CHAPTER XV

SEBI (DIP GUIDELINES) 2000 FOR BONUS ISSUES

• APPLICABILITY

The SEBI (DIP) Guidelines are applicable to bonus issues made bylisted companiesA listed company proposing to issue bonus shares shall comply withthe ollowing!

• "IG#TS $% %&D'S AD P&D'S(a) No company shall, pending conversion of FCDs/PCDs, issue any shares byway of bonus unless similar benefit is etended to the holders of suchFCDs/PCDs, through reservation of shares in proportion to such convertiblepart of FCD!s or PCD!s"(b) #he shares so reserved may be issued at the time of conversion(s) of suchdebentures on the same terms on which the bonus issues were made"

• $T $% %"EE "ESE"*ES #he bonus issue shall be made out of free reserves built out of the genuineprofits or share premium collected in cash only"

• "E*A+ATI$ "ESE"*ES$eserves created by revaluation of fied assets are not capitalised"

• B$S ISSE $T T$ BE I +IE $% DI*IDED

 #he declaration of bonus issue, in lieu of dividend, is not made"

• %++, PAID S#A"ES #he bonus issue is not made unless the partly%paid shares, if any eisting, aremade fully paid%up"

• $ DE%A+T I "ESPE&T $% %I-ED DEP$SIT.DEBET"ES.STATT$", DES

 #he Company %(a) has not defaulted in payment of interest or principal in respect of fieddeposits and interest on eisting debentures or principal on redemptionthereof and(b) has sufficient reason to believe that it has not defaulted in respect of thepayment of statutory dues of the employees such as contribution toprovident fund, gratuity, bonus etc"

• I/P+E/ETATI$ $% P"$P$SA+ 0IT#I 1 /$T#S(& company which announces bonus issue after the approval of board ofdirectors and does not re'uire shareholders! approval for capitalisation ofprofits or reserves for maing bonus issue as per the &rticles of &ssociation,shall implement bonus issue within iteen days from the date of approval of

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the issue by the board of directors of the company and shall not have theoption of changing the decision")232 Substituted 4ide SEBI &ircular o5SEBI.&%D.DI+.DIP.67.899:.87.9: dated %ebruary 87; 899:; or theollowing!& company which announces its bonus issue after the approval of the *oardof Directors must implement the proposal within a period of si months fromthe date of such approval and shall not have the option of changing thedecision"+

(Provided where the company is re'uired to see shareholders! approval forcapitalisation of profits or reserves for maing bonus issue as per the &rticlesof &ssociation, the bonus issue shall be implemented within two months fromthe date of the meeting of the board of directors wherein the decision toannounce bonus was taen subect to shareholders! approval")

• P"$*ISI$S I A$A(i) #he &rticles of &ssociation of the company shall contain a provision forcapitalisation of reserves, etc"(ii) -f there is no such provision in the &rticles the company shall pass a$esolution at its general body meeting maing provisions in the &rticles of&ssociations for capitalisation" &nd same is filed with $.C -N F.$ 01

• AT#$"ISED &APITA+Conse'uent to the issue of *onus shares if the subscribed and paid%up capitaleceed the authorised share capital, a $esolution shall be passed by thecompany at its general body meeting for increasing the authorised Capital"

• A &E"TI%I&ATE $% &$/P+IA&E 0IT# B$S ISSE

GIDE+IES& certificate duly signed by the issuer company and counter signed bystatutory auditor or by Company 2ecretary in practice to the effect that theprovision of clause in 23*- D-P 45-D36-N32%*.N52 -2253 have been compliedwith shall be forwarded to the *oard"

3. (a) Examinethe implicationsof the followingin the context of bonusissueand suitablyadvisethe

Boardof directors:

(i) The Board approved the bonus issue in its meeting held on 30 th January, 2008. Bonus

issue is to be made in August, 2008 after the audited accounts for the year 2007-08 are

available.

(ii) A ratio of 3 bonus shares for every 10 shares held was originally approved. It is

proposed to change it to 2 shares for every 10 shares held.

(iii) As on 31st January, 2008 there were some unpaid shares.

(iv) There are fully convertible debentures (FCDs) and partially convertible debentures

(PCDs) due for conversion after July, 2009.

(v) There are defaults in the repayment of certain matured deposits.

(vi) Rights issue was made in September, 2007.

(vii) Articles of association has no provision for capitalisation of reserves.

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(viii) Consequent to the bonus issue, the subscribed and paid-up capital exceeds the

authorised capital.

( 8 marks) 

RIGHT ISSUES

Shares offered to the existing shareholders of a company are called 'rights

shares'. Section 81 of the ompanies !ct contains pro"isions on #f$rther iss$e of

capital#% and enacts the principle of pre&empti"e rights of shareholders of a

company to s$scrie to ne( shares the company.In the rights shares% the shareholders of a company ha"e a pre&empti"e right to

s$scrie to these shares. )here a company proposes to increase the s$scried

capital of a company y iss$ing f$rther shares% the shares are offered for

s$scription to the existing shareholders of the company in a certain proportion.

This is a pri"ilege gi"en to shareholders of a company to s$scrie pro rata to a ne(

iss$e of sec$rities. It is a stat$tory right of shareholders to ha"e offered the ne(

shares% and to s$scrie to them. The shareholders% (ho recei"e offers for

s$scriing to the rights shares% are also entitled to reno$nce this right.!rticles of association $s$ally contain reg$lations on rights iss$e.

*ro"isions of Section 81 are mandatory for all p$lic companies% listed as (ell as

$nlisted% $t optional for pri"ate companies. In case% a pri"ate company (ants to

ha"e s$ch pro"ision% articles of association of the company m$st specifically pro"ide

for it.This section does apply to the issue of preference shares, but it does not apply to theissue of debentures or bonds.

For issue of shares on rights basis under section 81, following conditions must befulfilled:

• A period of two years from the incorporation of the company or one year from the date of

first allotment, whichever is earlier has expired at the time of the rights issue;

• The rights shares are offered to the members in proportions, as nearly as circumstances

admit, to the capital paid-up on those shares at that date, i.e. pro rata;

• The shares are offered by a letter of offer specifying the number of shares offered and other

information; At least 15 days period is given to the members to enable the shareholders tosubscribe to those shares;

• nless the articles of association of the company specifically provides for not giving the

members the right of renunciation, the offer of rights shares provides them with that right.

• As per !"#$ %uidelines, no listed company will ma&e a rights issue where the aggregate

value of securities, including premium, exceeds 's. 5( la&hs unless the letter of offer isfiled with !"#$ atleast )1 days prior to filing of letter of offer with 'egional !toc& "xchange.

• $n a rights issue, the abridged letter of offer should be dispatched to all shareholders

atleast one wee& before the date of opening of issue except where a specific re*uest for

letter of offer is received from any shareholder.

• The minimum subscription in case of rights issue should be ensured as under+

for non-underwritten rights issue

if a minimum subscription of ( of issue is not received, the entire subscription should berefunded to applicants within /) days from the date of closure of the issue. A delay of more than 0days after the specified time shall attract interest as given in section 2 of the 3ompanies Act,154.

for underwritten rights issue

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if a minimum subscription of ( of issue including devolvement of underwriters is notreceived, the entire subscription should be refunded to applicants within /) days from the

date of issue. A delay of more than 0 days after the specified time shall attract interest asgiven in section 2 of the 3ompanies Act, 154.

Checklist in respect of issue of Rights Shares

The "ario$s steps in"ol"ed for iss$e of rights share are en$merated elo(+

  1. hec, (hether the rights iss$e is (ithin the a$thorised share capital

of the company. If not% steps sho$ld e ta,en to increase the a$thorised

share capital.

  -. In case of a listed company% ens$re to notify the stoc, exchange

concerned the date of oard /eeting at (hich the rights iss$e is proposed

to e considered at least - days in ad"ance of the meeting.

  0. Ens$re to ,eep the rights iss$e open for at least 1 days and not more

than 02 days.

  3. Ens$re to on"ene the oard meeting and place efore it the proposal

for rights iss$e.

  . Ens$re that the oard sho$ld decide on the follo(ing matters+

  4i5 6$ant$m of iss$e and the proportion of rights shares.

  4ii5 !lteration of share capital% if necessary% and offering shares to

persons other than existing holders of shares in terms of Section 8141!5.

  4iii5 7ixation of record date.

  4i"5 !ppointment of merchant an,ers and $nder(riters 4if

necessary5.

  4"5 !ppro"al of draft letter of offer or a$thorisation of managing

director company secretary to finalise the letter of offer in cons$ltation

(ith the managers to the iss$e% the stoc, exchange and SEI. The letter of

offer sho$ld conform to the disclos$res prescried in 7orm -! $nder

Section 9405 of the ompanies !ct 4memorand$m containing the salient

feat$res of prospect$s5 also contents as specified in SEI g$idelines. 7$ll

 :$stification and parameters $sed for iss$e price sho$ld clearly e

mentioned in the letter of offer.

  9. Immediately after the oard /eeting ens$re to notify the concerned

Stoc, Exchanges ao$t partic$lars of oard;s decision.

  <. If it is proposed to offer shares to persons other than the

shareholders of the company% ens$re to con"ene a General /eeting and a

resol$tion to pass for the p$rpose in terms of Section 8141!5 of the

ompanies !ct.

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  8. Ens$re to for(ard 9 sets of letter of offer to concerned Stoc,

Exchange4s5.

  =. Ens$re to despatch letters of offer to shareholders y registered

post.

  12. hec, that an ad"ertisement gi"ing date of completion of despatch of

letter of offer has een released in at least an English >ational ?aily% one

Hindi >ational *aper and a Regional @ang$age ?aily (here registered office

of the iss$er company is sit$ated.

  11. hec, that the ad"ertisement contains the list of centres (here

shareholders or persons entitled to rights may otain d$plicate copies of

composite application forms in case they do not recei"e original application

form along(ith the prescried format on (hich application may e made.

  1-. The applications of shareholders (ho apply oth on plain paper and also

in a standard form are liale to e re:ected.

  10. Ens$re to ma,e arrangement (ith an,ers for acceptance of share

application forms.

  13. Ens$re to prepare a scheme of allotment in cons$ltation (ith Stoc,

Exchange.

  1. on"ene oard /eeting and ma,e allotment of shares.

  19. /a,e an application to the Stoc, Exchange4s5 (here the company;s

shares are listed for permission of listing of ne( shares.

  1<. hec, that a 0 day and 2 day monitoring report has een sent to

SEI.

“Preferential Allt!ent” means an issue of capital made by a body corporate inpursuance of a resolution passed under Sub-section (A! of Section " of t#eCompanies Act$ %&'“P"#li$ I%%"e& means an in)itation by a company to public to subscribe to t#esecurities offered t#rou*# a prospectus+

 “'"alifie In%tit"tinal B"er& meansa) a public financial institution as defined in section 7& of the Companies &ct,89:;<b) a scheduled commercial ban<c) a mutual fund registered with the *oard<d) a foreign institutional investor and sub%account registered with 23*-, otherthan a sub%account which is a foreign corporate or foreign individual<e) a multilateral and bilateral development financial institution<f) a venture capital fund registered with 23*-<g) a foreign venture capital investor registered with 23*-<h) a state industrial development corporation<i) an insurance company registered with the -nsurance $egulatory andDevelopment &uthority (-$D&)<

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 ) a provident fund with minimum corpus of $s" 0: crores<) a pension fund with minimum corpus of $s" 0: crores)<l) National -nvestment Fund set up by resolution no" F" No" 0/1/0==:%DD--dated November 01, 0==: of 4overnment of -ndia published in the 4a>ette of-ndia"

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