Bonus issue of equity shares....

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Chandan Gupta (Querist)
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28 February 2012 Dear Members......

Its a request to all of you, please provide your suggestion on my query as its very urgent...

Can shareholders, who vote against the resolution in EGM for issue of Bonus Equity Shares, have rights not to accepts such Bonus Issue even if the matter was approved as Ordinary Resolution. further Renunciation of shares is possible in such case.

Thanks

Ajay Mishra

Ajay Mishra (Expert)
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28 February 2012 Hi

Yes a shareholders can ignore to accept bonus shares.

Chandan Gupta

Chandan Gupta (Querist)
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28 February 2012 Thanks Sir for your reply....

And for Renounciation point of view,i think renounciation of shares is not possible on Bonus Issue as accepting of bonus shares is an option on the hand of shareholders just unlike Right Issue. Hence shareholders who are not accepting Bonus Issue have no right to renounce his part of shares in favor of others...

Please correct me if I am wrong...

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Guest

Guest (Expert)

28 February 2012 It think they can not refuse to accept bonus shares, pls let us know the section governing the same.

CA. RAVIKUMAR

CA. RAVIKUMAR (Expert)
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28 February 2012 As per my view:

A BONUS issue of shares is required to be approved by the shareholders of a company by an ordinary resolution
at a general meeting convened for the purpose. I assume that there is a provision to this effect in the articles of
association of Company. Any opposition a shareholder may have in respect of the bonus issue can and should
be voiced at such a general meeting. Once a resolution for the bonus issue has been approved by the general body
of shareholders, a shareholder cannot refuse to accept the bonus shares. as a general rule the majority decision of the shareholders binds the minority. The
question of refusal to accept bonus shares does not arise.

Chandan Gupta

Chandan Gupta (Querist)
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29 February 2012 Ravi sir,

I would like to add some more point on the same topic..

Such Bonus Issue is considered under Private Company. The Articles of Company contains clause for Capitalisation of Reserves and Table A does not excluded specifically. The exact term used is as follow:-

The Regulation contained in Table 'A' in the Schedule I to the Companies Act, 1956 shall apply to the Company except in so far as otherwise expressly incorporated hereinafter.
Hence considering regulation 96 and 97 of Table A, the matter of Bonus Issue has approved as Ordinary Resolution in EGM. As per my view Companies Act is silent about Bonus Issue except Section 205(3).

Please quote section or decided case laws if any, related to same topic.

Thanks

Chandan Gupta

Chandan Gupta (Querist)
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29 February 2012 What About Renounciation of shares in Bonus Issue?

Guest

Guest (Expert)

29 February 2012 In the absence of expressed provision in the companies act, renunciation of bonus shares can not be done in my view.

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Ajay Mishra

Ajay Mishra (Expert)
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29 February 2012 Hi

A Bonus issue cannot be made selectively. It has to be made to all shareholders of a public company. However, as a bonus issue will be governed by the Companies Act, 1956, a shareholder has the right to renounce any bonus shares offer to him in favour of any other person. The law does not specify what happens if the person in whose favour the shares are renounced also renounces them. Presumably, this will be governed by the articles of association of the company. As such, if the articles provide that a company can cancel renounced shares and issue only so many bonus shares as are accepted by its shareholders, then such an issue is workable. Moreover, renunciation of bonus shares in favour of a third person or the eventual cancellation of such bonus shares will not amount to transfer of shares under law and will not be construed as a share transfer restriction, which a public company cannot have in its articles. Finally, there is no question of foregoing any right to dividend if a shareholder is fine with foregoing his or her right to the shares of the company itself.

Guest

Guest (Expert)

29 February 2012 Ajay Jee, pls highlight relevant section/circular/order/ notification governing the non acceptance of bonus share by shareholder and its renunciation.

That will be of great help.

Ajay Mishra

Ajay Mishra (Expert)
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29 February 2012 Hi Neha,

Their is no provision in Act, only if articles permit then the company can do so. The Reliance Power has done such type of activities.

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Guest

Guest (Expert)

29 February 2012 Ajay Ji,

You mean if AOA permits shareholders can refuse to accept bonus share and can also renounce bonus shares in favor of other persons.

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Guest

Guest (Expert)

29 February 2012 Is my understanding correct. Thanks for your replies. Its really informative.

Ajay Mishra

Ajay Mishra (Expert)
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29 February 2012 Yes Neha, Some points are derives from Articles of the Company.

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CA. RAVIKUMAR

CA. RAVIKUMAR (Expert)
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29 February 2012 Hi Chandan Gupta,
Your view is right i.e. companies Act is silent in respect of Bonus share except in 205(3)
Again refer regulation 97(3) of the Table A in schedule I which says Any agreement (Resolution) made shall be effective and binding on all members.
Sorry I don not have any case law reference on this topic whatever I said is only my View.
And in respect of renunciation of bonus share:
Unlike a rights issue of shares, which gives the shareholders a right to subscribe to or reject the offer shares in a company, a bonus issue is a benefit provided to a shareholder and is not construed as a right available to a shareholder which can be renounced. However, there are counter views that since the current corporate and securities laws do not prohibit such a waiver, it may be possible for a shareholder to waive his right to get bonus shares, as long as necessary approvals are obtained from the shareholders, and such a waiver is not against the interest of the company or shareholders. Additionally, under the
Companies Act, 1956, dividends, which have been unclaimed by shareholders, have to be transferred by the company to “unclaimed dividend account” to be opened by the company on that behalf. With respect to bonus shares, depending upon the resolutions passed in this regard, if a shareholder decides to waive his bonus shares, then the free reserves/security premium account of the company would not be capitalized to that extent.

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Chandan Gupta

Chandan Gupta (Querist)
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01 March 2012 In the light of above discussion,

As AOA does't contain any provision for renounciation of shares, so we can amend AOA to inclub appropriate clause. And Shareholders can also waive their right to accept Bonus shares subject to submission of necessary approvals with the company.

I think these approvals must be obtained from the shareholder/s who waive his/their right. As there could be a possibility that shareholders may file an application against the Company with malafide intention for opperession and mismanagement of affairs of company under section 397 & 398 of Companies Act. Such obtained approvals can be supportive evidence on part of company to proof that Bonus issue intially offer to all shareholders and waiver of such Bonus issue was their own decision and company neither Pressurise nor acted prejudicial to interest of affected shareholders.

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CA. RAVIKUMAR

CA. RAVIKUMAR (Expert)
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01 March 2012 Yes Agree with Chandan gupta

Guest

Guest (Expert)

02 March 2012 Agree with Chandan Jee.