Book Building: Meaning, Process

Book Building may be defined as a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) and Follow-on Public Offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional investors as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.

Book Building vs. Fixed Price Method:

The main difference between the book building method and the fixed price method is that in the former, the issue price to not decided initially. The investors have to bid for the shares within the price range given. The issue price is fixed on the basis of demand and supply of the shares.

On the other hand, in the fixed price method, the price is decided right at the start. Investors cannot choose the price. They have to buy the shares at the price decided by the company. In the book building method, the demand is known every day during the offer period, but in fixed price method, the demand is known only after the issue closes.

Book Building in India:

The introduction of book-building in India was done in 1995 following the recommendations of an expert committee appointed by SEBI under Y.H. Malegam. The committee recommended and SEBI accepted in November 1995 that the book-building route should be open to issuer companies, subject to certain terms and conditions. In January 2000, SEBI came out with a compendium of guidelines, circulars and instructions to merchant bankers relating to issue of capital, including those on the book-building mechanism.

Book Building Process:

The principal intermediaries involved in a book building process are the companies, Book Running Lead Manager (BRLM) and syndicate members are the intermediaries registered with SEBI and eligible to act as underwriters. Syndicate members are appointed by the BRLM. The book building process is undertaken basically to determine investor appetite for a share at a particular price. It is undertaken before making a public offer and it helps determine the issue price and the number of shares to be issued

The following are the important points in book building process:

1. The Issuer who is planning an offer nominates lead merchant banker(s) as ‘book runners’.

2. The Issuer specifies the number of securities to be issued and the price band for the bids

3. The Issuer also appoints syndicate members with whom orders are to be placed by the investors.

4. The syndicate members put the orders into an ‘electronic book’. This process is called ‘bidding’ and is similar to open auction.

5. The book normally remains open for a period of 5 days.

6. Bids have to be entered within the specified price band

7. Bids can be revised by the bidders before the book closes.

8. The book runners and the Issuer decide the final price at which the securities shall be issued.

9. Generally, the number of shares is fixed; the issue size gets frozen based on the final price per share.

10. Allocation of securities is made to the successful bidders. The rest bidders get refund orders

Features and Types of Cheque

Cheques are the backbone of the banking industry and is still a very important negotiable instrument in the country. Each cheque comes with a cheque number, IFSC CODE AND MICR.

To put it in simple words, a cheque is nothing but a written bill of exchange that is written by a bank account holder to pay for goods or services. It is always issued in favor of other parties, there may also be third parties and it is an order for the bank to pay the person whose name the cheque bears or is in favor of.

Features of Cheque

• Cheques can be issued against savings or current accounts
• A cheque is always drawn on a specified banker
• It is an unconditional order
• The payee of a cheque is fixed and certain and cannot be changed
• The payment will only be made in the name of the payee/beneficiary
• It is an instrument that is payable on demand
• A cheque will be considered invalid if does not contain the date

Types of Cheques

Open cheque

An open cheque is a type of leaf that a holder can use to get payment at a bank or deposit in his own account. It is also possible for the holder to issue this cheque to someone else.

Bearer cheque

In a bearer cheque, the payment is made to someone who is acting on behalf of the payee/beneficiary, in whose favor the cheque has been issued. In the leaf, it is a must to include the word ‘bearer’ to process this type of cheque.

Depositing vs. Cashing a Cheque

The differences between depositing and cashing a cheque is as given below:

Depositing a cheque: Adding a specified amount to your bank account through the cheque. Depending on the bank process, it may take a few days for the money to reflect in your account to be withdrawn.

Cashing a cheque: This is being offered the cash in hand.

Self-Cheques

A self-cheque is a cheque drawn in one’s own name, which means the drawer and the payee are the same. You would write the word ‘’self’’ in the space for the drawee’s name on the cheque. It can only be encashed in the drawer’s bank. A self-cheque is for use in situations when you want to withdraw money from your own account in cash. It has to be kept in mind that if such a cheque falls in the wrong hands, it can easily be used by another person to withdraw money from the bank from which the cheque is issued, so a self-cheque should be kept safely.

Account Payee Cheques

An account payee cheque is a bearer’s cheque that has the words ‘’account payee’’ written on the top left-hand side, within two parallel lines, and crossed twice. This is also called a ‘’crossed cheque’’. It is considered to be the safest way to issue a cheque as the amount written will be transferred only to the person’s account that is written on the cheque.

Post-dated cheque

A post-dated cheque is an account payee or crossed cheque that has a future date in order to meet a financial obligation in future. It is valid for up to 3 months from the date of the cheque’s issuance.

Banker’s cheque

Banker’s cheques are cheques that are issued by the bank so it guarantees payment.

Traveler’s Cheque

A traveler’s cheque is used when traveling in order to avoid carrying large amounts of cash so as to maintain greater safety and security. It can be encashed when traveling abroad where foreign currency is required.

Crossed cheque

A crossed cheque is also called an account payee cheque. It is a bearer’s cheque which has the words ‘’account payee’’ written on the top left-hand corner enclosed in two parallel lines. It is the safest cheque to issue because only the name written on the cheque will have the money transferred to their account.

Dishonour of Cheque

Dishonor of cheque is what happens when a bank does not deposit the payment written in the cheque to the payee’s account. A ‘Cheque Return Memo’’ is usually issued to the payee’s banker which specifies the reasons for the cheque being dishonored. This memo is issued by the drawee’s bank. The dishonored cheque and the memo is presented to the payee by the payee’s bank. The payee can resubmit the same cheque within three months of the date of issuance of the cheque. The payee should also send a notice to the drawer stating that the amount should be paid within 15 days of the notice being received by the drawer. This notice should be sent to the drawer within 30 days of receiving the Cheque Return Memo. If the drawer fails to make a payment even within 30 days of receiving the notice, then the payee can initiate legal proceedings against the drawer under Section 138 of the Negotiable Instruments Act.

Stale Cheque

A cheque in India is valid for 3 months from the date of issue. Any cheque which has been deposited three months after the date of the cheque being signed becomes a stale cheque.

Ante-dated Cheque

An ante-dated cheque is one in which the date written is prior to the current date (for example, if the current date is 1 January 2020 but the date on the cheque is 1 December 2019, then it is an ante-dated cheque).

Mutilated Cheque

If a cheque reaches the bank in a torn or otherwise damaged condition, it is called a mutilated cheque. If a cheque is torn or the important information is not visible, then it will become an invalid cheque.

Blank Cheque

A cheque which has all the fields blank except for the drawer’s signature, then it is called a blank cheque.

Parties Involved with a Cheque

The number of parties that are involved with a cheque are as given below:

• Payee: The person named in the cheque who is to receive the payment
• Drawee: The specific bank on which the cheque has been drawn
• Drawer: The person who writes the cheque, who can be the account holder or the customer. The payee and drawer can be the same person.
• Endorser: When the right to take the payment is transferred by the payee to another party, the payee is called an endorser.
• Endorsee: When the right to take the payment is transferred by the payee to another party, the party to which the right is transferred is called the endorsee.

Material Usage Control (Inventory Control)

Please open attached pdf file

Types of Issue of Shares

Types of Issue of Shares

Issue of Shares is the process in which companies allot new shares to shareholders. Shareholders can be either individuals or corporates. The company follows the rules prescribed by Companies Act 2013 while issuing the shares

1.      Public Issue 

Under this method, the company issues a prospectus to the public inviting offers for subscription. The investors who are interested in the securities apply for the securities they are willing to buy. Advertisements are also issued in the leading newspapers. Under the Company Act it is obligatory for a public limited company to issue a prospectus or file a statement in lieu of prospectus with the Registrar of Companies.

• Initial Public Offer: When a company is going for a process of getting listed on the stock exchange and publicly traded, IPO is the first public offering, it is the main source of the company in acquiring money from the general public to finance its projects and the company allots shares to the investors in return.
• Follow-On Public Offer: The process of FPO starts after an IPO. FPO is a public issue of shares to investors at large by a publicly listed company. In FPO, the company goes for a further issue of shares to the general public with a view to diversifying its equity base. A prospectus is offered by the company.
• Private placement  

This method involves an issue of new shares to financial institutions and large private clients rather than making an invitation to the general public to subscribe to shares.

• Preferential issue: A private placement of securities by a listed company. <br><br> Securities are issued to an identified set of investors which may include promoters, strategic investors, employees and such group
• Qualified Institutional Placement (QIP): A private placement of securities by a listed company to a set of institutional investors termed as qualified institutional buyers is a QIP
• Institutional placement programme: Means a further public offer of eligible securities by an eligible seller, in which the offer, allocation and allotment of such securities is made only to qualified institutional buyers in terms of this Chapter.

3.      Offer for Sale

Under this method, the issuing company allots or agrees to allot the security to an issue house at an agreed price. The issue house or financial institution publishes a document called an ‘offer for sale’. It offers to the public shares or debentures for sale at higher price.

4.      Right Issue

The right issue is a way to use which companies raise additional capital. In the right issue, a company gives its existing shareholders a right to buy new shares of the company at a discount from its current market price.

• Bonus issues

A listed company may capitalize part of its reserves by making a bonus issue to the existing shareholders, and no cash will be paid to such issues. For instance, if a corporation declares a 1 for 5 bonus issue, that means for every 5 shares held, an existing shareholder will receive 1 share for free.

• Composite issue

When the issue of shares or convertible securities by a listed issuer on public cum-rights basis, wherein the allotment in both public issue and rights issue is proposed to be made simultaneously, it is called composite issue.

Parties to a Negotiable Instrument

The chapter explains various parties involved in the negotiable
instruments.
Drawer – The maker of bill of exchange or cheque is called as “Drawer”
Drawee – The person directed to pay is called as “Drawee”
Drawee in case of need – is a person whose name is given in addition
to that of drawee to be called upon in case of problem for payment.
Acceptor – Drawee becomes acceptor when he signs his name on the
face of bill agreeing to pay the bill.
Acceptor for honor – any person who accepts the bill for the honor of
the drawer or any of its endorsee
Payee – Payee is the person to whom payments is to be made.
Holder – Holder means a person entitled in his own name to the
possession of the instrument and to receive or recover the amount due
thereon from the parties thereto. A holder may be a de facto holder or
holder with legal right to the bill i.e. De jure holder.
Holder in due course- Holder in due course means any person who for
consideration became the possessor of a promissory note, bill of
exchange or cheque if payable to bearer, or the payee or indorse
thereof, if payable to order before the amount mentioned in it became
payable, and without having sufficient cause to believe that any defect
existed in the title of the person from whom he derived his title.
Endorser – An endorser is a person who signs his name at the back of
a bill and transfers his / her rights on the bill to another for value
received.
Endorsee – Endorsee is a person in whose favour bill is endorsed

Types of Negotiable Instruments

TYPES OF NEGOTIABLE INSTRUMENTS:

1. Negotiable instruments by Statue
   The Act mentions only three types of Negotiable Instruments (Section 13).These are:
    Promissory Note
    Bill of Exchange
    Cheque
2. Negotiable instruments by custom or usage There are certain instruments which have acquired the character of negotiability by the usage or custom of trade. For example, Exchequer bill, Bank Notes, Share warrant, Bill of Lading etc.

Classification of Negotiable Instruments

We can study negotiable instruments under the following broad classifications. These classifications depend on various features like transferability, negotiability, rights of holders, etc.

1. Bearer Instruments

There are two important conditions for negotiable instruments to become payable to bearers. Firstly, parties to the transactions must express it to be so payable. Secondly, the only endorsement for it should be an endorsement in blank.

These two requirements basically imply that any holder of such instruments can obtain payment for them. For example, a bill of exchange is payable to any person who holds it. These bearer instruments include cheques, bills of exchange and promissory notes.

2. Order Instruments

Negotiable instruments can often be payable to order in certain cases. They are payable when the instruments expressly state them to be so. Furthermore, they may be payable to order only to a specific person. The only requirement is that there should be no prohibition on their transferability.

3. Inland Instruments

Section 11 of the NI Act deals with inland instruments. This provision basically regulates instruments that are drawn and made payable in India. Alternatively, they may be payable outside India but only if they are drawn upon by an Indian resident.

4. Foreign Instruments

Every instrument that is not inland automatically becomes a foreign instrument. These instruments are drawn in a foreign country but may be payable within or outside India. They may even originate in India but only for payment to a person who resides abroad.

5. Demand Instruments

Sometimes, an instrument may not specify a time period during which it remains payable. Such instruments are generally payable whenever the bearer demands. Examples of such instruments include promissory notes and bills of exchange.

6. Time Instruments

Unlike demand instruments, time instruments carry a fixed future date for payment. For example, a promissory note may carry a maturity date arising after 24 months of its issue. Such instruments may even become payable upon the happening of a specific future event.

7. Ambiguous Instruments

An ambiguous instrument is basically 0ne that may be either a bill or a note for its holder. Such situations arise in peculiar circumstances only. For example, sometimes the drawee may be a fictitious person or he may be incompetent to contract.

Under such circumstances, the holder of such instruments may treat them either as bills of exchange or as promissory notes.  Section 17 of the Negotiable Instruments Act deals with such situations.

8. Incomplete instruments

Incomplete instruments lack certain essential requirements of typical negotiable instruments. In such cases, the holder of the instrument has the authority to complete it up to the amount mentioned therein. This, in turn, results in the creation of legally binding negotiable instrument payable by law. Not only the first holder but also any subsequent holder who procures such instruments can complete them.

Characteristics of Negotiable Instruments

 A negotiable instrument must be in writing
 A negotiable instrument must be signed by its maker
 A negotiable instrument must contain an unconditional promise or order to pay some money
 A negotiable instrument must contain a certain amount of money only
 A negotiable instrument must be freely transferable from one person to another
 On the transfer of a negotiable instrument from one person to another, the
transferee who receives it in a good faith and for value has the right to
recover the amount mentioned in the negotiable instrument in his own
name. Such person is known as holder in due course. His rights are not
affected by any defect in the title of the transferee or any prior party.

Difference between Bin Card & Stores Ledger

Material storage – Store Records

The record of stores may be maintained in three forms:
 Bin Cards

 Stock Control Cards
 Store Ledger
Bin Cards: It is a quantitative record of inventory which shows the quantity of
inventory available in a particular bin. Bin refers to a box/ container/ space where
materials are kept. Card is placed with each of the bin (space) to record the
details of material like receipt, issue and return. It is maintained by store
department.
Stock Control Cards: It is also a quantitative record of inventory maintained by
stores department for every item of material. In other words, it is a record which
shows the overall inventory position in store. Recording includes receipt, issue,
return, in hand and order given.
Advantages and Disadvantages of Bin Cards
Advantages:
(i) There would be fewer chances of mistakes being made as entries are made
at the same time as goods received or issued by the person actually
handling the materials.
(ii) Control over stock can be more effective, in as much as comparison of the
actual quantity in hand at any time with the book balance is possible.
(iii) Identification of the different items of materials is facilitated by reference to
the Bin Card the bin or storage receptacle.
Disadvantages
(i) Store records are dispersed over a wide area.
(ii) The cards are liable to be smeared with dirt and grease because of
proximity to material and also because of handling materials.
(iii) People handling materials are not ordinarily suitable for the clerical work
involved in writing Bin Cards.
Advantages and disadvantages of Stock Control Cards
Advantages:
(i) Records are kept in a more compact manner so that reference to them is
facilitated.
(ii) Records can be kept in a neat and clean way by men solely engaged in
clerical work so that a division of workers between record keeping and

actual material handling is possible.
(iii) As the records are at one place, it is possible to get an overall idea of the
stock position without the necessity of going round the stores.
Disadvantages:
(i) On the spot comparison of the physical stock of an item with its book
balance is not facilitated.
(ii) Physical identification of materials in stock may not be as easy as in the case
of bin cards, as the Stock Control Cards are housed in cabinets or trays.
Stores Ledger: A Stores Ledger is maintained to record of both quantity and
cost of materials received, issued and those in stock. It’s being a subsidiary
ledger to the main cost ledger, it is maintained by the Cost/ Accounts
Department. The source documents for posting the ledger are Goods received
notes, Materials requisition notes etc.
The first two forms are records of quantities received, issued and those in
balance, but in the third record i.e. store ledger, value of receipts, issues and
closing balance is also maintained. Usually, records of quantities i.e. Bin cards and
Store Control Cards are kept by the store keeper in store department while record of
both quantity and value is maintained by cost accounting department.

MATERIAL STORAGE – Duties of store keeper

Proper storing of materials is of primary importance. It is not enough only to
purchase material of the required quality. If the purchased material subsequently
deteriorates in quality because of bad storage, the loss is even more than what

might arise from purchase of bad quality of materials. Apart from preservation of
quality, the store-keeper also ensures safe custody of the material. It should be
the function of store-keeper that the right quantity of materials always should be
available in stock.
2.5.1 Duties of store keeper
These can be briefly set out as follows:
(i) General control over store: Store keeper should keep control over all
activities in Stores department. He should check the quantities as mentioned in
Goods received note and with the purchased materials forwarded by the receiving
department and to arrange for the storage in appropriate places.
(ii) Safe custody of materials: Store keeper should ensure that all the
materials are stored in a safe condition and environment required to preserve the
quality of the materials.

(iii) Maintaining records: Store keeper should maintain proper record of
quantity received, issued, balance in hand and transferred to/ from other stores.
(iv) Initiate purchase requisition: Store keeper should initiate purchase
requisitions for the replacement of stock of all regular stores items whenever the
stock level of any item of store approaches the re-order level fixed.
(v) Maintaining adequate level of stock: Store keeper should maintain
adequate level of stock at all time. He/ she should take all necessary action so
that production could not be interrupted due to lack of stock. Further he/ she
should take immediate action for stoppage of further purchasing when the stock
level approaches the maximum limit. To reserve a particular material for a specific
job when so required.
(vi) Issue of materials: Store keeper should issue materials only against the
material requisition slip approved by the appropriate authority. He/ she should
also refer to bill of materials while issuing materials to requisitioning department.
(vii) Stock verification and reconciliation: Store keeper should verify the book
balances with the actual physical stock at frequent intervals by way of internal
control and check the any irregular or abnormal issues, pilferage, etc.