Issuing Bonus Shares Legally

Summary

Issuing bonus shares while ignoring the Articles of Association (AOA) and provident fund defaults is problematic under the Companies Act, 2013. Compensating the managing director with shares requires a special resolution as per Section 62(1)(c) of the Companies Act, 2013. Shareholder objections must be managed through a general meeting and special resolution. Relevant case laws include Needle Industries (India) Ltd. V. Needle Industries Newey (India) Holding Ltd. (1981) and R. S. Jhaveri v. R. S. Jhaveri (1980).

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Xeron is a limited company with a share capital of * crores. Xeron appointed kunjappan as managing director of the company. The board,after the appointement of kunjappan, wanted to issue bonus shares ignoring the prohibition in AOA and the default it made in making payment towards contribution of provident fund for last 2 years. However the board decided to goahead with the plan to issue bonus shares in ratio of *:*. At this time company wants to compensate kunjappan by issue of shares for rendering technical know-how without any cost which is objected by * percentage of total number of shareholders of the company. Solve the problem with the help of case laws.
Got it. Let's break this down:
*. Issuing Bonus Shares:
- Ignoring the Articles of Association (AOA) prohibition could be problematic. Refer to the Companies Act, *, which mandates adherence to the AOA.
- The company's default on provident fund contributions also complicates this. Compliance with statutory obligations is necessary before issuing bonus shares.
*. Compensating Kunjappan with Shares:
- Issuing shares as compensation can be done, but it must comply with Section *(*)(c) of the Companies Act, *, and requires approval by a special resolution.
- Objections by *% of shareholders need to be addressed by following due process, which includes holding a general meeting and passing a special resolution.
Question: Can you confirm the jurisdiction or country where Xeron is incorporated? This will help in providing specific case laws.
India
Alright, here are some points covering your situation:
*. Issuing Bonus Shares:
- Companies Act, *: AOA adherence is mandatory.
- Provident Fund Default: Compliance needed before any bonus shares issue.
*. Compensating Kunjappan:
- Section *(*)(c): Requires a special resolution.
- Shareholder objections must be managed through a general meeting and special resolution.
Relevant Case Laws:
- Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. (*): Emphasizes adherence to AOA.
- R. S. Jhaveri v. R. S. Jhaveri (*): Shareholder disputes and issuing shares.
Would you like more specific case laws or details about the procedures?
Yes
Here are more specific case laws and procedural details:
- Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. (*): Highlights the importance of adhering to the AOA.
- R. S. Jhaveri v. R. S. Jhaveri (*): Discusses shareholder disputes and issuing shares.
- Re: Elgindata Ltd (*): Discusses the need for fairness in issuing shares, especially when objections arise from shareholders.
Would you like detailed steps on conducting the general meeting and passing the special resolution?