Documentation – Corporate Funding and Listings in Stock Exchanges Important Questions

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.

[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.]

(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.

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, 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 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 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.

Corporate Funding and Listings in Stock Exchanges Notes

Preparing a Company for an IPO and Governance Requirements – Corporate Funding and Listings in Stock Exchanges Important Questions

Preparing a Company for an IPO and Governance Requirements – Corporate Funding and Listings in Stock Exchanges Important Questions

Question 1.
Write a note on: “Documents to be checked in due diligence pro-cess.” [(Dec. 2012) (4 Marks)]
Answer:
Following are information or documents to be checked during the process of due diligence:

  • Basic Information.
  • Important Business Agreements.
  • Financial Data.
  • Marketing Information.
  • Litigation Aspects.
  • IPR Details.
  • Taxation Aspects.
  • Internal Control System.
  • Human Resource Aspects.
  • Insurance Coverage.
  • Cultural Aspects.
  • Environmental Impact.

Question 2.
Write a note on: “Data room in due diligence.”
Answer:
→ Companies set up specific location where all the documents and the copies of the same are made available for examination and verification. Such specific location can be termed as “Data Room”.

→ Data Room provides all important business documents/information which cover financial, regulatory, IPR, Marketing, Press Report or any important material aspect pertaining to a business transaction.

→ Data Room create the common platform/place where all records of important business information are kept for the review by a potential buyer after signing of Non-Disclosure Agreement (NDA) as it discloses confidential data which is not available for public relating to business process, trade secret, technology information etc.

→ Some principles adhered for copying documents to state clearly the nature of documents which could be copied in the data room for such purpose photocopies and scanning machines are kept. Also, electronic data also monitored for which copies are required to be made.

→ Some provisions are made to mitigate the risks of data destruction/ data stealing for which the restrictive provisions are made for entry, study, noting and exit from the data room including physical checking of persons conducting such study in the data room.

Question 3.
Critically examine and comment on the following: “The concept of data room and its need in due diligence.”
Answer:
Concept of Data Room:
→ Companies set up specific location where all the documents and the copies of the same are made available for examination and verification. Such specific location can be termed as “Data Room”.

→ Data Room provides all important business documents/information which cover financial, regulatory, IPR, Marketing, Press Report or any important material aspect pertaining to a business transaction.

→ Data Room create the common platform /place where all records of important business information are kept for the review by a potential buyer after signing of Non Disclosure Agreement (NDA) as it discloses confidential data which is not available for public relating to business process, trade secret, technology information etc.

Need for Data Room:

  • Removes ambiguity in the minds of buyer about the profitability, growth prospectus and sustainability of business.
  • Give material information for the purpose of SWOT Analysis of the entity.
  • Provide better bargaining to buyer through analysis of the data.
  • Expose the weakness of the seller which is not directly provided to the buyer.
  • Provide data useful for better business valuation for both parties ie. buyers and seller.

Question 4.
Critically examine and comment on the following: “Types of information ‘ that can be provided under a data room.”
Answer:
Following are Types of Information that can be provided under a “Data Room”:

  • Financial Documents such as Annual Reports, Financial Statements filed with regulatory authorities, Cash Flow Statements, documentation with bankers etc.
  • Human Resource Information.
  • Basic corporate documents; such as Memorandum and Articles of Association.
  • Certificate of Incorporation (COI), Shareholders’ agreement, documents on General and Board Meetings, insurance contracts etc.
  • Equipment and information on operational aspects.
  • Information relating to sales, marketing etc.
  • Compliance related information.
  • Information published in media.
  • IPR details.
  • Information on litigation.

Question 5.
Weak Industries Ltd. is contemplating to sell its business to Expen-sive Enterprises Ltd. (EEL). As a Practising Company Secretary, EEL has engaged you to create a ‘data room’ and take further steps. Explain to the management of EEL:
i. What is data room;
ii. What benefits it will provide and
iii. In what circumstances creation of data room will be required?
Answer:
i. Data Room:
Companies set up specific location where all the documents and the copies of the same are made available for examination and verification. Such specific location can be termed as “Data Room”.

Data Room provides all important business documents/information which cover financial, regulatory, IPR, Marketing, Press Report or any important material aspect pertaining to a business transaction.

Data Room create the common platform /place where all records of important business information are kept for the review by a potential buyer after signing of Non-Disclosure Agreement (NDA) as it discloses confidential data which is not available for public relating to business process, trade secret, technology information etc.

ii. Benefits of Data Room:

  • Removes ambiguity in the minds of buyer about the profitability, growth prospectus and sustainability of business.
  • Give material information for the purpose of SWOT Analysis of the entity.
  • Provide better bargaining to buyer through analysis of the data.
  • Expose the weakness of the seller which is not directly provided to the buyer.
  • Provide data useful for better business valuation for both parties i.e. buyers and seller.

iii. Circumstances for creation of Data Room:

  • Mergers, Amalgamations and Acquisitions.
  • Strategic Alliances.
  • Partnering agreement.
  • Business Coalitions.
  • Outsourcing agreement.
  • Technology or Product Licensing.
  • Joint Ventures through technical or financial collaboration.
  • Venture Capital investment.
  • Public Issue.

Question 6.
Write a note on: “Provisions relating to Communication or procurement of unpublished price sensitive information as per SEBI (Prohibition of Insider Trading) Regulations, 2015.”
Answer:
Regulation 3 of SEBI (Prohibition of Insider Trading) Regulations, 2015 provides for prohibition on communication or procurement of unpublished price sensitive information with some exceptions.

Important points as follows:
Prohibition [Reg. 3(1) & 3(2)]: No Person shall:

  • communicate, provide, or allow access to any unpublished price sensitive information or
  • procure from or cause the communication by any insider of

unpublished price sensitive information, relating to a company or securities listed or proposed to be listed or proposed to be listed except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

Exception to Restrictions: However, above provisions shall not applicable to any unpublished price sensitive information which may be communicated, provided, allowed access to or procured, in connection with a transaction that would:

  • entail an obligation to make an open offer under the takeover regulation’s or
  • not attract the obligation to make an open offer under the takeover regulations.
  • board of Directors of the company is of informed opinion that the proposed transaction is in the best interests of the company and
  • the information that constitute unpublished price sensitive information is disseminated to be made generally available at least two trading days prior to the proposed transaction being effected in such form as the board of directors may determine.

Question 7.
Soha Ltd. wants to go for initial public offer. Ms. Pia, the Company Secretary of the Company, has to advise to the management of the company about the conditions for making initial public offer. What should be Ms. Pia’s advice?
Answer:
To
The Board of Directors
Soha Ltd.
Note: Conditions for making Initial Public Offer.

A company may make an initial public offer provided it fulfils all the following five conditions laid down under Regulation 26(1) and (2) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009:

1. It should have net tangible assets of at least three crore rupees in each of the preceding three full years (of twelve months each), of which not more than fifty per cent are held in monetary assets. However, if more than fifty per cent of the net tangible assets are held in monetary assets, the issuer should have made firm commitments to utilise such excess monetary assets in its business or project:

Provided further that the limit of fifty per cent on monetary assets shall not be applicable in case the public offer is made entirely through an offer for sale.

2. It should have a minimum average pre-tax operating profit of rupees fifteen crore, calculated on a restated and consolidated basis, during the three most profitable years out of the immediately preceding five years.

3. It should have a net worth of at least one crore rupees in each of the preceding three full years (of twelve months each);

4. The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding financial year;

5. If it has changed its name within the last one year, at least fifty per cent of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name.

Also, an issuer not satisfying any of the above conditions stipulated in sub-regulation (1) may make an initial public offer if the issue is made through the book-building process and the issuer undertakes to allot, at least seventy five per cent of the net offer to public, to qualified institutional buyers and to refund full subscription money if it fails to make the said minimum allotment to qualified institutional buyers.

Ms. Pia
Company Secretary
Soha Ltd.

Question 8.
“Information dissemination through website assumes significance particularly in respect of listed companies.” Discuss and explain the statutory disclosures on company’s website.
Answer:
Information dissemination through website assumes significance particularly in respect of listed companies:

As per regulation 46 of the SEBI Listing Regulations, 2015, every website of a listed Company must contain statutory disclosures in terms of the SEBI Listing Regulations under a separate section on its website which are enumerated as follows:
(a) details of its business;

(b) terms and conditions of appointment of independent directors;

(c) composition of various committees of board of directors;

(d) code of conduct of board of directors and senior management personnel;

(e) details of establishment of vigil mechanism/Whistle Blower policy;

(f) criteria of making payments to non-executive directors, if the same has not been disclosed in annual report;

(g) policy on dealing with related party transactions;

(h) policy for determining ‘material’ subsidiaries;

(i) details of familiarization programmes imparted to independent directors including the following details:

  • number of programmes attended by independent directors (dining the year and on a cumulative basis till date),
  • number of hours spent by independent directors in such programmes (during the year and on cumulative basis till date), and
  • other relevant details.

(j) the email address for grievance redressal and other relevant details;

(k) contact information of the designated officials of the listed entity who are responsible for assisting and handling investor grievances;

(l) financial information including:

  • notice of meeting of the board of directors where financial results shall be discussed;
  • financial results, on conclusion of the meeting of the board of directors where the financial results were approved;
  • complete copy of the annual report including balance sheet, profit and loss account, directors report, corporate governance report etc.;

(m) shareholding pattern;

(n) details of agreements entered into with the media companies and/or their associates, etc.;

(o) schedule of analyst or institutional investor meet and presentations made by the listed entity to analysts or institutional investors simultaneously with submission to stock exchange;

(p) new name and the old name of the listed entity for a continuous period of one year, from the date of the last name change;

(q) items in sub-regulation (1) of regulation 47;

Question 9.
IPO being “once a life lime event, mis-calculation of any nature can create a hurdle for company’s future growth.” Keeping this in mind list out the important aspects that key Managerial Personnel shall consider while prepare for an IPO.
Answer:
Company Secretary being Key Managerial Person under the Companies Act, 2013 is important personnel as far as compliance of various legislation is concerned. Company Secretary assumes a significant importance when he/she is required to be a part of the Company which proposes to attain ‘listed’ status. Besides complying with provisions of the Companies Act, a Company Secretary of an IPO bound Company is required to be aware and well versed with at least fundamental requirements as far as preparation for IPO as well as continuation of being listed is concerned.

The Key Managerial Personnel shall consider the following important aspects while preparing for an IPO issue:

  • Due Diligence
  • Setting up of Relevant Teams.
  • Management Structure.
  • Data Room.
  • Financial Information & Reporting Process.
  • Other Regulatory Compliances.
  • Industry data.
  • Management Discussion & Analysis.
  • Publicity & Advertising.
  • Road shows.
  • Material Contracts & Documents

Question 10.
Explain the Regulatory Framework for an IPO and scope of Due Diligence. [(Dec. 2019) (5 Marks)]
Answer:
Regulatory framework for an IPO and scope of due diligence:
Regulatory Framework for an IPO:

  • Companies Act, 2013 and Rules made thereunder.
  • SCRA, 1956.
  • SCRR, 1957 specially Rule 19(2)(h) which deals with minimum number of shares to be offered to the public in an IPO.
  • SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
  • Circulars issued by SEBI from time to time governing IPO process such as timeframe within which an IPO should be completed, modes of making payments in an IPO, roles and responsibilities of various intermediaries involved in an IPO etc.

Scope of due diligence in this context:
→ In terms of the ICDR Regulations, the Merchant Bankers are re-quired to submit due diligence certificate to SEBI and the formats for such certificate have been provided in the ICDR Regulations.

→ SEBI Regulations requires a Merchant Banker to:

  • exercise due diligence,
  • ensure proper care and exercise independent professional judgment.

→ The SEBI Regulations requires Merchant Banker to maintain records and documents pertaining to due diligence exercised in pre-issue and post-issue matters. The ICDR Regulations require that Offer Documents should contain all material disclosures, which are true and adequate to enable prospective investors to take an informed decision. Furthermore, the SEBI ICDR Regulations, 2018 require due diligence certificate to be issued by the Merchant Banker.

→ The Merchant Bankers are required to demonstrate that all reasonable steps were taken to exercise due diligence and ensure adequate disclosures were made to potential investors, they

Question 11.
“If going public is a complex process, being public is all the more complex as it assumes tremendous responsibilities on the managements and promoters of the company once listed”- Comment on the statement and the responsibilities it imposes on the management in terms of proce-dures and compliances.
Answer:
If going public is a complex process, being public is all the more com-plex as it assumes tremendous responsibilities on the managements and promoters of the Company once listed. The reason being, that the new set of shareholders would have acquired the ownership in the Company and the management has more responsibility towards outside shareholders as well as Regulators. Further, being publicly listed ownership of shareholding can change any time without the knowledge of the promoters & Company. The responsibility of the management of Listed Company towards the shareholders enhance manifold and managements shall continue to strive for maintaining good governance standards, implementing ethical business practices and continue to comply with applicable Regulations in a sustained manner.

Some of the important functions in the organization after listing can be enumerated as follows:
Board Procedure: On listing, Companies will have additional responsibility of complying with various disclosure requirements of the stock exchanges besides those required under Companies Act, 2013. The stock exchanges will have a standard list of compliances to be followed by Listed Companies at pre-determined schedules like:

Notice of every proposed Board meeting which is likely to consider any decision which is considered as “price sensitive”, must be given in advance as prescribed. The outcome of the Board Meeting must be intimated to the stock exchanges within 30 minutes of conclusion of the Board Meeting.

Every listed Company must have a qualified Company Secretary holding a certificate from ICSI who besides being Key Managerial Personnel as defined under Companies Act is also a designated ‘Compliance Officer’.

The Board process should be such streamlined that the calendar of proposed dates of Board Meeting in the financial year is required to be prepared in advance and intimated.

The exchanges have developed robust disclosure systems wherein even the time of dissemination of information is mentioned on the stock exchanges.

Compliance Requirements: The listed Companies are required to comply with continuous listing norms and have to adhere to periodic disclosures to the stock exchanges. The listed Companies basically will have to comply (besides provisions of Companies Act, 2013) with applicable requirements of :

  • SEBI (Listing Obligation & Disclosure Requirements) Regulations, 2015 (Listing Regulations).
  • SEBI (SAST) Regulations, 2011 (Takeover Regulations).
  • SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations).

Question 12.
What are the advantages of going public and attaining listing?
Answer:
Following are advantages of going public and attaining listing are as follows:
Raising Capital: Companies require funds to finance its needs for expansion/growth, acquisitions & present business operations.

Currency for Mergers & Acquisitions: The established publicly traded Companies can use the equity shares as currency to acquire other business. The equity shares of listed company can be utilized to swap & do a stock deal as a consideration.

Leveraging: Equity shares listed on Stock Exchanges command a price and liquidity which leads to enhanced market capitalization.

Enhancing Brand Image: Listing a Company definitely enhances Company’s image & its profile. Listed stocks get attention of large pool of investors and other stakeholders/market participants which is helpful in creating and enhancing brand awareness.

Talent Acquisition & Management: Listed Companies can offer attractive Employee Stock Option (ESOP) or Employee Share Purchase Schemes (ESPS) to attract required talent pool and also to retain them. These initiatives encourage commitment and long term motivation amongst the talent pool.

Question 13.
Write Short Note on: “Road Shows”.
Answer:

  • Management needs to prepare for proposed Road shows and Investor Meets in advance.
  • Adequate representation of Promoters & Key Managerial Persons (KMPs) should be available for various meets, Road shows etc.

“Road Shows” generally comprises of:

  • ‘Press Conference’: Aims at giving information to the press for publication in their papers/newspapers for dissemination of information to the investors.
  • ‘Brokers, Investors/Analysts Meet’: Aims at giving detailed information to the market participants about the Company enabling them to understand the details and take it further to the ultimate investors.

Question 14.
Prepare list of policies disclosures are required on Website of Listed Companies?
Answer:
Policies required for disclosure on Website of Listed Companies:

  • Code of conduct for Board of Directors & Senior Management.
  • Code of conduct in terms of Insider Trading Regulations.
  • Code of practices & procedures for fair disclosures of unpublished price sensitive information.
  • Appointment letters to Independent Directors.
  • Familiarization programme for Independent Directors.
  • Whistle Blower Policy.
  • Policy of Related Party Transaction.
  • Material subsidiary policy.
  • Risk Management Policy.
  • Archival Policy.
  • Policy for disclosure of material information.
  • Dividend Distribution Policy.
  • Policy against sexual harassment

Question 15.
Write Short Note On: “Investor Grievances Redressal Mechanism”.
Answer:

  • Every listed Company must have in place Investor Grievance Redressal Mechanism to address grievances of any shareholders.
  • All listed Companies must register themselves on SEBI Complaints Redressal System (SCORES) platform.
  • Company must have Shareholders Relationship Committee to look after grievances of any nature against the listed Company.
  • Any shareholder (aggrieved party) can upload its complaint against the listed Company on this platform and listed Company is under obligation to address/redress the same within time bound programme prescribed by Securities and Exchange Board of India.

Corporate Funding and Listings in Stock Exchanges Notes

Non-Convertible Redeemable Preference Shares – Corporate Funding and Listings in Stock Exchanges Important Questions

Non-Convertible Redeemable Preference Shares – Corporate Funding and Listings in Stock Exchanges Important Questions

Question 1.
Discuss the various conditions required to be fulfilled for listing of Non-Convertible Redeemable Preference Shares.
Answer:
As per the provisions of Regulation 17 of the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013, an issuer may list its non-convertible redeemable preference shares issued on private placement basis on a recognized stock exchange subject to the following conditions:
Compliance with Companies Act, 2013: The issuer has issued such non-convertible redeemable preference shares in compliance with the provisions of the Companies Act, 2013 rules prescribed there under and other applicable laws.

Credit Rating: Credit rating has been obtained in respect of such non-convertible redeemable preference shares from at least one credit rating agency registered with SEBI.

Minimum Application Size: Minimum application size for each investor is not less than 10 lakh rupees.

Creation of CRR: Issuer shall create a Capital Redemption Reserve (CRR) in accordance with the provisions of the Companies Act, 2013.

Demat Form: It must be in dematerialized form.

Disclosures: The disclosures as provided in Regulation 18 of the SEBI NCRPS regulations have been made.

In case application is made to more than one recognised stock ex-change:
The issuer shall choose one of them as the designated stock exchange.
The issue is in compliance with sub-regulations (3) and (4) of Regulation 4.

Question 2.
Explain the relevant applicable requirements as specified by SEBI for an issuer proposing to issue Non-Convertible Redeemable Preference Shares to the public through the online system of the slock exchange.
Answer:
The issuer may provide the facility for subscription of application in electronic mode. An issuer proposing to issue non-convertible redeem-able preference shares to the public through the on-line system of the designated stock exchange shall comply with the relevant applicable requirements as may be specified by SEBI.

All the investors applying in a public issue shall use only Application g Supported by Blocked Amount (ASBA) facility for making payment i.e. writing their bank account numbers and authorising the banks to make payment in case of allotment by signing the application forms.

An investor, intending to subscribe to a public issue, shall submit a completed bid-cum application form to Self-Certified Syndicate Banks (SCSBs), with whom the bank account to be blocked is maintained or any of the following intermediaries

  • Syndicate member (or sub-syndicate member).
  • Stock broker registered with a recognised stock exchange.
  • Depository participant (‘DP’).
  • Registrar to an issue and share transfer agent (‘RTA’).

Question 1.
Define the following important terms under Regulation 2 of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013:
i. “Book building”.
ii. “Innovative perpetual debt instrument”.
iii. “Non-convertible redeemable preference share”.
iv. “Perpetual non-cumulative preference share”,
v. “Wilful defaulter”.
Answer:
Following are definition of important terms under Regulation 2 of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013:
i “Book building”:
“Book building” means a process undertaken prior to filing of prospectus with the Registrar of Companies by means of circulation of a notice, circular, advertisement or other document by which the demand for the non-convertible redeemable preference shares pro-posed to be issued by an issuer is elicited and the price and quantity of such securities is assessed.

ii. “Innovative perpetual debt instrument”:
“Innovative perpetual debt instrument” means an innovative perpetual debt instrument issued by a bank in accordance with the guidelines framed by the Reserve Bank of India.

iii “Non-convertible redeemable preference share”:
“Non-convertible redeemable preference share” means a preference share which is redeemable in accordance with the provisions of the Companies Act, 2013 and does not include a preference share which is convertible into or exchangeable with equity shares of the issuer at a later date, with or without the option of the holder.

iv. “Perpetual non-cumulative preference share”:
“Perpetual non-cumulative preference share” means a perpetual non- cumulative preference share issued by a bank in accordance with the guidelines framed by the Reserve Bank of India.

v. “Wilful defaulter”:
“Wilful defaulter” means an issuer who is categorized as a wilful defaulter by any bank or financial institution or consortium thereof, in accordance with the guidelines on wilful defaulters issued by the Reserve Bank of India and includes an issuer whose director or promoter is categorized as such.

Question 2.
For Public Issue of NCRPS, write short note on following:
i. Disclosures in the Offer Document.
ii. Mode of Disclosure of Offer Document.
Answer:
For the purpose of Public Issue of NCRPS:
i. Disclosures in the Offer Document:
The offer document must contain all material disclosures which are necessary for the subscribers of the NCRPS to take an in-formed investment decision.

The offer document shall necessarily contain the following:

  • Disclosures specified in Section 26 of the Companies Act, 2013.
  • Disclosure specified in Schedule I of the SEBI (Issue and listing of NCRPS) Regulations.
  • Additional disclosures as may be specified by SEBI.

The amount of minimum subscription which the issuer seeks to raise and underwriting arrangements shall be disclosed in the offer document.

ii Mode of Disclosure of Offer Document:

  • The draft and final offer document shall be displayed on the websites of stock exchanges and shall be available for download in PDF/HTML formats.
  • The offer document shall be filed with the designated stock exchange, simultaneously with filing thereof with the Registrar of Companies for dissemination on its website prior to the opening
    of the issue.
  • If any person makes a request for a physical copy of the offer document then the same shall be provided to him by the issuer or lead merchant banker.

Corporate Funding and Listings in Stock Exchanges Notes

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