the company. Unfmately, P, and O died in an air crash. In these circumstances, R is the Ivor claims to be the full owner of the said shares. However, the legal heirs of P and 0 are also making counterclaims. Who will succeed? Explain (December 2012) (4 marks)
Answer:
1. In case some shares are registered in joint names and the articles of the company provide that the survivour shall be the only person to be rec¬ognised by the company as having any title to the shares, the company is justified in refusing to register the transmission of title by operation of law in favour of the son of the deceased holder even though he may obtain succession certificate from the Court.

2. In the given case, 1000 shares of Astro Limited are registered in the name of the three-person P, Q, and R jointly. Interestingly, the articles of the company provide that the survivors shall be the person to be recog¬nized by the company as having any title to the shares of the company. Unfortunately, P and Q died in an air crash. In these circumstances, R, being the survivor claims to be the full owner of the said shares.
Thus, Mr. R will succeed. The company is justified in refusing to register the transmission of title by operation of law

Question 42.
A B and C are joint-holders of shares of Carehead Limited. The joint holders now ask the company for altering or rearranging the serial order of their names in the register of members of the company. In reply, the company intends to ask the joint-holders to execute a transfer deed for the transposition of names in the register of members. Advise the company on the course of action. (December 2012) (4 marks)
Answer:
1. In the given case, A, B, and C are joint-holders of shares of Carehead Limited. The joint holders now ask the company for altering or rear¬ranging the serial order of their names in the register of members of the company. In reply to that company intends to ask the joint holders to execute a transfer deed for the transposition of names in the register of members.

2. 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 a need to make changes in the share certificate issued to them. If the company provides in its articles that the senior-most among the joint-holders will be recognized 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 authorized officer of the company.

Since no transfer of any interest in the shares takes place on such transposition, the question of insisting on filing a 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 for 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.

Question 43.
Aniket has fraudulently sold his shares to two different transferees. Who will be entitled to the shares in priority? (June 2018) (4 marks)
Answer:

  1. In the given case, Aniket has fraudulently sold his shares to two different transferees.
  2. It was held in the decided case of Society General De Paris v. Jonet Walker and others (1886) 11 Ac 20 that where a shareholder has fraud¬ulently sold his shares to two different transferees, the first purchaser will, on the ground of time alone, be entitled to the shares in priority to the second.
  3. For example, C assigned all his property to P as trustee for his creditors. The property included some shares. P asked for the share certificates but was unable to obtain them from C. He then gave notice of the assignment to the company. C, after the date of the assignment to P, sold the shares to X, who applied for registration. Held, P having the equitable title which was prior in time, was entitled to registration.

Question 44.
Raman Pvt. Ltd. has only two shareholders, X and Y. All shares were fully paid up. X sold all his shares to Y and the company carried on its business activities thereafter. Comment. (December 2018) (5 Marks)
Answer:

  1. Members severally liable certain cases (Section 3A of the Companies Act, 2013):
    Where the number of members falls below the statutory minimum (7 in the case of a public company and 2 in the case of a private company), and
  2. The company carries on business for more than 6 months while the number is so reduced, every person who is a member of the company during the time the company so carries on business after those 6 months and is cognizant of that fact, shall be severally liable for the payment of company’s debts contracted during that time.

As per facts given in the case, Raman Pvt. Ltd. has only two shareholders and the one shareholder Mr. X sold all his shares to Mr. Y which means a company has only one shareholder i.e. Mr. Y. If the company carries on business more than 6 months after reduction of its members then Mr. Y will be liable for the debts created by the company after 6 months of reduction of its members.

Question 45.
If a company has appointed a Company Secretary then his signature is mandatory on the share certificate issued by the company. Analyze with reference to the provisions of the Companies Act, 2013. (December 2018) (3 marks)
Answer:
1. As per Rule 5 of the Companies (Share Capital & Debentures) Rules, 2014, every share certificate shall be issued under the common seal, if any, of the company, which shall be affixed in the presence of, and signed by-
(a) Two directors (one of whom should be a person other than managing director or whole-time director) duly authorized by the Board of Directors and
(b) The Company Secretary or any person authorized by the Board for the purpose.

2. However, if the company does not have a common seal, the share certifi¬cate shall be signed by two directors or by a director or the company secretary, wherever the company has appointed a company secretary.

3. In case of an OPC, every share certificate shall be issued under the seal, if any, of the company, which shall be affixed in the presence of and signed by one director or a person authorized by the Board of Directors and the Company Secretary or any other person authorized by the Board. If OPC does not have a common seal, the share certificate shall be signed by the persons in the presence of whom the seal is required to be affixed.

To sum up, if the company has appointed Company Secretary his signature is mandatory on the share certificate issued by the company.

Question 46.
The concept of treasury shares in the United Kingdom is the same as the buy-back of shares in India. Examine (December 2018) (3 marks)
Answer:

  1. Buy-back provisions have been introduced in India in the year 1998.
  2. Share repurchases, the technical name of share buyback, is a mechanism by which a company buys back its own shares from its existing shareholders primarily because it intends to correct any perceived undervaluation of the company’s shares by the market in comparison to its true or intrinsic value.
  3. There are a number of other reasons as to why companies might buy back their own shares like making small adjustments in capital structure, boosting earnings per share and operating profit preventing an impend¬ing takeover bid, serving as the means of distributing excess cash of the company when there are no other profitable investment opportunities, etc.
  4. Although the concept of a company buying back its own shares is relatively new as the Indian capital market operations are concerns, the practice has prevailed in the developed markets of the west like the U.S. A and the U.K since long ago.

Question 47.
Premium Ltd. is considering buy-back of its shares without using any proceeds of shares or other specified securities. The balance sheet of Premium Ltd. shows the following status as of 31st March 2018 :

Assets/Liabilities Amount (INR)
Share Capital:
1,00,000 equity Shares of INR 10 each (Fully paid)
10,00,000
Free Reserve 5,00,000
Unsecured Debt 7,00,000
Secured Debt 15,00,000

Determine the maximum Quantum of buy-back of shares with the shareholder’s approval as of 1st April 2018. (December 2018) (5 marks)
Answer:

  1. The buy-back of equity shares in any financial year should not exceed
    25% of its total paid-up equity capital in that financial year. [10, 00,000 × 25%= 2, 50,000]
  2. 25% of the aggregate of paid-up capital and free reserves of the company. [(10, 00,000 + 5, 00,000) × 25% = 3, 75,000]
  3. The ratio of the aggregate of secured and unsecured debts owed by the company after buyback is not more than twice the paid-up capital and its free reserves.
    Buy-back Price =10.

Let the nominal of amount shares to be buy-back be ‘X’ (equal amount will be transferred to CRR)
Shares and Share Capital – Company Law Important Questions 1
Since out of the above three calculation minimum amount is rupees 2,00,000: hence buy-back is possible to the extent of rupees 2,00,000 ie. 20,000 shares.

Question 48.
The Board of directors of XYZ Ltd. wants to delegate all or any of their powers to any of the directors of the company or any person even not in the employment of the Company for the transfer of securities. Referring to the provisions of the Companies
Act, 2013 advise in the matter. (December 2018)(5 marks)
Answer:

  1. It is the articles of the company which authorize the board of directors to accept or refuse transfer of securities, at their discretion. The board further has the power to delegate all or any of their powers to any of the directors of the company or any person even not in the employment of the company.
  2. So the articles of association should authorize the board of directors to delete the powers suitably. Only in the case of refusal to register a transfer, the directors are required to exercise their discretion.
  3. In the given case, The Board of directors of XYZ Ltd. wants to delegate all or any of their powers to any of the directors of the company or any person even not in the employment of the Company for the transfer of securities.

In accordance with the above-discussed provisions thus, the board of directors of XYZ Limited can delegate all or any of their powers to any directors of the company or any person even not in the employment of the company for the transfer of securities.

Question 49.
The Articles of Association of a company cannot impose a blanket ban prohibiting the transfer of shares in favor of a minor. Such a restriction is unreasonable and not sustainable. Comment (June 2019) (5 marks)
Answer:
1. A Shareholder who is not a sui juris e.g., a minor, is wholly incompe¬tent to enter into a contract and as such cannot become a member of a company. Consequently, an agreement by a minor to take shares is void-ab-initio.

2. It has been held by the Company Law Board (replaced by the Tribunal under the Companies Act, 2013) that an agreement in writing for a minor to become a shareholder may be signed on behalf of the minor by his lawful guardian and the registration of transfer of shares in the name of the minor, acting through his or her guardian, especially where the shares are fully paid cannot be refused on the ground of the transferee being a minor [Miss Nandita Jain v. Benett Coleman and Co. Ltd., Appeal No. 27 of 1972 dated 17.2.78].

3. After attaining majority, the minor, if he does not want to be a member, must repudiate his liability on the shares on the ground of minority, and if he does so, the company cannot plead estoppels on the ground of his having received dividends during his minority or that he had fraudulently misrepresented his age in his application for shares [Sadiq Ali v. Jai Kishori, (1928) 30 Bom. L.R. 1346].
Thus, The articles of association of a company cannot impose a blanket ban prohibiting the transfer of shares in favor of minors, as such a restriction is unreasonable and not sustainable.

Question 50.
“If a company does not receive a minimum subscription, it should re-fund money received from applicants within such time as may be prescribed”.
Explain the above statement with suitable Comments. (June 2019) (3 marks)
Answer:
1. As per Section 39(3) of the Companies Act, 2013, read with Rule 11 Companies (Prospectus and Allotment of Securities) Rules, 2014: If the stated minimum amount has not been subscribed and the sum payable on the application is not received within a period of 30 days from the date of issue of prospectus, or such other period as may be specified by the Securities and Exchange Board of India, the amount so received shall be returned within 15 days from the closure of the issue.

2. If any such money is not so repaid, the directors of the Company who are officers in default shall jointly and severally be liable to repay that money with interest at 15% p.a.

Question 51.
State the time limit within which certificate of securities as provided in Companies Act, 2013 to be issued in case of:
(i) Any allotment of shares.
(ii) Any allotment of debentures.
What is the punishment in case of default committed in the above cases? (June 2019) (3 marks)
Answer:
Under Section 56(4) of the Companies Act, 2013, every company must deliver the certificates of all securities allotted, transferred, or transmitted:

  1. Within a period of 2 months from the date of incorporation, in the case of subscribers to the memorandum;
  2. Within a period of 2 months from the date of allotment, in the case of any allotment of any of its shares;
  3. Within a period of 1 month from the date of receipt by the company of the instrument of transfer or the intimation of transmission;
  4. Within a period of 6 months from the date of allotment in the case of any allotment of the debenture.

However, where the securities are dealt with a depository, on allotment of such securities the company shall intimate the details of allotment of securities to depository immediately.

Where any default is made in complying with the above-mentioned provisions:
The company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

Question 52.
Draft “A specimen of the deed of Assignment of shares of a company”. (June 2019) (3 marks)
Answer:
Specimen of Deed of Assignment of Share in a Company:

This Assignment is made this____ day of_____ between XY, son of____, resident of____, (hereinafter called “the Assignor”) of the one part, and PQ, son of____, resident of _____ (hereinafter called “the Assignee”) of the other part.

The Deed Witnesses:
That in consideration of the sum of INR_____ (Rupees____) paid by the assignee to the assignor, the receipt whereof the assignor hereby acknowledges, the said XY hereby assigns, sells, and transfers to the said PQ Equity Shares of INR____ each, fully paid up, bearing consecutive No.___to___ (inclusive), which stand in the name of the assignor in the Register of Members of___Co. Ltd. to hold the same to the assignee absolutely, subject nevertheless to the conditions on which the assignor held the same up to date; AND the assignee hereby agrees to take the said Equity Shares subject to such conditions.

In Witness Whereof the assignor and the assignee do hereto affix their respective signatures on the day, month and year stated above.
Witness:_____ Assignor:_____
Witness:_____Assignee: _____

Question 53.
A public limited company has only seven shareholders Being all ti shares paid in full, one such shareholder purchased all the shares of another shareholder in a private settlement between them reducing the No. of shareholders to six. The company continues to carry on its business thereafter. Discuss with reference to the Companies Act, 2013 the implications of this transaction on the functioning of the company. (June 2019) (5 marks)
Answer:
1. Under Section 3A of the Companies Act, 2013: Where the number of members falls below the statutory minimum (7 in the case of a public company and 2 in the case of a private company), and

2. The company carries on business for more than 6 months while the number is so reduced, every person who is a member of the company during the time the company so carries on business after those 6 months and is cognizant of that fact, shall be severally liable for the payment of company’s debts contracted during that time.

3. In the given case, A public limited company has only seven shareholders. Being all the shares paid in full, one such shareholder purchased all the shares of another shareholder in a private settlement between them reducing the no. of shareholders to six. The company continues to carry on its business.

Thus, in a public company where there are only 7 shareholders and one shareholder purchase all the shares of another shareholder by which the number of shareholders reduces to 6, provisions of Section 3A of the Companies Act, 2013 get attracted and if the company carries on business for more than 6 months while the number is so reduced, every person who is a member of the company during the time the company so carries on business after those 6 months and is cognizant of that fact, shall be severally liable for the payment of company’s debts contracted during that time.

Question 54.
Pluto Ltd. was incorporated on 10th June 2013 in Delhi and is engaged in the business of providing specialized catering services for corporate events. The Board of directors proposed to venture into event management services, which requires the alteration of the object clause of the Memorandum of Association of the company. Draft the necessary resolution assuming relevant data. (June 2019) (4 marks)
Answer:
Board Resolution for Alteration of the Main Object of the MOA of the Company “Resolved That pursuant to the provisions of Section 13 and other applicable provisions, if any, of the Companies Act, 2013, (“ACT”) including any statutory modifications or re-enactment thereof for the time being in force and rules made thereunder, the consent of the members of the Company be and is hereby accorded for alteration of the object clause of the Memorandum of Association (MOA) of the Company so that company can start the business of providing “event management services” and that following mentioned clauses be inserted in the Memorandum of Association________________[various new clauses to be inserted will appear here]”.

“Resolved Further That the Board of Directors be and is hereby authorized to do all such acts, deeds, and things and to sign all such documents as may be necessary, expedient and incidental thereto to give effect to this resolution.”

Question 55.
Prism Ltd. has 50 preference shareholders called preference shareholders meeting for amending the terms of these shares. ‘A’ was the only preference shareholder who attended the meeting. He, however, held the proxies from all other preference shareholders. He took the chair, conducted the meeting, and passed a resolution for amending the terms of the issue of these shares. Examine the validity of the meeting and the resolution passed. (June 2019) (4 marks)
Answer:

  1. In East v. Bennet Brothers Ltd (1911) it has been held that in case of a class meeting of all the shares of a particular class are held by one person. Then one person shall form the quorum.
  2. This question was decided in the case of Sharp V, Dawes case which provides that “the word meeting prima facie means coming together of more than one person”.
  3. In the given case, only one shareholder present. This was not a meeting within the meaning of the Companies Act, 2013.
  4. According to Section 103 of the Companies Act, 2013, another requirement of a valid meeting is the presence of a required quorum.

Moreover, the Section also says that “the members actually present shall be the Quorum”. The presence of one member may not be enough. This was not a valid meeting.

Hence since all the shares are not held by one person, no quorum is therefore present. The meeting and the resolution passed there shall not be valid.

CS Executive Company Law Questions and Answers

Leave a Comment

Your email address will not be published. Required fields are marked *