Page 273 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes shares for the benefit of the transferee. The Supreme Court in R. Mathalone v. Bombay Life
Assurance Co. Ltd. AIR 1953 SC 385 has observed that after the transfer form has been executed,
the transferor cannot be held to undertake any additional financial burden in respect of the
shares at the instance of the transferee where, after the transfer of shares, but before the company
had registered the transfer, the company offered rights shares to its members. The transferor
could not be compelled by the transferee to take up on his behalf the rights shares offered to the
transferor and all that he could require the transferor to do was to renounce the rights issue in
the transferee’s favour.
Allotment to renouncee. As per s.81(1)(c), unless the Articles of the company otherwise provide,
the letter of offer of rights shall be deemed to include a right to renounce the shares offered to a
member in favour of any other person; and the notice sent to him must contain a statement to
this effect. When a shareholder renounces any of the rights shares offered to him, in favour of
third person, it is not in the nature of transfer of such shares. The Board of Directors, therefore,
cannot refuse to allot the shares to the renouncee unless the Articles so provide - Re Simo
Securities Trust Ltd. (1972) 42 Comp. Cas. 457.

However, the right to renounce shares is not available to members of a s.43A company even to
the limited extent of renouncing in favour of other members. The Articles of a company may
contain provisions enabling members to transfer shares to each other, but that is different from
a renunciation of shares - Needle Industries’ case (supra).
In the case of shares registered in joint names, any of the joint holders may lodge a letter of
renunciation.

11.3.13 Conversion of Loans or Debentures into Shares

There is one more situation where the existing equity shareholders may lose the right to be
offered the shares, discussed above. Sub-sections (4) to (7) of s.81 provide for such a contingency.
A company may issue shares to its lenders or debentures-holders who have been given the
option to convert their loan or debentures into shares. However, the company can do so only if
such conversion has been approved before the issue of debentures or raising of the loan by a
special resolution and also by the Central Government. But no such special resolution is necessary
where the lender or the debenture-holder is either the Government or any institution specified
by the Central Government in this behalf. Moreover, the Central Government may allow a
Government holder of debentures or a Government lender of money to the company to ask for
shares of the company in lieu of the loan or debenture amount, even though the instrument of
loan or debenture does not contain any option for conversion. A copy of every such order issued
by the Central Government must be laid in draft before each House of Parliament while it is in
session for a total period of thirty days.
Section 94A empowers the Central Government to administratively increase the authorised
capital when conversion is ordered by it and the company does not have shares to issue and has
not increased its share capital by ordinary resolution.

Self Assessment

Fill in the blanks:
7. The term ……………. may be defined as the aggregate of fully paid-up shares of a member
merged into one fund of equal value.
8. The issue of bonus shares is regulated not only by the Companies Act, 1956 but also by the
guidelines issued by……………….

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