A share warrant is a document in which it is stated
that the bearer of the warrant is entitled to the shares specified therein. A
definition may, thus, be given as follows:
A share warrant is a bearer "document of
title" to the shares, issued by the company under its common seal, duly
stamped and signed by one or more directors of the company, as per Articles'.
A share warrant is just like a negotiable
instrument. In other words, a share warrant represents a bearer share and a
bearer share is just like a bearer cheque. Share warrants are not popular in
practice because the risk of loss is great. Once it is lost there are very
remote chances of recovering the ownership of shares.
Conditions of Issue :
Section 114
lays down the following provisions for the issue of share warrants:
(1) Only
a public company limited by shares can issue share warrants.
(2) Share
warrants cannot be issued originally. Only share certificates for fully paid
shares can be converted into share warrants.
(3) The
articles of association must authorize the issue of share warrants.
(4)
Approval of Central Government must be obtained for issuing share warrants.
Preparation of the Warrant :
Whenever
any holder of fully paid shares wants to convert the share certificate into a
share warrant, he has to make a request on printed application form to the
company along with the relevant share certificate. He has also to deposit the
stamp duty and other prescribed fees and charges.
On
receipt of the duly completed application form, the secretary's office sends a
Lodgement Ticket to the shareholder concerned acknowledging the receipt of the
documents and slating therein that this 'Ticket' is to be exchanged for the
share warrant later. The secretary now looks to it that all the relevant
provisions of the Companies Act relating to the issue of share warrants are
duly conformed to. On being satisfied, he issues instructions for the
preparation of share warrant (s).
Share
warrant forms are usually printed in three parts, one being separated from the
other by perforation: (i) the Counterfoil, (ii) the Share Warrant proper, and
(iii) the Dividend Coupons. A 'talon' for demanding a fresh set of dividend
coupons, when those attached to the warrant have been exhausted, is also
provided therein. These forms are completed by the secretary's office, and a
meeting of the Board of Directors is convened to pass a resolution for sealing
and signing of the warrant(s). Accordingly, the share warrants are then sealed
and signed and the applicants are advised by a circular letter to take delivery
of the warrants from the registered office of the company in exchange for the
'Lodgement Tickets'.
Effects of the Issue of Share Warrants :
The
various effects of the issue of share warrants may be enumerated as follows:
(1) The
company shall strike out of its Register of Members the name of the member then
entered therein as holding the shares specified in the warrant, just as if he
had ceased to be a member, and shall enter in that register the following
particulars:
(a) the
fact of the issue of the warrant;
(b) a
statement of the shares specified in the warrant, distinguishing each share by
its number; and
(c) the
date of the issue of the warrant [Sec. 115(1)].
(2) By
virtue of Section 115(5) the bearer of share-warrant may or may not be granted
all the rights of membership. As such, if the Articles so provide, he may be
deemed to be a member to the extent and for the purposes defined in the
Articles. His rights of membership are usually curtailed e.g., he cannot
present a petition for the winding up of the company. He may not be granted the
right to attend general meetings, the right to vote etc.
(3) The
share warrant will not constitute the qualification shares for the directors,
where one is imposed by the Articles [Sec. 270(4)].
(4) The
Annual Return must give particulars of share warrants.
The
warrants until they are exchanged for the shares, do not confer on the holder
thereof any right to any dividend, interest, bonus or other benefits available
to the equity shareholders or debenture holders, nor will such warrant holders
have any right to attend and vote at any meetings of the shareholders and
debenture holders. The warrant holders will also not be entitled to receive
from the company any notice, or annual reports which may be meant for the
equity shareholders or debenture holders, trustees, etc.
The
Board of directors is authorised to determine and notify a record date and also
the period within which a warrant holder should apply for the equity shares to enable him to exercise the right
to apply for the equity shares against such warrants held by him. The warrant
holder may apply for the equity share(s) by paying to the company the value
thereof as may be determined by the Board of directors.
Applicability of s. 81 of the Act. It may be noted that where a public
company intends to issue new equity shares or any instruments convertible into,
or exchangeable with equity shares to any person(s) (whether such persons are
shareholders of the company or not) without offering such shares to all the
shareholders on a pro rata
basis, such issue must be approved by a special resolution in terms of section
81(1A)(a) [or, alternatively,
by an ordinary resolution and approval of the Central Government in terms of
section 81(1A)(b)].
Applicability of SEBI Guidelines. Issue of warrants by a listed
company on a private placement basis to the promoters must comply with the
guidelines set out in Chapter XIII of the SEBI Guidelines on Disclosures and
Investor Protection, 2000. To whom shares can be issued on preferential basis
is not indicated in the Guidelines. Hence it is for the company’s Board to
decide to whom to make an offer and accordingly frame a resolution to be passed
under section 81(1A) of the Companies Act.
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