Board Question Paper Solution: February 2023
Secretarial Practice
Q.1. (A) Select the correct answer from the options given below and rewrite the sentences: [5]
1. Company has to pay _______ to government.
Answer: (a) taxes
2. _______ shares are issued free of cost to existing equity shareholders.
Answer: (c) Bonus
3. _______ is a proof of title of shares.
Answer: (b) Share certificate
4. Debenture Capital is a _______ capital of a company.
Answer: (c) borrowed
5. Dividend is paid first to _______ shareholders.
Answer: (b) preference
Q.1. (B) State whether the following statements are True or False: [5]
1. Finance is related to money and money management.
Answer: True
2. Share certificate is issued for partly or fully paid up shares.
Answer: True
3. Government company can collect deposits from its members.
Answer: False
*(Note: Government companies accept deposits from the public.)*
4. Depositors are given voting rights.
Answer: False
5. Primary market is also known as new issue market.
Answer: True
Secretarial Practice Board Papers
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- S.P. - March 2023 - English Medium View Answer Key
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- S.P. - July 2018 View
- S.P. - February 2019 View
Q.1. (C) Find the odd one: [5]
1. Face value, Market value, Redemption value.
Answer: Redemption value
(Face Value and Market Value relate to Shares; Redemption value relates to Debentures/Preference shares).
2. Convertible debentures, Irredeemable debentures, Secured debentures.
Answer: Irredeemable debentures
(Companies Act 2013 prohibits the issue of Irredeemable debentures in India, while others are permitted).
3. Dividend warrant, Interest warrant, Demat.
Answer: Demat
(Demat is a mode of holding securities; Warrant is an instrument of payment).
4. DP, RBI, Depository.
Answer: RBI
(DP and Depository are constituents of the Depository System; RBI is the Central Bank).
5. Final dividend, Interim dividend, Interest.
Answer: Interest
(Final and Interim are types of Dividend paid to owners; Interest is paid to creditors).
Q.1. (D) Select the correct option from the bracket: [5]
(Options: Issued within 6 months of allotment, Physical to electronic mode, Fluctuating rate of dividend, Bombay Stock Exchange, Transmission of shares)
| Group 'A' | Group 'B' (Answers) |
|---|---|
| (a) Equity shares | Fluctuating rate of dividend |
| (b) Operation of law | Transmission of shares |
| (c) Issued within 6 months of allotment | (3) Debenture certificate |
| (d) Dematerialization | Physical to electronic mode |
| (e) Bombay Stock Exchange | (5) Oldest stock exchange in India |
Q.2. Explain the following terms / concepts (Any FOUR): [8]
1. Working Capital
Working capital is the capital which is used to carry out the day-to-day business activities of the company. It is also known as circulating capital. Mathematically, it is the excess of current assets over current liabilities. It is used for purchasing raw materials, paying wages, utility bills, etc.
2. Overdraft
Overdraft is a credit facility granted by a bank to its current account holders. Under this facility, the account holder is allowed to withdraw amounts in excess of the balance standing in their account, up to a specified limit. Interest is charged only on the amount actually withdrawn/overdrawn.
3. Rights issue
When a company wants to raise further capital, it can issue shares to its existing equity shareholders in proportion to their existing shareholding. This issuance of shares to existing shareholders is called a 'Rights Issue'. It is a pre-emptive right of existing shareholders given under the Companies Act.
4. Depository Participant (DP)
A Depository Participant (DP) is an agent of the Depository. The DP acts as a link between the Depository (NSDL/CDSL) and the investor. An investor cannot interact directly with the Depository; they must open a Demat account through a DP. Banks, financial institutions, and stockbrokers can act as DPs.
5. Secondary Market
The Secondary Market is a market for trading (buying and selling) of existing securities that have already been issued in the Primary Market. It is commonly known as the Stock Market or Stock Exchange. Investors buy and sell securities here to achieve liquidity or capital appreciation.
6. Stock Exchange
A Stock Exchange is a specific place where different types of securities are purchased and sold. It is an organized market for the purchase and sale of existing securities of corporate bodies and government. Examples include the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
Q.3. Study the following cases / situations and express your opinion (Any TWO): [6]
Case 1: Sai Ltd. (Newly incorporated public company)
a. What should the company offer – IPO or FPO?
Since Sai Ltd. is a newly incorporated company and is offering shares to the public for the first time, it should offer an Initial Public Offer (IPO).
b. Can the company offer Bonus shares to raise its capital?
No. Bonus shares are issued out of accumulated profits or reserves to existing shareholders. As it is a newly incorporated company, it does not have accumulated reserves to issue Bonus shares.
c. Can the company enter into Underwriting Agreement?
Yes. The company can enter into an Underwriting Agreement to ensure that the minimum subscription is collected, safeguarding the success of the issue.
Case 2: Mr. Kishore (Demat of shares)
a. Which form is he required to fill as a written request to the DP-DRF or RRF?
Mr. Kishore is required to fill the DRF (Dematerialization Request Form) to convert physical shares into electronic form.
b. Does he have to fill instrument of transfer if he wishes to transfer the same, after demat?
No. In the depository system, transfer is done electronically via instructions (Delivery Instruction Slip), so a physical instrument of transfer (Form SH-4) is not required.
c. Does he have to quote certificate number and distinctive number, if he wishes to transfer his shares after it is in demat form?
No. Dematerialized shares are fungible and do not have distinctive numbers or certificate numbers. He simply transfers a specific quantity of shares.
Case 3: Diamond Company Limited (Interim Dividend)
a. In how many days of declaration it should transfer the funds to Dividend Account?
The company should transfer the funds to a separate bank account (Dividend Account) within 5 days of the declaration.
b. In how many days it must pay it to Shareholders?
The dividend must be paid to shareholders within 30 days from the date of declaration.
c. Can the Board of Directors declare Interim Dividend out of capital?
No. Dividend (Interim or Final) can never be paid out of capital. It must be paid out of profits or surplus in the Profit and Loss account.
Q.4. Distinguish between the following (Any THREE): [12]
1. Fixed Capital vs Working Capital
| Points | Fixed Capital | Working Capital |
|---|---|---|
| Meaning | Capital invested in fixed assets like land, building, machinery, etc. | Capital used to carry out day-to-day business operations. |
| Nature | It stays in the business almost permanently. | It is circulating capital; it keeps changing its form. |
| Purpose | Used for acquiring fixed assets for long-term use. | Used for short-term needs like wages, raw materials, etc. |
| Source | Raised through shares, debentures, long-term loans. | Raised through short-term loans, trade credit, commercial paper. |
2. Shares vs Debentures
| Points | Shares | Debentures |
|---|---|---|
| Status | Shareholders are owners of the company. | Debenture holders are creditors of the company. |
| Return | Shareholders get dividend. | Debenture holders get interest. |
| Nature of Return | Dividend rate fluctuates (for equity) and depends on profit. | Interest rate is fixed and mandatory regardless of profit. |
| Voting Rights | Equity shareholders enjoy voting rights. | Debenture holders do not have voting rights. |
3. IPO vs FPO
| Points | Initial Public Offer (IPO) | Further Public Offer (FPO) |
|---|---|---|
| Meaning | First time offer of shares by a company to the public. | Subsequent offer of shares to the public by an existing listed company. |
| Type of Company | Issued by an unlisted company seeking listing. | Issued by an already listed company. |
| Sequence | It precedes FPO. | It is done after IPO. |
| Risk | More risky for investors as company performance is unknown. | Less risky as past performance data is available. |
4. Final Dividend vs Interim Dividend
| Points | Final Dividend | Interim Dividend |
|---|---|---|
| Meaning | Dividend declared at the AGM after the close of the financial year. | Dividend declared between two AGMs during the financial year. |
| Authority | Recommended by Board, Declared by Shareholders. | Declared by the Board of Directors. |
| Time | Declared after the financial year ends. | Declared before the financial year ends. |
| Revocation | Once declared, it becomes a debt and cannot be revoked. | It can be revoked with the consent of shareholders in certain cases (though generally strict). |
Q.5. Answer in brief (Any TWO): [8]
1. State the contents of share certificate.
A share certificate is a document of title to shares. The following are its contents:
- Company Details: Name of the company, CIN (Corporate Identity Number), and Registered Office address.
- Folio Number: The unique folio number of the member.
- Certificate Number: The serial number of the share certificate.
- Member Name: Name of the shareholder.
- Shares Details: Number of shares, Nature of shares (Equity/Preference), and Distinctive numbers of shares.
- Amount: Amount paid up on shares and Face value.
- Seal & Signatures: The Common Seal of the company (if any), and signatures of two Directors and the Company Secretary.
2. Explain four advantages of depository system for an investor.
The advantages of the depository system (Demat) for investors are:
- Elimination of Risk: Risks associated with physical certificates like theft, loss, mutilation, or forgery are completely eliminated.
- Quick Transfer: Transfer of shares is immediate. It saves time as there is no need to send physical forms to the company.
- Reduced Cost: Stamp duty on transfer of shares is not applicable in demat mode, reducing transaction costs.
- Easy Liquidity: Investors can sell any number of shares (even a single share) instantly and receive money quickly.
3. State the functions of SEBI.
The Securities and Exchange Board of India (SEBI) performs the following functions:
- Protective Functions: Protecting the interests of investors, promoting fair practices, and prohibiting fraudulent and unfair trade practices (like insider trading).
- Regulatory Functions: Registering and regulating intermediaries like stockbrokers, sub-brokers, merchant bankers, etc., and regulating the working of stock exchanges.
- Developmental Functions: Promoting the development of the securities market by conducting research, training intermediaries, and educating investors.
Q.6. Justify the following statements (Any TWO): [8]
1. A company can issue only certain types of debentures.
Justification:
- The Companies Act, 2013 has placed restrictions on the types of debentures a company can issue to protect investors.
- A company cannot issue debentures with voting rights.
- A company cannot issue irredeemable debentures; all debentures must be redeemed within a specified period (usually max 10 years, 30 years for infra).
- Companies must create a Debenture Redemption Reserve (DRR) for redemption.
- Therefore, companies are restricted to issuing only secured/unsecured, convertible/non-convertible, and redeemable debentures.
2. All companies cannot accept deposits from public.
Justification:
- According to the Companies Act, 2013, there are strict regulations on who can accept deposits from the public.
- Private Companies can accept deposits only from their members, directors, or relatives, not from the general public.
- Only Eligible Public Companies (having net worth ≥ ₹100 cr or turnover ≥ ₹500 cr) and Government Companies are allowed to accept deposits from the public.
- Other Public companies can only accept deposits from their members.
- Hence, not all companies are legally permitted to invite deposits from the public at large.
3. Equity shares get last priority in payment of dividend.
Justification:
- Equity shareholders are the real owners and residual claimants of the company.
- Preference shareholders have a preferential right to receive dividend at a fixed rate before it is paid to equity shareholders.
- Equity dividend is paid only if there is surplus profit left after paying all expenses, taxes, and preference dividend.
- If the profit is insufficient, equity shareholders may receive no dividend.
- Thus, risk-bearing equity shareholders get the last priority in dividend payment.
4. Capital market is useful for corporate sector.
Justification:
- The capital market is the market for long-term funds (equity and debt).
- It provides a platform for companies (corporate sector) to raise long-term capital required for setting up new projects, expansion, or modernization.
- It helps in the promotion of industrial growth by mobilizing savings from investors to productive corporate channels.
- It increases the marketability and liquidity of corporate securities.
- Therefore, a developed capital market is essential for the financial health and growth of the corporate sector.
Q.7. Attempt the following (Any TWO): [10]
1. Write a letter to the member for the issue of share certificate.
ABC Industries Limited
Regd. Office: 123, M.G. Road, Mumbai - 400 001.CIN: L12345MH2000PLC123456
Ref No: ABC/SC/2023/101
Date: 15th February 2023
To,
Mr. Rajesh Kumar,
A/12, Om Towers,
Dadar, Mumbai - 400 028.
Dear Sir,
This is to inform you that your application for equity shares has been accepted and shares have been allotted to you by the Board of Directors. As per your request, we are pleased to send herewith the Share Certificate for the shares allotted to you.
The details of the Share Certificate are as follows:
| Folio No. | Cert. No. | Distinctive Nos. From - To | Total Shares |
|---|---|---|---|
| R-105 | 8901 | 3001 - 3100 | 100 |
We request you to kindly acknowledge the receipt of the same.
Thanking you,
2. Draft a letter to debenture holder informing him about redemption of debentures.
Sunrise Industries Ltd.
Regd. Office: Plot No. 45, MIDC, Pune - 411 011.CIN: L99999PN2010PLC999999
Ref No: SIL/Deb-Red/2023/55
To,
Ms. Anita Desai,
15, Green Park,
Pune - 411 001.
Dear Madam,
This is to inform you that the 10% Non-Convertible Debentures issued by the company in February 2018 are due for redemption on 1st March 2023. The Board of Directors has finalized the redemption process.
Please find enclosed the 'Debenture Redemption Form'. You are requested to fill the form and submit it along with your original Debenture Certificate to the company's registered office on or before 28th February 2023.
Details of your holding:
| Folio No. | No. of Debentures | Cert. No. | Redemption Amount (₹) |
|---|---|---|---|
| D-202 | 50 | 405 | 50,000 |
Upon receipt of the certificate and form, the redemption amount will be transferred to your bank account via NEFT.
Thanking you,
3. Draft a letter to the depositor regarding repayment of his deposit.
Global Finance Ltd.
Regd. Office: 22, Link Road, Andheri (W), Mumbai - 400 053.CIN: L55555MH2015PLC555555
Ref No: GFL/Dep-Rep/2023/99
To,
Mr. Suresh Patil,
B/4, Sea View Apts,
Mumbai - 400 053.
Dear Sir,
We wish to inform you that the Fixed Deposit placed by you with our company is maturing on 10th March 2023.
The Board of Directors has approved the repayment of the principal amount along with the interest due. We have enclosed a cheque bearing No. 112233 dated 10th March 2023 drawn on HDFC Bank, for ₹ 27,000/- (Rupees Twenty Seven Thousand Only) towards the full and final settlement.
Details of Repayment:
| FDR No. | Principal Amt (₹) | Interest (₹) | TDS (₹) | Net Amt (₹) |
|---|---|---|---|---|
| FD-505 | 25,000 | 2,500 | 500 | 27,000 |
Please acknowledge the receipt.
Thanking you,
Q.8. Answer the following questions (Any ONE): [8]
1. What is an equity share? Explain its features.
Meaning:
Equity shares are those shares which are not preference shares. They do not enjoy preference in the payment of dividend or repayment of capital. They are known as ordinary shares. Equity shareholders are the real owners of the company and bear the ultimate risk.
Features of Equity Shares:
- Permanent Capital: Equity shares are irredeemable. The amount received from equity shares is not refunded by the company during its lifetime. It is refunded only in the event of winding up of the company.
- Fluctuating Dividend: The rate of dividend on equity shares is not fixed. It depends upon the profit earned by the company. If the profit is high, the dividend is high; if profit is low, the dividend is low or nil.
- Rights: Equity shareholders enjoy certain rights:
- Right to Vote: They can vote on all matters in the meeting.
- Right to Share in Profit: They have a right to receive dividend.
- Right to Inspect Books: They can inspect statutory books.
- Right to Transfer: They can transfer shares freely (in public companies).
- No Preferential Right: They do not have any preferential right over preference shareholders regarding payment of dividend or repayment of capital. They are paid last.
- Controlling Power: Since they have voting rights, they can elect the Board of Directors and control the management of the company.
- Risk: They are known as 'Shock Absorbers' because they bear the maximum risk. In case of loss, they may lose their capital.
- Residual Claimant: They are the last claimants on the assets of the company after all debts and preference capital are paid off.
- Bonus Issue: Only equity shareholders are entitled to receive bonus shares issued by the company out of accumulated profits.
2. Explain the statutory provisions for allotment of shares.
Allotment of shares means distributing shares to applicants. The Companies Act, 2013 lays down the following statutory provisions which must be observed during allotment:
- Registration of Prospectus: A copy of the prospectus must be filed with the Registrar of Companies (ROC) before it is issued to the public.
- Application Money: The application money must not be less than 5% of the nominal amount of the share (or such other percentage or amount as specified by SEBI).
- Minimum Subscription: The company must receive the 'Minimum Subscription' amount mentioned in the prospectus (usually 90% of the issue size) within 30 days of the issue opening. If not received, the entire application money must be refunded within 15 days.
- Closing of Subscription List: The subscription list must be kept open for at least 3 days and not more than 10 days.
- Basis of Allotment: The allotment must be done on the basis decided in consultation with the Designated Stock Exchange.
- Oversubscription: In case of oversubscription, shares must be allotted on a pro-rata basis or as per SEBI guidelines.
- Permission to Deal on Stock Exchange: Every company making a public offer must make an application to one or more recognized stock exchanges for permission to deal in its shares.
- Appointment of Managers and Registrar: The company must appoint Merchant Bankers (Managers to the issue) and Registrars to the issue to handle the allotment process.
- Opening of Separate Bank Account: The application money received must be kept in a separate bank account called a 'Scheduled Bank Application Account' and cannot be used until allotment is finalized.