WLC 25 CHAPTER 06 – SHARES

CHAPTER 6
SHARES
MEANING AND NATURE
• The capital of a company is divided into a number of indivisible units of a fixed amount. These units are
known as `shares. A share is not a negotiable instrument. A share is an expression of proprietary
relationship between a shareholder and the company.
• A share is share in the share capital of a company and includes stock except where a distinction between
stock and share is expressed of implied. [Section 2 (46)]
• By share in a company is meant not any sum of money but an interest measured by a sum of money and
made up of diverse rights conferred on its holders by the Articles of the Company, which constitute a
contract between him and the company. [CIT v. Standard Vacuum Oil Co. [1966] Comp LJ 187 (SC)]
• A right to participate in the profits made by a company, while it is a going concern and declares a dividend
and in the assets of the company when it is wound up [Bucha F Guzdar v. CIT, Bombay LR 617 (SC)]
• Stock – the aggregate of fully paid up share of a member merged into one fund of equal value. It is a set
of shares put together in a bundle.
KINDS OF SHARES [SECTION 86]
• The shares of company shall be of two kinds namely: -
1. Equity Share capital – Shares which are not preference shares
(i) with voting rights
(ii) with differential rights - issued in accordance with the Companies (Issue of share capital with
differential voting rights) Rules 2001.
2. Preference Shares – that part of the share capital which fulfils both the following conditions
(a) preferential dividend; and
(b) preferential right at the time of winding up.
The Preference Shares may be of two types: -
(i) Cumulative Preference Shares – It confers a right to claim a fixed dividend of the past and the
current years out of future profits. The fixed dividend keeps on accumulating till is fully paid up.
Where the dividend is due for more than two years from the date of shareholders meeting, the
member shall have a right to vote.
(ii) Non-cumulative Preference Shares – in these shares the unpaid dividend for the past years do not
accumulate. The voting rights on such shares accrue if the dividend is in arrear for 2 financial
years immediately preceding the meeting or any 3 years during a period of 6 financial years
preceding the meeting.
• The companies are now prohibited from issuing any preference share, which is irredeemable or is
redeemable after the expiry of a period of 20 years.
CLASSES OF CAPITAL
• Usually the following classification of capital is made.
 Nominal or Authorised Capital - This is the sum mentioned in the Memorandum of Association as the
capital of the company. It is known as the nominal or authorised capital, since this is the maximum amount
of capital, which the company is authorised to, raised by the issue of shares. The company usually fixes
this amount keeping in view the estimated capital which it may require for its present as well as its future
needs. This is divided into shares of fixed denomination.
 Issued Capital - It is that part of the authorised capital which is issued for the time being for public
subscription.
 Subscribed Capital - That part of the issued capital, which is actually subscribed or taken up by the public,
is known as the subscribed capital.
 Called-up Capital - It is that portion of the capital that is called-up or demanded by the company. Usually
the total amount due on the subscribed shares is not demanded by the company at a time, but is called up
in three four installments payable on application, allotment, first call, final call etc.
 Reserve Capital - It is that part of the uncalled capital which the company has decided not to call up except
at the time of the winding up of the company.
ISSUE OF SHARES [SECTION 81]
• A company limited by shares may issues share in the following three ways: -
(i) To the existing members (Rights Issue/Pre-emptive right)

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WLC 26 CHAPTER 06 – SHARES

 The existing members of the company shall have the first right to further issue of shares (Pre-
emptive right) - Where at any time after the expiry of 2 years from the formation of a company
or at any time after the expiry of one year from the first allotment of shares, whichever is
earlier. Such members shall have a right to renounce in favour any other person. In case, the
existing members/renouncee do not subscribe, the Board of Directors may dispose of them in
such manner as they think most beneficial to the company. SEBI has issued guidelines for
listed/to be listed companies. The offer letter is called `Letter of Offer`.
(ii) To the Public – not wholly to the existing members (Section 81(1A) (Public Issue)
 When the company issues to Public (persons other than existing members). The offer letter is
called `Prospectus`. The existing shareholders shall pass a Special Resolution for making
public issue of the company. Every company has to comply with SEBI (DIP Guidelines, 2000.
(iii) Issue of further shares by conversion of loans of or debentures issued to financial
institutions/banks, as per Loan Agreement approved by the Central Government.
(iv) Issue of further shares by conversion of Convertible debentures in to Equity shares, as per the
terms of issue.
SEBI (DIP) GUIDELINES 2000
• Every listed/to be listed company for making further issue shall have to comply with SEBI (Disclosure
and Investors Protection) Guidelines 2000 besides the provisions of the Companies Act 1956. it must be
noted that SEBI has issued separate specific Rules and Regulations for each of the market intermediary.
• Some of the salient features of the DIP Guidelines are given below :-
PARTICULARS RIGHTS ISSUE PUBLIC ISSUE
 APPLICABILITY Existing listed or to be listed post issue Existing listed or to be listed post issue
 APPOINTMENT Compulsory where the issue size is more than Appointment of Merchant banker is mandatory.
OF SEBI REGD. CAT. I Rs. 50 lakhs
MERCHANT BANKER All intermediaries- Registrar (Cat. I), Brokers, All intermediaries- Registrar (Cat. I), Brokers,
 APPOINTMENT sub-brokers, Bankers, Underwrites should be Brokers, Bankers, Underwrites should be SEBI
OF INTERMEDIARIES –SEBI SEBI Registered and give consent therefor Registered and give consent therefor
REGISTERED The Letter of Offer document shall be prepared The Prospectus shall be prepared as per SEBI
 NATURE OF as per SEBI Guidelines. Guidelines.
OFFER DOCUMENT At 75% should be thru verifiable means At 75% should be thru verifiable means
 FIRM Ordinary resolution Special resolution
ARRANGEMENT OF FINANCE
Draft Letter of Offer duly signed by Directors with Draft Prospectus duly signed by Directors with
 NATURE OF
price band, Due Diligence Certificate to be filed at price band, Due Diligence Certificate to be filed
SHAREHOLDERS RESOLUTION.
least 21 Days` before issue opening. at least 21 Days` before issue opening.
 FILING OF
DRAFT OFFER LETTER BY Not before 22 days from the date of filing of draft Not before 22 days from the date of filing of draft
MERCHANT BANKER AT 21 DAYS offer letter and maximum of 365 days` from the offer letter and maximum of 365 days` from the
ALONG WITH THEIR DUE date of SEBI Observation Letter. date of SEBI Observation Letter.
DILIGENCE CERTIFICATE To be obtained before the issue opening To be obtained before the issue opening
 EARLIEST ISSUE
OPENING

 TO
OBTAIN`LETTER PRECEDENT TO
LISTING` FROM THE CENTRAL
LISTING AUTHORITY AND IN
PRINCIPAL APPROVAL FROM
CONCERNED STOCK EXCHANGE
 PROMOTERS`
CONTRIBUTION
 LOCK IN PERIOD
 ELIGIBILITY
 AGREEMENT
WITH DEPOSITORY
 PRICING OF
SHARES
 FACE VALUE OF
SHARES
Not applicable 20% post issue
No applicable 3 years from the date of allotment in public issue.
Lock in of 1 year for shares in exceeding
promoters’ contribution.
Not applicable for an existing listed company Net Tangible Assets – Rs. 3 Cr.; Track of
distributable profits – 3 out of preceding 5 years;
Issue Size – upto 5 time pre issue net worth;
post issue capital – Rs. 10 Cr. [Separate
guidelines for Infra structure, software
companies]
Mandatory before listing Mandatory before listing
Free pricing Free pricing
Re. 1/- where the issue price is more than Rs. Re. 1/- where the issue price is more than Rs.
500/- 500/-
No applicable IPO to be made through Book Building route with
Green Shoe Option (Stabilising Agent)
1% of the issue size Not applicable
Discretionary Compulsory
Discretionary Compulsory
To be open for Min 30 days To be open for min 3 days and more than 10
days
Specified in SEBI Guidelines Specified in SEBI Guidelines, Lead Merchant
Banker accountable.

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WLC 27 CHAPTER 06 – SHARES

 PROVISIONs RE;
IPO

 SECURITY
DEPOSIT
 NEW SHARES IN
DEMAT
 Underwriting
 ISSUE CLOSURE

 POST ISSUE
OBLIGATIONS

ALLOTMENT
• When an application offering to subscribe to shares of the company is accepted by the issuer company, is
called allotment.
General principles Statutory provisions
 Proper authority of the Board of Directors/Committee of  Registration of prospectus with ROC
Directors  25% of nominal amount of share as minimum application
 Allotment against application only money
 Allotment not be in contravention of any other law e.g.  Moneys to be kept in a separate bank account
SEBI Act 1992, FEMA 2000
 Allotment to be made with in reasonable time  Minimum subscription
 Communication of allotment to the applicant must be  Allotment to be made atleast 5 days of issue opening
complete  Prior in principal approval of Central Listing Authority and
 Allotment must be absolute and unconditional Stock Exchanges where shares proposed to be listed.
 Basis of allotment as per SEBI Guidelines – accountability
of Merchant Banker, Registrar to the Issue in consultation with
Executive Director of SE and Public Representative
IRREGULAR ALLOTMENT
• If allotment of share is made in contravention f the provisions of the Act, then the allotment is termed as
irregular.
Irregular Allotment - Its Effects
Sl. Nature of irregularity Legal effect on Liability of Company/ Director etc.
No. allotment
1 Copy of a prospectus not delivered to the Allotment is void • Company and every person knowingly a
Registrar party to the issue of such prospectus,
punishable with fine may extend to Rs.
50,000
2 Application money being less than 5% if the Allotment is voidable • Director, willfully authorising
nominal value of share contravention liable for damages to the
company as well as to the allottee
• Company and every officer of the
company punishable with fine which may
extend to Rs. 5,000
3 Minimum subscription not subscribed for Allotment is voidable • On closure of the issue(60 days from
the closure if the issue is underwritten), all
moneys to be refunded to the applicants
without interest and if not refunded within
next 8 days directors shall be liable to pay
money with 15% pa interest
• Director willfully esponsible for
contravention liable for damages to the
company as well as to the allottee
4 Application money not kept deposited with a Allotment is voidable • Director willfully authorising the
scheduled bank contravention liable for damages to the
company as well as to the allottee
5 A statement in lieu of prospectus not delivered Allotment is voidable • Company and every officer of the
to the Registrar company punishable with fine which may
extend to Rs.10,000
• Director willfully authorising the
contravention liable for damages to the
company as well as to the allottee
6 Time limit as to opening of the subscription list Allotment is valid • Company and its every officer, who is
not observed in default, punishable with fine which may
extend to Rs.50,000

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WLC 28 CHAPTER 06 – SHARES

7 Condition as to listing of shares on a Allotment is void • If permission is not granted with 10

recognised stock exchange not observed weeks of closing of the subscription list,
application money to be refunded. if not
refunded within 8 days, directors to repay
with interest @ 15% pa
• Company and every officer of the
company, who is in default, liable to pay fine
upto Rs.50,000. In case refund is delayed
beyond 6 months director also liable to
imprisonment upto 1 year.
RETURN AS TO ALLOTMENT [SECTION 75]
• It has been provided under the Act within 30 days of the allotment a return of allotment on Form No. 2
detailing the aggregate number of shares allotment, face value, amount paid up on each share, authority
for allotment, name, address and occupation of each allottee should be filed with ROC.

UNDERWRITING AND BROKERAGE

• Underwriting is in the nature of an insurance against the possibility of inadequate subscription. A
public company cannot proceed to allot shares offered to the public unless the issue of raises the amount
specified in the prospectus as the minimum subscription, is raised by the issue of shares….An underwriter
is entitled to enter into subsidiary agreement with which the company is not concerned. They are not
required to be disclosed in the prospectus…. The underwriting agreement being a contract that the
underwriter will either himself purchase of procure purchasers for the shares underwritten by him, it is no
concern of the company as to how the underwriter procures the purchasers. (Re: Nani Gopal Lahiri)
• Brokerage is the reward paid to an intermediary (called broker) who brings about a bargain between
the seller and a proposed investor (purchaser) of shares or debentures. Brokerage is different from
underwriting commission because the underwriter undertakes to subscribe for shares in case of public
default – it is insurance on the happening of an agreed event; but the brokerage is only a commission for
procuring the securities for the company.
• SEBI has issued separate guidelines for underwriters as well as the brokers.
SEBI GUIDELINES COMPANIES ACT
UNDERWRITERS BROKERAGE UNDERWRITERS BROKERAGE

 SEBI Registered  SEBI Registered  Authority under Articles  Authority

 Lead manager to satisfy  Commission – 5% for under Articles
ability of underwriter to meet shares  Reasonable
financial obligation - 2.5% for brokerage, usually
 Written consent before  Written consent before Debentures 1% of the securities
inclusion of name in inclusion of name in prospectus procured.
prospectus  Disclosure in
 Lead merchant banker  Disclosure in prospectus. prospectus
to underwrite 5% or Rs. 25  Name and
lacs whichever is less.  Name and address of the address of the
 Outstanding brokers to be mentioned in brokers to be
commitment not to exceed 20 prospectus mentioned in
times its net worth prospectus
 In case of devolvement,
lead merchant banker to  Number and value of
ensure payment within 60 securities underwritten to be
days.  To comply with Code of disclosed in prospectus
 To comply with Code of Conduct
Conduct  A copy of underwriting
 To appoint Compliance  To appoint Compliance agreement to be filed with
Officer Officer ROC.

ISSUE OF SECURITIES AT PREMIUM [SECTION 78]

• A company may issue securities at a premium when it is able to sell them at a price above face value for
example Rs. 10/- per share at a price of Rs.47/- per share. Rs. 10/- is the face value (nominal value) and
Rs. 37/- is the premium.
• Premium may be utilized only for: -
1. Issuing fully paid Bonus shares.
2. Writing off the balance of preliminary expenses.

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WLC 29 CHAPTER 06 – SHARES

3. Writing off the commission paid of discount or expenses incurred in the connection with the issue of
securities.
4. Providing premium payable on redemption of redeemable preference shares or debentures.
ISSUE OF SHARES AT DISCOUNT [SECTION 79]
• If the buyer of the shares is required to pay less than the face value of shares for example Rs. 9/- per share
against the face value of Rs. 10/-, then the share is said to be issued or sold at a discount (in this case 10%
discount).
• Shares can be issued at a discount on fulfillment of the following conditions: -
1. The shares to be issued should be o a class that has previously been issued by the company.
2. The issue should be authorised by a resolution of the member in general meeting, and sanctioned by the
Central Government.
3. The resolution authorising the issue should state the maximum rate of discount. The discount should not
exceed 10% unless the Tribunal sanctions a higher rate.
4. A period of one year should have elapsed from the date the company was entitled to commence business.
5. The shares should be issued within two months from the date of the sanction by the Central Government or
permitted extended period.
• This section and restrictions do not extend to issue of debentures at a discount
BUYBACK OF SHARES [SECTION 77A AND 77B]
• This section enables a company to purchase its own shares, whether equity or preference shares or other
specified securities including employees’ stock option or other securities as may be notified by the Central
Government from time to time. This section applies both to public and private companies, whether listed or
unlisted.
• The buy back by a listed company is to be made in accordance with SEBI (Buy back of Securities)
Regulations, 1998, and by an unlisted company in accordance with Private Limited Company and Unlisted
Public Limited Company (Buy back of Securities) Rules, 1999.
Pre-conditions
 Permitted only if the articles of the company so authrorised.
 Buy back of shares/securities is restricted to 25% of the total paid up capital and free reserves of the
company, in any financial year.
 The debt equity ration should not be more than 2:1 after buy back.
 All the shares or other specified securities for buy back are fully paid up.
 The shares are not subject to any lock in period. .
Restrictions imposed
A Company shall not buy back its shares or other specified securities
 Through any subsidiary company, including its own subsidiary company.
 Through any investments company or group of investment companies.
 If default subsists in repayment of deposit or interest payable thereon, redemption of debentures or
preference shares, or payment of dividend to any shareholder, or repayment of any term loan or
interest payable thereon to any financial institution or bank.
 If the company has (I) failed to file the annual return with the ROC, (II) failed to pay dividend with 30
days from the date of declaration (III) failed to prepare the Balance Sheet and profit and loss account
as per the requirements of Schedule VI.
ADVANTAGES DISADVANTAGE
 On buy back of shares the promoters holding increases  This militates against the interests of the
automatically without buying any extra shares. This can also be creditors, particularly unsecured creditors who have advanced
used as defensive mechanism against hostile takeovers; funds either as deposit or otherwise based on the paid up capital
structure;
 The EPS increases. This leads to increase in the share
price of the company over a period of time. Enhancement of  Can tantamount to negation of capital
shareholders` value as a result of buy back of shares formation, in fact this will shun capital growth.
 Save stamp duty on shares so bought back by the
company
 Considered as an addition for rewarding the shareholder
in the years of mega profits or landslide earnings as opposed to
minuscule dividend
 It reflects positive thinking by the management and instills  This will lead to manipulation of shares in the
more confidence amongst the investors; market due to price rigging which may work to the prejudice of the
 With lesser number of shares in circulation in the market shareholders;
an illiquid situation will be created.  This will shun competitive and healthy takeover,
 With lesser number of shares in circulation and lesser which may be beneficial particularly to hose companies, which
number of shareholders the quality of service can be improved. are facing financial crunch

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WLC 30 CHAPTER 06 – SHARES

REDUCTION OF CAPITAL [SECTIONS 100 –105]

• A company limited by shares or a company limited by guarantee and having a share capital may reduce its
capital: -
 If so authorised by its articles.
 Confirmation by the Tribunal.
 Passing of a special resolution.
• Circumstances of reduction of capital
(i) Extinguishing or reducing liability on shares not paid
(ii) Cancellation of paid up share capital
(iii) Return of excess capital
• The general rule is that the prescribed majority of the shareholders are entitle to decide whether there
should be a reduction of capital, and, if so, in what manner and to what extent it should be carried into
effect.
TRANSFER AND TRANSMISSION OF SECURITIES [SECTION 108 TO 111A]
TRANSFER
• Transferability of shares is one of the most vital features of company limited by shares. It is this attribute of
a share that endows company with perpetual and interrupted existence. Upon incorporation, a company
acquires its own independent legal personality and distinct entity, and its shareholders acquire the right to
hold and transfer their shares in the company.
• A Private Limited company by virtue of Section 3(1)(iii) may impose restrictions on the transfer of shares,
however, a public limited company, whether listed or closely held the shares shall be freely transferable.
• It must be noted that the provisions of this section are applicable only in the case of physical shares.
• Section 108 requires for effecting a valid transfer the following requirements are to be satisfied: -
(i) The instrument of transfer shall be in the prescribed form (Form 7B).
(ii) The form has been duly stamped (25 Paise for every Rs. 100/- of the consideration value or market
price which ever is higher, in the case of gift the stamp duty should be paid on the market price)
(iii) The transfer deed should be duly filled up – executed by or on behalf of the transferor; name, address,
occupation of the transferee and duly signed by the transferee or his duly appointed representative
(iv) The related share certificate in original shall accompany the transfer deed.
(v) The duly executed and completed transfer deed along with related share certificate should be
deposited at the registered office or any other notified office (may be share transfer agent) of the company.
(vi) The transfer deed should be valid.
• Validity period of transfer deed –
 In the case of listed shares - 12 months from the date of presentation or date of first book closure after
the date of execution, whichever is later.
 In the case of private or closely held public limited company – 2 months from the date of presentation.
 Where the pledged shares are released by lending bank/financial institution – 2 months from the date
of such release.
• Blank transfer - where a transferor signs a share transfer form without filing in the name of the transferee
and hand it over along with the share certificate to the transferee thereby enabling him to deal with the
shares. This procedure facilitates sale and purchase of shares by delivery. At the time when the validity of
the transfer deed is about to expiry, the last purchaser may complete the deed and lodge for registration in
his name.
• Shares of Public limited company freely transferable – after the enactment of Depositories Act 1996,
the Companies Act has accordingly been amended. Section 111A(2) read with Section 111(14) inter alia,
provide the shares of a public limited company shall be freely transferable. In other words, only a private
limited company may refuse transfer of shares.
• However, an application may be made to the National Company Law Tribunal if such transfer is in
contravention of any of the provisions of the SEBI Act, 1992 or any other law for the time. Such an
application shall be made by NSDL/CDSL (Depository), SEBI, Depository Participant or company within 2
months of the transfer.
TRANSMISSION
• Transmission of securities takes place by operation of law (i) when the member dies or; (ii) when he is
adjudicated an insolvent; or (iii) where the member is a company and it goes into liquidation.

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WLC 31 CHAPTER 06 – SHARES

• The person entitled to the securities by operation of law shall send the legal document evidencing his title
to the property (securities) together with the original certificates of the related securities. The company on
being satisfied registers the name of that person in the place of the previous member.
NOMINATION OF SECURITIES
• Every holder of shares or debentures may at any time nominate a person to whom his shares/debentures
shall vest in the event of his death.
• The intimation regarding nomination shall be in prescribed form in duplication and filed with the
Company/Share Transfer Agents who will return one copy thereof to the shareholder/debenture holder. A
minor can be nominated, however the name and address of the guardian shall also be filed up.
• Such nomination will hold good against any legal successor.
DEPOSITORY SYSTEM
• A depository is a facility for holding securities, which enables securities transactions to be processed by
book entry. To achieve this purpose, the depository may immobilize the securities or dematerialise them
(so that they exist only as electronic records).' India has chosen the dematerialisation route. In India, a
depository is an organisation, which holds the beneficial owner's securities in electronic form, through a
registered Depository Participant (DP). A depository functions somewhat similar to a commercial bank. To
avail of the services offered by a depository, the investor has to open an account with it through a
registered DP.
• A depository interfaces with the investors through its agents called Depository Participants (DPs). If an
investor wants to avail the services offered by the depository, the investor has to open an account with a
DP. This is similar to opening an account with any branch of a bank in order to utilise the bank's services.
• SEBI has issued separate regulations for Depositories and Depository Participant.
• Beneficial Owner is a person in whose name a demat account is opened with Depository (NSDL/ CDSL)
for the purpose of holding securities in the electronic form and whose name is recorded as such with the
Depository.
• A Depository Participant (DP) is an agent of the depository who is authorised to offer depository services
to investors. Financial institutions, banks, custodians and stockbrokers complying with the requirements
prescribed by SEBI/Depositories can be registered as DP.
• Dematerialisation is the process by which physical certificates of an investor are converted to an
equivalent number of securities in electronic form and credited in the investor's account with its DP. In
order to dematerialise certificates; an investor will have to first open an account with a DP and then request
for the dematerialisation of certificates by filling up a dematerialisation request form [DRF], which is
available with the DP and submitting the same along with the physical certificates. The investor has to
ensure that before the certificates are handed over to the DP for demat, they are defaced by marking
"Surrendered for Dematerialisation" on the face of the certificates.
• 'Rematerialisation' is the term used for converting electronic holdings back into certificates. In this case,
the beneficial owner has to make a specific request to his DP. The DP will forward the same to NSDL, after
verifying that the beneficial owner has the necessary balance. NSDL in turn will intimate the registrar who
will print the certificates and dispatch the same to beneficial owner. Thereafter, the company/Share
Transfer Agent will remove the name of that person from the register of beneficial owner and enter the
same in the Register of Members of the company.
• The benefits of participation in a depository are:
1. Immediate transfer of securities;
2. no stamp duty on transfer of securities;
3. elimination of risks associated with physical certificates such as bad delivery , fake securities , etc.;
4. reduction in paperwork involved in transfer of securities;
5. reduction in transaction cost;
6. nomination facility;
7. change in address recorded with DP gets registered electronically with all companies in which investor
holds securities eliminating the need to correspond with each of them separately;
8. transmission of securities is done by DP eliminating correspondence with companies;
9. convenient method of consolidation of folios/accounts ;
10. holding investments in equity, debt instruments and Government securities in a single account;
11. automatic credit into demat account, of shares, arising out of split/consolidation/merger etc.
EMPLOYEE STOCK OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME

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WLC 32 CHAPTER 06 – SHARES

• SEBI has issued ESOS and ESOP Guidelines listed companies. The Department of Company Affairs has
on the same line issued Rules for unlisted companies.
• “Employee stock option” means the option given to the whole-time Directors, Officers or employees of a
company which gives them the benefit or right to purchase or subscribe at a future date, the securities
offered by the company at a predetermined price.
• “Employee stock option scheme (ESOS)” means a scheme under which a company grants employee
stock option.
• Employee stock purchase scheme (ESPS)" means a scheme under which the company offers shares to
employees as part of a public issue or otherwise.
• Eligibility to participate: - An employee including overseas employee and employee of a subsidiary
company.
Not Eligibility to participate -
Promoter or belongs to the promoter group.
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.
• The company shall for the purpose constitute a Compensation Committee which will consist of majority of
independent directors. The committee shall formulate the terms and conditions of the ESOS.
• The scheme shall be approval by the shareholders by way of a Special Resolution. The explanatory
statement shall contain prescribed details regarding the scheme including the particulars of the concerned
employees. Option granted to an employee shall not be transferable to any person.
• In the event of the death of employee while in employment, all the option granted to him till such date shall
vest in the legal heirs or nominees of the deceased employee.
• Until all the options are exercised/lapsed, prescribed particular of the scheme shall be disclosed in the
Directors Report of the company. The company has to place before the shareholders at every meeting a
certificate from the Statutory Auditors certifying that all the related provisions with regard to ESOS have
been duly complied with by the company. The company has to follow prescribed accounting policy.

LECTURES BY PROF. S N GHOSH