Expected marks in examination: Min: Max:

Chapter 2
Share Capital
Part A : Meaning and Types of Share Capital
1. Classification of Share Capital

Nominal, Authorised or
Registered Capital

Issued Capital

Subscribed Capital

Called-up Capital

Paid-up Share Capital

2. Meaning of Share
 A share is a share in the share capital of a company, carrying with it certain rights and
liabilities while the company is a going concern and in its winding up.
 As per companies Act, Share is a movable property transferable in the manner provided
by the articles of the company.
 As per Sale of Goods Act, 1930, Goods includes share.
 Every share in a company having a share capital shall be distinguished by its distinctive
number (but this provision shall not apply to a share held by a person whose name is
entered as holder of beneficial interest in such share in the records of a depository)

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 3. Types of Share Capital

Preference Share Capital Equity Share Capital

Share Capital which gets preference in Share Capital which is not preference
two cases: share capital is Equity share capital

a) In case of payment of dividend

b) In case of winding up Equity shareholders are entitled to vote
on resolutions of the company.
No voting rights
They are the real owners of the company
and policy makers of the company.
However, they do not have access to the
day to day affairs of the company. They
appoint their representatives called
board of directors to look after the affairs
of the company.

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 Issue of Securities
Public issue Right issue Bonus issue Private Placement

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 Part B : Concept of Issue and Allotment
1. Issue of Shares

At Par At Premium At Discount

Allowed Allowed, but there are restrictions Not allowed

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 expenses incurred on issue of shares or debentures;
(d) for providing for the premium payable on redemption of any redeemable preference shares or debentures; or
(e) for the purchase of its own shares or other securities. (Buy back)

Important points:
 Where a company issues shares at a premium, even though the consideration may be
other than cash, a sum equal to the amount or value of the premium must be
transferred to the securities premium account.
 Monies in the securities premium account cannot be treated as free reserves.

2. Allotment
The following general principles should be observed with regard to allotment of securities:
(1) The allotment should be made by proper authority. The proper authority may be the Board
Directors of the company, or a committee authorised to allot securities on behalf of the Board.
(2) Allotment of securities must be made within a reasonable time. What is reasonable time is
a question of fact in each case. An applicant may refuse to take securities if the allotment is
made after a long time.
(3) The allotment should be absolute and unconditional. Securities must be allotted on same
terms on which they were applied for and as they are stated in the application for securities.

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(4) The allotment must be communicated. As mentioned earlier posting of letter of allotment
or allotment advice will be taken as a valid communication even if the letter is lost in transit.
(5) Allotment against application only. Section 2(55) of the Act requires that a person should
agree in writing to become a member.
(6) Allotment should not be in contravention of any other law. If securities are allotted on an
application of a minor, the allotment will be void.
Important points:
 Whenever a company makes any allotment of securities, it shall file the return with the
Registrar within thirty days from the date of allotment.
 In Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd, it was held that when
a share is forfeited and re-issued, there is no allotment, so no return of allotment is
required.

3. Prospectus

Prospectus means any document described or issued as a prospectus and includes a red herring
prospectus or shelf prospectus or any notice, circular, advertisement or other document
inviting offers from the public for the subscription or purchase of any securities of a body
corporate.

SHELF PROSPECTUS
 Shelf Prospectus means a prospectus in respect of which the securities or class of
securities included therein are issued for subscription in one or more issues over a
certain period (maximum 1 year) without the issue of a further prospectus.
 In simple terms Shelf Prospectus is a single prospectus for multiple issues.
 Just an information memorandum is required to be filed by a company every time the
company wishes to issue securities, post issuing shelf prospectus.
RED HERRING PROSPECTUS
 RHP refers to a prospectus which contains all the information like a regular
prospectus except for price and quantum.
 It is issued in case of book building, to invite bids from public.
 A final prospectus is still required to be filed post bidding, to ROC which includes price
and quantum.
ABRIDGED PROSPECTUS
 Abridged Prospectus means a summary prospectus.
 No application form for the purchase of securities of a company shall be issued unless
such form is accompanied by an abridged prospectus.
 A copy of the regular prospectus shall, on a request being made by any person before
the closing of the subscription list and the offer, be furnished to him.

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 Offer for sale

Company
Entity /
Intermediary

Public

The document “Offer for sale” is an invitation to the general public to purchase the shares of a
company through an intermediary, such as an issuing house or a merchant bank.

A company may allot or agree to allot any shares or debentures to an “Issue house” without there
being any intention on the part of the company to make shares or debentures available directly to the
public through issue of prospectus. The issue house in turn makes an “Offer for sale” to the public.

Offer of sale

Company
Entity /
Intermediary

Public

Certain members of a company, in consultation with Board of directors, to offer the whole or a part
of their holdings of shares to the public. The document by which the offer of sale to the public is
made shall, for all purposes, be deemed to be a prospectus issued by the company.

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 4. Share certificate

 A share certificate is a certificate issued to the members by the company, specifying the
number of shares held by him and the amount paid on each share.
 Each share of the share capital of the company shall be distinguished with a distinct
number for its individual identification. However, such distinction shall not be required,
if the shares are held by a person whose name is entered as holder of beneficial interest
in such share in the records of a depository.
 It is a prima facie evidence of his title to the shares and where a share is held in
depository form, the record of the depository is the prima facie evidence of the interest
of the beneficial owner.

 A duplicate certificate of shares may be issued, if such certificate

(a) is proved to have been lost or destroyed; or
(b) has been defaced, mutilated or torn and is surrendered to the company.

 Time of issue of Certificate of Securities:

within a period of two months in the case of subscribers to the memorandum

(from the date of incorporation)
within a period of two months in the case of any allotment of any of its shares
(from the date of allotment)
within a period of one months (from the date in the case of a transfer or transmission of securities;
of receipt of instrument by the company)
within a period of six months in the case of any allotment of debenture.
(from the date of allotment)

Legal Effect of Share Certificate

A share certificate is prima facie evidence to the title of the person whose name is entered on
it. It means that the share certificate is a statement by the company that the moment when it
was issued, the person named in it was the legal owner of the shares specified in it, and those
shares were paid-up to the extent stated.
As a result, a share certificate once issued by the company binds it in two ways, namely:
Estoppel as to Title: It is a declaration by the company to the entire world that the person in
whose name the certificate is made out and to whom it is given is a shareholder in the
company. In other words the company is estopped from denying his title to the shares.
Estoppel as to Payment: If the certificate states that on each of the shares full amount has
been paid, the company is estopped as against a bona fide purchaser of the shares, from
alleging that they are not fully paid.

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 Part C : Issue of Securities (8 topics)

Topics no 1 Topic no 4
Equity shares Employee
with
differencial
stock Option
rights Plan

Topic no 2
Topic no 5 Topic no 7
Issue and
Preferential redemption Bonus
issue of preference Issue
shares

Topic no 3
Topic no 6 Topic no 8
Private Further
Sweat Equity
Placement issue of
Shares
Shares

Further issue of Share Capital (Section 62) (Pre emptive right)

Where any time, a company having a share capital proposes to increase its capital by the issue
of further shares, such shares shall be offered to:
A. Existing shareholders (Right issue)
 Shares are offered to existing shareholders proportionately.
 Shareholders can either buy themselves or even renounce the right to buy.
 Time period of minimum 15 day and maximum 30 days is given to exercise the
right.
 If a person does not exercise the right, the Board of Directors may dispose those
shares in such manner which is not dis-advantageous to the shareholders and
the company.

B. Employees (ESOPs)
C. Any person (Preferential issue)

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 Issue and Redemption of Preference Shares

ISSUE
Tenure of Company cannot issue irredeemable preference shares.
Preference Company cannot issue redeemable preference shares with the redemption
shares period beyond 20 years, except for an infrastructure company.
(An infrastructure company may issue preference share for maximum
tenure of 30 years)
Conditions for  Must be authorised by its articles.
issuing Pref.  Special resolutionto be passed at the general meeting.
shares  No subsisting default in the redemption of preference shares issued
earlier or in payment of dividend due on any preference shares.
Register of Pref. When a company issues preference shares, the Register of Members for
shares preference shares shall contain all the particulars.
REDEMPTION
Provision for  Such shares shall be redeemed only if they are fully paid
redemption of
Pref. shares  Preference Shares shall be redeemed out of the:
 profits of the company available for dividend or
 proceeds of a fresh issue of shares made for the purposes of
such redemption;

 where such shares are proposed to be redeemed out of the profits of

the company, a sum equal to the nominal amount of the shares to be
redeemed, transferred to a reserve, to be called the Capital
Redemption Reserve Account.

 Premium, if any, payable on redemption shall be provided for out of

the profits of the company or out of the company’s securities premium
account, before such shares are redeemed.

 CRR can be utilized only to issue fully paid up bonus shares.

Private Placement

Meaning "Private placement" means any offer or invitation to subscribe or issue of

securities to a select group of persons by a company through private
placement offer-cum-application, which satisfies the conditions specified
in this section.
Requirement  authorized by its articles of association.
 Special resolution to be passed.

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 Private A company making private placement shall issue private placement offer
placement offer and application in such form and manner as may be prescribed to
letter identified persons, whose names and addresses are recorded by the
company.
The private placement offer and application shall not carry any right of
renunciation.
Maximum A private placement shall be made only to a select group of persons who
number of have been identified by the Board, whose number shall not exceed fifty or
persons to such higher number as may be prescribed [excluding the qualified
whom offer can institutional buyers and employees of the company being offered
be made securities under a scheme of employees stock option], in a financial year
subject to such conditions as may be prescribed.
Payment not by Every identified person willing to subscribe to the private placement issue
cash shall apply in the private placement and application issued to such person
along with subscription money paid either by cheque or demand draft or
other banking channel and not by cash.

Time limit for States that a company making an offer or invitation under this section shall
allotment allot its securities within sixty days from the date of receipt of the
application money for such securities and if the company is not able to
allot the securities within that period, it shall repay the application money
to the subscribers within fifteen days from the expiry of sixty days.
(otherwise interest will be payable)

Preferential offer

Meaning ‘Preferential Offer’ means an issue of shares or other securities, by a

company to any select person or group of persons on a preferential basis
and does not include shares or other securities offered through a public
issue, rights issue, employee stock option scheme, employee stock
purchase scheme or an issue of sweat equity shares or bonus shares or
depository receipts issued in a country outside India or foreign securities.
Requirement  authorized by its articles of association.
 special resolution to be passed.
 the allotment of securities on a preferential basis shall be completed
within a period of twelve months from the date of passing of the
special resolution.
 the price of shares or other securities to be issued on preferential basis
shall not be less than the price determined on the basis of valuation
report of a registered valuer.

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 Equity Shares with Differential Rights

Conditions for  the articles of association authorizes the shares with differential rights;
issuing shares  the issue of shares is authorized by an ordinary resolution passed at a
with differential general meeting of the shareholders. (When the equity shares of a
rights company are listed on a recognized stock exchange, the issue of such
shares shall be approved by the shareholders through postal ballot.)
 the shares with differential rights shall not exceed twenty-six percent of
the total post-issue paid up equity share capital.
 the company having consistent track record of distributable profits for
the last three years;
 the company has not defaulted in filing financial statements and annual
returns for preceding three financial years.
 the company has not been penalized by Court or Tribunal during the last
three years of any offence under the RBI Act, 1934 , the SEBI Act, 1992,
the Securities Contracts Regulation Act, 1956, the Foreign Exchange
Management Act, 1999 or any other special Act, under which such
companies being regulated by sectoral regulators.
 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 dividend;
 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 Protection Fund to
the Central Government; 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.
Conversion is The company shall not convert its existing equity share capital with voting
not allowed rights into equity share capital carrying differential voting rights and
viceversa.
Rights of The holders of the equity shares with differential rights enjoys all other
holders of rights such as bonus shares, rights shares etc., which the holders of equity
equity shares shares are entitled to, subject to the differential rights with which such
(DVR) shares have been issued.
Details in Register of Members to contain the details of equity shareholders having
Register of differential voting rights
members

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 Employee Stock Option Plan (ESOP/ESOS)

Meaning ESOP 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, on fulfillment of certain condition.
Who is an a) a permanent employee of the company who has been working in India
employee for this or outside India; or
purpose? b) a director of the company, whether a whole time director or not but
excluding an independent director; or
c) an employee as defined in clauses (a) or (b) of a subsidiary, in India or
outside India, or of a holding company of the company
but does not include-
 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.
Conditions  The issue of Employees Stock Option Scheme has been approved by
the shareholders of the company by passing a special resolution (in
case of private company : ordinary resolution is required)
 Where the equity shares of the company are listed on a recognized
stock exchange, the Employees Stock Option Scheme shall be issued,
in accordance with the regulations made by the Securities and
Exchange Board of India, and unlisted companies have to follow rules
framed by CG in this behalf.
Pricing of ESOP The companies granting ESOP to its employees will have the freedom to
determine the exercise price. (It has to be in conformity with the
applicable accounting policies)
Varying the The company may by special resolution, vary the terms of Employees
terms of ESOP Stock Option Scheme not yet exercised by the employees provided such
variation is not prejudicial to the interests of the option holders.
Minimum vesting There shall be a minimum period of one year between the grant of
Period options and vesting of option.
(NOTE: In a case where ESOPs are granted by a company in lieu of ESOPs
held by the same person in another company, which has merged or
amalgamated with the first mentioned company, the period during which
the options granted by the merging or amalgamating company were held
by him shall be adjusted against the minimum vesting period required
under this clause.)
Minimum lock-in There is no minimum lock in but the company is free to specify the lock-
in period for the shares issued under ESOP.

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 Dividend or Employees shall not have right to receive any dividend or to vote or in
voting till any manner enjoy the benefits of a shareholder in respect of option
exercise of granted to them, till shares are issued on exercise of option.
option
Forfeiture/refund the amount payable by the employees, at the time of grant of option –
(a) may be forfeited by the company if the option is not exercised by the
employees within the exercise period; or
(b) the amount may be refunded to the employees if the options are not
vested due to non-fulfillment of conditions relating to vesting of option
as per the Employees Stock Option Scheme.
Whether the The options are not transferable, nor it can be pledged, hypothecated,
options are mortgaged or otherwise encumbered.
transferable?
Maintenance of The company shall maintain a Register of Employee Stock Options at the
Register registered office of the company or such other place as the Board may
decide.

Bonus Share

Meaning Shares issued to existing shareholders for free.

Source for Bonus (i) its free reserves;
Issue (ii) the securities premium account; or
(iii) the capital redemption reserve account.
(No issue of bonus shares shall be made by capitalising reserves created
by the revaluation of assets)
Conditions for  it is authorised by its articles;
Bonus Issue  pass ordinary resolution;
 shares must be fully paid up;
 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;
Bonus shares in The bonus shares shall not be issued in lieu of dividend.
lieu of dividend

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 Sweat Equity Shares

Meaning 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.
Who is an  a permanent employee of the company who has been working in
employee for this India or outside India;
purpose?  a director of the company, whether a whole time director or not; or
 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;
Conditions for  Pass special resolution at the general meeting.
issuing Sweat  The following are clearly specified in the resolution:
Equity Shares (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.
 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 and 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.
Validity of special Special resolution authorising the issue of sweat equity shares shall be
resolution valid for making the allotment within a period of not more than twelve
months from the date of passing of the special resolution.
Limits on issue of  Company shall not issue sweat equity shares for more than fifteen
sweat equity percent of the existing paid up equity share capital in a year or shares
shares of the issue value of rupees five crores, whichever is higher.
 The issuance of sweat equity shares in the company shall not exceed
twenty five percent, of the paid up equity capital of the company at
any time.
Lock in The sweat equity shares issued to directors or employees shall be locked
for a period of three years from the date of allotment.
Valuation If SES issued for cash:
Sweat equity shares to be issued shall be valued at a price determined by
a registered valuer as the fair price giving justification for such valuation.

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 If SES issued for non-cash consideration:
where the non-cash consideration takes the form of a depreciable or
amortizable asset, it shall be carried to the balance sheet of the company
in accordance with the accounting standards; or where clause (a) is not
applicable, it shall be expensed as provided in the accounting standards.
Maintenance of The company shall maintain a Register of Sweat Equity Shares.
Register The Register of Sweat Equity Shares shall be maintained at the registered
office of the company or such other place as the Board may decide

Part D : Buy Back

Meaning Buy back means a company purchasing its own securities.
Sources of BB (i) its free reserves; or
(ii) the securities premium account; or
(iii) the proceeds of the issue of any shares or other specified securities.
(However, no buy-back of any kind of shares or other specified securities
can be made out of the proceeds of an earlier issue of the same kind of
shares or same kind of other specified securities.)
Conditions for BB  AOA must authorize.
 Shares must be fully paid up.
 Board of directors can approve buy-back up to 10% of the total paid-
up equity capital and free reserves of the company, in respect of any
financial year.
Shareholders by a special resolution can approve buy-back up to 25%
of the total paid-up capital and free reserves of the company, in
respect of any financial year.
Can BB be Once buy back has been announced, it cannot be withdrawn.
withdrawn?
Period of Buy The offer for buy-back shall remain open for not less than 15 days and
Back not exceeding 30 days from the date of dispatch of the letter of offer.
Time limit for Every buy-back shall be completed within a period of one year from the
completion of date of passing of the special resolution, or as the case may be, the
buy-back resolution passed by the Board.
Post buy-back The ratio of the aggregate of debts owed by the company after buy-back
debt-equity ratio is not more than twice the paid-up capital and its free reserves.
Time gap No offer of buy-back shall be made within a period of one year from the
between BB date of the closure of the preceding offer of buy-back.
Transfer to CRR When a company purchases its own shares out of free reserves or
securities premium account, a sum equal to the nominal value of the
shares so purchased shall be transferred to the capital redemption
reserve account.

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 Surrender of Shares Forfeiture of Shares

Termination of membership at the initiative Termination of membership at the initiative

of_____________________ of__________________

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 Part E: Reduction of Share Capital
What is Reduction of capital?
Subject to confirmation by the Tribunal on an application by the company, a company limited
by shares or limited by guarantee and having a share capital may, by a special resolution,
reduce the share capital in any manner.
Example of Reduction of capital:
 extinguish or reduce the liability on any of its shares in respect of the share capital not
paid-up; or
 either with or without extinguishing or reducing liability on any of its shares,—
 cancel any paid-up share capital which is lost or is unrepresented by available
assets; or
 pay off any paid-up share capital which is in excess of the wants of the company,
 alter its memorandum by reducing the amount of its share capital and of its shares
accordingly

Procedure of Reduction of capital:

Pass a Special Resolution

Make an application to tribunal

The Tribunal shall give notice of every application to:

• Central Government( Powers have been delegated to Regional Director),
• Registrar,
• the Securities and Exchange Board, in the case of listed companies, and
• the creditors of the company.
(It shall take into consideration the representations, if any, made to it by that Central
Government, Registrar, the Securities and Exchange Board and the creditors within a period
of three months from the date of receipt of the notice.)

Tribunal, if satisfied, passes an order confirming Reduction.

 The order of confirmation of the reduction of share capital by the Tribunal shall be
published by the company in such manner as the Tribunal may direct.
 Company has to file a copy of the order to ROC.

Reduction of Share capital where tribunals approval is not required

1. Surrender of shares
2. Forfeiture of shares

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 Transfer of Securities Transmission of securities
Transfer takes place by a voluntary or Transmission is result of the operation of law.
deliberate act of the parties by way of For example ,due to death, insolvency or
contract lunacy of a member
An instrument of transfer is required in case No instrument of transfer is required in case
of transfer of transmission
Transfer is a normal course of transferring Transmission takes place on death or
property insolvency of a holder of securities
Transfer of securities is generally made for Transmission of securities is generally made
some consideration without any consideration
Stamp Duty is payable on transfer of No stamp duty is payable on transmission of
securities by a holder of securities securities

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 Part F: Transferability
Transfer of shares A company, shall not register a transfer of securities of, the company,
unless a proper instrument of transfer duly stamped, dated and executed
by or on behalf of the transferor and the transferee has been delivered
to the company by the transferor or transferee within a period of sixty
days from the date of execution along with the certificate relating to the
securities.
Transmission of Where any person acquires any right to securities by operation of any
Shares law, the company may register the transmission of shares in favour of
such person if the company receives intimation of transmission from
such person, and in such a case no transfer deed shall be necessary.

Transmission in case of sole owner:

Legal heir are entitled to apply for registration of shares after producing
the required documents (Death certificate, succession certificates).

Transmission of shares to widow:

BOD can dispense with the requirement to produce the documents in
case of widow. BOD may ask for indemnity bond.

Transmission in case of joint holding:

Surviving shareholders have the first right over those shares.

IMPORTANT POINTS:
 Where an application is made by the transferor alone and relates to partly paid shares,
the transfer shall not be registered, unless the company gives the notice to the
transferee and the transferee gives ‘no objection’ to the transfer within two weeks from
the receipt of the notice.
 In case of death of holder of any security, the transfer of such security by the legal
representative of the deceased shall be valid-
 Even though the legal representative is not the holder of such security;
 As if the legal representatives were the holder of such security.

Other provisions regarding transfer and transmission:

Lost transfer The Board of directors of the company if satisfied that the instrument of
deed transfer signed by or on behalf of the transferor and by or on behalf of
the transferee has been lost, the company may register the transfer.
BOD may take an indemnity bond if required.

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 No stamp duty in In the case of joint-shareholders, one or more of them may require the
case of company to alter or rearrange the serial order of their names in the
Transposition register of members of the company.
Since no transfer of any interest in the shares take place on such
transposition, the question of insisting on filling transfer deed with the
company, may not arise. Transposition does not also require stamp duty.
Death of Where the transferor or transferee dies and the company has no notice
transferor or of his death the company would obviously register the transfer.
transferee before
registration of But if the company has notice of transferor’s death, the proper course is
transfer not to register until the legal representative of the transferor has been
referred to.

Where the transferee dies and company has notice of his death, a
transfer of shares cannot be registered in the name of the deceased.
With the consent of the transferor and the legal representatives of the
transferee, the transfer may be registered in the names of the legal
representative.

Can board of directors refuse registration?

 If a private company limited by shares refuses to register the transfer, or transmission,
then the company shall send notice of the refusal to the transferor and the transferee or
to the person giving intimation of such transmission, within a period of thirty days from
the date on which the instrument of transfer, or the intimation of such transmission,
was delivered to the company. Notice shall contain the reasons for refusal to register
the transfer or transmission.

The transferee may appeal to the Tribunal against the refusal within a period of thirty
days from the date of receipt of the notice or in case no notice has been sent by the
company, within a period of sixty days from the date on which the instrument of
transfer or the intimation of transmission, was delivered to the company.

 If a public company without sufficient cause refuses to register the transfer of securities
within a period of thirty days from the date on which the instrument of transfer or the
intimation of transmission, is delivered to the company, the transferee may, within a
period of sixty days of such refusal or where no intimation has been received from the
company, within ninety days of the delivery of the instrument of transfer or intimation
of transmission, appeal to the Tribunal.

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2. 34 Shubhamm Sukhlecha (CA, CS, LLM)
  The Tribunal, while dealing with an appeal may, after hearing the parties, either dismiss
the appeal, or by order—
(a) direct that the transfer or transmission shall be registered by the company and the
company shall comply with such order within a period of ten days of the receipt of the
order; or
(b) direct rectification of the register and also direct the company to pay damages, if
any, sustained by any party aggrieved.

Rectification of register of members

If, without sufficient cause –

(i) The name of any person is entered in the register of members; or
(ii) The name of any person having entered in the register of members is without
sufficient cause omitted therefrom; or
(iii) Default or unnecessary delay is being made in entering in the register, the fact of
any person having become a member; or
(iv) Default or unnecessary delay is being made in entering in the register, the fact of
any person having ceased to be a member

The person aggrieved may appeal to the Tribunal.

The Tribunal may, after hearing the parties to the appeal by order, either dismiss the appeal
or direct that the transfer or transmission shall be registered by the company within a period
of ten days of the receipt of the order and may direct the company to pay damages, if any,
sustained by the party aggrieved.

2. 35 Shubhamm Sukhlecha (CA, CS, LLM)

 CASE LAWS
Chokkalingam v. Official Liquidator
it was held that Allotment of shares against promissory notes shall not be valid.
Royal British Bank v. Turquand
An allotment may be valid even if some defect was there in the appointment of directors but
which was subsequently discovered.
Portugese Consolidated Copper Mines case
An allotment by a Board irregularly constituted may be subsequently ratified by a regular
Board.
Household Fire And Carriage Accident Insurance Co. Ltd. v. Grant
Grant applied for certain shares in a company, the company dispatched letter of allotment to
him which never reached him. It was held that he was liable for the balance amount due on
the shares.
British and American Steam Navigation case
There can be no proper allotment of shares unless the applicant has been informed of the
allotment.
Bloomenthal v. Ford
Also the company cannot dispute the amount mentioned on the certificate as already paid.
Worldwide Agencies (P) Ltd. v. Margaret T. Desor
it was held that persons who have become entitled to the shares of a deceased member can
exercise all the membership rights of the deceased irrespective of the fact whether their
name is in the register of members or not
Mathalone (R) v. Bombay Life Assurance Co. Ltd.
The Court held that the transferor could not be compelled by the transferee to take up on his
behalf the rights shares offered to the transferor and all that he could require the transferor
to do was to renounce the rights issue in the transferee’s favour.
Shri Nirmal Kumar v. Jaipur Metal and Electrical Limited
Refusal to register share transfer on suspicion that the employee if admitted as a member
will attend general meetings of the company and may create nuisance by raising irrelevant
issues and also obtain access to the records to the company as a shareholder is not a valid
reason.
Rangpur Tea Association Ltd. v. Makkan Lal Samaddar
The mere attempts of a person to wind up a company more than once cannot be a ground
for refusing to register transfer by the directors.
Modi Carpets Ltd. v. Trans-Asia Carpets Ltd.
Where the appellant transferee and respondent company were in the same line of business
and were rivals, the refusal on the ground of rivalry will be justified.
Society General De Paris v. Jonet Walker and others
It was held by the court that where a shareholder has fraudulently 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.

2. 36 Shubhamm Sukhlecha (CA, CS, LLM)

 Kothari Industrial Corpn. Ltd. v. Lazor Detergents P. Ltd.
Where a company by mistake or otherwise registers a transfer which should have been
refused because of insufficient or uncancelled stamps, or because of the instrument being
unstamped, it should point out the error to the transferee within such time (within one year
from the date of execution) that the transferee can have the matters rectified through the
orders of the Collector. Afterwards it would be too late.

2. 37 Shubhamm Sukhlecha (CA, CS, LLM)

 Ques. 1 to 17 PART A, B, C
Ques. 18 to 24 PART D, E, F

PRACTICE QUSTIONS:
1) Write a short note on Sweat Equity share. (Dec-2014).

2) Bonus issue may be viewed as ‘right issue’ except that money is paid by the company
on behalf of the investing shareholders from its reserves. Comment. (Dec-2008).

3) Every employee in the company is eligible to participate in ESOS. Comment. (Dec-

2012).

4) Section 62 ensures pre-emptive rights of shareholder. Discuss. (Dec-2012).

5) Securities premium shall be utilized only for certain specific purpose only. Comments.
(Dec-2013).

6) In no circumstance a company can issue redeemable preference shares with a

redemption period of 20 years. (June-2015).

7) Referring to the provision of companies Act, 2013, State the conditions required to be
fulfilled before a company can issue bonus shares to the shareholder of the company.
(June-2015).

8) Board of a directors of Progressive Ltd. Decides to issue equity share of the company
with differential voting rights. Examining the provision of the companies’ act 2013,
state the conditions to be complied with by the company in this regard. (Dec-2016).

9) The board of directors of Aakash ltd. A listed company, at its meeting held on 1st
April, 2015 announced a proposal for issue of bonus 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 the proposal & the reversal. (June- 2012).

10) In view of the provisions of the companies act 2013 relating to securities premium,
state whether the amount lying in securities premium account of a company can be
used. (Dec-2015).

11) Radhika Textile limited has utilise securities premium during the financial year 2016-
17 as follows. (June-2017)
a) Rupees 15 lakh against expenses of foreign travelling of directors.
b) 5,00,000 for writing of the balance of the prelimnary expenses of the
company.
c) 10 lacs distributed as dividend for the financial year 31st March 2017.

2. 38 Shubhamm Sukhlecha (CA, CS, LLM)

 12) Distinguish between - Shelf prospectus & Red- herring prospectus. (Dec-2009).

13) Distinguish between-Red herring & Abridged prospectus. (Dec-2015).

14) Distinguish between-Red herring & Abridged prospectus. (Dec-2017).

15) Write a short note on-Red- herring prospectus. (June-2009).

16) Write a short note on- Red- herring prospectus. (Dec-2014).

17) Red -herring prospectus means a prospectus which has complete particulars on the
price of the securities offered & the quantum of securities offered. Comment. (June-
2010).
18) Distinguish between- transfer of shares & transmission of shares. (Dec-2016).

19) Grace ltd, a public ltd 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 (Dec-2009).

20) In the case where the shares of a company are held in joint -names of two persons
Arpit & Rakshit & one of these joint- holders requests the company to split the shares
equally between them issuing fresh share certificates, what should the company do?
(June-2010).
21) A,B & C are joint holders of shares of care head ltd. The joint holders now ask the
company for altering or rearranging the serial other of their names in the register of
the members of the company. In reply, the company intends to ask the joint holders
to execute a transfer deed for transposition of names in the register of members.
Advice the company on course of action. (Dec-2012).

22) Aniket has fraudulently sold his shares to two different transferees. Who will be
entitled to the shares in priority? (June-2018).

23) Piyush ltd. Decided to buy-back its shares with the approval of the Board of directors.
As a CS of the company, advice the Board about the conditions & limitations in this
regard. (Dec-2009).

2. 39 Shubhamm Sukhlecha (CA, CS, LLM)

 24) Board of directors of Pious Limited gives you the following information extracted
from the company's financial statements as at 31st March 2015.

Authorized equity share capital 10cr.

(1 cr. shares of rs. 10 each)
Paid-up equity share capital 5cr.
General reserve 5cr.
Debenture redemption reserve 2cr.

Board of directors by a resolution passed and its meeting decides to go for a buyback of
shares to the extent of 20% of the company's paid up share capital and free reserves.
Examine the validity of the boards' resolution with reference to the provisions of
Companies Act 2013. (June-2018).

25) ENKEBEE Limited wants to buy it's on 100000 equity shares at rupees 10 each out of
the following

a. Unsecured loan of rupees 5 lacs.

b. Balance of depreciation reserve for 300000.
C. Securities premium account rupees 400000.
Examine the legality of the above transaction for the buyback of securities of the
company under the provisions Companies Act 2013. (June-2018)

2. 40 Shubhamm Sukhlecha (CA, CS, LLM)