Documentation – Corporate Funding and Listings in Stock Exchanges Important Questions

Question 1.
Write short notes on the following:
Preferential offer
Answer:
‘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 as per Rule 13 of Companies (Share Capital and Debentures) Rules, 2014.

[Explanation: The expression, “shares or other securities” means equity shares, fully convertible debentures, partly convertible debentures or any other securities, which would be convertible into or exchanged with equity shares at a later date.]

Question 2.
Critically examine and comment on the following:
The preferential allotment made to any person shall be locked-in for a period of two years.
Answer:
In accordance to Regulation 167 of SEBI (ICDR) Regulations, 2018:
The specified securities, allotted on a preferential basis to the promoters or promoter group and the equity shares allotted pursuant to exercise of options attached to warrants issued on a preferential basis to the promoters or the promoter group shall be locked-in for a period of three years from the date of trading approval granted for the specified securities or equity shares allotted pursuant, to exercise of the option attached to warrant, as the case may be:

Provided that not more than twenty per cent, of the total capital of the issuer shall be locked-in for three years from the date of trading approval:

Provided further that equity shares allotted in excess of the twenty per cent, shall be locked-in for one year from the date of trading approval pursuant to exercise of options or otherwise, as the case may be:

Provided further that in case of convertible securities or warrants which are not listed on stock exchanges such securities shall be locked in for a period of one year from the date of allotment.

The specified securities allotted on a preferential basis to persons other than the promoters and promoter group and the equity shares allotted pursuant to exercise of options attached to warrants issued on preferential basis to such persons shall be locked-in for a period of one year from the date of trading approval:

Provided that in case of convertible securities or warrants which are not listed on stock exchanges, such securities shall be locked in for a period of one year from the date of allotment.

Question 3.
As per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, what are the conditions for preferential issue of specified securities by listed issuer?
Answer:
Conditions for Preferential Issue of specified securities by listed issuer as per provisions of SEBI (ICDR) Regulations, 2018:
A listed issuer may make a preferential issue of specified securities, if:

all equity shares allotted by way of preferential issue shall be made fully paid up at the time of the allotment;
a special resolution has been passed by its shareholders;
all the equity shares, if any, held by the proposed allottees in the issuer are in dematerialised form;
the issuer is in compliance with the conditions for continuous listing of equity shares as specified in the listing agreement with the recognised stock exchange where the equity shares of the issuer are listed, SEBI Listing Regulations, 2015 as amended, and any circular or notifications issued by SEBI thereunder;
the issuer has obtained the Permanent Account Number (PAN) of the proposed allottees.

Note: Answer is in accordance to SEBI (ICDR) Regulations, 2018 not as per SEBI (ICDR) Regulations, 2009.

Question 4.
ABC is a company intending to issue Preferential Shares to Rakesh Bansal. List out the Pre-Issue formalities for this Preferential Issue.
Answer:
Following are the Pre-Issue formalities for the Preferential Issue:

1. Certified copy of the resolution passed by the Board of Directors of the company for the proposed preferential issue.

2. Printed copy of notice of AGM/EGM.

3. (I) Where allotment is for consideration other than cash:

Certified copy of valuation report.
Certified copy of Shareholders Agreements.
Certified copy of approval letters from FIPB and RBI if applicable.

(II) Pursuant to CDR Scheme/Order of High Court/BIFR: Certified copy of relevant scheme/order.
(III) Pursuant to conversion of loan of financial institutions: Certified copy of the Loan Agreement executed by the company.

4. Brief particulars of the proposed preferential issue.

5. In case if the prior holding of the allottee is under pledge with banks/ financial institution(s), company needs to provide an undertaking/ confirmations from the banks/financial institutions, company and allottee(s).

6. Confirmation by the Managing Director/Company Secretary.

7. Certificate from Statutory Auditors/Practicing Chartered Accountant/ Practicing Company Secretary.

8. Pricing certificate by Statutory Auditor/Practicing Chartered Accountant/Practicing Company Secretary. Further, in case the securities of the company are infrequently traded pricing certificate as prescribed under the SEBI (ICDR) Regulation, 2018.

9. Non-refundable processing fees.

Question 5.
(a) What is ‘preferential offer’ according to Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014?
Answer:
‘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 as per Rule 13 of Companies (Share Capital and Debentures) Rules, 2014.

(b) Madhav Ltd. makes preferential offer of securities for consideration other than cash. How is such consideration valued?
Answer:
According to the Section 42 and Section 62 read with rule 13(2)(i) of the Companies (Share Capital and Debentures) Rules, 2014, where shares or other securities are to be allotted for consideration other than cash, the valuation of such consideration shall be done by a registered valuer who shall submit a valuation report to the company giving justification for the valuation.

(c) Prakash Ltd. makes preferential offer of Shares for consideration other than cash. Name the two methods by which this non-cash consideration is treated in the books of account of Prakash Ltd.
Answer:
As per rule 13(2)(j) of the Companies (Share Capital and Debentures) Rules, 2014: Where the preferential offer of shares is made for a non-cash consideration. Such non-cash consideration shall be treated in the following manner in the books of account of the company:

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 above is not applicable it shall be expensed as provided in the accounting standards.

Question 6.
Raj Mani Handlooms Ltd., an unlisted Public Company, having paid- up Capital of ₹ 18 Crore, has seven members. Shri Raj and Shri Mani are promoters of the Company and their aggregate holding in the paid up Capital is 95%. Now the promoters want to invest 2 Crore more in the paid up Capital. On 30th March, 2017, the Company has received ₹ 1 Crore each from promoters through RTGS as advance share capital money. Discuss – Whether it is mandatory for the company to make a right issue to implement the capital raising programme? Can the company use the share capital advance prior to completing the allotment of shares? State whether it is mandatory to determine fair price of shares if a preferential allotment were to be made to Promoters alone?
Answer:
In case of an allotment by way of private placement of shares, the proviso under section 42(6) states that the money received with share application should not be utilised except for adjustment against allotment of securities or for refund arising from failure to allot securities. However, such a provision does not apply to Rights issue.

If the company plans a preferential allotment of shares or a private placement of shares, the amount received by way of share application money cannot be utilised prior to allotment and in case the shares are not allotted, the money has to be returned.

For the purpose of issuing securities on a preferential allotment basis to the promoters alone it is mandatory that the fair price of the shares must be determined.

Referring to the above mentioned provisions as per the facts of the case scenario, it can be said that, it is not mandatory for company to make right issue to implement the capital raising programme.

Also, the company may go for the other method of the capital raising like preferential allotment, private placement.

Question 7.
The Board of Directors of National Food Corporation Ltd., a listed company decides to go for issue of shares through the Employees Stock Option Scheme (ESOS). As a professional, the Board has asked you to draft a due diligence check-list on the following issues:
i. Eligibility to participate in the scheme,
ii. Shareholders’ approval; and
iii. Pricing and lock-in period.
Answer:
(i) Eligibility to Participate in the scheme:
An employee is eligible to participate in Employee Stock Option Scheme (ESOS) of the company (It may be noted that where such employee is a director nominated by an institution as its representative on the Board of Directors of the company):

(A) The contract/agreement entered into between the institution nominating its employee as the director of a company and the director so appointed shall, inter alia, specify the following:

whether options granted by the company under its ESOS can be accepted by the said employee in his capacity as director of the company;
that options, if granted to the director, shall not be renounced in favour of the nominating institution; and
the conditions subject to which fees, commissions, ESOS, other incentives, etc. can be accepted by the director from the company.

(B) The institution nominating its employee as a director of a company shall file a copy of the contract/agreement with the said company, which shall, in turn, file the copy with all the stock exchanges on which its shares are listed.

(C) The director so appointed shall furnish a copy of the contract/agreement at the first Board meeting of the company attended by him after his nomination.

(ii) Shareholders approval:
Check that the approval of shareholders of the company has been obtained by passing a special resolution in general meeting.

Check that the explanatory statement to the notice and the resolution proposed to be passed in general meeting for scheme containing the following information has also been sent:

the total number of options to be granted;
identification of classes of employees entitled to participate in the scheme;
requirements of vesting and period of vesting;
maximum period within which the option shall be vested;
exercise price or pricing formula;
exercise period and process of exercise;
the appraisal process for determining the eligibility of employees to the scheme;
maximum number of options to be issued per employee and in aggregate;
a statement to the effect that the company shall conform to the accounting policies specified by SEBI in regard to ESOS;
the method which the company uses to value its options, ie., whether fair value or intrinsic value.
in case the company calculates the employees compensation cost using the intrinsic value of the stock options, the difference between the employees compensation cost so computed and employee compensation cost that shall have been recognized, if it had used the fair value of the options, shall be disclosed in the directors report and also the impact of this difference on profits and on EPS of the company shall be disclosed in directors report.

Check that approval of shareholders by way of a separate resolution in the general meeting has been obtained by company in case of:

grant of option to employees of subsidiary or holding company and
grant of option to identified employees, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option.

(iii) Pricing and lock in period:
→ The companies granting option to its employees pursuant to the scheme have the freedom to determine the exercise price subject to adherence to the accounting policies.

→ In case the company calculates the employee compensation cost using the intrinsic value of the stock options, the difference between the employee compensation cost so computed and the employee com-pensation cost that shall have been recognized if it had used the fair value of the options, is required to be disclosed in the Director’s Report and also the impact of this difference on profits and on Earnings per Share of the company shall also be disclosed in the Director’s Report.

→ Check that there exists a minimum period of one year between the grant of options and vesting of option. Also ensure that, in the case where options are granted by a company under an ESOS in lieu of options held by the same person under an ESOS in another company which has merged or amalgamated with the first mentioned company, the period during which the options granted by the transferor company were held by him shall be adjusted against the minimum vesting period required under this clause.

→ The company has the freedom to specify the lock-in-period for the shares issued pursuant to exercise of option.

→ Check that the employee does not have the right to receive any dividend or to vote or in any manner enjoys the benefits of a shareholder in respect of option granted to him till shares are issued on exercise of option.

Question 8.
Narendra has applied for shares under the Employee Stock Option Scheme (ESOS) and his option was granted by the company. Now he wants to transfer his option to his friend Neeraj. Comment on check points for non-transferability of option under the ESOS.
Answer:
In the given ease, Narendra has applied for shares under the Employee Stock Option Scheme (ESOS) and his option was granted by the company. He wants to transfer his option to his friend Neeraj.

Following are check points for non-transferability of option under the ESOS:

→ Check that option granted to an employee is not transferable to any person.

→ No person other than the employee to whom the option is granted shall be entitled to exercise the option.

Under the cash less system of exercise, the company may itself fund or permit the empanelled stock brokers to fund the payment of exercise price which shall be adjusted against the sale proceeds of some or all the shares.

→ Check that the option granted to the employee is not pledged, hypoth-ecated, mortgaged or otherwise alienated in any other manner. Check that in the event of the death of employee while in employment, all the options granted to him till such date are vested in the legal heirs or nominees of the deceased employee.

→ Check that in case the employee suffers a permanent incapacity while in employment, all the option granted to him as on the date of permanent incapacitation, shall vest in him on that day.

→ Check that if an employee resigns or is terminated, all options not vested as on that day expire. However, the employee shall subject to the terms and conditions formulated by compensation committee be entitled to retain all the vested options.

→ Check that the options granted to a director, who is an employee of an institution and has been nominated by the said institution, has not been renounced in favour of institution nominating him.

Question 9.
Swadesh has applied for shares under employees stock option scheme (ESOS) and his option was granted by the company. Now, Swadesh wants to transfer his option to his friend Vinod. Comment on the check points for non-transferability of option under ESOS.
Answer:
In the given case, swadesh has applied for shares under Employees Stock Option Scheme (ESOS) and his option was granted by the company. Also, Swadesh wants to transfer his option to his friend Vinod.

Following are check points for non-transferability of option under the ESOS:
→ Check that option granted to an employee is not transferable to any person.

→ No person other than the employee to whom the option is granted shall be entitled to exercise the option.

→ Check that the option granted to the employee is not pledged, hypothecated, mortgaged or otherwise alienated in any other manner.

→ Check that in the event of the death of employee while in employment, all the options granted to him till such date are vested in the legal heirs or nominees of the deceased employee.

→ Check that in case the employee suffers a permanent incapacity while in employment, all the option granted to him as on the date of perma-nent incapacitation, shall vest in him on that day.

→ Check that the options granted to a director, who is an employee of an institution and has been nominated by the said institution, has not been renounced in favour of institution nominating him.

Question 10.
Mini Ltd., a listed company, comes out with issue of shares through ESOS. As a Company Secretary, how would you deal with the following issues:
(i) Suresh is an employee on contract basis. His contract is renewed every year. Can he participate in ESOS?
(ii) Lakshya, an employee, is granted option under ESOS by the company. He writes a letter to his friend Mukesh for transferring the offer. But he dies. With whom will the option vest?
(iii) Akhil, a director and his wife Beena together hold more than 15% of the equity shares of the company. Can the director Akhil participate in ESOS?
(iv) The ESOS in Mini Ltd. is a part of public issue and the shares are issued to employees at the same price as in the public issue. What is the duration of the lock-in period to which these shares are subject to?
(v) Anil has acquired shares under ESOS in Simi Ltd. Now, Mini Ltd. acquires Simi Ltd. fully. Mini Ltd. allots shares to Anil .in lieu of shares which he has under ESOS in Simi Ltd. In Simi Ltd., he has undergone S’Months of lock-in period. How many minimum months of lock-in period he has to undergo in Mini Ltd.?
Answer:
As a Company Secretaries opinion on following issues are as follows:
i. A person eligible to participate in the ESOS must be a Permanent employee of the company. As per the facts of case, Suresh is not a permanent employee of Mini Ltd.
Thus, he cannot participate in ESOS.

ii. As the option granted to an employee shall not be transferable to any person. No person other than the employee to whom the option is granted shall be entitled to exercise the option.
As per the above discussed provisions writing a letter by Lakshya to his friend Mukesh for transferring the offer is not a valid. Also, in case of the death of the employee to whom option is granted, his legal heir inherits the rights.

iii. If a director who either by himself or through his relative or through any body corporate, directly or indirectly holds more than 10% of the outstanding equity shares of the company shall not be eligible to participate in the ESOS.

As per facts of the case, Akhil along with his wife Beena together holds more than 15% of the equity share.
Thus, he is not eligible to participate in ESOS.

iv. If ESOS is a part of the public issue and the shares are issued to em-ployees at the same price as in the public issue, the shares issued to employees are not subject to any lock in period.
Thus, in this case the lock in period is zero.

v. There shall be a minimum period of one year between the grant of options and vesting of option. However, in a case where options are granted by a company under an ESOS in lieu of options held by the same person under an ESOS in another company which has merged or amalgamated with the first mentioned company, the period during which the options granted by the transferor company were held by him shall be adjusted against the minimum vesting period required under this clause. In given case, the lock in period already undergone is 5 Months.

Thus, Anil has to undergo a minimum 7 months of Lock in Period in Mini Ltd.

Question 11.
Distinguish between the following:
Initial Public offering’ and ‘Further public offering’
Answer:
Difference between ‘Initial Public offering’ and ‘Further public offering’:
‘Initial Public offering’ (IPO) means an offer of specified securities by an unlisted issue to the public for subscription and includes an offer for sale of specified securities to the public by any existing holders of such securities in an unlisted issuer.

‘Further public offering’ (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.

Question 12.
Distinguish between the following:
‘Right Issue’ and ‘private placement’
Answer:
Difference between ‘Right Issue’ and ‘Private Placement’:

1. ‘Right Issue’:
When a company issues additional equity capital, it has to be offered in the first instance to the existing shareholders on a pro-rata basis.

When a company proposes to issue its shares to its existing shareholders, it is called a rights issue. The company announces a record date and shareholders of the company on that date get a right to subscribe to the rights issue. These rights are also called “rights entitlement”. The shareholders can also renounce their rights.

The company sends a letter of offer to its shareholders, which mentions all details relevant to rights issues.

The shares allotted to shareholders are proportional to their existing stake in the company.

EXAMPLE: If you currently hold one per cent of company’s equity and the company is offering 1000shares in a Rights Issue. In this case you have the right to buy one per cent of 1000 shares i.e. 10 shares.

2. ‘Private Placement’:
“Private Placement” means any offer or invitation to subscribe or issue of securities to a selected group of persons by a company (other than by way of public offer) through private placement offer-cum-application which satisfies the conditions specified in Section 42 of Companies Act, 2013.

When a company issues shares to a select group of investors, instead of inviting public at large, it is called private placement of shares. It falls neither in the category of a public issue, nor a rights issue. It is a faster way of raising capital, as a company has to comply with fewer requirements.

Question 13.
Enumerate any five common restrictions for issuers in case of public and rights issues.
Answer:
No issuer shall make a public issue or rights issue of specified securities:
→ If the issuer or any of its promoters, promoter group or directors or persons in control of the issuer are debarred from accessing the capital market by the Board.

→ If any of the promoters, directors or persons in control of the issuer was or also is a promoter, director or person in control of any other company which is debarred from accessing the capital market under any order or directions made by the Board.

→ If the issuer of convertible debt instruments is in the list of wilful defaulters published by the Reserve Bank of India or it is in default of payment of interest or repayment of principal amount in respect of debt instruments issued by it to the public, if any for a period of more than 6 months.

→ Except it has made an application to one or more recognised stock exchanges for listing of specified securities on such stock exchanges and has chosen one of them as the designated stock exchange.

However, in case of an initial public offer, the issuer shall make an application for listing of the specified securities in at least one recognised stock exchange having nationwide trading terminals.

→ Except it has entered into an agreement with a depository for dematerialisation of specified securities already issued or proposed to be issued.

Question 14.
Company Secretary of a listed company, in addition to Board meetings and other related documentation and filing formalities, is expected to do certain activities relating to securities laws and compliances. State those activities.
Answer:
Company Secretary of a listed company, in addition to Board Meeting and other documentation and filing formalities are expected to do the certain activities relating to securities laws and compliances. The following are the few of the main activities:

Compliance with SEBI and Listing Agreement.
Publication of financial results.
Intimations and disclosures to stock exchanges and SEBI. Implementation of Employee Stock Option plans, if any.
Cautious about takeovers.
Continuous watch on stock price movements.
Watch on insider trading.
Taking steps to prevent money laundering activities.
Carrying out necessary certifications required by stock exchanges as compliance officer of the company.

Question 15.
As a Company Secretary of Kairer Ltd., state the special points to be checked by you in the matter of issue of foreign currency convertible bonds by the company.
Answer:
As a Company Secretary of Kairer Ltd., the following point should be verified in the matter of issue of Foreign Currency Convertible Bonds (FCCB):

Check if the fresh FCCBs is raised with the stipulated average maturity period and applicable all in cost being as per the ECB guidelines.
Check the amount of fr.esh FCCB shall not exceed the outstanding redemption value at maturity on the outstanding FCCBs.
Check the fresh FCCB shall not be raised 6 months prior to the maturity date of outstanding.
Check FCCB beyond USD500 million for the purpose if redemption of the existing FCCB will be considered under the approval route.
Check the proposed of buyback/pre-payment if FCCB from Indian Companies may be considered subject to condition that buy back value of FCCB shall be at a minimum discount of 5% on the accreted value.

Question 16.
Describe the Compliances under institutional placement programme to be furnished by a Company Secretary.
Answer:
The Compliances under Institutional Placement Programme (IPP) to be furnished by a Company Secretary is as follows:

Check the certified copy of special resolution passed in the general meeting approving the Institutional Placement Programme and form MGT 14 filed with ROC.
Check the issuer has obtained in-principle approval from the stock exchange(s).
Check appointment of SEBI registered merchant banker by Issuer to manage the IPP.
Check the copy of the due diligence certificate submitted to SEBI with respect to the IPP.
Check that in case of over subscription allotment of not more than ten per cent of the offer size has been made by the eligible seller

Question 17.
What are the documents required to be prepared by the company secretary for listing approval for Bonus Shares issued by the company for documentation purpose?
Answer:
The following documents are required to be prepared by the Company Secretary for listing approval for Bonus equity shares issued by the Company:

Letter of Application (ie. by listed companies applying for listing of further issue) duly completed.
Certified true copy of the Board resolution in which the equity shares were allotted.
Brief particular of the new securities issued.
Shareholding Pattern as per the format prescribed under Regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 giving details pre and post allotment of bonus shares.
CertificatefromStatutoryAuditors/PracticingCharteredAccountant/Practicing Company Secretary to the effect that the SEBI (ICDR) Regulations, 2018 for bonus issue has been complied with.
Confirmation by the Managing Director/Company Secretary.
Details of further listing/processing fee remitted.

Question 18.
Tej Speed Ltd., an unlisted public company, has issued bonus shares in the ratio 2:1. You are required to prepare a check-list to confirm that every requirement has been fulfilled. Further, if the company is a listed company, what are the additional requirements which are required to be met?
Answer:
Following Provisions to be included in the checklist of Tej Speed Ltd., an unlisted public company to confirm that every requirement has been fulfilled:

In accordance to Section 63 of the Companies Act, 2013, a company may issue fully paid-up bonus shares to its members, in any manner whatsoever out of:

its free reserves;
the securities premium account; or
the capital redemption reserve account.

The section specifically clarifies that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets. The bonus shares shall not be issued in lieu of dividend.

No company shall issue fully paid-up bonus shares unless:

it is authorized by its articles;
it has on the recommendation of the Board, been authorized 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;
it complies with such conditions as may be prescribed.

Additional Requirement: No company which has once announced the decision of its Board recommending a bonus issue can subsequently withdraw the same.

Question 19.
Discuss the post issue formalities to be completed by the company secretary for Rights issue of equity shares for listing purpose.
Answer:
The following are the post issue formalities to be completed by the Company Secretary for Rights Issue of equity shares for listing purpose. The Company has to finalise the basis of allotment, and submit the documents as under, within 10 days from closure of the issue:

Bid data of Exchanges other than the designated stock exchange.
All rejections application along with Summary statement (1 set pho-tocopy to be submitted).
Certified copies of all Bank final certificates (ASBA & NON ASBA).
Minutes of Basis of allotment duly signed by all the Lead Manager, Registrar and the Company.
Basis of allotment sheet for each category.
Round summary in case of over subscription, in hard as well as soft format.
Copy of post issue initial monitoring report filed with SEBI (3 day monitoring report).
Undertaking from Lead Manager, Company and the Registrar.
Pre Allotment shareholding and Post proposed Allotment Shareholding pattern as per Regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015.
The calculation of ex right price by the Statutory Auditor/Practicing Company Secretary/Practicing Chartered Accountant, if not available in the offer document.

Question 20.
Priyanka Ltd., a listed company wants to make an issue of securities through a right issue where the aggregate value of securities including premium exceeds ₹ 70 lakh. As the Company Secretary of Priyanka Ltd., how will you advise your company in respect of procedures to be followed?
Answer:
As Company Secretary of Priyanka Ltd., our advice in respect of procedures to be followed:
The provisions of SEBI (ICDR) Regulations, 2018 shall be applicable only if the issue size is INR 50 Lacs or more.

However, if the issue size is less than INR 50 Lacs the aforesaid regulations are not applicable in the Rights Issue of a listed company. An issuer making a right issue is required to file a draft offer document along with fees as specified with SEBI through the lead merchant banker at least 30 days prior to registering the prospectus, red herring prospectus or shelf prospectus with the ROC or filing the letter of offer with the designated stock exchange as the case may be.

The following are important procedures to be followed with respect to a right issue:
Issue of securities in dematerialized form: No company shall make rights issue of shares, unless the company enters into an agreement with a depository for dematerialisation of shares already issued or proposed to be issued to the existing shareholders.

Record Date: Ensure that the record date has been announced for the purpose of determining the shareholders eligible to apply for specified securities in the proposed right issue.

Restriction on rights issue: No issuer shall make a right issue of equity shares unless it has made reservation of equity shares of the same class in favour of the holders of outstanding compulsorily convertible debt instruments if any in proportion to the convertible part thereof.

Letter of offer, abridged letter of offer: The abridged letter of offer, along with application form, shall be despatched through registered post or speed post or by courier service or by electronic transmission to all the existing shareholders at least three days before the date of opening of the issue. The letter of offer shall also be provided by the issuer or lead manager(s) to any existing shareholder who makes a request in this regard.

Pricing: The issuer shall decide the issue price, in consultation with the lead manager(s), before determining the record date, which shall be determined in consultation with the designated stock exchange.

Period of subscription: The rights issue shall be kept open for subscription for a minimum period of fifteen days and for a maximum period of thirty days.

Advertisement: An advertisement, giving the date of completion of dispatch of letters of offers, shall be released in at least one English, one Hindi and one Regional Language newspaper at least 3 days before the date of opening of the issue.

Obligation of issuer/intermediaries: The obligation of issuer/ intermediaries for a rights issuer with respect to advertisement, appointment of compliance officer, redressal of investor griev-ances, due diligence, post issue reports, post issue advertisements etc. is same as the public issue.

Question 21.
Som Ltd. wants to make ‘rights issue’ of shares. As a Company Secretary, advise on the following issues:
(i) The aggregate value of securities offered is INR 85 Lakh.
(ii) The record date for rights issue is 30th June, 2015. The Company desires to withdraw rights issue on 2nd July, 2015.
(iii) The rights issue is open for subscription from 30th June, 2015 to 10th July 2015.
(iv) The letter of offer is dispatched through courier to all existing share¬holders on 29th June, 2015 when the issue is open for subscription on 30th June 2015.
(v) The record date is 30th June, 2015. On 2nd July , 2015, the issue price of shares is decided.
Answer:
(i) Where the aggregate value of the Securities offered is ₹ 50 Lakhs or more, SEBI (ICDR) Regulations, 2009 are applicable. In the given case, it is ₹ 80 Lakhs.

Hence, the company is required to file a draft offer with fees with SEBI through a Lead Merchant Banker at least 30 days prior to registering the prospectus.

(ii) If the issuer withdraws the rights issue after announcing the record date, it shall not make an application for listing of any of its specified securities on any recognised stock exchange for a period of twelve months from the record date. However, the issuer may seek listing of its equity shares allotted pursuant to conversion or exchange of convertible securities issued prior to the announcement of the record date, on the recognised stock exchange where its securities are listed.

(iii) A rights issue shall be open for subscription for a minimum period of fifteen days and for a maximum period of thirty days. In this case it is open for subscription for a period less than the minimum period. Hence it is not valid.

(iv) The abridged letter of offer, along with application form, shall be dispatched through registered post or speed post to all the existing shareholders at least three days before the date of opening of the issue.
In this case letter of offer is dispatched through courier and that too just one day before the date of opening of issue. Hence it is not valid.

(v) The issue price shall be decided before determining the record date which shall be determined in consultation with the designated stock exchange. In this case it is decided after the record date which is wrong.

Note: The answer is given as per SEBI (ICDR) Regulations, 2009 which is replaced by SEBI (ICDR) Regulations, 2018. The above answer is not applicable for examination further. .4s per SEBI (ICDR) Regulations, 2018, an issuer offering specified securities of aggregate value of50crores or more through a right issue shall satisfy the conditions at the time of filing the draft letter of offer with the Board and also at the time of filing the final letter of offer with the stock exchange(s); as the case may be.

Question 22.
Strong Ltd. is contemplating to introduce Employee Stock Purchase Scheme (ESPS). As a Practising Company Secretary, advise the management on the following issues:
(i) Whether directors of the company are eligible for ESPS?
(ii) Is there any restriction on the price of shares to be issued under ESPS?
(iii) The nature of approvals to be taken from the shareholders of the company.
(iv) Lock-in-period
Answer:
Advise to the management as a Practising Company Secretary:
(i) Eligibility for ESPS:
A director of the company, whether a whole time director or not but excluding an independent director is eligible for the ESPS whereas an employee who is a promoter or a person belonging to the promoters group; or a director who either himself or through his relative or through anybody corporate (directly or indirectly) holds more than ten per cent of the outstanding equity shares of the company is not eligible for the ESPS.

(ii) Restriction on the price of shares to be issued under ESPS:
Under Regulation 15, the company may determine the price of shares to be issued under an ESPS, provided they conform to the provisions of accounting-policies.

(iii) Nature of approvals to be taken from the shareholders of the company: No scheme shall be offered to employees of a company unless the shareholders of the company approve it by passing a special resolution in the general meeting. The explanatory statement to the notice and the resolution proposed to be passed by shareholders for the schemes shall include the information as specified by in Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.

(iv) Lock-in-Period: Shares issued under an ESPS shall be locked-in for a minimum period of one year from the date of allotment whereas the ESPS is part of a public issue and the shares are issued to employees at the same price as in the public issue, the shares issued to employees pursuant to ESPS shall not be subject to lock-in.

Question 23.
ADLAP Infra Project Ltd. is in process of Initial Public Offer of ₹ 450 Crore. M/s SPMG, is being appointed for due diligence in respect of project of ADLAP.

As the Company Secretary, prepare a checklist for such due diligence to provide Project related information and records.
Answer:
Checklist for due diligence in respect of Project related information of ADLAP

Project Feasibility Report.
Reports/documents prepared by independent research agencies in respect of the state of the industry and demand and supply for the company’s products.
Schedule of Implementation.
Status of Proj ect as on a recent date including amount spent & sources.
Promoter’s contribution till date (supported by Auditor’s Certificate, if possible).
Current & proposed Shareholding pattern.
Sanctions received by the issuer from bankers/institutions for debt financing in the project.
Market (Demand/supply with sources along with copies)
Arrangements and strategy of the company for marketing its products.
Discussions with important customers, suppliers, Joint Venture part-ners, collaborators of the company.
Marketing & Distribution (network etc.) & relevant documents wher-ever applicable.

Break-up of Cost of Project:
Land: Location site & map, area, copy of documents Le. Sale/Lease Deed for land, Soil Test Report, Order for converting land into Industrial land etc.

Building: Details break-up from Architect, Approval details from Municipality etc. and Valuation Report from a Chartered Engineer (for existing building and suitability of site).

Equipments: Invoices/Quotations of main items, (indicate Imported Machinery separately).

Margin Money for Working Capital: Margin Money for Working Capital (calculation).

Preliminary & Pre-operative expenses break-up.
Provision for contingencies break-up.

Questioon24.
For listing and trading of SME- Initial Public Offer (IPO), what are the documents to be submitted by the Company Secretary on T+2 days?
Answer:
Listing and Trading of SME- Initial Public Offer (IPO): Documents to be submitted by the Company Secretary on T+2 days (Le. within 2 working days from the closure of the issue):

All due diligence certificates filed with SEBI by Merchant bankers.
List of authorized signatories along with their specimen signatures.
The company should inform that the dividend entitlement for the
current year for all the existing shares including the shares issued in the public issue shall rank pari passu.
Confirmation from Lead Managers that devolvement notices have been sent to underwriters (applicable if the issue has devolved).
Confirmation from the company stating that they have obtained authentication for SCORES from SEBI as per SEBI Circular dated April 13, 2012.
Confirmation from the company regarding the email ID for Investor Grievances as per Regulation 46 of SEBI (LODR), Regulations, 2015.
Copies of all advertisements published in connection with the issue up to T+2 stage.

Question 25.
PQR successfully completed its Initial Public Offer (IPO). List out the documents to be submitted on T+2 days for listing.
Answer:
PQR successfully completed its Initial Public Offer (IPO). Afterwards, following documents are required to be submitted on T+2 days for listing named as below:

All due diligence certificates filed with SEBI by Merchant banker(s).
Observation Letter issued by SEBI pursuant to filing of draft offer document.
List of authorized signatories along with their specimen signatures.
Confirmation from Lead Managers that devolvement notices have been sent to underwriters (applicable if the issue has devolved).
Certificate from the BRLM(s) that the issue has received minimum subscription as specified under Regulation 45(1) of SEBI (ICDR) Regulations, 2018.
As per Regulation 46 of SEBI (LODR), Regulations, 2015, confirmation from the company regarding the E-mail ID for Investor Grievances.
Copies of all advertisements published in connection with the issue up to T+l stage.
As per Regulation 13 of LODR, Regulations, 2015, confirmation from the company stating that they have obtained authentication for SCORES from SEBI.

Question 26.
What documents are required for submission to obtain in-principle approval for the proposed Right Issue?
Ans.
Documents are required for submission to obtain in-principle approval for the proposed Right Issue:

Bid data of Exchanges other than the designated stock exchange.
All rejections application along with Summary statement (1 set pho-tocopy to be submitted).
Certified copies of all Bank final certificates (ASBA & NON ASBA).
Minutes of Basis of allotment duly signed by all the Lead Manager, Registrar and the Company.
Basis of allotment sheet for each category.
Round summary in case of over subscription, in hard as well as soft format.
Copy of post issue initial monitoring report filed with SEBI (3 day monitoring report).
Undertaking from Lead Manager, Company and the Registrar.
Pre Allotment shareholding and Post proposed Allotment Sharehold-ing pattern as per Regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015.
The calculation of ex right price by the Statutory Auditor/Practicing Company Secretary/Practicing Chartered Accountant, if not available in the offer document.
Thus, the Company has to finalise the basis of allotment and submit the documents as under within 10 days from closure of the issue.

Question 27.
What documents are required for granting approvals under SEBI (LODR) Regulations, 2015 for the companies coming out with QIPs- Prior Approval?
Answer:
As per Regulation 28(1) of SEBI (LODR), 2015, following documents required for granting approvals for the companies coming out with Qualified Institutions Placement (QIPs) for prior approval along-with covering letter in which the company’s intention to give discount to the investors:
→ Copy of the two days prior intimation given by the company to the Exchange about the proposed meeting of the Board of Directors in which fund raising by way of QIP issue is specifically mentioned as required under Regulations 29(1) and (2) of Listing Regulations.

→ Certified true copy of the resolution passed by the Board of Directors of the Company approving the placement of securities with Qualified Institutional Buyers (QIBs) under the SEBI (Issue of Capital and Dis-closure Requirements) Regulations, 2018.

→ Copy of the notice sent to the shareholders of the company.

→ Draft placement document for issue of specified securities to QIBs.

[Explanation: The placement document required to be prepared in accordance with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 shall contain disclaimer in bold capital letters to the effect that “the placement is meant only for QIBs on a private placement basis and is not an offer to the public or to any other class of investors. ”]

→ Certified true copy of the resolution passed by the shareholders of the Company in accordance with the requirements of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

→ Abridged shareholding pattern of the Company at the time of application for in-principle approved.

→ Net worth certificate from PCA/PCS together with related workings of the company based on the audited balance sheet of the previous financial year.

→ Confirmation by the Managing Director/Company Secretary.

→ Processing fee.

→ Confirmation from the Merchant Banker that the proposed issue of (Name of the Company), is being made in compliance with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the (Name of the Company) complies with the requirements of SEBI (ICDR) Regulations, 2018.

→ Undertaking from MD/CS/Compliance Officer of the company.

Question 28.
Write short note on: “Six points which can be included in checklist for basis of allotment-SME- IPO”.
Answer:
Six points which can be included in checklist for basis of allot- ment-SME-IPO:

One Copy of final prospectus filed with ROC along with ROC filing acknowledgement copy.
Statement of multiple application and status of its acceptance. (If applicable).
Photo copy of the final certificate issued by the controlling branch of ASBA bankers giving branch wise details of collections received.
Undertakings from the company, lead managers and the registrars & transfer agents in respect of the basis of allotment.
Copy of the statutory advertisement released in respect of the public issue/offer for sale, opening and closing of the issue, price revision, if any etc. up to the stage of basis of allotment.
List of all prospective allottees (valid) along with number of shares applied, amount paid, bank account details, PAN number, Demat account details etc. (in soft copy CD).

Question 29.
What documents are required for granting listing approvals for the equity shares issued on a preferential basis?
Answer:
Following documents required for granting listing approvals, for the equity shares issued on a preferential basis:

Brief particular of the new securities issued,

Certified copy of:

the resolution passed by the shareholders of the Company approving the allotment on preferential basis and the resolution passed for increasing the authorized capital wherever applicable.
the resolution passed by board of directors for allotment of convertible instrument, applicable only where the allotment of equity shares is pursuant to conversion of convertible instrument.
the compliance certificate from the Statutory Auditor placed before the shareholders in the general meeting.
the order passed by Hon’ble High Court! BIFR/Scheme approved by CDR, if applicable.

Shareholding Pattern as per the format prescribed under Regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 giving details pre and post allotment.

Certificate from:

Managing Director/Company Secretary of the company.
Statutory Auditor of the company for receipt of funds.
Statutory Auditors/Practicing Chartered Accountant/Practicing Company Secretary for compliance.

Details of Processing fee/Additional listing fee, if applicable to be paid on the enhanced capital.

Documentation – Corporate Funding and Listings in Stock Exchanges Important Questions

Documentation – Corporate Funding and Listings in Stock Exchanges Important Questions

Corporate Funding and Listings in Stock Exchanges Notes