Legal Provisions for Declaration and Payment of Dividend & IEPF | 12th HSC S.P. Chapter 10

The questions on Legal Provisions for Sources and Declaration of Dividend, Legal Provisions for Payment of Dividend, and Unpaid / Unclaimed Dividend & Investor Education and Protection Fund (IEPF) are the most important 4-mark brief questions from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 10: Dividend and Interest. In the HSC Board Examination, at least one of these statutory questions is regularly asked in Question 5 (Answer in Brief - 4 Marks), Question 3 (Case Study - 3 Marks), or Question 6 (Justify Statements - 4 Marks). Below are the complete, textbook-accurate solutions strictly aligned with the latest Balbharati Textbook.

Board Examiner Marking Scheme (4 Marks):
1. Meaning of Dividend & Governing Legal Section (Section 123 / 124): 1 Mark
2. Any 4 to 5 Statutory Provisions with Exact Timelines: 3 Marks
Topper's Tip: Memorizing the 5-Step Statutory Timeline Ladder (5 Days → 30 Days → +7 Days [37 Days] → 90 Days → 7 Years) guarantees full marks in both Case Studies (Q.3) and Brief Answers (Q.5)!

Quick Revision Chart: Statutory Timelines for Dividend (Sections 123 to 127)

Timeline	Statutory Action Required by the Company
Within 5 Days of Declaration	Deposit the total dividend amount in a Separate Bank Account in a Scheduled Bank.
Within 30 Days of Declaration	Pay dividend (or post Dividend Warrants / ECS / NEFT) to entitled shareholders.
Within 7 Days after 30 Days (i.e., Within 37 Days of Declaration)	Transfer any unpaid / unclaimed dividend to the "Unpaid Dividend Account" in a Scheduled Bank.
Within 90 Days of Transfer	Put up a statement on the company's website showing names, addresses, and unpaid amounts.
After 7 Consecutive Years	Transfer any amount still remaining unpaid in the Unpaid Dividend Account (along with underlying shares) to the Investor Education and Protection Fund (IEPF).

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Part A: Legal Provisions for Sources and Declaration of Dividend [Section 123]

1. Meaning of Dividend

The term "Dividend" is derived from the Latin word "Dividendum", which means "that which is to be divided". It is that part of the annual net profits of the company which is distributed among its shareholders as a return on their investment in share capital.

2. Legal Provisions for Sources of Dividend [Section 123(1)]

A company may declare and pay dividend for any financial year out of the following three permissible sources:

1. Current Year's Profits: Out of the profits of the company of that financial year, arrived at after providing for depreciation and transferring a prescribed percentage to reserves.
2. Previous Years' Undistributed Profits (Free Reserves): Out of the profits of the company of any previous financial year(s) arrived at after providing for depreciation and remaining undistributed (i.e., out of Free Reserves).
3. Money Provided by Government: Out of money provided by the Central Government or State Government for the payment of dividend in pursuance of a guarantee given by that Government.

• Key Prohibitions on Sources:
  • Capital Profits: Dividend can be paid out of capital profits only if such capital profits are actually realized in cash, the Articles of Association permit such distribution, and it remains as profit after revaluation of all assets and liabilities.
  • Cannot Be Paid Out of Capital: Dividend can never be paid out of Capital or out of Securities Premium Account / Capital Redemption Reserve Account / Revaluation Reserve.

3. Legal Provisions for Declaration of Dividend

1. Board Meeting (Recommendation): Dividend can be declared only on the recommendation of the Board of Directors. The Board passes a resolution regarding the rate of dividend, book closure date/record date, and date of the Annual General Meeting (AGM).
2. Shareholders' Approval at AGM (Ordinary Resolution): Dividend is formally declared by the Shareholders by passing an Ordinary Resolution at the Annual General Meeting (AGM).
   • Restriction on Shareholders: Shareholders at the AGM can declare a rate of dividend lower than what is recommended by the Board, but they cannot declare a dividend at a rate higher than that recommended by the Board of Directors.
   • Cannot Be Declared at EOGM: Once final dividend is declared at an AGM, a company is not permitted to declare it a second time in that year at an Extra-ordinary General Meeting (EOGM).
3. Cannot Be Revoked: Once a dividend is validly declared at the AGM, it becomes a statutory debt against the company and cannot be revoked (cancelled) generally.
4. Separate Bank Account (Within 5 Days): The company must deposit the total dividend amount in a separate account opened in a Scheduled Bank called the "Dividend Account" within 5 days of its declaration.
5. Intimation to Stock Exchange: A listed company must notify the Stock Exchange where its securities are listed at least 2 working days in advance of the Board Meeting in which the declaration of dividend is to be considered.
6. Prohibition on Declaration of Dividend: A company that has failed to comply with Sections 73 and 74 (i.e., defaulted in repayment of Public Deposits or interest thereon) cannot declare any dividend on its equity shares until such default is made good.

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Part B: Legal Provisions for Payment of Dividend [Sections 123 & 127]

Once dividend is declared, the company has to follow these strict statutory provisions for its payment:

1. Payable Only in Cash: Dividend must be paid only in cash and not in kind (e.g., goods or gifts). It may be paid by Cheque, Dividend Warrant, or by any Electronic Mode (ECS, NEFT, RTGS) directly to the shareholder's bank account.
2. Paid Only to Registered Shareholders: Dividend shall be paid only to the registered shareholder of such share, or to his order, or to his banker (or to the Beneficial Owner as per the statement provided by the Depository for Demat shares).
3. Paid Only on Paid-up Value [Section 51]: In the case of partly paid-up shares, dividend is payable in proportion to the amount actually paid-up on each share (if authorized by the Articles of Association).
4. Time Limit for Payment (Within 30 Days): It is obligatory for the company to pay the dividend or post the Dividend Warrants within 30 days from the date of declaration of dividend.
5. Penalty for Default in Payment [Section 127]: If the company fails to pay the declared dividend within 30 days of declaration:
   • Every Director who is knowingly a party to the default is punishable with imprisonment up to 2 years and a fine of not less than Rs. 1,000/- per day for every day during which the default continues.
   • The company shall be liable to pay simple interest at the rate of 18% per annum during the period for which the default continues.

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Part C: Unpaid / Unclaimed Dividend & Investor Education and Protection Fund (IEPF) [Sections 124 & 125]

1. Unpaid / Unclaimed Dividend Account [Section 124]

The dividend declared by the company which has not been paid by the company or claimed by the entitled shareholder within 30 days of its declaration is termed as "Unpaid and Unclaimed Dividend". The company has to follow these rules:

1. Transfer to Unpaid Dividend Account (Within 7 Days / 37 Days): The total amount of dividend which remains unpaid or unclaimed at the end of 30 days must be transferred by the company to a special bank account opened in a Scheduled Bank called the "Unpaid Dividend Account" within 7 days from the date of expiry of the 30-day period. In other words, this transfer must happen within 37 days (30 + 7 days) from the declaration of dividend.
2. Website Statement (Within 90 Days): Within 90 days of transferring the amount to the Unpaid Dividend Account, the company is required to put up on its website (or any website approved by the Central Govt.) a statement showing the names, last known addresses, and the unpaid dividend amount payable to each person.
3. Interest for Delay (12% p.a.): If the company defaults in transferring the amount to the Unpaid Dividend Account within 7 days, it must pay interest on the defaulted amount at the rate of 12% per annum from the date of default.
4. Claim by Shareholder: Any claimant to the Unpaid Dividend Account may apply to the company for payment of the money claimed by him during the 7-year period.

2. Transfer to Investor Education and Protection Fund (IEPF) [Section 125]

1. Transfer After 7 Years: Any money transferred to the "Unpaid Dividend Account" of a company which remains unpaid or unclaimed for a period of 7 (seven) consecutive years from the date of such transfer shall be transferred by the company to the "Investor Education and Protection Fund" (IEPF) established by the Central Government.
2. Transfer of Underlying Shares Also: Along with the unpaid dividend, all shares in respect of which dividend has not been paid or claimed for 7 consecutive years or more shall also be transferred by the company in the name of the IEPF.
3. Refund from IEPF: Any claimant of the transferred money or shares remains entitled to reclaim the shares and unclaimed dividend from the IEPF Authority by submitting an online application in the prescribed form along with necessary documents.
4. Utilization of IEPF Funds: The IEPF is utilized by the Central Government for promoting investor awareness, education, and protection, as well as refunding unclaimed dividends, matured deposits, and matured debentures to rightful claimants.

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Quick Memory Trick to Remember the Statutory Numbers

Memory Shortcut (Chapter 10 Number Ladder — "5 → 30 → 37 → 90 → 7"):
• 5 Days: Deposit dividend in a Separate Bank Account
• 30 Days: Pay dividend to shareholders (Default Penalty: 18% p.a. interest + Rs. 1,000/day fine)
• +7 Days (37 Days): Transfer unpaid dividend to "Unpaid Dividend Account" (Default Interest: 12% p.a.)
• 90 Days: Upload statement of unpaid dividend on Company Website
• 7 Years: Transfer unpaid dividend & shares to IEPF

Advantages and Constituents of Depository System | 12th HSC Secretarial Practice (S.P.) Chapter 9

The questions "Explain the advantages / importance of the Depository System to Investors and Companies" and "Who are the constituents of the Depository System? Explain them briefly" are the two most important 4-mark brief questions from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 9: Depository System. In the HSC Board Examination, at least one of these two questions is regularly asked in Question 5 (Answer in Brief - 4 Marks), Question 2 (Explain the Terms - 2 Marks), or Question 6 (Justify Statements - 4 Marks). Below are the complete, textbook-accurate solutions for both questions strictly aligned with the latest Balbharati Textbook.

Board Examiner Marking Scheme (4 Marks):
1. Meaning of Depository System (Depositories Act, 1996): 1 Mark
2. Advantages to Investors & Companies OR The 4 Constituents: 3 Marks
Topper's Tip: Comparing the Depository System to the Banking System in your introduction immediately impresses the board examiner!

1. Meaning of Depository System

Under the Depository System, securities (shares, debentures, bonds, mutual fund units, etc.) are held in electronic (book-entry) form instead of physical paper certificates. The transfer and settlement of securities are done electronically without any physical handling of paper. In India, the Depository System was introduced by passing the Depositories Act in 1996. The Depository System resembles the Banking System in many respects—just as a bank keeps money in safe custody and transfers funds electronically between accounts, a Depository keeps securities in safe custody and transfers them electronically between Demat accounts.

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Part A: Advantages / Importance of Depository System (To Investors & Companies)

The Depository System has eliminated all the drawbacks of the physical paper certificate system (such as bad delivery, forgery, loss in transit, and long delays). Its advantages are divided into two groups:

(1) Advantages to Investors (5 Points)	(2) Advantages to Issuing Companies (5 Points)
1. Elimination of Risk (Loss, theft, forgery, mutilation)	1. Up-to-date Information of Shareholders
2. Safety (Custody controlled by Depositories Act & SEBI)	2. Reduction in Costs and Efforts (No printing/postage)
3. Easy Transfer of Shares (No transfer deed or stamp duty)	3. Better Investor — Company Relationships
4. Updates and Intimation (Immediate SMS/Email alerts)	4. International Investment (Attracts FIIs via ADR/GDR)
5. Security Against Loan, No Concept of 'Lots' & Nomination	5. Quick Allotment & Direct Credit of Bonus/Rights

(1) Advantages / Importance of Depository System to Investors

1. Elimination of Risk: All risks associated with physical certificates—such as delays, loss in transit, theft, mutilation (damage), bad deliveries, and forgery/fake certificates—are completely eliminated under the Depository System.
2. Safety: It is the most safe and secure way of holding securities. The entire system functions under the strict legal framework of the Depositories Act, 1996 and is constantly monitored by SEBI. For example, an investor can "Freeze" (Lock) his Demat account for a specific period or for a specific quantity of securities to prevent unexpected debits or credits.
3. Easy Transfer of Shares:
   • There is no need to fill up transfer forms (Instrument of Transfer) or lodge physical documents with the company.
   • Stamp duty is not leviable on transfer of securities in electronic (Demat) form.
   • Processing time in transfer of securities is drastically reduced, and neither cash nor securities are tied up unnecessarily for long periods.
4. Updates and Intimation: The investor is provided with the current status of holdings and transactions continuously by the Depository and the Depository Participant (DP) through regular statements, SMS alerts, and Email notifications.
5. Security Against Loan: Dematerialized securities are preferred by banks and financial institutions as collateral security for providing loans, often at lower interest rates and higher margin eligibility.
6. No Concept of 'Lots' (Single Share Trading): The system of odd and even lots stands abolished. The market lot is one (1) share for dematerialized securities, allowing even small investors to buy or sell a single share easily.
7. Nomination Facility & Automatic Credit: Individual investors can easily avail of the nomination facility. Furthermore, in case of corporate actions like Bonus Issue, Rights Issue, Merger, or Split, the investor's Demat account is automatically credited or debited without waiting for physical certificates.

(2) Advantages / Importance of Depository System to Issuing Companies

1. Up-to-date Information: The details of investors (Beneficial Owners) and their shareholdings are updated automatically and provided to the issuing company by the Depository at regular intervals.
2. Reduction in Costs and Efforts: Costs, efforts, and secretarial workload involved in printing and distribution of physical certificates in cases of new issues, bonus issues, transfers, splits, and duplicate certificates are completely saved.
3. Better Investor — Company Relationships: Complaints arising out of loss of certificates in transit, signature mismatches, or long delays in processing share transfers are substantially reduced. This leads to better communication, goodwill, and cordial relations with investors.
4. International Investment: Under the Depository System, better and quicker services can be provided, which attracts investments from foreign investors and Foreign Institutional Investors (FIIs) as well.

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Part B: Constituents of the Depository System (4 Official Constituents)

All operations under the Depository System are performed by the Depository with the help of its constituents. There are four main constituents in the Depository System:

1. The Depository
2. The Depository Participant (DP)
3. The Beneficial Owner (BO / Investor)
4. The Issuer Company

1. The Depository

• Role as Central Custodian: It is an organization like a Central Bank where securities of an investor are held in electronic form at the investor's request. It also provides different services related to different transactions in such securities.
• Safety & No Direct Public Dealing: It is responsible for the safe-keeping of the investor's securities. Note that there is no direct access of the investor with the Depository; the Depository deals with investors only through its agents called Depository Participants (DPs).
• Link Between Company & Investors: It works as a link between the Issuing Company and the Investors (Beneficial Owners).
• Two Depositories in India: In India, there are two operational Depositories registered with SEBI:
  • (a) NSDL (National Securities Depository Limited): The first and largest depository in India, established in November 1996 (promoted by IDBI, UTI, and NSE).
  • (b) CDSL (Central Depository Services Limited): Began operations in February 1999 (promoted by Bombay Stock Exchange jointly with leading banks).

2. The Depository Participant (DP)

• Agent of Depository: The Depository Participant (DP) is the agent of the Depository.
• Registration with SEBI: The DP is registered under the SEBI Act. It enjoys rights and obligations as specified under the SEBI (Depository and Participants) Regulations, 1996.
• Intermediary Link: It is an intermediary appointed by the Depository who acts as a direct link between the Depository and the Investor (Beneficial Owner). It directly deals with the customers/investors, opens and maintains their Demat accounts, and sends periodic statements of accounts.
• Who Can Be a DP: It functions like a commercial bank. Institutions such as Financial Institutions, Banks, Approved Foreign Banks, Custodians, Stock Brokers, Clearing Corporations, and NBFCs can work as a DP.
• Unique Identification Number: Every DP has a unique number for identification (DP ID).

3. The Beneficial Owner (BO)

• Real Owner / Investor: The Beneficial Owner (BO) is the investor of securities who has availed the services of a Depository Participant (DP).
• Rights & Liabilities: While the Depository's name is recorded in the company's Register of Members as the "Registered Owner", the Beneficial Owner (BO) is entitled to all the rights, benefits (dividend, interest, bonus shares, voting rights), and is subject to all liabilities with respect to the securities held by the Depository.
• Demat Account & Client ID: The BO is called a client of the Depository and DP. He is required to open a Demat Account with the DP, and he is given a unique Client ID number in which his electronic securities are held.

4. The Issuer Company

• Meaning: It means the company (or organization) which has issued the securities which are dematerialized.
• Role: It must maintain a register of the names of the Depository and the Beneficial Owners (BOs) of the securities, and coordinate with the Depository through connectivity (directly or via Registrar and Transfer Agents) for corporate actions like allotment, demat, remat, and dividend payments.

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Quick Memory Trick to Remember in the Exam

Memory Shortcut for 4 Constituents ("D-DP-BO-IC") & Investor Advantages ("ES-TUN-SN"):
1. 4 Constituents Chain: Issuer Company ↔ Depository (NSDL/CDSL) ↔ Depository Participant (DP) ↔ Beneficial Owner (Investor).
2. Investor Advantages ("ES-TUN-SN"): Elimination of Risk, Safety (Account Freeze), Easy Transfer (No Stamp Duty), Updates/Intimation, No Concept of Lots (1 Share), Security Against Loan, and Nomination Facility.

Terms, Conditions and Procedure for Acceptance of Deposits | 12th HSC Secretarial Practice (S.P.) Chapter 5

The questions on Terms and Conditions for Acceptance of Deposits, Procedure for Accepting Deposits from the Public (and from Members), and Who Can Accept Deposits (Eligible Public Company) are the most important 4-mark brief questions from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 5: Deposits. Since Chapter 5 has no Distinguish Between or Letter Writing questions, it is heavily tested in Question 5 (Answer in Brief - 4 Marks), Question 3 (Case Study - 3 Marks), and Question 6 (Justify Statements - 4 Marks). Below are the complete, textbook-accurate solutions strictly aligned with the latest Balbharati Textbook.

Board Examiner Marking Scheme (4 Marks):
1. Meaning of Deposit & Governing Sections (Sections 73 to 76): 1 Mark
2. Any 4 to 5 Terms & Conditions OR Procedural Steps: 3 Marks
Topper's Tip: Memorize the key statutory numbers from Chapter 5: Net Worth ≥ Rs. 100 Crore OR Turnover ≥ Rs. 500 Crore (for Eligible Public Company), 6 to 36 Months tenure, 20% Deposit Repayment Reserve, and 21 Days for Deposit Receipt!

Part A: Who Can Accept Deposits & Maximum Ceiling Limits

All companies accepting deposits must comply with the provisions of Sections 73 to 76 of the Companies Act, 2013, the Companies (Acceptance of Deposits) Rules, 2014, and Directives of the RBI. Note that Banking Companies, NBFCs, and Housing Finance Companies are exempted from these provisions. The remaining companies are divided into three categories showing who can accept deposits from Members vs. the Public:

Type of Company	From Whom Can It Accept Deposits?	Maximum Ceiling Limit (% of Paid-up Capital + Free Reserves)
1. Private Company	Only from its Members, Directors, or Relatives of Directors (Cannot accept from Public).	Up to 100% of aggregate of Paid-up Share Capital and Free Reserves.
2. Public Company (Other than Eligible)	Only from its Members or Directors (Cannot accept from Public).	Up to 25% of aggregate of Paid-up Share Capital and Free Reserves.
3. Eligible Public Company (Net Worth ≥ Rs. 100 Cr OR Turnover ≥ Rs. 500 Cr)	From BOTH its Members AND the General Public.	• From Members: Up to 10% • From Public: Up to 25% (Total = 35%)
4. Government Company	From the General Public.	Up to 35% of aggregate of Paid-up Share Capital and Free Reserves.

What is an Eligible Public Company? (2-Mark Concept):
An Eligible Public Company is a public company having either:
(a) A Net Worth of not less than Rs. 100 Crores, OR
(b) A Turnover of not less than Rs. 500 Crores,
and which has obtained prior approval of its shareholders through a Special Resolution for accepting public deposits.

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Part B: Terms and Conditions for Acceptance of Deposits

A company accepting deposits from its members or the public must fulfill the following statutory terms and conditions (Write any 5 to 6 points in the exam for 4 Marks):

1. Period / Tenure of Deposit (6 to 36 Months): No deposit can be accepted or renewed which is to be repaid within a period of less than 6 months or more than 36 months (3 years). However, under certain circumstances, a company may accept short-term deposits repayable earlier than 6 months (but not earlier than 3 months) to meet its short-term needs, provided such deposits do not exceed 10% of the aggregate of paid-up share capital and free reserves.
2. No Demand Deposits: A company cannot accept or renew deposits repayable on demand (like a bank savings account).
3. Secured or Unsecured Deposits: A company has to clearly mention in its Circular or Advertisement whether the deposits being invited are Secured or Unsecured. If it offers Secured Deposits, it has to create a charge on its tangible assets within 30 days of acceptance of deposits.
4. Application Form: A company has to provide an application form to the intending depositor. The application form must contain a declaration by the applicant that the money he is depositing is not borrowed from any other person.
5. Joint Names (Maximum 3): A company can accept deposits in joint names of depositors, but there should not be more than 3 joint-holders.
6. Nomination: Every depositor at any time has the right to nominate any person as nominee in the event of death of the depositor.
7. Circular or Advertisement (Form DPT-1): If a company invites deposits from its members, it issues a Circular. If an Eligible Public Company invites deposits from the public, it has to publish an Advertisement (in Form DPT-1) in one leading English newspaper and one vernacular newspaper. The Circular/Advertisement is valid for 6 months from the end of the financial year in which it is issued or the date on which the AGM is held, whichever is earlier.
8. Appointment of Deposit Trustee & Trust Deed (Form DPT-2): When issuing secured deposits, an Eligible Company and a Public Company have to appoint one or more Deposit Trustees. They execute a contract called a "Deposit Trust Deed" (in Form DPT-2) at least 7 days before issuing the circular or advertisement.
9. Obtain Credit Rating: Every company has to get credit rating of its deposits from a recognized Credit Rating Agency (e.g., CRISIL, CARE) every year during the tenure of the deposits and include it in the circular/advertisement.
10. Open Deposit Repayment Reserve Account (Minimum 20%): Every company accepting deposits has to open a dedicated bank account in a scheduled bank called the "Deposit Repayment Reserve Account". Every year, on or before 30th April, the company has to deposit an amount not less than 20% of the amount of deposits maturing during the current financial year.
11. Deposit Receipt (Within 21 Days): The company has to issue a Deposit Receipt to the depositors within 21 days from the date of receipt of money or realization of cheque. The receipt must be signed by an officer duly authorized by the Board of Directors.
12. Register of Deposits: A company has to maintain a separate Register of Deposits at its Registered Office. The details of deposits accepted or renewed must be entered in this register within 7 days from the date of issue of the Deposit Receipt.
13. Return of Deposit (Form DPT-3 by 30th June): A company has to file a "Return of Deposit" in Form DPT-3 with the Registrar of Companies (RoC) on or before 30th June every year, giving details of deposits as on 31st March of that year.
14. Interest & Penal Interest (18%): The maximum rate of interest on deposits is prescribed by the RBI. In case of premature repayment, the company deducts 1% interest from the rate payable. If the company fails to repay the deposit on maturity, it has to pay a penal rate of interest of 18% p.a. for the overdue period.

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Part C: Procedure for Accepting Deposits from the Public

Only an Eligible Public Company and a Government Company can accept deposits from the public. They must follow these 12 chronological steps:

1. Hold Board Meeting: Hold a Board Meeting to pass a resolution to accept deposits from the public (deciding the amount, terms, and date of General Meeting).
2. Hold General Meeting (Special Resolution): Hold a General Meeting of shareholders to obtain their approval by passing a Special Resolution. File the resolution with the RoC (and RBI, if needed) within 30 days.
3. Hold Board Meeting to Approve Advertisement: Hold a Board Meeting to approve the draft of the Advertisement (in Form DPT-1) for inviting deposits from the public. Gets it signed by the majority of Directors.
4. Appoint Bankers, Credit Rating Agency & Deposit Trustees: Appoint a scheduled bank to collect application forms/money, obtain a rating from a Credit Rating Agency, and appoint one or more Deposit Trustees. Execute the Deposit Trust Deed (Form DPT-2) at least 7 days before issuing the advertisement.
5. Take Deposit Insurance: Enter into an agreement with an insurance company for taking Deposit Insurance at least 30 days before issuing the advertisement (if required).
6. File a Copy of Advertisement with RoC: File a copy of the signed advertisement with the Registrar of Companies (RoC).
7. Publish Advertisement to Public (After 30 Days): Publish the advertisement in one English newspaper and one vernacular newspaper having wide circulation in the State where the company's Registered Office is located (after 30 days of filing it with the RoC) and upload it on the company's website.
8. Collect Application Forms and Money: The appointed banker collects the application forms along with the deposit money and informs the company.
9. Issue Deposit Receipt (Within 21 Days): The company scrutinizes the applications and issues the Deposit Receipt within 21 days from the date of receipt of money or realization of cheque.
10. Create Charge on Assets (Within 30 Days): For secured deposits, create a charge on tangible assets within 30 days of acceptance.
11. Make Entries in Register of Deposits (Within 7 Days): Enter the particulars in the Register of Deposits within 7 days from the date of issuance of the Deposit Receipt.
12. File Return of Deposits with RoC (By 30th June): File the Return of Deposits (Form DPT-3) before 30th June every year (having details as on 31st March).

Note on Procedure for Accepting Deposits from Members:
The procedure for accepting deposits from Members is identical, except that in Step 2 an Ordinary Resolution (or Special Resolution) is passed, and instead of publishing a newspaper Advertisement, a Circular (in Form DPT-1) is sent to all members by Registered Post, Speed Post, or Email!

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Quick Memory Trick to Remember the Numbers in Chapter 5

Memory Shortcut (Chapter 5 Number Ladder — "6-36, 7, 20%, 21, 30"):
• 6 to 36 Months: Minimum & Maximum Tenure of Deposits (Short-term: Min. 3 months up to 10%)
• 7 Days: Execute Deposit Trust Deed (7 days before Advt.) & Enter in Register of Deposits (within 7 days of Receipt)
• 20% by 30th April: Deposit Repayment Reserve Account
• 21 Days: Issue Deposit Receipt to Depositor
• 30 Days: Publish Advt. after filing with RoC (30 days) & Create Charge on Assets (within 30 days)
• 30th June: File Return of Deposit (Form DPT-3)

Statutory Provisions and Procedure for Issue of Debentures & Debenture Trustees | 12th HSC S.P. Chapter 4

The questions on Statutory Provisions for Issue of Debentures, Procedure for Issue of Debentures, and Debenture Trustees / Debenture Trust Deed are the most important 4-mark brief questions from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 4: Issue of Debentures. In the HSC Board Examination, at least one question from Chapter 4 is regularly asked in Question 5 (Answer in Brief - 4 Marks), Question 2 (Explain the Terms - 2 Marks), or Question 6 (Justify Statements - 4 Marks). Below are the complete, textbook-accurate solutions for all three topics strictly aligned with the latest Balbharati Textbook.

Board Examiner Marking Scheme (4 Marks):
1. Meaning & Governing Legal Section (Section 71): 1 Mark
2. Any 4 to 5 Statutory Provisions / Procedural Steps: 3 Marks
Topper's Tip: Always highlight key statutory numbers: "No Voting Rights [Section 71(2)]", "10 Years Tenure (30 Years for Infrastructure)", "More than 500 Persons for Debenture Trustees", and "6 Months for Debenture Certificate"!

Quick Summary Table: Statutory Timelines & Rules in Chapter 4

Provision / Rule	Statutory Limit / Requirement (Companies Act, 2013)
1. Voting Rights [Sec. 71(2)]	No company can issue debentures carrying any voting rights.
2. Tenure of Secured Debentures	Must be redeemed within 10 years from date of issue (up to 30 years for Infrastructure Companies).
3. Appointment of Debenture Trustees	Mandatory when issuing prospectus/inviting more than 500 persons (Before issuing prospectus & within 60 days of allotment).
4. Debenture Trust Deed (Form SH-12)	Must be executed within 3 months from the closure of the issue.
5. Allotment of Debentures	Must be completed within 60 days from receipt of application money.
6. Issue of Debenture Certificate	Must be delivered within 6 months from the date of allotment of debentures.

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Part A: Explain the Statutory Provisions for Issue of Debentures

According to Section 71 of the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014, a company issuing debentures has to comply with the following legal provisions (Write any 5 to 6 points in the exam for 4 Marks):

1. No Voting Rights [Section 71(2)]: A company cannot issue debentures with voting rights. Debenture holders are creditors of the company and have no right to vote at any general meeting of the company.
2. Types of Debentures: A company can issue Secured or Unsecured Debentures (though in practice only secured debentures are permitted under current rules) and Fully or Partly Convertible Debentures or Non-Convertible Debentures. All debentures are redeemable (must be repaid).
3. Special Resolution for Convertible Debentures [Section 71(1)]: To issue convertible debentures (wholly or partly convertible into shares), a Special Resolution has to be passed by the shareholders in the General Meeting.
4. Payment of Interest and Redemption: A company shall redeem the debentures and pay interest strictly in accordance with the terms and conditions of their issue.
5. Debenture Certificate [Section 56(4)]: The company has to issue a Debenture Certificate to the debenture holders within 6 months of allotment of debentures.
6. Create Debenture Redemption Reserve (DRR) [Section 71(4)]: The company has to create a Debenture Redemption Reserve (DRR) account out of the profits of the company available for payment of dividend. This money can be used only for the redemption of debentures. As per the Companies (Share Capital and Debentures) Rules, 2014, the company must maintain at least 25% of the value of outstanding debentures in the DRR account and invest at least 15% of the amount of its debentures maturing during the year on or before 30th April each year.
7. Appointment of Debenture Trustees [Section 71(5)]: If the company issues a prospectus or invites more than 500 people (either to the public or its members), the company has to appoint one or more Debenture Trustees before issuing the prospectus.
8. Tenure of Secured Debentures: All secured debentures should be redeemed within 10 years from the date of issue. Only certain companies engaged in infrastructure projects (or permitted by the Ministry of Corporate Affairs, Central Govt., or RBI) can issue debentures with a tenure of more than 10 years, up to a maximum of 30 years.
9. Create Charge on Assets: A company has to create a charge on the tangible assets of the company or its subsidiary/holding company. The value of the charge should be adequate to cover the entire value of debentures issued and the interest to be paid on it.
10. NCLT Can Order Restriction on Further Liabilities [Section 71(9)]: If the Debenture Trustees feel that the assets of the company are insufficient to pay the principal amount when due, they can approach the National Company Law Tribunal (NCLT). The NCLT can order the company to restrict incurring further liabilities and to redeem the debentures forthwith.

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Part B: Explain the Procedure for Issue of Debentures

A company has to follow these 10 chronological steps when issuing debentures:

1. Pass Resolution in Board Meeting: In the Board Meeting, resolutions are passed to approve the amount and type of debentures to be issued, the terms and conditions of issue, the prospectus/offer letter, the appointment of Debenture Trustees (and get their written consent), the authorization to create a charge on assets, the opening of a separate bank account, and calling an Extra-ordinary General Meeting (EOGM) if borrowing limits increase or convertible debentures are issued.
2. Hold Extra-ordinary General Meeting (EOGM): If the borrowing power of the Board is to be increased or if convertible debentures are to be issued, an EOGM is held to get the shareholders' approval through a Special Resolution.
3. Filing with Registrar of Companies (RoC): The Secretary has to file the Special Resolution (Form MGT-14) and a copy of the Prospectus / Offer Letter / Letter of Offer with the RoC within 30 days of the Board Meeting.
4. Obtain Credit Rating: The company gets its debentures rated by one or more Credit Rating Agencies (like CRISIL, CARE, ICRA, etc.). The credit rating must be mentioned in the Prospectus / Offer Letter.
5. Enter into Underwriting Agreement: The company may enter into an underwriting agreement with underwriters for underwriting its debenture issue to ensure full subscription.
6. Issue Prospectus / Letter of Offer / Offer Letter: The company issues a Prospectus if it is inviting the public to buy its debentures, or an Offer Letter (for Private Placement) / Letter of Offer (for Rights Issue).
7. Open Separate Bank Account & Receive Application Money: The company opens a separate bank account in a scheduled bank to receive the application money from subscribers within the time period mentioned in the prospectus.
8. Hold Board Meeting to Decide Allotment (Within 60 Days): After the issue closes, the Board of Directors holds a meeting to decide and approve the allotment of debentures. The allotment process must be completed within 60 days from the receipt of application money. The Board also approves the creation of charges on the company's assets.
9. Issue of Debenture Certificate (Within 6 Months): The company has to issue the Debenture Certificate within 6 months of allotment of debentures (or credit the debentures immediately to Demat accounts).
10. Make Entries in Register of Debenture Holders: The Secretary has to make entries in the Register of Debenture Holders (in Form MGT-2) within 7 days after the Board approves the allotment of debentures.

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Part C: Short Note on Debenture Trustees & Debenture Trust Deed

1. Meaning of Debenture Trustees

Debenture Trustees are institutions (such as banks, financial institutions, or insurance companies registered with SEBI) that protect the interest of the debenture holders. If a company issues a prospectus or invites more than 500 persons to subscribe for its debentures, it is mandatory under Section 71(5) to appoint one or more Debenture Trustees.

• Role as Custodian: The Trustees become the custodians of the assets on which a charge has been created as security for the debentures.
• When Appointed: Debenture Trustees are appointed before the Prospectus or Letter of Offer is issued (and in any case within 60 days after the allotment of debentures). The Trustees must give a written consent to act as Debenture Trustees, and their names must be mentioned in the prospectus.
• Redressal of Grievances: The Debenture Trustees redress the grievances of debenture holders, ensure the company does not commit any breach of terms, and can approach the NCLT if the company defaults in repaying the principal or interest.

2. Meaning of Debenture Trust Deed (Form SH-12)

The company enters into a formal legal contract with one or more Debenture Trustees. The terms and conditions of this agreement are written in the "Debenture Trust Deed" (executed in Form SH-12).

• Contents: It is a legal instrument conveying the assets of the company to the Trustees. The Deed also defines the rights of debenture holders and the duties and powers of the Debenture Trustees.
• Time Limit (Within 3 Months): The company has to execute the Debenture Trust Deed within 3 months of the closure of the issue. Members as well as debenture holders can inspect the copy of the Deed and can also get a copy of it by paying a certain fee.

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Quick Memory Trick to Remember the Provisions in the Exam

Memory Shortcut for Provisions of Debentures ("NT-SP-CD-TT-CN"):
1. No Voting Rights (Sec. 71(2)) & Types of Debentures (Secured/Convertible)
2. Special Resolution for Convertible Debentures & Payment of Interest/Redemption
3. Debenture Certificate (within 6 months) & Create DRR Account (25% / 15%)
4. Appoint Debenture Trustees (>500 persons) & Tenure of Secured Debentures (Max 10 Years)
5. Create Charge on Assets & NCLT Power to Restrict Liabilities

Provisions for Transfer of Shares, Share Certificate and Calls on Shares | 12th HSC S.P. Chapter 3

The questions on Statutory Provisions Regarding Transfer of Shares, Share Certificate (Meaning, Provisions & Contents), and Legal Rules for Calls on Shares are essential 4-mark brief questions from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 3: Issue of Shares. In the HSC Board Examination, these procedural topics regularly appear in Question 5 (Answer in Brief - 4 Marks), Question 2 (Explain the Terms - 2 Marks), and Question 3 (Case Study - 3 Marks). Below are the complete, textbook-accurate solutions for all three topics strictly aligned with the latest Balbharati Textbook.

Board Examiner Marking Scheme (4 Marks):
1. Meaning & Prescribed Form / Governing Section: 1 Mark
2. Any 4 to 5 Statutory Rules / Contents: 3 Marks
Topper's Tip: Always mention the exact statutory forms and timelines: Form SH-4 (within 60 days) for Transfer of Shares, Form SH-1 (within 2 months of allotment) for Share Certificate, and "Maximum 25% + Minimum 1 Month Gap + 14 Days' Notice" for Calls on Shares!

Quick Summary Table: Statutory Forms & Timelines in Chapter 3

Topic	Governing Section / Form	Key Statutory Time Limit / Rule
1. Transfer of Shares	Section 56 / Form SH-4 (Instrument of Transfer)	Submit within 60 days of execution; Deliver certificate within 1 month; Refusal notice within 30 days.
2. Share Certificate	Section 46 / Form SH-1	Signed by 2 Directors + Secretary; Deliver within 2 months of allotment (or 1 month of transfer).
3. Calls on Shares	Articles of Association (Table F)	Max. 25% of Nominal Value per call; Min. 1 Month Gap between two calls; Min. 14 Days' Call Notice.

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Part A: State the Statutory Provisions Regarding Transfer of Shares

1. Meaning of Transfer of Shares

Transfer of shares means the voluntary transfer of ownership (title) of shares by a member of a company to another person by way of sale or gift. A member may sell the shares for a consideration or give them away as a gift. Every member has a right to transfer their shares. In the case of a Public Company, shares are freely transferable, whereas in a Private Company, there are restrictions on the free transfer of shares as per its Articles of Association.

2. Statutory Provisions & Rules for Transfer of Shares [Section 56]

A member has to follow the procedure and rules laid down under Section 56 of the Companies Act, 2013 and the Articles of Association for transferring physical shares:

1. Instrument of Transfer (Form SH-4): A member has to apply to the company for transfer of shares by filling out the prescribed "Instrument of Transfer" (Transfer Deed) in Form SH-4. It must be duly dated and signed by both the Transferor (seller) and the Transferee (buyer), along with witness signatures.
2. Payment of Stamp Duty: The Instrument of Transfer must bear the requisite Share Transfer Stamps affixed and cancelled as per the prevailing market value of the shares under the Indian Stamp Act.
3. Submission to Company (Within 60 Days): The completed Instrument of Transfer along with the original Share Certificate (or Letter of Allotment) and prescribed transfer fee must be submitted to the company within 60 days from the date of execution of the deed.
4. Notice of Lodgement (For Partly Paid-up Shares): If the application for transfer is made by the Transferor alone and relates to partly paid-up shares, the company cannot register the transfer unless it gives a notice (in Form SH-5) to the Transferee, and the Transferee gives his "No Objection" within 2 weeks (14 days) from the receipt of the notice.
5. Time Limit for Delivery of Certificate (Within 1 Month): Once the Board of Directors approves the transfer, the company must register the transfer and deliver the endorsed Share Certificate to the Transferee within 1 month (30 days) from the date of receipt of the Instrument of Transfer.
6. Refusal to Register Transfer (Within 30 Days): The Board of Directors has the power to refuse the registration of transfer on valid grounds (such as defective transfer deed, unpaid lien on shares, or violation of AoA). In case of refusal, the company must send a Notice of Refusal giving reasons to both the Transferor and Transferee within 30 days from the date on which the Instrument of Transfer was delivered to the company.
7. Appeal to NCLT Against Refusal (30 Days / 60 Days): The Transferee can appeal to the National Company Law Tribunal (NCLT) against the refusal within 30 days of receiving the refusal notice (for a Private Company) or within 60 days (for a Public Company). If no notice of refusal is received, the Transferee can appeal within 60 days (Private Company) or 90 days (Public Company) from the date on which the Instrument of Transfer was submitted.

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Part B: What is a Share Certificate? Explain Its Provisions & Contents

1. Meaning of Share Certificate

A Share Certificate is a registered document of title to the shares issued by a company under its common seal (if any), duly stamped and signed by two Directors and the Company Secretary or any other authorized person. According to Section 46 of the Companies Act, 2013, a Share Certificate is prima facie evidence (conclusive legal proof) of the title of the person to such shares.

2. Statutory Provisions for Issuing Share Certificate

1. Prescribed Form (Form SH-1): Every company has to issue a Share Certificate in Form SH-1 (as prescribed under the Companies (Share Capital and Debentures) Rules, 2014) to all allottees unless the shares are held in Demat form.
2. Signature & Seal: The Share Certificate must be issued under the company's common seal (if the company has one) and must be signed by two Directors duly authorized by the Board of Directors and the Company Secretary (or an authorized person).
3. Time Limit for Issue of Share Certificate:
   • Within 2 Months from the date of incorporation — to the subscribers of the Memorandum of Association.
   • Within 2 Months from the date of allotment — in case of allotment of any of its shares.
   • Within 1 Month from the date of receipt of Instrument of Transfer or intimation of transmission — in case of transfer or transmission of shares.
4. Duplicate Share Certificate (Within 3 Months): A company can issue a Duplicate Share Certificate if the original Share Certificate is defaced, mutilated, or torn (upon surrender of the damaged certificate), or if it is proved that the original certificate is lost or destroyed (after publishing a public notice in newspapers and executing an Indemnity Bond). The duplicate certificate must be issued within 3 months from the date of application, and it must state in bold letters that it is a "Duplicate Share Certificate".

3. Contents of a Share Certificate (10 Textbook Points)

A Share Certificate issued in Form SH-1 must contain the following particulars:

1. Name of the Company, CIN (Corporate Identity Number), and address of its Registered Office.
2. Folio Number (entry number in the Register of Members).
3. Share Certificate Number.
4. Name(s) of the Member(s) (registered shareholder).
5. Nature of Share, Number of Shares, and Distinctive Numbers of the shares.
6. Amount Paid-up on the shares (and nominal/face value per share).
7. Common Seal of the company (if any) and Revenue Stamp.
8. Signature of two Directors and the Company Secretary.
9. Date of issue and day on which the Share Certificate is given.

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Part C: State the Legal Rules / Provisions Regarding Calls on Shares

1. Meaning of Calls on Shares

At the time of issue of shares, a company may state that the issue price of a share is to be paid in installments as and when the company demands for it. So when a company demands the shareholder to pay a part or full amount of the balance amount unpaid on shares at any time after allotment, it is called a "Call on Shares". Besides application and allotment money, a company can make a First Call, Second Call, and Final Call.

2. Legal Rules and Provisions for Making Calls on Shares

Only the Board of Directors can make calls on shares in the interest of the company. The company has to follow these strict legal rules and conditions:

1. Proper Authority (Board Resolution): Calls can be made only by the Board of Directors by passing a formal Call Resolution at a Board Meeting. The resolution must clearly state the amount of the call and the last date and place of payment.
2. Maximum Amount of a Call (Not More Than 25%): The amount of any single call can never be more than 25% (one-fourth) of the nominal value (face value) of the share.
3. Time Gap Between Two Calls (Minimum 1 Month): There must be a time gap of at least 1 month (30 days) between the last date fixed for the payment of two successive calls (i.e., no call can be payable at less than one month from the date fixed for the payment of the last preceding call).
4. Call Notice Period (Minimum 14 Days): The company has to send a written Call Notice (Call Letter) to the shareholders giving them a minimum of 14 days' notice to pay the call money to the company's banker.
5. Uniformity of Calls [Section 49]: Calls must be made on a uniform basis on all shares falling under the same class of shares.
6. Made in Good Faith (Bona Fide): The power to make calls must be exercised by the Directors in good faith (bona fide) and for the benefit and interest of the company as a whole.
7. Penalty for Default: If a shareholder fails to pay the call money by the due date, the unpaid amount becomes "Calls in Arrears". The company can charge interest on unpaid calls and can ultimately forfeit the shares after giving a 14-day final warning notice.

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Quick Memory Trick to Remember the Rules in the Exam

Memory Shortcut for Calls on Shares ("B-25-1-14-UG"):
Remember these 6 numbers and rules in 10 seconds:
1. Board of Directors passes Call Resolution
2. Max. 25% of Nominal Value per Call
3. Min. 1 Month Gap between Two Calls
4. Min. 14 Days' Written Call Notice
5. Uniform Basis on Same Class of Shares (Section 49)
6. Good Faith (Bona Fide Interest of Company)

Explain Employee Stock Option Scheme (ESOS), Bonus Shares and Rights Issue | 12th HSC S.P. Chapter 3

The short notes on Employee Stock Option Scheme (ESOS), Bonus Shares, and Rights Issue of Shares are the most frequently asked 4-mark questions from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 3: Issue of Shares. In the HSC Board Examination, at least one of these three methods of issuing shares to existing employees or existing equity shareholders regularly appears in Question 5 (Answer in Brief - 4 Marks), Question 2 (Explain the Terms - 2 Marks), or Question 6 (Justify Statements - 4 Marks). Below are the complete, textbook-accurate solutions for all three topics strictly aligned with the latest Balbharati Textbook.

Board Examiner Marking Scheme (4 Marks):
1. Meaning & Governing Legal Section: 1 Mark
2. Any 4 to 5 Statutory Provisions / Features: 3 Marks
Topper's Tip: For ESOS, always highlight the "Minimum 1-Year Vesting Period" and "Minimum 1-Year Lock-in Period". For Rights Issue, highlight the "15 to 30 Days Offer Period"!

Quick Overview: Offering Shares to Existing Shareholders & Employees

Method of Issue	Offered To Whom	Consideration / Price	Key Statutory Rule (Companies Act, 2013)
1. ESOS [Section 62(1)(b)]	Permanent Employees, Directors, or Officers	At a pre-determined price (lower than market price)	Special Resolution, Min. 1-Year Vesting Period & Min. 1-Year Lock-in Period
2. Bonus Issue [Section 63]	Existing Equity Shareholders	Issued 100% Free of Cost (Gift out of Reserves)	Only fully paid-up shares; cannot be issued in lieu of dividend
3. Rights Issue [Section 62(1)(a)]	Existing Equity Shareholders	At a price less than current market price	Letter of Offer; kept open for Min. 15 days to Max. 30 days; Right to Renounce

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Part A: Explain Employee Stock Option Scheme (ESOS)

1. Meaning of Employee Stock Option Scheme (ESOS)

Under Employee Stock Option Scheme (ESOS) [Section 62(1)(b) of the Companies Act, 2013], permanent employees, Directors, or officers of the company, or of its holding company or subsidiary company, are offered the benefit or right to purchase the Equity Shares of the company at a future date at a pre-determined price.

• Purpose / Benefit: ESOS encourages employees as they feel proud to be owners of the company for which they are working. Simultaneously, the company also benefits because it is able to retain good, talented, and efficient employees and reduce employee turnover.

2. Statutory Provisions for ESOS (8 Official Textbook Points)

A company offering shares under ESOS must fulfill the following statutory provisions (Write any 4 to 5 points in the exam for 4 Marks):

1. To Whom Offered: A company may offer shares under ESOS to its permanent employees, Directors, or officers, or to those of its holding company or subsidiary company.
2. Price and Payment: The shares are offered at a pre-determined price, which is generally lesser than the prevailing market price of the shares.
3. Minimum Vesting Period (1 Year): There has to be a minimum period of one year (1 year) between the grant of option and the vesting of option (called the "Vesting Period").
4. Minimum Lock-in Period (1 Year): Usually, the company will specify a Lock-in Period—i.e., a period during which the employee cannot sell or transfer these shares. The lock-in period is a minimum of 1 year between the grant of option and vesting.
5. No Dividend or Voting Rights Till Purchase: Shares issued under this scheme do not enjoy any dividend or voting rights till the employee actually exercises the option and buys the shares.
6. Special Resolution: The company has to get the approval of shareholders through a Special Resolution passed in a General Meeting before issuing ESOS.
7. Cannot Transfer or Pledge Options: An employee cannot transfer his ESOS to any other person, nor can he pledge or mortgage the shares issued under ESOS for obtaining a loan.
8. Compensation Committee & Register (Form SH-6): The company has to set up a Compensation Committee to administer the ESOS. It also has to fulfill the provisions of the SEBI (Share Based Employee Benefits) Regulations, 2014 and maintain a Register of Employee Stock Options in Form SH-6.

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Part B: Write a Short Note on Bonus Shares (Bonus Issue)

1. Meaning of Bonus Shares

Bonus Shares are fully paid-up shares issued free of cost to the existing equity shareholders in proportion to their shareholdings. Usually, financially sound companies issue Bonus Shares out of their accumulated distributable profits or free reserves. Hence, as the profits or reserves are capitalized and converted into share capital, it is also called "Capitalization of Profits or Reserves".

2. Statutory Provisions for Bonus Issue [Section 63]

According to Section 63 of the Companies Act, 2013, a company can issue Bonus Shares subject to the following provisions:

1. Sources of Bonus Issue: A company can issue Bonus Shares only out of:
   • (a) Free Reserves (built out of genuine profits),
   • (b) Securities Premium Account, or
   • (c) Capital Redemption Reserve Account (CRR).
2. Prohibited Sources: A company cannot issue Bonus Shares out of reserves created by the Revaluation of Assets.
3. Cannot Be Issued Instead of Dividend: A company also cannot issue Bonus Shares in lieu of (instead of) paying dividend.
4. Cannot Be Withdrawn: Once the announcement for Bonus Shares is made by the Board of Directors, it cannot be withdrawn subsequently.
5. Always Fully Paid-up: Bonus shares are always issued as fully paid-up shares. Partly paid-up existing shares, if any, must first be made fully paid-up before issuing bonus shares.
6. No Right to Renounce: Shareholders cannot renounce (give up) their Bonus Shares to another person.
7. No Minimum Subscription Required: Since Bonus Shares are issued free of cost by capitalizing existing reserves, there is no requirement of minimum subscription.

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Part C: State the Provisions Regarding Rights Issue of Shares

1. Meaning of Rights Issue of Shares

When a company wants to raise further capital after its original public issue, it can issue shares to its existing equity shareholders in proportion to their existing shareholding. Such an issue of shares is called a "Rights Issue" of shares. Whenever a company makes a further issue of shares, the existing equity shareholders have the "Pre-emptive Right" (First Option to Buy) to subscribe to the new shares offered by the company.

2. Statutory Provisions for Rights Issue [Section 62(1)(a)]

A company making a Rights Issue has to fulfill the following provisions:

1. Price of Rights Shares: Rights shares are sold to the existing equity shareholders at a price which is lesser than the current market price of the company's shares.
2. Letter of Offer: A company has to send a "Letter of Offer" to all existing equity shareholders at least 3 days before the opening of the issue. The Letter of Offer contains:
   • (a) The number of shares offered,
   • (b) The period of offer (time limit), and
   • (c) The right to renounce the shares.
3. Modes of Sending Letter of Offer: The Letter of Offer can be sent by Registered Post, Speed Post, Courier, or through Electronic Mode (Email).
4. Time Period of Offer (15 to 30 Days): The offer must be valid for a period of a minimum of 15 days and a maximum of 30 days from the date of the offer.
5. Deemed Decline: If a shareholder does not respond to the Rights Issue offer within the stipulated time limit (15 to 30 days), it is implied that the shareholder is not interested in the offer, and the Board of Directors can offer the unsold shares to new investors in a manner beneficial to the company.
6. Right to Renounce: The Letter of Offer explicitly mentions that the existing shareholders have the right to renounce (give up or transfer) the offered shares wholly or partly in favour of any other person.
7. Minimum Subscription: The company has to obtain a minimum subscription (90% of the issue) even in the case of a Rights Issue.

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Quick Memory Trick to Remember in the Exam

Memory Shortcut for ESOS ("PP-VL-NS-CR"):
1. Permanent Employees/Directors & Pre-determined Price
2. Minimum 1-Year Vesting Period & Minimum 1-Year Lock-in Period
3. No Dividend/Voting Till Purchase & Special Resolution Required
4. Cannot Transfer/Pledge & Register in Form SH-6 / Compensation Committee

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Key Concept Summary for Objective Questions (Q.1)

• Sweat Equity Shares [Section 54]: Shares issued by a company to its Directors or employees at a discount or for consideration other than cash in recognition of their valuable contribution (know-how or intellectual property rights) are called "Sweat Equity Shares" (which have a lock-in period of 3 years).
• ESOS Register Form: A company must maintain a Register of Employee Stock Options in Form SH-6.
• Pre-emptive Right: The right of existing equity shareholders to be offered new shares first is called the "Pre-emptive Right" (Rights Issue).

Short Notes on Retained Earnings, Public Deposits, and ADR & GDR | 12th HSC S.P. Chapter 2

The short notes on Retained Earnings (Ploughing Back of Profits), Public Deposits, and American Depository Receipt (ADR) / Global Depository Receipt (GDR) are the most frequently asked 4-mark questions from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 2: Sources of Corporate Finance. In the HSC Board Examination, these topics regularly appear in Question 5 (Answer in Brief - 4 Marks), Question 2 (Explain the Terms - 2 Marks), and Question 6 (Justify Statements - 4 Marks). Below are the complete, textbook-accurate solutions for all three topics strictly aligned with the latest Balbharati Textbook.

Board Examiner Marking Scheme (4 Marks):
1. Meaning & Alternative Names / Definition: 1 Mark
2. Key Features / Determinants / Explanation (4 to 5 well-explained points): 3 Marks
Topper's Tip: Always mention alternative terms like "Self-Financing" or "Ploughing Back of Profits" for Retained Earnings, and the "6 months to 36 months" tenure for Public Deposits!

Part A: Retained Earnings (Ploughing Back of Profits) & Its Determinants

1. Meaning of Retained Earnings

Business organizations are subject to variation in earnings. Therefore, it is a wise decision for a company not to distribute the entire net profit among shareholders as dividend, but to keep aside (retain) a part of its net profit in the form of reserves and use it for future business expansion. This process of accumulating corporate profits and their utilization in the business is called "Retained Earnings".

• Alternative Names: In simple words, the part of net profit (earnings) which is not distributed to shareholders as dividend and is retained by the company in the form of "Reserve Fund" is known as "Retained Earnings", "Ploughing Back of Profits", or "Internal Financing / Self-Financing".
• Capitalization of Reserves: The company can convert these reserves into permanent share capital by issuing free "Bonus Shares" to existing equity shareholders. This process is known as "Capitalization of Profits or Reserves".
• Free Source of Capital: Bonus shares are issued free of cost to existing equity shareholders out of accumulated profit. Thus, the management can convert retained earnings into permanent share capital without issuing any new shares for cash in the market. It is an important source of raising long-term capital Because it is a simple and cheapest (cost-free) method of raising finance for an established company.

Definition by R. C.Guthmann and H. E. Dougall:
"The process of accumulating corporate profits and their utilization in business is called retained earnings."

2. Determinants of Retained Earnings (4 Official Textbook Points)

The amount of retained earnings that a company can accumulate depends upon the following 4 key determinants (factors):

1. Total Earnings of Company: If there is an ample (high) profit, the company can easily save and retain a large part of its earnings. The attitude of top management towards ploughing back of profits also plays an important role; the higher the net profit, the higher the capacity to save.
2. Taxation Policy of Government: The taxation policy of the government is an important determinant of corporate savings. If the taxes levied by the government are at a high rate, the company cannot save much of the profits in the form of reserves, as a major portion of profit goes towards paying corporate tax. Lower tax rates encourage higher retained earnings.
3. Dividend Policy: It is a term which refers to the policy of the Board of Directors in respect of distribution of profit. A conservative dividend policy (paying dividend at a moderate rate even in years of high profit) is essential for having a good accumulation of profits. However, this policy affects shareholders as they get dividend at a lower rate.
4. Government Control: A government is a regulatory body of the economic system of the country. Its policies, rules, and regulations ensure that companies work as per its regulations. The company has to formulate its dividend policy and reserve policy in accordance with the rules and regulations framed by the Government and the Companies Act, 2013.

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Part B: Short Note on Public Deposits as a Source of Finance

1. Meaning of Public Deposits

Public Deposits are an important source of financing short-term and medium-term requirements of a company. Companies receive fixed deposits from the general public or their own members for a period ranging from 6 months to 36 months (3 years). Such deposits are called "Public Deposits".

2. Key Features & Provisions of Public Deposits

1. Meaning & Tenure: Under this method, the general public is invited by the company to deposit their savings with the company for a varied period ranging from a minimum of 6 months to a maximum of 36 months.
2. Rate of Interest: The company pays interest on these deposits at a fixed, pre-determined rate (which cannot exceed the maximum rate prescribed by the RBI). The rate of interest is generally higher than bank fixed deposit rates, making it attractive to investors.
3. Deposit Receipt (Within 21 Days): The company issues a "Deposit Receipt" to the depositor within 21 days from the date of receipt of money or realization of cheque. The Deposit Receipt is an acknowledgement of debt (loan) by the company, and the terms of deposit are printed on it.
4. Nature of Security & Risk: Public deposits are either secured or unsecured loans offered to the company. Unsecured deposits are considered a risky source of finance because failing to repay deposits on maturity severely damages the company's reputation and leads to strict legal penalties.
5. Governing Legal Section [Section 73 to 76]: Acceptance of deposits is strictly regulated by Sections 73 to 76 of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014 and directions of the RBI.
6. Ceiling Limit (Maximum 35%): A company cannot accept fresh deposits if the amount of such deposit together with the previous deposits exceeds 25% (from public) and 10% (from members) — i.e., a total of 35% of the aggregate of the paid-up share capital and free reserves of the company.

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Part C: Short Note on American Depository Receipt (ADR) and Global Depository Receipt (GDR)

1. Meaning of ADR and GDR

In India, the shares of any public company are listed and traded on Indian Stock Exchanges like BSE and NSE in Indian Rupees (INR). With the adoption of a free economic policy and globalization, cross-border movement of capital is allowed. Therefore, big Indian companies now raise equity capital from foreign investors in international markets by issuing Depository Receipts (ADR and GDR).

2. How ADR and GDR Work (Step-by-Step Mechanism)

1. Issue to Domestic Custodian Bank: The Indian company issues its equity shares in India to an intermediary called the "Domestic Custodian Bank".
2. Issue of Depository Receipts Abroad: Against these shares, an "Overseas Depository Bank" issues Depository Receipts (ADRs or GDRs) to foreign investors in the foreign country. Each Depository Receipt represents a fixed number of underlying equity shares of the Indian company.
3. Trading & Benefits: These GDRs/ADRs are then listed and traded on foreign stock exchanges just like regular shares. The foreign investor gets regular dividends in foreign currency and enjoys capital appreciation.

3. Difference Between ADR and GDR

Basis	American Depository Receipt (ADR)	Global Depository Receipt (GDR)
Where Traded	Traded only in the United States of America (USA).	Traded in any country other than the USA (mostly in European markets).
Stock Exchanges	Listed on American exchanges like New York Stock Exchange (NYSE) and NASDAQ.	Listed on exchanges like London Stock Exchange, Luxembourg Stock Exchange, Frankfurt, Singapore, or Dubai.
Currency	Traded purely in US Dollars (USD).	Mostly traded in Euros or US Dollars.

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Quick Memory Trick to Remember in the Exam

Memory Shortcut for Determinants of Retained Earnings ("TT-DG"):
1. Total Earnings of Company (Higher profit = Higher savings)
2. Taxation Policy of Government (Higher tax = Lower savings)
3. Dividend Policy (Conservative dividend policy = Higher reserves)
4. Government Control (Compliance with Companies Act rules)

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Key Concept Summary for Objective Questions (Q.1)

• Self-Financing / Ploughing Back of Profits: Retained Earnings is an internal source of finance also known as "Self-Financing" or "Ploughing Back of Profits".
• Tenure of Public Deposits: A company can accept Public Deposits for a minimum period of 6 months and a maximum period of 36 months (3 years).
• ADR vs. GDR: Depository Receipts traded in the USA are called ADRs, whereas those traded in countries other than the USA are called GDRs.

12th HSC Secretarial Practice (S.P.) Important Short Notes, Brief Answers & Terms for Board Exam 2027 (16 Marks)

Are you looking to master the theoretical and concept-based questions for your upcoming Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Board Exam 2027? In the new syllabus HSC S.P. activity sheet, short notes and brief conceptual questions are tested across two major sections carrying a combined 16 Marks: Question 2: Explain the Following Terms / Concepts (8 Marks) and Question 5: Answer in Brief (8 Marks). Based on a comprehensive analysis of the Balbharati Textbook (Chapters 1 to 12) and previous years' HSC Board Question Papers (2021–2026), we have curated the ultimate list of 99.99% Sure Short Notes, Brief Questions, and Key Terms.

16-Marks Blueprint Breakdown:
1. Question 2 (Explain the Terms / Concepts): Attempt any 4 out of 6 terms (2 Marks each = 08 Marks). Write 2 to 3 clear points or 4 to 5 lines for each term.
2. Question 5 (Answer in Brief / Short Notes): Attempt any 2 out of 3 questions (4 Marks each = 08 Marks). Write Meaning + 4 to 5 well-explained head points for each question.

Part 1: Top 12 Most Important "Answer in Brief / Short Notes" for 2027 (Q.5 - 8 Marks)

In Question 5, you only need to attempt 2 out of 3 questions (4 Marks each). Note that Chapters 6, 7, and 8 (Letter Writing) are never asked in Question 5. Mastering these Top 12 Golden Questions from the remaining chapters guarantees that you will easily find at least 2 familiar questions in your 2027 Board Paper:

1. State any four factors affecting Fixed Capital requirement (or Working Capital requirement). (Chapter 1 — 1 Question from Chapter 1 is asked almost every year!)
2. What is Corporate Finance? State the two decisions which are the basis of Corporate Finance (Financing & Investment Decision). (Chapter 1 — High-Probability Concept Note)
3. Write a short note on: Retained Earnings (Ploughing Back of Profits) OR Public Deposits / ADR & GDR. (Chapter 2 — Very Important Source of Finance Note)
4. Explain Employee Stock Option Scheme (ESOS) OR Bonus Shares / Rights Issue. (Chapter 3 — 5-Star Repeated Board Favourite!)
5. State the general principles / statutory provisions regarding Transfer of Shares (or Share Certificate). (Chapter 3 — Core Secretarial Rule Question)
6. Explain the statutory provisions for Issue of Debentures under the Companies Act, 2013 (or Debenture Trustees). (Chapter 4 — Top Question from Chapter 4)
7. What are the terms and conditions regarding Acceptance of Deposits (or Procedure for Accepting Deposits from Public)? (Chapter 5 — Guaranteed Representation from Deposits!)
8. Explain the advantages / importance of the Depository System to Investors and Companies. (Chapter 9 — Asked repeatedly in March & July Board Exams!)
9. Who are the constituents of the Depository System? Explain them briefly (Depository, DP, BO, Issuer). (Chapter 9 — Very Easy 4-Point Answer for 4 Marks!)
10. State the legal provisions regarding Declaration of Dividend (or Payment of Dividend / IEPF). (Chapter 10 — High-Scoring Statutory Question)
11. State any four functions of Financial Market (or Explain any four Instruments of Money Market — T-Bills, CP, CD, Call Money). (Chapter 11 — 5-Star Repeated Question!)
12. State any four functions of Stock Exchange (or Explain the functions of SEBI). (Chapter 12 — 1 Question Almost 100% Guaranteed from Chapter 12!)

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Part 2: Top 25 Most Important "Explain the Terms / Concepts" (Q.2 - 8 Marks)

In Question 2, you must explain any 4 out of 6 terms (2 Marks each = 8 Marks). To help you revise in just 10 minutes, here are the Top 25 Most Repeated Textbook Terms along with their exact 2-Mark Key Points:

Ch. No.	Important Term (Q.2 - 2 Marks)	Key Exam Points to Write for Full 2/2 Marks
Ch. 1	1. Fixed Capital 2. Working Capital 3. Capital Structure 4. Financing Decision 5. Investment Decision	• Fixed Capital: Capital invested in long-term physical fixed assets (land, building, machinery) that stay permanently in business. • Working Capital: Capital required for day-to-day business operations; excess of Current Assets over Current Liabilities (or sum of current assets). • Capital Structure: Mix-up of various sources of long-term funds (Owned Capital + Borrowed Capital) in desired proportion. • Financing Decision: Decision regarding choosing the right sources of raising funds (debt vs. equity ratio). • Investment Decision: Decision regarding systematic deployment of funds into fixed and current assets (Capital Budgeting).
Ch. 2	6. Owned Capital 7. Borrowed Capital 8. Retained Earnings 9. Overdraft / Cash Credit 10. Trade Credit	• Owned Capital: Permanent capital contributed by shareholders (Equity + Preference) and internal accruals (Retained Earnings). • Borrowed Capital: Loan capital raised from external creditors through Debentures, Bonds, Public Deposits, and Bank Loans. • Retained Earnings: Process of retaining a part of net profit year after year and reinvesting it in business (Ploughing back of profit). • Overdraft: Facility granted by a bank to Current Account holders to withdraw more than their credit balance up to a sanctioned limit. • Trade Credit: Short-term credit extended by one manufacturer/trader to another when goods are bought on credit without immediate cash payment.
Ch. 3	11. Minimum Subscription 12. Bonus Shares 13. Rights Issue / ESOS 14. Calls on Shares 15. Share Certificate	• Minimum Subscription: Minimum amount of issue size (90% as per SEBI) that must be subscribed within 30 days of prospectus issue. • Bonus Shares: Fully paid-up shares issued free of cost to existing equity shareholders out of accumulated profits/reserves. • ESOS: Scheme under which company offers permanent employees the option to buy its future equity shares at a pre-determined price. • Calls on Shares: Demand made by the company on shareholders to pay part or full unpaid balance of face value after allotment. • Share Certificate: Registered document of title to shares issued by a company under its common seal (Form SH-1).
Ch. 4 & 5	16. Debenture Trustee 17. Debenture Trust Deed 18. Charge on Assets 19. Deposit Receipt	• Debenture Trustee: Institution appointed by a company (when issuing debentures to >500 persons) to protect the interest of debenture holders. • Debenture Trust Deed: Legal contract executed between the company and Debenture Trustees defining rights of debenture holders and company's duties. • Charge on Assets: Creating a security interest (Fixed Charge on specific asset or Floating Charge on fluctuating assets) in favour of lenders. • Deposit Receipt: Acknowledgement of debt issued by a company to a depositor within 21 days of receiving money/realization of cheque.
Ch. 9 & 10	20. Depository Participant (DP) 21. Fungibility / ISIN 22. Unpaid Dividend Account 23. IEPF	• Depository Participant (DP): Agent of the Depository (registered with SEBI) acting as an intermediary link between Depository and Investor (BO). • Fungibility: State where financial assets held in electronic (Demat) form are interchangeable and carry no distinctive or certificate numbers. • ISIN: 12-digit alphanumeric code (International Securities Identification Number) that uniquely identifies a security. • IEPF: Investor Education and Protection Fund established by Central Govt; unpaid dividend remaining unclaimed for 7 years is transferred here.
Ch. 11 & 12	24. Bull & Bear / Stag / Lame Duck 25. Treasury Bills / Call Money	• Bull (Tejiwala): Optimistic speculator who buys securities expecting a rise in their market prices in the future. • Bear (Mandiwala): Pessimistic speculator who sells securities expecting a fall in their market prices in the future. • Stag (Premium Hunter): Speculator who applies for shares in the Primary Market (IPO) to sell them at a premium upon listing. • Lame Duck: A Bear speculator whose expectations go wrong and who struggles to meet commitments due to rising prices.

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Chapter-Wise Complete Question Bank for Q.5 (Answer in Brief / Short Notes)

Here is the complete chapter-wise list of important 4-mark brief questions across the syllabus:

Chapter 1: Introduction to Corporate Finance

• Explain the importance of Corporate Finance. [★★★★★]
• State the factors affecting Fixed Capital requirement. [★★★★★]
• State the factors affecting Working Capital requirement. [★★★★★]
• What is Capital Structure? What are the components of Capital Structure? [★★★★☆]

Chapter 2: Sources of Corporate Finance

• What is Retained Earnings (Ploughing Back of Profits)? Explain its determinants. [★★★★★]
• Write a short note on Public Deposits as a source of finance. [★★★★☆]
• Write a short note on American Depository Receipt (ADR) and Global Depository Receipt (GDR). [★★★★☆]
• Explain Trade Credit and Bank Overdraft / Cash Credit. [★★★☆☆]

Chapter 3: Issue of Shares

• Explain Employee Stock Option Scheme (ESOS). [★★★★★]
• Write a short note on Bonus Shares and its provisions. [★★★★★]
• State the provisions regarding Rights Issue of Shares. [★★★★☆]
• What is a Share Certificate? What are its contents? [★★★★☆]
• State the legal rules regarding Calls on Shares. [★★★★☆]

Chapter 4 & Chapter 5: Issue of Debentures & Deposits

• Explain the statutory provisions for Issue of Debentures under the Companies Act, 2013. [★★★★★]
• Explain the procedure for Issue of Debentures. [★★★★☆]
• Explain the terms and conditions for Acceptance of Deposits by a company. [★★★★★]
• Explain the procedure for Accepting Deposits from the Public (or from Members). [★★★★☆]

Chapter 9 & Chapter 10: Depository System & Dividend / Interest

• Explain the advantages / importance of the Depository System to Investors and Issuing Companies. [★★★★★]
• Explain the four constituents of the Depository System (Depository, DP, BO, Issuer Company). [★★★★★]
• Explain the legal provisions for Declaration of Dividend (Sources of Dividend). [★★★★★]
• Explain the legal provisions for Payment of Dividend (and Unpaid/Unclaimed Dividend). [★★★★★]

Chapter 11 & Chapter 12: Financial Market & Stock Exchange

• Explain the functions of Financial Market. [★★★★★]
• Explain any four Instruments of Money Market (T-Bills, Commercial Paper, Certificate of Deposit, Call/Notice Money). [★★★★★]
• State and explain the functions of Stock Exchange. [★★★★★]
• State and explain the functions of SEBI (Securities and Exchange Board of India). [★★★★★]

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Official Board Examiner Marking Scheme for Q.2 & Q.5

Question Number	Marks Per Question	How to Structure Your Answer for Full Marks
Question 2: Explain the Terms / Concepts (Attempt any 4 out of 6)	02 Marks Each (Total = 08 Marks)	Write 3 to 4 crisp bullet points: (1) Exact Meaning, (2) Governing Section / Nature, and (3) One Key Feature or Example. Never write just a single sentence!
Question 5: Answer in Brief (Attempt any 2 out of 3)	04 Marks Each (Total = 08 Marks)	Start with a 2-line Meaning / Introduction, followed by 4 to 5 clearly numbered Head Points with a 2-to-3 line explanation under each heading (1 Mark per point).

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Explore More 12th HSC Secretarial Practice (S.P.) 2027 Exam Guides

• S.P. Most Important Questions for Board Exam 2027 (Complete Q.1 to Q.8 Master Guide)
• Most Important Distinguish Between Questions for Board Exam 2027 (Q.4 - 12 Marks)
• All Important S.P. Corporate Letter Writing Formats (Q.7 - 10 Marks)
• Top 8 Important Long Answer Questions for Board Exam 2027 (Q.8 - 8 Marks)