Meaning, characteristics, types of debentures.

Q. Write meaning and characteristics of Debenture. Explain different types of debentures.

Ans. MEANING OF DEBENTURE: The word ‘Debenture’ is derived from the latin word ‘debere’, which means ‘taking a loan’. When a company wants to take a loan on a long-term basis so that the loan becomes the company’s capital. It issues debentures and debenture stock. By debenture is meant a ‘document that contains an acknowledgement of indebtedness’. It is issued by company under its common seal and gives an undertaking to repay the debt at a specified date (or at the company’s option), specifies the conditions related to the loan taken by the company. According to Section 2(30) of the Companies Act, 2013, ‘debenture’ includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not. 

— According to Tophamn, “Debenture is a document given by a company as evidence of a debt to the holder usually arising out of loan, and most commonly secured by a charge.”

CHARACTERISTICS OF DEBENTURES: A debenture has the following characteristics:

(i) A debenture is issued by a company and is an acknowledgement of the company’s debt to the holder. 

(ii) It is issued under the company’s common seal, but need not necessarily specify the company’s capital.

(iii) A debenture is normally issued for a specified amount, but one debenture may also be issued for the total amount given by a debenture holder.

(iv) The rate of interest and the date of renewal is stated in a debenture.

(v) A debenture normally, but not always, is secured by the company’s property.

(vi) The holder of a debenture does not have a right to vote in the company’s meetings, i.e. he does not participate in the company’s management.

DIFFERENT TYPES OF DEBENTURES: Depending upon the conditions of issue, debentures may be of different types, which are as follows:

(1) Registered Debentures: Debentures that have the names, addresses and other particulars of the holder recorded in the company’s Register of Debenture-holders are called ‘registered debentures’. The interest as well as the principal amount with respect to such debentures is payable only to the registered holders. Registered debentures can be transferred only in accordance with the conditions of their issue and the transfer must necessarily be recorded in the company’s register. As such, a registered debenture is not a negotiable instrument.

(2) Bearer Debentures: Debentures that are neither recorded in the company’s register nor require the prior consent of the company for their transfer are called ‘bearer debentures’. In other words, bearer debentures are transferable by mere delivery and whoever has the possession of a bearer debenture is deemed to be its owner. Only the  holder of a bearer debenture has the right to receive the interest or the principal amount. The transfer of such debentures does not involve any legal procedure, and no stamp duty is to be paid for the transfer. The holder of bearer debentures can, on the payment of a normal fee, gets his name recorded in the company’s register of debenture-holder. 

(3) Secured Debentures: Debentures which are secured by a charge on the company’s property are called ‘secured’ or ‘mortgage’ debentures. In case the company does not make the payment of such debentures, the holders can realise the payment from the company’s property which is held in charge or mortgage.

(4) Unsecured Debentures: Debentures that are not secured by any charge or mortgage on the assets of the company are called unsecured debentures. The company does not provide any security for the payment of interest or principal amount of these debentures. The holders of such debentures are like ordinary, unsecured creditors of the company who only have a certificate that they have paid the amount of debentures to the company. In case of default on the company’s part, the holders of such debentures can sue the company. 

(5) Redeemable Debentures: When the holder of debentures is given the option that provides for the payment of the principal amount on a specified date or on demand or notice, the debentures are said to be redeemable.

(6) Irredeemable Debentures: Debentures on which the issuing company does not fix any date by which they should be redeemed, and the holders of debentures cannot demand payment from the company as long as it is a going concern are called ‘irredeemable’ or ‘perpetual’ debentures. Even though the principal amount of such debentures is paid on winding up of the company, the interest is paid regularly. In case, there is a default in the payment of interest, such debentures can be paid during the company’s lifetime.

(7) Convertible Debentures: When the holders of debentures are given the optìon that within a specified period and on fulfillment of specified conditions, they can convert either fully or partially, their debentures into equity shares, the debentures are said to be ‘convertible’.

What is dividend policy? Explain the factors influencing the dividend policy of a company.

 Q. What is dividend policy? Explain the factors influencing the dividend policy of a company. 

Ans. MEANING OF DIVIDED POLICY:

Divided refers to that part of net profits of a company which is distributed among shareholders as a return on their investment in the company. 

A settled approach for the payment of dividend is known as dividend policy. Therefore, dividend policy means the broad approach according to which every year it is determined how much of the net profits are to be distributed as dividend and how much are to be retained in business. Thus, the dividend policy divide the net profits or earnings after taxes into two parts: 

(1) Earnings to be distributed as dividend 

(2) Earnings retained in business 

A firm will have to choose between the portion of profits distributed as dividends and the portion ploughed back into the business. The choice is called dividend policy and it will have its effect on both the long term financing and the wealth of shareholders. 

Factors influencing/determining/affecting the dividend policy.

The following are the factors which generally affect the dividend policy of a firm:

(1) Financial Needs of the Firm: Financial needs of a firm are directly related to the investment opportunities available to it. If a firm has abundant profitable investment opportunities, it will adopt a policy of distributing lower dividends. It would like to retain a large part of its earnings because it can reinvest them at a higher rate than the shareholders can. Other reason for retaining the earning is, that, issuing new share capital is inconvenient as well as involves flotation costs. On the other hand, if the firm has little or no investment opportunities, it should retain only a small portion of its earnings and distribute the rest as dividends.

(2) Stability of Dividends: Investors always prefer a stable dividend policy. They expect that they should get a fixed amount as dividends which should increase gradually over the years. Hence, while determining the dividend policy, the merits of stability of dividends like investor’s desire for current income, resolution of investor’s uncertainty, requirement of institutional investors etc. should be given due consideration.

(3) Legal Restrictions: The firm’s dividend policy has to be formulated within the legal provisions and restrictions. For instance, section 123 of the Indian Companies Act, 2013 provides that dividend shall be paid only out of current profits or past profits after providing for depreciation. Likewise, if there are past accumulated losses, they must be first set off against current year’s profits before the declaration of any dividend. Similarly, a firm is prohibited from declaring any dividends if its liabilities exceed its assests.

(4) Restrictions in Loan Agreements: Lenders, mostly the financial institutions, put certain restrictions on the payment of dividend to safeguard their interests. They may allow the payment of dividend only when some minimum amount has been transferred to sinking fund established for the redemption of their debt. Likewise, they may prohibited the payment of dividends in excess of certain percentage, say, 10%. Alternatively, they may fix the minimum limit of profits that may be used for dividend, say, not more than 40% of the net profits can be paid as dividends. When such restrictions are put, the company will have to keep a low dividend payout ratio.

(5) Liquidity: Payment of dividend causes sufficient outflow of cash. Although a firm may have adequate profits, it may not have enough cash to pay the dividends. It may happen when most of the sales are on credit and firm’s cash resources have been utilized in the expansion of assests or payment of its liabilities. This situation is common for growing firms which needs funds for their expanding activities and permanent working capital. Thus, the cash position is a significant factor in determining the size of dividends. Higher the cash and overall liquidity position of a firm, higher will be its ability to pay dividends. 

(6) Access to Capital Market: A company which is not sufficiently liquid can still pay dividends if it has esay accessibility to capital market. In other words, if a company is able to raise debt or equity in the capital market, it will be able to pay dividends even if its liquid position is not good. While evaluating the ability to raise funds in the capital market, the cost of funds and the promptness with which funds can be raised must be considered. Usually, mature firms have greater access to capital market than the new firms.

(7) Stability of Earnings: Stability of earnings has a significant effect on the dividend policy of a firm. Normally, the greater the stability of earnings, greater will be the dividend payout ratio. 

(8) Objective of Maintaining Control: Sometimes the present management employs dividend policy to retain control of the company in its own hands. When a company pays larger dividends, its liquidity position is adversely affected and it may have to issue new shares to raise funds to finance its investment opportunities. If the existing shareholders do not want or cannot purchase the new shares, their control over the company will be diluted. Under such circumstances, the management will declare lower dividends and earnings will be retained to finance the investment opportunities. 

(9) Effect on Earning per Share: As discussed above (5), high dividend payout ratio affects the liquidity position adversely and may necessitate the issue of new equity shares in the near future, causing an increase in the number of equity shares and ultimately the earning per share may reduce. On the other hand, by keeping a low dividend payout ratio the firm can retain and plough back larger portion of its earnings resulting in increase in future earnings and thereby an increase in earning per share.

(10) Firm’s Expected Rate of Return: If the firm’s expected rate of return would be less than the rate which could be earned by the shareholders themselves from external investment of their funds, then firm should retain smaller part of its earnings and should opt for a higher dividend payout ratio.

(11) Inflation: Inflation may also act as a constraint on paying larger dividends. Depreciation is charged on the original cost of the asset and as a result, when there is an imcrease in price level, funds generated from depreciation become inadequate to replace the obsolete assests. Consequently, companies will have to retain more of its earnings to provide funds to replace the assets and hence their dividend payout ratio will be low during periods of Inflation.

(12) General State of Economy: Earnings of a firm are subject to general economic conditions of the economy. If the future economic conditions are uncertain, it may lead to retention of larger part of the earnings of a firm to absorb any eventuality. Likewise, in the event of depression, when the level of level of business activity is very low, the management may reduce the dividend payout ratio to preserve its liquidity position.

All the above factors must be carefully considered before formulating a dividend policy.

Problems of economy of Haryana.

 Q. What are the various problems of economy of Haryana?

Ans. Haryana is one of the most developed state of India. Per capita income of Haryana is very high in comparison to many states in India. But despite this, Haryana economy has some problems which hinder the fast pace of its economic development. Some of the problems of Haryana economy are discussed below:

(1) Excessive Dependence on Agriculture Occupation: Haryana economy is mainly an agrarian economy where still majority of population is engaged in agriculture sector, which hinders the process of economic development. Problem of disguised unemployment is exist in the agriculture sector. It reflects the state of backwardness of agriculture sector in Haryana. Even growth rate of agriculture sector is less in comparison to growth of industry and service sector.

(2) Regional Disparities: In Haryana, some districts are relatively more developed while some other districts are economically backward. Some districts of Haryana, viz.– Faridabad, Gurgaon, Panipat, Sonipat, Karnal are making more contribution to state domestic product. On the other hand, some districts like Mewat, Mahendragarh, Jhajjar, Bhiwani, Fatehabad, Sirsa are making less contribution to state domestic product. It reflects that some districts of Haryana are forward, while some other districts are backward. 

(3) Weak Infrastructure: Haryana lacks in terms of infrastructure. Infrastructure includes roads, railways, power-generation, dams, irrigation facilities, public-health, etc. Poor Infrastructure creates hindrance in the path of economic development. The districts having good infrastructure like Faridabad, Gurgaon, Panipat, Yamunanagar attract entrepreneurs to set up infustrial units here. But such districts are not much in number. Many districts of Haryana still face problems of power shortage, poor quality roads etc. Haryana state is extremely far from sea port. It hinders its export potential. Weak infrastructural base creates hurdle in the path of faster economic development.

(4) Poor Sex Ratio (Female Ratio): Sex ratio refers to number of females per 1,000 males. Lower sex ratio leads to many social and moral evils. Sex ratio in Haryana is very low in comparison to national average. It reflects negative attitude of Haryana society towards girl child and serious problem of female foeticide. In such imbalanced society, female participation in work-force is less. It hinders the pace of economic development.

(5) Low Standard of Education: In comparison to many other states, the standard of education in Haryana is low. There is lack of professional, technical and vocational education. The quality of education in government run primary educational institutions is not satisfactory. Because of low standard of education, the development of human resources has been slow.

(6) Backward Social Custom: Backward social customs and traditions of society prove big obstacle in the path of economic development. People are trapped in old, outdated customs and conventions in such a way that they do not like to follow scientific and modern notions in place of outdated ideas. To observe social customs, people spend their hard earned money lavishly.  Because of illiteracy and backwardness people have deep faith in fatalism (भाग्यवाद). They consider their poverty is the result of their fate (भाग्य, luck) and they do not make much efforts for its eradication. They have indifferent attitude towards economic progress. So, backward and social customs create hindrance in the path of economic development.

(7) Weak Governance: Due to weak administrative set up, the implementation of economic strategies and plans remains less effective. The delivery system of various services is very weak. The implementation of developmental plans and programmes is ineffective. Due to weak governance, efforts of government do not bring the desired results. Some of the political leaders and government officials are dishonest and corrupt. Because of widespread corruption, scams and leakage of funds in public projects, plans cannot be properly implemented. A very small fraction of funds allocated for poverty alleviation reaches the target group. Corruption poses great challenge in the path of economic development.

(8) Lack of Modern Enterprise: Although in Gurgaon and Faridabad districts, many multinational companies have set up their industrial units/service enterprise but still many districts of Haryana lack in modern enterprise. People lack in entrepreneurial skills. They adopt traditional methods for managing their enterprise. In the lack of modern enterprise, the pace of economic development is hindered. 

(9) Technological Backwardness: Haryana lacks in modern research and development facilities. The level of technology in industry and agriculture is low. Backward technology results in higher capital output ratio and wastage of natural resources of the state. The lack of modern technology has negative effect on industrial and agricultural productivity. Lack of advanced technique also creates hindrance in the path of economic development.

(10) Lack of Natural Resources: Haryana lacks in natural resources like mineral wealth, perennial rivers, proximity to sea, etc. Some districts of Haryana have rocky land and deserts. Some districts of Haryana like Mewat, Mahendragarh, Bhiwani, Hisar, Sirsa share their border with Rajasthan. Some parts of these districts get very less rainfall.

(11) Slow Capital Formation: Capital formation refers to productive investment in the economy. Investment of savings into productive channels results in capital firmation. High rate of capital formation promotes the pace of economic development. In Haryana, rate of capital formation is not very high. People living in rural areas have less saving habits. Even if they save, their savings are not invested in productive channels due to poor banking habits, weak money and capital markets etc. In urban areas, people spend more due to demonstration effect resulting in less savings and thus less capital formation. 

(12) Weak Public Sector Units: Most of the state run PSUs are running into losses. Employees of the public sector units have poor work culture. Further, outdated technology used in the state run PSUs hinders their efficiency. These PSUs are managed by bureaucrats and not by professionals from management field.

In nutshell, there are many economic and non-economic problems in Haryana state which create hindrance in the path of economic development.

Sweat Equity Shares

Q. Explain in brief Sweat Equity Shares.

Sweat equity shares means equity shares issued by the company to its employees or directors at a discount or consideration other than cash for providing know-how or making available intellectual property rights. According to section 54 of Companies Act, 2013, a Company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled:

(i) the issue of sweat equity shares is authorised by a special resolution passed by the company in general meeting.

(ii) the resolution specifies the number of shares, current market price, the consideration, if any, and the class or classes of directors or employees to whom such equity shares are proposed to be issued.

(iii) not less than one year elapsed since the date on which the Company was entitled to commence business.

(iv) the sweat equity shares of a Company whose equity shares are listed on recognised stock exchange, are issued in accordance with the regulations made by the SEBI in this behalf.

(v) such shares cannot be resold by their holders within a period of three years called lock-in period.

It is to be noted that a company may issue sweat equity shares at a price lower than than the nominal value of equity shares.

The entries for issue of sweat equity shares are same as for issue of other equity shares.

Features and procedure of obtaining information under right to information act, 2005.

Q. Explain the features and procedure of obtaining information under right to information act, 2005. [KUK 2017-18]

Ans. FEATURES OF RIGHT TO INFORMATION ACT, 

https://english9192.blogspot.com/2025/05/salient-features-of-right-to-Information-act-2005.html

PROCEDURE OF OBTAINING INFORMATION UNDER RIGHT TO INFORMATION ACT, 2005: The procedure of obtaining information under Right to Information Act is as under: 

1. Request of obtaining information: A person, who desires to obtain any information under this act, shall make a request in writing or through electronic means in English or Hindi or in the official language of the area in which the application is being made, accompanying such fee as may be prescribed to the Public Information Officer (PIO) or Assistant Public Information Officer (APIO) as the case may be. Public Information Officer is an officer designated by the Public Authority in all administrative offices or units under it and Assistant Public Information Officer is an officer designated by the Public Authority at each sub-divisional or block levels. The duties of these officers are to receive the applications from the information seekers and provide them necessary information. If there is any prescribed format of seeking information, then the information-seeker must use that form. If there is no prescribed format of application for seeking information, the application can be made on plain paper. The application should have details of the information required as well as the name and complete postal address of the applicant.

Where request for obtaining information cannot be made by the applicant in writing, the concerned information officer shall render all reasonable assistance to the person making the request orally to reduce the same in writing.

An applicant making request for information shall not be required to give any reason for requesting the information or any other personal details except those that may be necessary for contacting him.

2. Depositing fees for obtaining information: For obtaining any information, the applicant is required to deposit a certain fees as prescribed by Central and State Governments. Different states have different fees for seeking information. The application fees for Central Government Departments is ₹ 10. The applicant may also be required to pay further fee towards the cost of providing information, the details of which shall be intimated (familiar) to the applicant by the public information officer. For obtaining information from Central Departments, the applicant is required to pay ₹ 2 for every page. The amount of fees differs from state to state. Similarly, for the inspection of documents a certain fees has been prescribed. Both at Centre and State levels, no fee for inspection of records, if such an inspection is made for one hour only. However, for every subsequent hour after one hour or a fraction thereof, the fee is ₹ 5. This position (fee structure) is applicable to Central Government Departments. State Governments have different fee rules. The fee is deposited in the name of concerned Public Information Officer/Assistant Public Information Officer. The modes of paying fees are Cash, Demand Draft, Banker’s Cheque, Indian Postal Order or Treasury Challan. Different State Governments have framed different rules for depositing application fee for seeking information.

There is no fee (Application fee or other additional fee) for citizens below poverty line.

3. Disposal of Request

Following are the provisions of Right to Information Act regarding Disposal of Request for obtaining information:

(i) In general cases, normally the request for information shall be disposed by the concerned information officer within 30 days of receipt of request.

(ii) where the information sought for concerns with the life or liberty of a person, the same shall be provided within 48 hours of the receipt of the request.

(iii) where the information sought (relates) to third party, the same shall be provided within 40 days of the receipt of request.

(iv) If the information sought relates to allegations of human rights violations against the listed intelligence and security organisations, the same shall be provided within 45 days of the receipt of request.

(v) If the concerned information officer does not provide information within the specified period, it shall be taken as a deemed refusal against which the applicant seeking information can file his first appeal to the next senior rank information officer.

(vi) Where a request has been rejected, the concerned Public Information Officer shall communicate to the person making request:

(a) The reason for such rejection,

(b) The period within which an appeal against such rejection and to whom may be preferred, and 

(c) The particulars of the appellate authority.

4. Appeals: The applicant can file appeal if there is delay in disposal of request or the information has been denied or the information given is found to be incorrect. Appeal can be filed at two levels – one within the organisation to the senior officer to the Public Information Officer known as First Appellate Authority. The second appeal may be filed with the Central or State information commission, as the case may be. The Central and State Governments have framed rules laying down the procedure for filing appeals. The appeals in respect of Union Territories can be filed before the Central Information Commission.

First Appeal:

Any person who does not receive a decision or request for information within the stipulated (specified) time or is aggrieved by a decision of the Public Information Officer may file first appeal of the Right to Information Act. First appeal can be filed within 30 days from the receipt of decision of Public Information Officer, and if no decision is given within 60 days from the date of making a request for information. No fee is charged for filling first appeal, though some states have prescribed a certain fee.

No format has been prescribed for filing first appeal. So, the first appeal can be filed on a plain paper. A copy of the original application which was sent to Public Information Officer for desired information along with reply letter of the Public Information Officer (if any) must be attached to the appeal application. First appeal has to be disposed of within 30 days from the date of its receipt. This period is extendable by 15 days if necessary. So if you do not obtain desired information even after making first appeal, you can file second appeal to the next level Appellate officer (Authority).

Second Appeal:

Second appeal is the last resort (help) for obtaining information under Right to Information Act. Second appeal can be filed with the information commission. A second appeal against the decisions of the State Government Departments can be filed with State Information Commission whereas appeal against Central Government Departments can be filed with the Central Information Commission. Though no fees has been prescribed for filing appeals before the Central Information Commission, some states have fixed fees for filing appeals with their State Commission. In case the applicant is still aggrieved by the decision of the First Appellate Authority, then he can file one more appeal (second appeal) with the commission. The second appeal shall lie within 90 days from the date on which decision should have been made or was actually received. However, the Central or State information commission may admit the appeal after the expiry of period of 90 days if it is satisfied that the appellant was prevented by sufficient cause from filling the appeal in time.

No format has been prescribed for filing second appeal too. So, the second appeal can also be filed on a plain paper. Though there is no time limit for the disposal of appeal by the commission but Central or State Commission gives its decision within 90 days of filing the appeal. The decision of Central or State Commission gives its decision within 90 days of filing the appeal. The decision of Central or State Commission shall be binding but an appeal can be filed in the High Court and Supreme Court against the decision of the Commission.

features and procedure of obtaining information under right to information act, 2005.