Correspondence with Members and Debenture Holders
The exam tests the format and tone of a company's letters to members and debenture holders, plus the statutory content each letter must carry.
Common correspondence
- Allotment letter stating shares allotted and amount adjusted; letter of regret when no allotment is made, enclosing the refund.
- Share certificate covering letter, and transfer or transmission confirmation.
- Notice of AGM or EGM with the explanatory statement (Sec 102) and proxy form.
- Dividend warrant or ECS advice, interest warrant on debentures, and the TDS certificate.
- Redemption or conversion notice to debenture holders, and the annual report forwarding letter.
Essentials of a good letter
- Company letterhead, reference number, date, full address, subject line, salutation and courteous close.
- Correct folio number or DP ID and client ID, number of securities, amount and period, stated exactly.
- Legal accuracy: refund of application money carries 12% interest after 15 days; dividend must be paid within 30 days of declaration (Sec 127); dividend TDS is 10% where the aggregate exceeds ₹5,000 (Sec 194 of the Income Tax Act).
- Promptness and a record of dispatch, since members may complain or litigate.
Worked example
A member applies for 2,000 shares at ₹150 each, paying ₹75 on application, that is ₹1,50,000. The company allots 500 shares and must refund ₹1,12,500 (1,500 × ₹75). The regret letter states the application number, shares allotted, refund amount, mode of refund and date, and thanks the member without promising preference in a future issue.
Traps
- Writing "you will be considered in the next issue" - it creates a false expectation.
- Leaving out the DP ID or folio number, which makes the letter unactionable.
- Omitting TDS and net amount details on dividend and interest letters.