Appendix 51

GUIDELINES FOR ISSUE OF CUMULATIVE CONVERTEBLE PREFERENCE SHARES

Under the Capital issues (Control) Act, 1947, all companies, whose issue of share capital is not specifically exempted under the Capital Issues (Exemption) Order, 1969, made under section 6 of the aforesaid Act are required to obtain the approval of the Controller of Capital issues (CCI) in the form of a consent or a letter of acknowledgment. These guidelines are issued for the guidance of companies proposing to issue cumulative convertible preference shares.

1. Applicability.‑ The Guidelines will apply to the issue of Cumulative Convertible Preference (CCP) Shares by public limited companies which propose to raise finance.

2. Objects of issue.‑ The objects of the issue of the above instrument should be as under:

(a) Setting up new projects ;

(b) Expansion or diversification of existing projects

(d) Working capital requirements.

3. Quantum of issue‑ The amount of issue of CCP shares will be to the extent the company

would be offering equity shares to the public for subscription. In case of projects assisted by financial institutions, the quantum of the issue would be approved by the financial institutions/banks. The applicant company should submit to the Controller of Capital Issues (CCI) a realistic estimate of the project costs, along with copies of the letters indicating the approval/participation of the public financial institutions in the financing of the project costs.

4. Terms of issue.‑

(i) The aforesaid instrument would be deemed to be equity issue for the purpose of calculation of debt‑equity ratio as may be applicable.

(ii) The entire issue of CCP would be convertible into equity shares between the end of 3 years and 5 years as may be decided by the company and approved by the CCI.

(iii) The conversion of the CCP shares into equity would be deemed as being one resulting from the process of redemption of the preference shares out of the proceeds of a fresh issue of shares made for the purposes of redemption.

(iv) The rate of preference dividend payable on CCP would be 10%.

(v) The guidelines in respect of issue of preference shares regarding ratio of I : 3 as between preference shares and equity shares would not be applicable to the new instrument.

(vi) On conversion of the preference shares into equity shares, the right to receive arrears of dividend, if any, on the preference shares up to the date of conversion shall devolve on the holder of the equity shares on such conversion. 'Me holder of the equity shares shall be entitled to receive the arrears of dividend as and when the company makes profit and is able to declare such dividend.

(vii) The aforesaid preference share would have voting rights, as applicable to preference shares under the Companies Act, 1956.

(viii) The conversion of aforesaid preference shares into equity shares would be compulsory at the end of 5 years and the aforesaid preference shares would not be redeemable at any stage.

5. Denomination of CCP.‑ The face value of aforesaid shares will ordinarily be Rs. 100 each.

6. Listing of CCP.‑ The aforesaid instrument shall be listed on one or more stock exchanges in the country.

7. Articles of association of the company and resolution of the general body.‑ The articles of association of the applicant company should contain a provision for the issue of CCP. Further, the company shall submit with the application to the CCI a certified copy of a special resolution in this regard under section 81 (1A) of the Companies Act, 1956, duly passed in a general meeting of the company. This resolution shall specifically approve the issue of the CCP shares and provide for compulsory conversion of the preference shares between the 3rd to 5th year, as the case may be.

8. Miscellaneous.‑

(a) All applications should be submitted to the Controller of Capital Issues (CCI) in the prescribed form duly accompanied by a demand draft for fees payable under the Act.

(b) The applications should be accompanied by a true copy of the Letter of Intent/Industrial Licence, whichever is necessary, or registration with the Director General of Technical Development (DGTD) for the project.

(c) In respect of companies registered under the MRTP Act, they should ensure that the requisite approval under the said Act has been obtained before making an application to the CCI. Documentary evidence of the foregoing should invariably be submitted with the application.

(d) A certificate duly signed by the secretary and/or director of the company stating that the information furnished is complete and correct should be annexed to the application. Similarly, a certificate from the auditors of the company, stating that the information in the application has been verified by them and is found to be true and correct to the best of their knowledge and information, be furnished.

[Issued by the Government of India, Ministry of Finance, Department of Economic Affairs, Office of the Controller of Capital Issues, dated l9th August, 1985.] [(1985) 58 Com Cases (St) 166.]