SLCM - Questions & Answers (Part 1) CS Executive

Question 1:-

The following is an extract of Balance Sheet of Alpha Ltd.:

Equity Shares Capital — 50,000 Equity Share of ₹ 10 each.

10% Debenture Capital — 20,000 Debenture of ₹ 10 each.

On 21st April, 2018, the Board of directors decided to buy-back 5,000 equity shares for which they would call

Answer:

The proceeds will be utilized as follows as per ICDR Regulations:

(Public Issue Se Jo Paise Mile Hai Unka sahi Istemal Ho raha hai ya Nai, Yeh Dekne Ke Liye Monitoring Agency Appoint Kar

lete Hai par yeh tabhi hoga jab issue size offer for sale ko chodkar 100 crore ke upar hota hai)

If the issue size excluding the size of offer for sale by selling shareholders, exceeds ₹ 100 crores, the issuer shall ensure

that the use of the proceeds of the issue is monitored by a public financial institutions or by one of the scheduled

commercial banks named in the offer document as a banker to the issuer.

In case the issuer is a bank or a public financial institution or an insurance company, this provision is not applicable.

The monitoring agency shall submit its report to the issuer in the format specified in the ICDR Regulations, 2016 on a

quarterly basis, till at least 95% of the proceeds of the issue excluding the proceeds raised for general corporate

purposes, have been utilized.

The Board of directors and the management of the issuer shall provide their comments on the findings of the

monitoring agency.

The issuer shall, within 45 days from the end of each quarter, publicly circulate the report of the monitoring agency by

uploading the same on its website as well as submitting the same to the stock exchange(s) on which its equity shares

are listed.

Question 2:-

The following is an extract of Balance Sheet of Alpha Ltd.:

Equity Shares Capital — 50,000 Equity Share of ₹ 10 each.

10% Debenture Capital — 20,000 Debenture of ₹ 10 each.

On 21st April, 2018, the Board of directors decided to buy-back 5,000 equity shares for which they would call

Extra-ordinary General Meeting.

In the year 2016, the company has defaulted in payment of interest on secured loan to Bank amounted to ₹ 25

crore, which was remedied in the year 2017.

Comment on the above situation.

Answer:-

As per SEBI (Buy-Back of Securities) Regulations, 2018, if a default is made by the company in the repayment of

deposits accepted either before or after the commencement of the Companies Act, interest payment on the deposits,

redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term

loan or interest payable thereon to any financial institution or banking company. However, the buy-back is not

prohibited if the default is remedied and a period of three years has lapsed after such default ceased to subsist. In the

given case, Alpha Ltd, defaulted the payment of interest on secured loan to Bank in the year 2016. Although the

company has made good the default in year 2017 but the statutory period of three years has not lapsed. Hence, the

company cannot proceed to buy-back the shares.

Question 3:-

Romeo International Limited, an Indian public limited company, is listed on BSE. On Friday i.e. 14th December,

2018 one of the shareholders of the Company, Ganesh, who was already holding 30% stake in the company,

made a public announcement for an open offer for the acquisition of 13 crore equity shares (Face value `10

each), constituting 26% of the equity share capital of the Romeo International Limited.

The offer price per share according to Takeover Regulations is arrived at `500 per share. Explain the following

with reference to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011:

(a) What is the time limit for depositing amount in escrow account and explain with the relevant provisions,

Extra-ordinary General Meeting.

In the year 2016, the company has defaulted in payment of interest on secured loan to Bank amounted to ₹ 25

crore, which was remedied in the year 2017.

Comment on the above situation.

Answer:-

As per SEBI (Buy-Back of Securities) Regulations, 2018, if a default is made by the company in the repayment of

deposits accepted either before or after the commencement of the Companies Act, interest payment on the deposits,

redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term

loan or interest payable thereon to any financial institution or banking company. However, the buy-back is not

prohibited if the default is remedied and a period of three years has lapsed after such default ceased to subsist. In the

given case, Alpha Ltd, defaulted the payment of interest on secured loan to Bank in the year 2016. Although the

company has made good the default in year 2017 but the statutory period of three years has not lapsed. Hence, the

company cannot proceed to buy-back the shares.

Question 4:-

Romeo International Limited, an Indian public limited company, is listed on BSE. On Friday i.e. 14th December,

2018 one of the shareholders of the Company, Ganesh, who was already holding 30% stake in the company,

made a public announcement for an open offer for the acquisition of 13 crore equity shares (Face value `10

each), constituting 26% of the equity share capital of the Romeo International Limited.

The offer price per share according to Takeover Regulations is arrived at `500 per share. Explain the following

with reference to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011:

(a) What is the time limit for depositing amount in escrow account and explain with the relevant provisions,

what amount should be deposited in escrow account in this case?

(b) Explain the forms of maintaining the escrow account.

Answer:-

Romeo is listed on BSE. Ganesh Holds 30% shares and gives open offer to acquire 26% equity shares, yaha tak to koi

gadbad nai hai...

₹ 500 main ek share acquire karega to total 500 multiplied by 13 Crore, itna kharcha aaega. Sawaal hai ki kitna escrow

main dalna hai?

Total ₹ 6500 crore jaega, to

(500 cr tak 25% us ke upar ka 10%)

Amount to be deposited in Escrow Account: (₹ 500 crore x 25%) + (₹ 6000 crore x 10%) = 125 + 600 = ₹ 725 Crore.

Yahi hoga na!

Question 5:-

Govind Ltd. proposes to issue 20 lakh share warrants to its promotors. The share warrant gives an option to

buy shares at a predetermined price. The price trend of the Company’s share in the stock market is given

below:

▪ Closing price on the relevant date: ₹ 250.

▪ The average weekly high & low of the closing price during the 26 weeks preceding to the relevant date: ₹ 275.

▪ The average weekly high & low of the closing price during the 2 weeks preceding to the relevant date: ₹ 280.

You are required to:

(a) Identify the minimum price at which share warrants should be issued; and

(b)Calculate the amount payable by the promoters at the time of allotment of the warrants.

what amount should be deposited in escrow account in this case?

(b) Explain the forms of maintaining the escrow account.

Answer:-

Romeo is listed on BSE. Ganesh Holds 30% shares and gives open offer to acquire 26% equity shares, yaha tak to koi

gadbad nai hai...

₹ 500 main ek share acquire karega to total 500 multiplied by 13 Crore, itna kharcha aaega. Sawaal hai ki kitna escrow

main dalna hai?

Total ₹ 6500 crore jaega, to

(500 cr tak 25% us ke upar ka 10%)

Amount to be deposited in Escrow Account: (₹ 500 crore x 25%) + (₹ 6000 crore x 10%) = 125 + 600 = ₹ 725 Crore.

Yahi hoga na!

Question 6:-

Govind Ltd. proposes to issue 20 lakh share warrants to its promotors. The share warrant gives an option to

buy shares at a predetermined price. The price trend of the Company’s share in the stock market is given

below:

▪ Closing price on the relevant date: ₹ 250.

▪ The average weekly high & low of the closing price during the 26 weeks preceding to the relevant date: ₹ 275.

▪ The average weekly high & low of the closing price during the 2 weeks preceding to the relevant date: ₹ 280.

You are required to:

(a) Identify the minimum price at which share warrants should be issued; and

(b)Calculate the amount payable by the promoters at the time of allotment of the warrants.

Answer:-

Bhaiya ab warrant wale provisions kya bolte hai ICDR ke, the price at which shares will be applied shall be fixed at the

time of issue of warrants and in case price is not fixed than some formula shall be given on basis of which the share

issue price will be determined for example the issuer can state that shares will be issued at 25% higher price than the

prevailing market price or the issuer may also give a price band like shares can be applied for the price of ₹ 30-35.

At least 25% of the consideration amount based on the exercise price shall also be received in advance i.e at the time of

issue of warrants.

However, in case the exercise price of warrants is based on a formula, 25% consideration amount based on the cap

price of the price band determined for the linked equity shares or convertible securities shall be received in advance.

Hence, the promoters are liable to pay at least 25% of the share warrant i.e ₹ 70 per share warrant. This amount

should be paid on the date of the allotment of share warrant by the promoters.

Amount to be payable by the promoters at the time of allotment of the warrants = 20,00,000 shares x ₹ 70 = ₹ 14 crore.