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Query on share warrants

Sanjay (Associate) (152 Points)

09 July 2017

Hi all, I understand that provisions regulating share warrants were covered under Companies Act, 1956 where only public limited companies can were permitted to issue share warrants and those were to be fully paid up only.. Can a private limited company enter into an agreeemnt and issue share warrants in today's regime, wherein the holder is given share warrants with diffierent milestone for payments, because Companies Act is silent on provisions regulating warrants.

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4 Replies

Karan Batra (Creator: TheProTalks) (2325 Points)
Replied 10 July 2017

Well there's a mixed take on this as the law has not directly incluided share warrants in its provisions or rules but everywhere they are to be considered indirectly

Have alook at this

ISSUE OF SHARE WARRANTS WITHOUT PRE – EXISTENCE OF UNDERLYING SHARES:

The (Indian) Companies Act, 2013 does not “directly” prescribe any law related to Share Warrant.

Explanation (ii) to sub – rule (1) of Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 has indirect mention of share warrant. It reads, “For the purposes of this rule (Rule 13), 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”.

This explanation make it clear that share warrant, if possible to be issued, shall be issued as an issue for preferential basis as applicable to shares.

In case of fresh issue of share warrant, what will constitute underlying shares? One argument says that a future issue of shares may take place. Then the instrument shall become a fully convertible 0% interest security convertible to shares. This is something akin to 0% fully convertible debenture not share warrants.

However there is one problem

Section 88(1) that Every company shall keep and maintain the following registers in such form and in such manner as may be prescribed, namely:—

(a) register of members indicating separately for each class of equity and preference shares held by each member residing in or outside India;

(b) register of debenture-holders; and

According to Rule 4 of the Companies (Management and Administration) Rules, 2014, “every company which issues or allots debentures or any other security shall maintain a separate register of debenture holders or security holders, as the case may be, for each type of debentures or other securities in Form MGT – 2.”

Form MGT – 2 essentially ask name of securities holder.

Section 88 creates a road block as share warrant is a negotiable instrument freely transferable without executing any instrument or share transfer form.

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Sanjay (Associate) (152 Points)
Replied 10 July 2017

Yes, I referred to that article on blog, however the only concern is can in current regime companies are permitted to issue share warrant as per their terms and conditions or not.