COMPANY LAW I

SHARE WARRANT: A CRITICAL STUDY

Submitted to:

MRS. NANDITA S. JHA

Faculty of CORPORATE LAW Submitted by:

Sujeet PRAKASH

ROLL NO: 822

7th semester

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 TABLE OF CONTENTS

ACKNOWLEDGEMENT................................................................3

RESEARCH METHODOLOGY....................................................... 4

Collection of data...............................................................4

Aim and objective.................................................................4

Hypothesis.............................................................................4

1. INTRODUCTION......................................................................5

2. SHARE CAPITAL AND ITS KIND.................................................10

3. SHARE WARRANT............................ 11

4. DIFFERENCE BETWEEN SHARE CERTIFICATE AND SHARE

CONCLUSION...21

Bibliography......................................................................23

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 ACKNOWLEDGEMENT

Any project completed or done in isolation is unthinkable. This project,

Further to that, I would also like to express my gratitude towards our seniors
who were a lot of help for the completion of this project.

The contributions made by my classmates and friends are, definitely, worth

Last, but far from the least, I would express my gratitude towards the
almighty for obvious reasons.

Sujeet prakash

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 RESEARCH METHODOLOGY
For the purpose of research, the researcher has followed the doctrinal method of
research. The researcher has done his research keeping in mind the various
frequently arising questions related to this topic.

COLLECTION of data

The researcher has collected the data from all sort of primary as well as secondary
sources. The researcher intends to analyze the topic in a critical manner.

Aims and objective

The present study aims to:

Hypothesis
The researcher was of the opinion that the a share warrant is a bearer document
of title to shares and can be issued only by public limited companies and that to
against fully paid up shares only.

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 CHAPTER 1: INTRODUCTION

A person may own a movable property in two ways, as a choose- in-possession or as a choose-in-action. A
choose- in-possession means the property of which the owner has a physical possession, such as a car or
pen etc. A choose-in-action means a property which represents a value but not in itself the value: it is the
right of a person established by the possession of the document and is enforceable by a court action. A
share in a company is a choose-in-action evidenced by the share- certificate.1

The total capital of a company is divided into a number of indivisible units of small and a fixed amount.
These units are known as share. For example: If the capital of the company is Rs 10,000 and it is
divided into, 1,000 units of Rs 10 each, each unit of Rs 10 shall be called a share of the company.
According to Section 2(84) of THE COMPANIES ACT, 2013 - share means a share in the share capital
of a company and includes stock. The Supreme Court of India in the Commissioner Of Income-Tax Vs
Standard Vacuum Oil Company2 observed by a share in a company not any sum of money but it
represents an interest measured by a sum of money and made up of diverse rights conferred on its holders
by the articles of association of the Company which constitute a contract between him and the company.

In another case the Supreme Court of India defined share as a right to participate in the profits made by a
company, while it is going concern and declares a dividend, and in the assets of the company when it is
wound up (Bacha F. Guzdar vs Commissioner Of Income-Tax).3

A share is the interest of a shareholder in the company measured by a sum of money, for the purposes of
liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants
entered into by all the shareholders in accordance with provision of the Act.4

In India, a share is regarded as goods. Section 2(7) of the Sale of Goods Act, 1930 defines Goods,
means every kind of movable property, other than actionable claims and money; and includes stocks,
shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be

1
Sri Gopal Jalan & Co. Calcutta Stock Exchange Association Ltd.(1963) 33Comp. Cas862 SC.
2
AIR 1966 SC 1393, (1966) 1 CompLJ 187 SC.
3
LR 617 SC, 1955 AIR 740.
4
Farwell J. in Borlands Trustee v. Steel [1901] 1 Ch. 279 at p. 288.
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severed before sale or under the contract of sale. However the Act while recognizing share as a movable
property, suggests that they shall be transferable only in the manner provided by the articles of the
company.5

In S. Viswanathan And Anr. vs East India Distilleries And Sugar 6 court observed: a share is
undoubtedly movable property but is not movable property in the same way in which a bale of cloth or a
bag of wheat is movable property. Such commodities are not brought into existence by legislation, but a
share in a company belongs to a totally different category of property. It is incorporeal in nature, and it
consists merely of a bundle of rights and obligation.

A share warrant is a document issued by the company under its common seal 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 of the "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. Generally a public company has a right to convert its
fully paid shares into share warrants. The shares specified therein may be transferred by delivery of the
warrant only, [Sec. 114(3) THE COMPANIES ACT, 1956] and any bona fide holder for value will obtain
a perfect title to the shares (Webb, Hale & Co, vs. Alexandria Water Co.). 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.

5
SECTION 44, THE COMPANIES ACT, 2013.
6
AIR 1957 Mad 341.
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 CHAPTER 2: SHARE CAPITAL AND ITS KINDS

MEANING OF SHARE CAPITAL

A company mobilises the own funds in the form of share capital by allotting shares to those who are
willing to invest their money in the company. A joint stock company should have capital in order to
finance its activities. It raises its capital by issue of shares. The Memorandum of Association must state
the amount of capital with which the company is desired to be registered and the number of shares into
which it is to be divided. When total capital of a company is divided into shares, then it is called share
capital. It constitutes the basis of the capital structure of a company. In other words, the capital collected
by a joint stock company for its business operation is known as share capital. Share capital is the total
amount of capital collected from its shareholders for achieving the common goal of the company as
stated in Memorandum of Association.

TYPES OF SHARE CAPITAL: Share capital of a company can be divided into the following different
categories:

Authorized capital

The maximum amount of capital, which a company is authorized to raise from the public by the issue of
shares, is known as authorized capital. It is a capital with which a company is registered, therefore it is
also known as registered capital.

Issued Capital

Generally, a company does not issue its authorized capital to the public for subscription, but issues a part
of it. So, issued capital is a part of authorized capital, which is offered to the public for subscription,
including shares offered to the vendor for consideration other than cash. The part of authorized capital not
offered for subscription to the public is known as 'un-issued capital'. Such capital can be offered to the
public at a later date.

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Subscribed Capital

It cannot be said that the entire issued capital will be taken up or subscribed by the public. It may be
subscribed in full or in part. The part of issued capital, which is subscribed by the public, is known as
subscribed capital

Called Up Capital

It is that part of subscribed capital, which is called by the company to pay on shares allotted. It is not
necessary for the company to call for the entire amount on shares subscribed for by shareholders. The
amount, which is not called on subscribed shares, is called uncalled capital.

Paid-up Capital

It is that part of called up capital, which actually paid by the shareholders. Therefore it is known as real
capital of the company. Whenever a particular amount is called and a shareholder fails to pay the amount
fully or partially, it is known as unpaid calls or calls in arrears.

Reserve Capital

It is that part of uncalled capital which has been reserved by the company by passing a special resolution
to be called only in the event of its liquidation. This capital cannot be called up during the existence of the
company. It would be available only in the event of liquidation as an additional security to the creditors of
the company

Kinds of share capital7

The share capital of a company limited by shares shall be of two kinds, namely:

(a) Equity share capital (i) with voting rights; or (ii) with differential rights as to dividend, voting or
otherwise in accordance with such rules as may be prescribed; and

(b) Preference share capital:

7
SECTION 43, THE COMPANIES ACT, 2013.
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Provided that nothing contained in this Act shall affect the rights of the preference shareholders who are
entitled to participate in the proceeds of winding up before the commencement of this Act.

Explanation.For the purposes of this section,

(i) equity share capital, with reference to any company limited by shares, means all share capital which
is not preference share capital;

(ii) preference share capital, with reference to any company limited by shares, means that part of the
issued share capital of the company which carries or would carry a preferential right with respect to(a)
payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be
free of or subject to income-tax; and

(b) Repayment, in the case of a winding up or repayment of capital, of the amount of the share capital
paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any
fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;

(iii) Capital shall be deemed to be preference capital, notwithstanding that it is entitled to either or both of
the following rights, namely:

(a) That in respect of dividends, in addition to the preferential rights to the amounts specified in sub-
clause (a) of clause (ii), it has a right to participate, whether fully or to a limited extent, with capital not
entitled to the preferential right aforesaid;

(b) That in respect of capital, in addition to the preferential right to the repayment, on a winding up, of the
amounts specified in sub-clause (b) of clause (ii), it has a right to participate, whether fully or to a limited
extent, with capital not entitled to that preferential right in any surplus which may remain after the entire
capital has been repaid.

Prior to the amendment to the companies Act, 2000, public companies were not allowed to issue equity
share with differential rights. With respect to issue of share with differential voting rights, the Department
of Company Affairs has notified company (Issue of share capital with Differential Voting Rights) Rules,
2001 and such shares can be issued only in accordance with these Rules.
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TYPES OF SHARES

Ordinary shares

Ordinary shares carry no special or preferred rights. Holders of ordinary shares will usually have the right
to vote at a general meeting of the company, and to participate in any dividends or any distribution of
assets on winding up of the company.

Preference shares

Preference shares usually give their holder a priority or 'preference' over ordinary shareholders to
payments of dividends or on winding up of the company. There are different kinds of preference shares
with different rights and characteristics. Holders of preference shares usually have voting rights which are
restricted to particular circumstances or particular resolutions, however this will depend on the terms of
the shares.

Partly-paid shares

Partly-paid shares (also known as contributing shares) are issued without the company requiring payment
of the full issue price. At a specified future date or dates, the company is entitled to call for all or part of
the outstanding issue price, and the shareholder at the time the call is due is legally obliged to pay the call.
(No liability companies are not required to specify the date or dates on which calls will be made, and the
shareholder at the time the call is due may pay the call or forfeit the share.)

Generally, a holder of a partly paid share has the same rights as an ordinary shareholder to vote, to
dividends and on winding up of the company, but those rights will be proportional to the amount paid on
the share (except for a vote by show of hands, where a holder of a partly paid share has one vote, the same
as any ordinary shareholder).

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 CHAPTER 3: SHARE WARRANT

A share warrant is a document issued by the company under its common seal 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 of the "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. Generally a public company has a right to convert its
fully paid shares into share warrants. The shares specified therein may be transferred by delivery of the
warrant only, [Sec. 114(3) THE COMPANIES ACT, 1956] and any bona fide holder for value will obtain
a perfect title to the shares (Webb, Hale & Co, vs. Alexandria Water Co.). 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.

The term warrant is used in two senses in modern parlance. In its non-technical sense it is used to
describe a form of call option which gives the holder a right to call for a share at a fixed price at a future
date if he or she so chooses. Such warrants are often offered to the target companys shareholders by a
takeover bidder as part of his offer package, which often consists of shares in the bidder itself, cash and
warrants.

The second and more technical meaning of share warrant refers to bearer shares. It is provided that a
company may, if authorised by its articles, issue with respect to any fully paid shares a warrant stating that
the bearer of the warrant is entitled to the shares specified in it. The share warrant is then probably a
negotiable instrument so that title to the shares may be transferred by mere delivery of the warrant. The
company is further empowered (if authorised by its articles) to provide, by coupons or otherwise, for the
payment of the future dividends on the share included in the warrant. Voting is usually allowed only if the
warrant has been deposited with the company. The holder of the warrant is not technically a member of
the company and on the issue of the share warrant the company must strike out of its register of members
the name of the member then entered in it as if he or she had ceased to be a member. In place of the

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members name must be entered the fact that the warrant has been issued, a statement of the shares
included in the warrant and date of issue of the warrant.

Share warrant has not been mentioned under THE COMPANIES ACT, 2013 but it had been clearly
provided under THE COMPANIES ACT, 1956 particularly under section-114 and section-115.

SHARE WARRANT UNDER THE COMPANIES ACT, 1956:

Sec 114 - Issue and effect of share warrants to bearer.8

(1) A public company limited by shares, if so authorized by its articles, may, with the previous approval of
the Central Government, with respect to any fully paid-up shares, issue under its common seal a warrant
stating that the bearer of the warrant is entitled to the shares therein specified, and may provide, by
coupons or otherwise, for the payment of the future dividends on the shares specified in the warrant.

(2) The warrant aforesaid is in this Act referred to as a "share warrant ".

(3) A share warrant shall entitle the bearer thereof to the shares therein specified, and the shares may be
transferred by delivery of the warrant.

Sec 115 - Share warrants and entries in register of members.9

(1) On the issue of a share warrant, 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 as if he had ceased to be a
member, and shall enter in that register the following particulars, namely :

(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.

8
THE COMPANIES ACT, 1956
9
Ibid.
12 | P a g e
(2) The bearer of a share warrant shall, subject to the articles of the company, be entitled, on surrendering
the warrant for cancellation and paying such fee to the company as the Board of Directors may from time
to time determine, to have his name entered as a member in the register of members.

(3) The company shall be responsible for any loss incurred by any person by reason of the company
entering in its register of members the name of a bearer of a share warrant in respect of the shares therein
specified, without the warrant being surrendered and cancelled.

(4) Until the warrant is surrendered, the particulars specified in sub-section (1) shall be deemed to be the
particulars required by this Act to be entered in the register of members ; and, on the surrender, the date of
the surrender shall be entered in that register.

(5) Subject to the provisions of this Act, the bearer of a share warrant may, if the articles of the company
so provide, be deemed to be a member of the company within the meaning of this Act, for any purposes
defined in the articles.

(6) If default is made in complying with any of the requirements of this section, the company, and every
officer of the company who is in default, shall be punishable with fine which may extend to five hundred
rupees for every day during which the default continues.

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.

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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 Lodgements Ticket to the
shareholder concerned acknowledging the receipt of the documents and stating 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)].

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(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)].10

(4) The Annual Return must give particulars of share warrants.

Issue of duplicate share warrant

If the warrant is defaced or damaged, the bearer may surrender the original to the company and obtain a
duplicate copy of it. If, however, the original is lost, the company will take great care before issuing a
duplicate to the pretending bearer.

Reconversion of warrants into shares

By surrendering the warrant before the company and paying the specified fee, the bearer can again
become a normal member of the company. This reconversion of a share warrants into share form shall be
possible under the provisions of section 11511. However, in terms of sub-section (2) of section 115, subject
to the articles of the company, a bearer of a share warrant shall be entitled on surrendering the warrant for
cancellation and paying such fee to the company as the Board of directors may from time to time
determine, to have his name entered as a member in the register of members. It is significant to note that
regulations 40 to 43 of Table A of Schedule I to the Act 12 twitch deal with share warrants, studiously
avoid any discussion on such restoration to the status of a full-fledged member. And indeed such a
provision ought not to be there in the articles of association as that would be inconsistent with the
dominant object of going in for such conversion. But then, the lot of the bearer of share warrant is in no

10
THE COMPANIES ACT, 1956
11
Ibid.
12
Ibid.
15 | P a g e
material way inferior to that of the owner of shares whose name figures in the register of members as sub-
section (5) of section 115. The company shall be responsible for any loss incurred by any person by reason
of the company entering in its register of members the name of a bearer of a share warrant in respect of the
share therein specified, without the warrant being surrendered and cancelled.

Penalty if default is made in complying with the requirements of section 115,13 the company and every
defaulting member of the company shall be punishable with fine upto Rs.500 for every day of default.

Whether a share warrant can be issued by a private company?

A share warrant is a bearer document of title to shares and can be issued only by public limited companies
and that to against fully paid up shares only. A share warrant cannot be issued by a private company,
because the share warrant states that its bearer is entitled to a number of shares mentioned there in. It is a
negotiable document and is easily transferable by mere delivery to another person. The holder of the share
warrant is entitled to receive dividend as decided by the company.

CASE LAW

Sant Chemicals Pvt. Ltd. Vs. Sant Chemicals Pvt. Ltd.14

In this case court observed that - Section 4 of the 1956 Company Act when this is read along with Section
2(27) which provides that member in relation to a Company, does not include a bearer of a share-
warrant of the Company issued in pursuance of Section 114, i.e., Bearer of a share warrant - Does not
become a member ipso facto.

M.P. Mehrotra and Somesh Mehrotra Vs. Respondent: Securities and Exchange Board of India 15

In this case court observed that - Section 11B of Securities and Exchange Board of India Act 1992,
Respondent is empowered to issue penal orders. Promoters of appellant company on preferential basis
issued 10 Lakh optionally convertible non-transferable warrants (OCNT). Promoters given undertaking

13
supra
14
1999(3) Bom CR 454.
15
MANU/SB/0049/2003
16 | P a g e
to company that they would opt for conversion but promoters did not opt for conversion and on
subsequent meeting promoters allotted one Lakh equity shares of ten rupees each against one
lakh warrants. Promoters contended that since warrants were optionally convertible they had right to opt
for conversion into any number of equity shares but respondent rejected these grounds and advised
appellant to honour their commitment as prescribed in prospectus of company and respondent issued
notice under Section 11B on failure of non-conversion. Scope of Section 11B16 empowered respondent to
issue directions to protect interest of investors but such power does not extend to imposition of penalty,
respondent being failed to establish charges no question arises as to whether direction merely prohibitory
in nature or it was punitive. So, penalty imposed was not proper, impugned order imposing penalty set
aside and appeal allowed.

SEBI Vs. VLS Finance Ltd.17

In this case court observed that - Pursuant to the AGM held on August 2, 1994, the shareholders of the
company had consented, under section 81(1A) of the Companies Act, 1956, to issue to the promoters
10,00,000 optionally convertible non-transferable warrants (for brevity's sake referred to as OCNTW),
each warrant convertible into 10 equity shares, at their option, which shall be exercised not earlier than 12
months and not later than 60 months from the date of allotment of the warrants (i.e between 1-5 years ).
The prospectus further stated that the promoters would undertake to opt for conversion @ Rs. 400
per share and that the conversion would be opted in phases so as to maintain the growth rate in the
earnings per share every year.

6. However, on the basis of the information submitted by the company to the DSE, the DSE vide their
letter dated November 20, 1998 informed SEBI that the promoters of the company did not opt for
conversion of the OCNTW in 96-97 and 97-98 and in 1998, the company at their meeting held on May 07,
1998 allotted 1 lac equity shares of Rs 10/- each against 1 lac warrants. The DSE vide its letter dated
20.11.98 stated that it was the contention of the company that as these warrants are optionally convertible,
the promoters had the right to opt for conversion of these warrants into equity shares into any number of

16
Securities and Exchange Board of India Act 1992,
17
MANU/SB/0118/2002
17 | P a g e
equity shares between 0 to 10. Accordingly, the company had opted for conversion of each warrant into
only one equity share instead of 10 equity shares. The DSE submitted that the stand adopted by the
company was at variance with the terms of the prospectus, according to which the conversion ratio was 10
equity shares of Rs. 40 each for each OCNT. It further stated that promoters now opting for one share
per warrant is contrary to statements made in prospectus both in letter and spirit.

On the basis of the facts and circumstances of the case and the various issues deliberated upon, it is clear
that the action of the promoters of the company as elaborated above is detrimental to the orderly
development of securities market and to the interest of investors. So, promoters directed to honour their
commitment relating to conversion of warrants as undertaken by them in prospectus.

18 | P a g e
CHAPTER 4: DIFFERENCE BETWEEN SHARE CERTIFICATE AND
SHARE WARRANT

Section 4618 of the Act contains that a certificate, issued under the common seal of the company,
specifying the shares held by any person, shall be prima facie evidence of the title of the person to such
shares. Further, where a share is held in depository form, the record of the depository is the prima facie
evidence of the interest of the beneficial owner.

Duplicate Certificate of Shares:

A duplicate certificate of shares may be issued, if such certificate

(a) Is proved to have been lost or destroyed; or

(b) Has been defaced, mutilated or torn and is surrendered to the company.

Caution: Duplicate Certificate:

If a company with intent to defraud issues a duplicate certificate of shares, the company shall be
punishable with fine which shall not be less than five times the face value of the shares involved in the
issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees
ten crores whichever is higher and every officer of the company who is in default shall be liable for action
under section 447.19

Issue of Share Certificates:

Where a company issues any share capital, no certificate of any share or shares held in the company shall
be issued, except -

(a) In pursuance of a resolution passed by the Board; and

18
THE COMPANIES ACT, 2013.
19
Ibid.
19 | P a g e
(b) On surrender to the company of the letter of allotment or fractional coupons of requisite value, save in
cases of issues against letters of acceptance or of renunciation, or in cases of issue of bonus shares.

If the letter of allotment is lost or destroyed, the Board may impose such reasonable terms, if any, as to
seek supporting evidence and indemnity and the payment of out-of-pocket expenses incurred by the
company in investigating evidence, as it may think fit.

The following are the differences between a share certificate and a share warrant:

Both public as well as private companies can issue a share certificate whereas a share warrant can
be issued by public limited companies only.
A share certificate can be issued originally and even with respect to partly paid up shares whereas
a share warrant cannot be issued originally and only share certificates for fully paid shares can be
converted into them.
Authority of articles and approval of Central Government is necessary for issuing share warrants
whereas there is no such restriction for the issue of share certificates.
The name and address etc. of a share certificate holder are to be entered in the Register of
Members whereas no such details of a bearer of share warrant are so entered.
A transfer of share certificate requires registration of transfer with the company whereas the
transfer of a share warrant is complete merely by delivery.
A share certificate is a prima facie evidence of title whereas a share warrant is a conclusive
evidence of title if the transferee is a bona fide holder for value.
The holder of a share certificate has all the normal rights of membership whereas the holder of a
share warrant may or may not be given the full rights of membership by the Articles.
The shares evidenced by a share certificate can be included in the qualification shares of a director
whereas the shares evidenced by a share warrant cannot be so included.
The dividend is paid through dividend warrant posted by the company at the registered address of
the member in the case of a share certificate whereas in the case of a share warrant the dividend is paid
through bearer dividend coupons.

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 CONCLUSION

The term warrant is used in two senses in modern parlance. In its non-technical sense it is used to
describe a form of call option which gives the holder a right to call for a share at a fixed price at a future
date if he or she so chooses. Such warrants are often offered to the target companys shareholders by a
takeover bidder as part of his offer package, which often consists of shares in the bidder itself, cash and
warrants.

The second and more technical meaning of share warrant refers to bearer shares. It is provided that a
company may, if authorised by its articles, issue with respect to any fully paid shares a warrant stating that
the bearer of the warrant is entitled to the shares specified in it. The share warrant is then probably a
negotiable instrument so that title to the shares may be transferred by mere delivery of the warrant. The
company is further empowered (if authorised by its articles) to provide, by coupons or otherwise, for the
payment of the future dividends on the share included in the warrant. Voting is usually allowed only if the
warrant has been deposited with the company. The holder of the warrant is not technically a member of
the company and on the issue of the share warrant the company must strike out of its register of members
the name of the member then entered in it as if he or she had ceased to be a member.

Share warrant has not been mentioned under THE COMPANIES ACT, 2013 but it had been clearly
provided under THE COMPANIES ACT, 1956 particularly under section-114 and section-115.

The Reserve Bank of India has issued a Circular No. 3 dated 14.07.2014 with respect to the regulations
made there under in regard with Foreign Exchange Management (Transfer or issue of security by a person
resident outside India) Regulations, 2000 in terms of which only equity shares and compulsorily
convertible preference shares and debentures were recognized as Foreign Direct Investment Compliant
instruments and later it was also extended to the equity shares or compulsory and mandatory convertible
preference shares or debentures containing an optional clause attached to it had also been recognized as
FDI compliant instruments, now the policy has been reviewed and the it has been further extended to the
following instruments which is as under.
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Partly paid-up equity shares and warrants issued by an Indian Company in accordance with the relevant
provisions of the Companies Act, 2013 and the SEBI Guidelines, as applicable shall be eligible
instruments for the purpose of FDI and foreign portfolio investment by Foreign Institutional Investors and
other registered foreign portfolio investors subject to the compliance with the FDI norms.

The biggest uncertainty for partly paid shares and warrants has always been as to when the balance
amount will need to be brought in. By requiring that the full pricing for the partly paid shares and warrants
be fixed up front and brought in within 12 and18 months, respectively, the RBI has ensured some comfort
is afforded to both the company issuing the securities and the subscriber. This flexibility also enables
structuring of earn-outs, post buy-out incentive payments to management and in structuring re-ups.

This full scale revision of pricing guidelines continues the RBIs evolution with regards to how it seeks to
regulate transfer / issuance of securities of Indian companies by / to FDI investors. Where previously,
cross border transactions were heavily regulated and monitored by the RBI, we are looking at a shift
which provides greater freedom and respects party autonomy.

By entrusting valuation intermediaries like chartered accountant and merchant bankers with the right to
guide parties to fair valuation based on facts and circumstances of each transfer, the RBI also follows
through on the general trend in modern Indian commercial laws where regulatory bodies are looking to
delegate more and more operational regulation to intermediaries.

The new relaxations on warrants are along the lines of the policy being followed by the FIPB before this.
Bringing warrants into the automatic route will make them more attractive for investors. The RBI
continues to allow options attached to instruments, although it has specified that the guiding principle of
valuation would be no assured exit price.

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 BIBLIOGRAPHY

BOOKS:
1. A RAMAIYA'S GUIDE TO THE COMPANIES ACT, A.RAMAIYA, REVISED BY EMINENT
EXPERTS, 17TH REVISED EDITION, DEC. 2010, LATEST REPRINT
2. GUIDE TO COMPANY LAW PROCEDURES, MC BHANDARI , 21ST ED., 2009
3. PALMER'S COMPANY LAW, SIR FRANCIS BEAUFORT PALMER, GEOFFREY MORSE,
25TH ED., SWEET & MAXWELL, 2007
4. COMPANY LAW AND PRACTICE, A.K. MAJUMDAR, DR. G.K. KAPOOR, 18TH ED.,
TAXMANN PUB., 2013
5. COMPANY LAW, AVTAR SINGH, 18TH ED. EASTERN BOOK PUBLICATION, RP. 2013

WEBSITE:-

1. www.lexisnexis.com
2. www.legalservices.com
3. www.legalsutra.com
4. www.legallyindia.com
5. www.indiankanoon.com
6. www.manupatra.org

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