Can a company issue Selective Bonus Shares

1. DL BUSINESSCARE PRIVATE L IMIT E D
Corporate Consultancy Company
Selective Issue of
Bonus Shares
Dated : 29.07.2019

2. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Governing
Law
• Section 63 of Companies Act 2013
• Rule 14 Companies (Share Capital and
Debentures) Rules, 2014
• Income Tax Act 1961

3. Source of Fund
D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Free
Reserves
Securities
Premium
Capital
Redemption
Reserves

4. Source of Fund
D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Capitalising
Reserves
No issue of bonus shares shall
be made by capitalising
reserves created by the
revaluation of assets.

5. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Pre-requisite
for Issue of
Bonus Shares
• Authorised By Articles of the Company
• No Default in payment of Debt or interest
• No default in payment of Statutory Fee of Employees
• No default in payment of Called money against
partly paid up shares

6. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Steps for
Issuance
• Finalisation of terms of issue of shares by Board
• Recommendation to members for issuance by Board
• Approval for issuance of Bonus Shares by Members
• Allotment of shares by Board
• Issuance of Share Certificates
Board Can not withdraw the recommendation, once done.

7. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Valuation
Report
There is no requirement of Valuation Report for
the purpose of issuance of Bonus Issue of Shares.

8. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Selective
Issue of
Bonus Shares
CAN COMPANY ISSUE BONUS SHARES IN A
'SELECTIVE' MANNER’?
In a selective bonus issue, bonus shares would be issued
to one class of members e.g. minority, public, promoter
or investor. If possible, it could find application in
situations where the ownership pattern has to be reset, a
valuation gap needs to be addressed, or where certain
shareholders have to be compensated as per
Shareholders Agreement.
There is nothing provided in Act for Selective Issue of
Bonus Shares.

9. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Advocacy of
Selective
Issue
A selective bonus issuance is indeed possible, and this is
largely due to the language now found in Section 63 of
the 2013 Act, which begins: "A company may issue fully
paid-up bonus shares to its members, in any manner
whatsoever...". Applying the literal rule of
interpretation, we can see that the provision does not
prohibit selective bonus issue, but rather, contains wide
permissive language which suggests it is possible. While
the words "in any manner whatsoever" are a little
ambiguous.

10. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Selective
Issue –
Precedent
In 2008, Reliance Power set the precedent of Selective
Issue of Bonus Shares – In the said issue, company
excluded its promoter and only issued bonus shares to
public shareholders, to protect the value of its public
shareholders' investment. (However, SEBI has permitted
the selective issue for the benefit of Public Shareholders)

11. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Income Tax
The Cost of Acquisition of Bonus Shares will be
zero at the time of sale. And Sale consideration
shall be treated as Capital Gain.

12. D L B U S I N E S S C A R E P R I V A T E L I M I T E D
Case
BONUS SHARES, ARE NOT TO BE TAXED ON
THE ALLOTMENT, BUT ON SALE, as decided
in Sudhir Menon HUF Vs. ACIT 162 TTT 425 ( Mumbai
). Section 56 (2) (vii) Income Tax Act does not apply to
the issue of Bonus shares . The cost of acquisition of
shares to the investor in ‘Nil”. Bonus shares would be
subject to capital gain tax depending on the holding
period only when sold.

13. Contact Us
E - 238, L G F, G R E AT E R
K A I L A S H - 1
N E W D E L H I - 110048
P h . No. +91 11 410 777 55
E m a i l : i n f o @ i n d i a b i z z . c o . i n
w e b s i t e : i n d i a bi z z . c o. in
DL BUSINESSCARE PRIVATE L I M I T E D