Union & State List

Role	Name	Affiliation
Principal Investigator	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University
Content Reviewer	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University

Description of Module

Items	Description of Module
Subject Name	Law
Paper Name	Corporate Finance
Module Name /Title	Union & State List
Module No.	XV

37. Foreign loans

38. Reserve Bank of India.

43. Incorporation, regulation and winding up of trading Corporations, including banking, insurance and financial corporations but not including Co-operative Societies.

44. Incorporation, regulation and winding up of corporations, whether trading or not, with objects not confined to one State, but not including universities.

45. Banking.

46. Bills of exchange, cheques, promissory notes and other like instruments.

47. Insurance.

52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest.

82. Taxes on income other than agricultural income.

85. Corporation tax.

86. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies.

State List:

Industries subject to the provisions of Entries 7 and 52 of List I

Payment of Commission

Payment of Commission

Role	Name	Affiliation
Principal Investigator	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University
Content Reviewer	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University

Description of Module

Items	Description of Module
Subject Name	Law
Paper Name	Corporate Finance
Module Name /Title	Payment of Commission
Module No.	XIV

Payment of Commission

Underwriting Commission The consideration payable to the underwriters for underwriting the issue of shares or debentures of a company is called underwriting commission. Such a commission is paid at a specified rate on the issue price of the whole of the shares or debentures underwritten whether or not the underwriters are called upon to take up any shares or debentures. Thus, the underwriters are paid for the risk they bear in the placing of shares before the public. Underwriting commission may be in addition to brokerage.

Payment of Underwriting Commission Section 40 (6) of the Companies Act 2013, provides that a company may pay commission to any person in connection with the subscription or procurement of subscription to its securities, whether absolute or conditional, subject to the following conditions which are prescribed under Companies (Prospectus and Allotment of Securities) Rules, 2014:

 (a) the payment of such commission shall be authorized in the company’s articles of association; (b) the commission may be paid out of proceeds of the issue or the profit of the company or both; (c) the rate of commission paid or agreed to be paid shall not exceed, in case of shares, five percent (5%) of the price at which the shares are issued or a rate authorised by the articles, whichever is less, and in case of debentures, shall not exceed two and a half per cent (2.5 %) of the price at which the debentures are issued, or as specified in the company’s articles, whichever is less;

(d) the prospectus of the company shall disclose - – the name of the underwriters; – the rate and amount of the commission payable to the underwriter; and – the number of securities which is to be underwritten or subscribed by the underwriter absolutely or conditionally.

(e) there shall not be paid commission to any underwriter on securities which are not offered to the public for subscription;

(f) a copy of the contract for the payment of commission is delivered to the Registrar at the time of delivery of the prospectus for registration. Thus, the Underwriting commission is limited to 5% of issue price in case of shares and 2.5% in case of debentures. The rates of commission given above are maximum rates. The company is free to negotiate lower rates with underwriters.

Buy Back of Shares

Buy Back of Shares

Role	Name	Affiliation
Principal Investigator	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University
Content Reviewer	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University

Description of Module

Items	Description of Module
Subject Name	Law
Paper Name	Corporate Finance
Module Name /Title	Buy Back of Shares
Module No.	XIII

Buy-Back :

 Buy-back is the process by which Company buy-back it’s Shares from the existing Shareholders usually at a price higher than the market price. When the Company buy-back the Shares, the number of Shares outstanding in the market reduces/fall. It is the option available to Shareholder to exit from the Company business. It is governed by section 68 of the Companies Act, 2013.

 Reasons of Buy-back:-

To improve Earning per Share;

To use ideal cash;

 To give confidence to the Shareholders at the time of falling price;

To increase promoters shareholding to reduce the chances of takeover;

 To improve return on capital ,return on net-worth;

 To return surplus cash to the Shareholder.

Modes of Buy-back:-

A Company may buy-back its Shares or other specified Securities by any of the following method-

 From the existing shareholders or other specified holders on a proportionate basis through the tender offer;

 From the open market through-

1. Book-Building process

2. Stock Exchange

Provided that no buy-back for fifteen percent or more of the paid up capital and reserves of the Company can be made through open market.

Sources of Buy-back:-

A Company can purchase its own shares and other specified securities out of –

 its free reserve; or

 the securities premium account; or

 the proceeds of the issue of any shares or other specified securities.

However, Buy-back of any kind of shares or other specified securities cannot be made out of the proceeds of the earlier issue of same kind of shares or same kind of other specified securities.

Conditions of Buy-back:-

As per Section 68 of the Companies Act, 2013 the conditions for Buy-back of shares are-

 Articles must authorise otherwise Amend the Article by passing Special Resolution in General Meeting.

 For buy-back we need to pass Special Resolution in General Meeting, but if the buy-back is upto 10%, then a Resolution at Board Meeting need to be passed .

Maximum number of Shares that can be brought back in a financial year is twenty-five percent of its paid up share capital.

 Maximum amount of Shares that can be brought back in a financial year is twenty-five percent of paid up share capital and free reserves (where paid up share capital includes equity share capital and preference share capital; & free reserves includes securities premium).

 Post buy-back debt-equity ratio cannot exceed 2:1.

 Only fully paid up shares can be brought back in a financial year.

 Company must declare its insolvency in Form SH-9 to Register of Companies, signed by Atleast 2 Directors out of which one must be a Managing Director, if any.

 The notice of the meeting for which the Special Resolution is proposed to be passed shall be accompanied by a explanatory statement stating-

1. a full and complete disclosure of all the material facts;

2. the necessity of buy-back;

3. the class of shares intended to be bought back;

4. the amount invested under the buyback;

5. the time limit for completion of buyback;

The Company must maintain a Register of buy-back in Form SH-10.

 Now, Submit Return of buy-back in Form SH-11 Annexed with Compliance Certificate in Form SH-15, Signed by 2 Directors out of which One must be a Managing Director, if any.

 A Company should extinguish and physically destroy shares bought back within 7 days of completion of the buy-back.

 Observe 6 months cooling period i.e. no fresh issue of share is allowed.

 No offer of buy-back should be made by a company within a period of one year from the date of the closure of the preceding offer of buy-back.

 The buy-back should be completed within a period of one year from the date of passing of Special Resolution or Board Resolution, as the case may be.

Restrictions on Buy-back of Securities in certain circumstances

According to section 70 of the Companies Act, 2013, A Company should not buy-back its securities or other specified securities , directly or indirectly -

 Through any subsidiary including its own subsidiaries; or

 Through investment or group of investment Companies; or

 When Company has defaulted in repayment of deposits or interest payable thereon, or in redemption of debentures or preference shares or repayment of any term loan.

The prohibition is lifted if the default has been remedied and a period of 3 years has elapsed after such default ceased to subsist.

 When Company has defaulted in filing of Annual Return, declaration of dividend & financial statement.

Managerial Remuneration

Managerial Remuneration

Role	Name	Affiliation
Principal Investigator	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University
Content Reviewer	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University

Description of Module

Items	Description of Module
Subject Name	Law
Paper Name	Corporate Finance
Module Name /Title	Managerial Remuneration
Module No.	XII

Description of Module

Managerial Remuneration

Introduction

The executive management of a company is responsible for the day to day management of a company. The companies Act, 2013 has used the term key management personnel to define the executive management. The key management personnel are the point of first contact between the company and its stakeholders. While the Board of Directors are responsible for providing the oversight, it is the key management personnel who are responsible for not just laying down

the strategies as well as its implementation. Chapter XIII of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 deal with the legal and procedural aspects of appointment of Key Managerial Personnel including Managing Director, Whole-time Director or Manager, managerial remuneration, secretarial audit etc.

Key Managerial Personnel

The Companies Act, 2013 has for the first time recognized the concept of Key Managerial Personnel. As per section 2(51) “key managerial personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed.

MANAGERIAL REMUNERATION

Just as profits drive business, incentives drive the managers of business. Not surprisingly then, in a fiercely competitive corporate environment, managerial remuneration is an important piece in the management puzzle. While it is important to incentivize the workforce performing the challenging role of managing companies, it is equally important not to go overboard with the perks and the pay. In India, to keep a check on unnecessary profit squandering by companies and, at the same time, to ensure adequate and reasonable compensation to managerial personnel, the law intervenes to do the balancing act.

Remuneration to Managerial Personnel

Section 197 of the Companies Act, 2013 prescribed the maximum ceiling for payment of managerial remuneration by a public company to its managing director whole-time director and manager which shall not exceed 11% of the net profit of the company in that financial year

computed in accordance with section 198 except that the remuneration of the directors shall not be deducted from the gross profits.

Further, the company in general meeting may, with the approval of the Central Government, authorise the payment of remuneration exceeding 11% of the net profits of the company.

The remuneration payble to any one managing director or wholetime director or manager shall not exceed 5% of the net profits of the company and if there are more than one such director remuneration

shall not exceed 10% of the net profits to all such directors and manager taken together.

Except with the approval of the company in general meeting, the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,—

— 1% of the net profits of the company, if there is a managing or whole-time director or manager;

— 3% of the net profits in any other case.

Remunertion by a Company having no Profit or Inadequate Profit

If, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including managing or whole time director or manager, any remuneration

exclusive of any fees payable to directors except in accordance with the provisions of Schedule V and if it is not able to comply with Schedule V, with the previous approval of the Central Government.

Sitting Fees to Directors for Attending the Meetings

[Section 197(5)]

The Central Government through rules prescribed that the amount of sitting fees payable to a director for attending meetings of the Board or committees thereof may be such as may be decided by the Board of directors or the Remuneration Committee thereof which shall not exceed the sum of rupees 1 lakh per meeting of the Board or committee thereof.

Monthly Remuneration to Director or Manager

A director or manager may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the

other. [Section 197 (6)]

Remuneration Drawn in Excess of Prescribed Limit

If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company. [Section 197(9)]

Insurance Premium as Part of Remuneration

Where any insurance is taken by a company on behalf of its managing director, whole-time director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, the premium paid on such insurance shall not be treated as part of the remuneration payable to any such personnel.

However, if such person is proved to be guilty, the premium paid on such insurance shall be treated as part of the remuneration.

[Section 197(13)]

Managerial Remuneration under Schedule V

Section II : Remuneration by Companies having no profits or inadequate profits without Central Governement approval

(A):

Where the effective capital is Limit of yearly remuneration

payable shall not exceed (Rs)

Negative or less than 5 Crore 30 Lakhs

5 Crore and above but less 42 Lakhs

than 100 Crore

100 Crore and above but 60 Lakhs

less than 250 Crore

250 Crore and above 60 Lakhs plus 0.01% of the

effective capital in excess of

Rs. 250 Crore

Constitutional perspectives

Constitutional Perspective

Role	Name	Affiliation
Principal Investigator	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University
Content Reviewer	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University

Description of Module

Items	Description of Module
Subject Name	Law
Paper Name	Corporate Finance
Module Name /Title	Constitutional Perspective
Module No.	XI

Constitutional Perspective :

37. Foreign loans

38. Reserve Bank of India.

43. Incorporation, regulation and winding up of trading Corporations, including banking, insurance and financial corporations but not including Co-operative Societies.

44. Incorporation, regulation and winding up of corporations, whether trading or not, with objects not confined to one State, but not including universities.

45. Banking.

46. Bills of exchange, cheques, promissory notes and other like instruments.

47. Insurance.

52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest.

82. Taxes on income other than agricultural income.

85. Corporation tax.

86. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies.

State List:

Industries subject to the provisions of Entries 7 and 52 of List I

SEBI and RBI control over Corporate Finance

SEBI and RBI control over Corporate Finance

Role	Name	Affiliation
Principal Investigator	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University
Content Reviewer	Dr.Gyanendra Kumar sahu	Asst.Professor Utkal University

Description of Module

Items	Description of Module
Subject Name	Law
Paper Name	Corporate Finance
Module Name /Title	SEBI and RBI control over corporate Finance
Module No.	X

SEBI and RBI control over corporate Finance

Objective: After reading this module, the learners will have a clear picture of :

It is the duty of the Board to protect the interests of the investors in securities and to promote the development and regulate the securities market.

Learning Outcomes:

The acceptance of deposits by companies is regulated by Reserve Bank of India, SEBI and control over the deposit acceptance activity of non financial companies is vested in Department of Company affairs.

Introduction:

Prior 1992 there are three principal act governing to the securities Market were:

1. The Capital issue control Act 1947 which restricted the issuer’s access to the securities market and controlled the pricing of issues.

2. The companies act 1956 which set out the code of conduct for the corporate sector in relation to issue allotment and transfer of securities.

3. The securities contract Regulation act 1956 which provides for regulation of transactions in securities through control over stock exchanges.

In addition a number of other Acts I’e The Public Debt act 1944, The income tax act 1961, the Bnaking Regulation act 1949 etc.

The Securities and Exchange Board of India (SEBI), which was established on april 12,1988 through an extraordinary notification of the Government of India. The Ordinance was replaced by the SEBI Act 1992. The Board consist of a chairman and five other members: One each from the Ministry of Finance, One from Ministry of Law and Justice and company affairs and one from the Reserve Bank of India and two others to be appointed by the Central Government. The duty of the Board to protect the interests of the investors in securities and to promote the development and regulate the securities market.

 Power and function of the Securities and Exchange Board of India (SEBI):

I. Regulating the business in stock exchanges and any other securities markets.

ii Registering and regulating the working of stock Brokers,sub-Brokers,Share transfer agents, Registrar to an issue, Merchant Bankers, Portfolio managers etc.

iii Registering and regulating the working of collective investment schemes including Mutual fund

Iv.Promoting and regulating self regulatory organizations.

V.Prohibiting fraudulent and unfair trade practices in securities market.

Vi.Promoting investors education and training of intermediaries in securities market.

Vii.Prohibiting insider trading in securities.

viii. Regulating substantial acquisition of shares and takeover of companies.

ix. Calling for information, undertaking inspection, audit of the stock exchanges etc.

x levying fees or other charges for carrying out of this section.

xi.Conducting research for the above purpose

xii performing such other functions as may be prescribe by the Government.

Power of the Board:

1.The Board shall have the same powers as are vested in a Civil Court under the code of Civil procedure 1908 while trying suit in following matters namely:-

i. The Discovery and production of books of account and other documents at such place and such time as may be specified by the board.

Ii. Summoning and enforcing the attendance of persons and examining them on oath.

Iii Inspection of any books, register and other documents of any person I;e stock-broker, share transfer agent etc at any place.

iv. Inspection of any book, or Register or other document or record of the company I;e listed public company or any recognized stock exchange.

V Issuing commissions for the examination of witness or documents.

vi. Suspend the trading of any security in a recognized stock exchange

Vii. Restrain persons from accessing the securities market and prohibit any person associated with securities market to Buy, sell or deal in securities.

Viii. Suspend any office- Bearer of any stock exchanges.

Ix Board to regulate or prohibit issue of prospectus,  offer document or advertisement soliciting money for issue of securities.

X power to issue direction and investigation.

RBI Regulation:

1. RBI Empowered: Deposits of non-banking companies attracted official attention only in 1964 when the RBI was empowered to regulate the quantum of company deposits.

2. Objective: The primary objective of exercising control over deposit acceptance on companies is to regulate the growth of deposits outside the banking system as also afford a degree of indirect protection to the depositors.

3. Acceptance of Deposits: The acceptance of deposits by companies is regulated by Reserve Bank of India and control over the deposit acceptance activity of non financial companies is vested in Department of Company affairs.

4. Celling of Interest: Restrictions on quantum and tenure of deposits and ceiling of interest rates.

5. Mantain Liquid assets: They require certain type of companies to maintain liquid assets and all companies to submit returns/Balncesheet etc.

6 The RBI Regulation of Public Deposits has six main aspects:

1. Ceilling of Quantum Deposits: There is a ceiling on the quantum of deposits in terms of paid-up capital and reserves by the company because undue accumulation of short-term liabilities in the form of deposits can lead a company into financial difficulties.

i. Deposits: Any money received by a non banking company by way of deposits or loan or in any other form but excludes money raised by way of share capital or contributed as capita by proprietors.

2. Limit on Period: The Reserve bank Regulation is the limit on the period of such deposits. Formerly in order to avoid direct competition with short-term public deposits, companies were prohibited from accepting deposits for a period of less than 12 months. But the amendment of 1973 reduced the period to less than 6 months. The short term deposit is now pegged down to 10% of the aggregate to the paid-up capital.

3. Information about Repayment: The Reserve Bank has made obligatory on the part of the companies accepting deposits to regularly file returns giving detailed information about them their repayment etc.

4. While issuing Newspapers: The Reserve Bank has stipulated that while issuing newspaper advertisement certain specified information regarding the financial position and the working of the company must accompany.

5. Auditors: The RBI has entrusted the auditors of the companies with additional responsibility of reporting to it that the provisions under the Act had been strictly followed by the company.

6. Issued Brochure: The RBI has issued brochure RBI directives and company Deposits in order to clarify its role in protecting depositors.