Delivery of share/ debenture certificates
(S. 113)
By the Companies (Amendment)
Act, 1988, section 113 has been amended requiring delivery of share/debenture
certificates within three months of allotment or two months of filling of
application for transfer. However, the Company Law Board has been empowered to
extend any of the periods within which the certificates of all debentures and
debenture stocks allotted or transferred could be delivered to a further period
not exceeding 9 months, if it is specified that it is not possible for the
company to deliver such certificates within the stipulated periods.
Rectification of Register of Members due to non-cancellation of
stamps
"WHEREAS it has been
proved in the proceedings before the Company Law Board that the name of M/s.
ABC Ltd. was entered in the Register of Members of M/s. Rajgheria Industrial
Enterprise Private Ltd. even when the stamps affixed on the Transfer Form for
registration of One Hundred Thousand shares were cancelled by the Secretary of
M/s. Rajgheria Industrial Enterprises Private Ltd. and were not so cancelled
either by the transferor or transferee;
AND WHEREAS these transfers
were recorded in the Register of Members of M/s. Rajgheria Industrial
Enterprise Private Ltd.;
AND WHEREAS no direction has
been issued to the said M/s. Rajgheria Industrial Enterprise Private Ltd. to
remove the name of the transferee from the Register of Members;
NOW THEREFORE IT IS RESOLVED
that the Company which is a shareholder of the said M/s. Rajgheria Industrial
Enterprise Private Ltd. make an application to the Company Law Board for
rectification of the Register of Members of the said M/s. Rajgheria Industrial
Enterprise Ltd."
PRACTICE NOTES
1. Rectification of application.-Application for rectification of the register of
members of the company can be made either by any member of the company or the
company itself or by any person aggrieved.
2. Cancellation of stamps.-Instrument of transfer, being the transfer Form No. 7B should bear the
requisite adhesive stamps which should be cancelled at the time of affixation
of such stamps and execution of the transfer instrument. If these requirements
are not complied with, the instrument of transfer, bearing an adhesive stamp
but not cancelled in the manner as contemplated by section 12 of the Indian
Stamp Act, 1899, cannot be said to be
an instrument "duly stamped". Section 108(l) of the Act requires that
a company should register transfer of shares made on a proper instrument of
transfer which is duly stamped and executed by or on behalf of the transferor
and by or on behalf of the transferee and has been delivered to the company along
with certificate relating to the shares. The defect of non-cancellation
of stamps could be rectified only by withdrawing or canceling the entire
documents so delivered and by submitting a fresh and proper instrument duly
stamped together with cancellation of adhesive stamps by and on behalf of the
transferee. Nuddea Tea Company Ltd v.
Ashok Kumar Saha and others, (1988) 64 Com Cas 775 (Cal).
3. Applicability.-The provisions
of this section are applicable to all private companies and all public companies
becoming so under section 43A.1 They
are also applicable to "Licence Companies" registered under section
25 of the Act.
4. Procedure.- The application should be made to the concerned
Regional Bench of the Company Law Board by way of petition in writing and
should be in Form No. 1 of the Company Law Board Regulations, 1991 along with fee of rupees five
hundred.
5. Penalty.- For non-compliance of provisions of this section the company and
every officer of the company who is in default will be punishable with fine
which may extend to rupees five hundred for every day during which the default
continues.
Rectification of Register of Members for inadequacy of stamps
"WHEREAS, on an application made in this
behalf, the name of the company was entered in the Register of Members of M/s.
Rajgheria Industrial Enterprise Private Ltd.;
AND WHEREAS the Company
which is the shareholder of the said M/s. Rajgheria Industrial Enterprise
Private Ltd. has now been informed that the name of the company has been
removed from the Register of Members on the ground that the stamps affixed on
the Transfer Form were not adequate;
NOW THEREFORE the Company
which is the shareholder of the said M/s. Rajgheria Industrial Enterprise
Private Ltd. hereby RESOLVES that an application be made before the Company Law
Board for registration of its name in the Register of Members, the name of the
Company having been removed without sufficient cause."
PRACTICE NOTES
See under Resolution No. 368.
Rectification of Register of Members for default of delayed entry of
name
"WHEREAS the Company
made an application for registration of transfer of 20,000 shares in its favour
to Mls. Rajgheria Industrial Enterprises Private Ltd.;
AND WHEREAS the said M/s.
Rajgheria Industrial Enterprises Private Ltd. had sent a notice refusal to transfer the shares in favour of
the Company on the ground that the registration of transfer would be
prejudicial to the interest of the Company;
AND WHEREAS the transfer of
20,000 shares in favour of the Company would increase the shareholding of the
Company in the said M/s. Rajgheria Industrial Enterprises Private Ltd. by only
.01%;
AND WHEREAS the Company had
delayed the filing of the application before the Company Law Board against the
said refusal;
NOW THEREFORE IT IS RESOLVED
that an application be made before the Company Law Board for the default made
by M/s. Rajgheria Industrial Enterprises Private Ltd. in entering the name of
the Company in the Register of Members under clause (b) of sub-section 4
of section 111 of the Companies Act, 1956".
PRACTICE NOTES
1. Rectification of application- Application for rectification
of the register of members of the company can be made either by any member of
the company or the company itself or by any person aggrieved.
2. Absence of time limit.- There is no time limit mentioned in
section 111(4) of the Act for making an application for rectification of
register of members. In case there is a delay in filing the appeal against the
refusal of any company to register the transfer of shares, one has the option
to seek remedy through the rectification route.
3. Applicability-The provisions
of this section are applicable to all private companies and all public
companies and all public companies becoming so under section 43A. they are also
applicable to “Licence Companies” registered under section 25 of the Act.
4. Procedure.- They application should be made to the concerned
Regional Bench of the Company Law Board by way of petition in writing and
should be in Form No. 1 of the Company Law Board Regulations, 1991 along with
fee of rupees five hundred.
5. Penalty.- For non-compliance of provisions of this section the company and
every officer of the company who is in default will be punishable with fine
which may extend to rupees five hundred for every day during which the default
continues.
Rectification in pursuance of the CLB's order
S.
111(5)-Rectification in pursuance of the Company Law Board's order Board
Resolution
"RESOLVED that the name of Shri AB holding equity shares be removed from the Register of Members and the name of Shri BC holding ……equity shares be inserted in its place in pursuance of the order of the Company Law Board dated ……made in company petition No ……and communicated to the company on …… ……
PRACTICE NOTES
1. Rectification order by Company Law Board.-Section 111(5) empowers the Company Law Board to direct rectification of
the Register of Members.
2. Non-compliance of
Company Law Board order.-Failure to
comply with the order of the Company Law Board will make the company and every
officer of the company who is in default punishable under section It 1(9) by
way of fine of up to Rs. 10,000/- for every day after the first day after
which the default continues.
Appeal against refusal to register transfer of shares
S.
111A(2) proviso--Appeal against refusal to register transfer of
shares Board Resolution
WHEREAS the company had made an application under section 108(l) of the Companies Act, 1956 to ABC Ltd., for transfer of 85,000 equity shares of that company on ……2002 along with necessary documents;
AND WHEREAS the said company
had refused to transfer those 85,000 equity shares within two months from the
date on which the instrument of transfer was delivered to the aforesaid
company;
NOW, THEREFORE, IT IS
RESOLVED that an appeal be and is hereby made to the Company Law Board for a
direction to register the transfer of shares;
RESOLVED FURTHER that the
Secretary of the Company be directed to take necessary steps to make the appeal
by way of a petition to the Company Law Board and be authorised to sign the
petition and other requisite documents and papers in connection therewith and
to appoint authorised representative to appear before the Company Law Board.
PRACTICE NOTES
1. Appeal when lies- As per proviso to sub-section (2) of section
111 A, an aggrieved transferee may seek remedy -by filing an appeal
before the Company Law Board if transfer is refused without sufficient cause
within 2 months from the date of
lodgement. However, it appears from the proviso, as worded, that no appeal lies
in case transfer is not made or refused within 2 months from the date of lodgement.
2. Scope of refusal.-The scope
of refusal by company to register the transfer of shares on sufficient cause is
available only on limited grounds incorporated in sub-section (3) of section 111A. The contention that
the petitioner group is a business rival or the investment has been made for mala fide purpose cannot be made
legitimate ground for refusing to register the transfer of shares. Azzilfli Finlease & Investments (P.) Ltd. and
Other v. Ambalal Sarabhai Enterprises Ltd., (2000) 1 Comp LJ 118 (CLB-WR). Where a Stock
Exchange refused to accept a transfer of shares on the ground that the
transferee was called upon to deposit the consideration money but he had not
done so it was held that such a ground was not permissible. Shyania Prasad Murarka v. Calcutta Stock
Exchange Assn. Ltd., (2002) 108 Com
Cases 703 (CLB).
3. Bar of limitation-In the absence of any period prescribed for filing an appeal the same
may be filed without any bar of limitation as in the case of making an
application under section 111(4) for rectification.
4. Petition before CLB-An appeal may be made by way of petition to the
concerned Two Member Bench of the Company Law Board as per procedure laid down
in the CLB Regulations, 1991, as amended by the CLB (Amendment) Regulations, 1997 vide Notification No. GSR433(E),
dated 1-8-1997, along
with a fee of Rs. 500/- and accompanied by the documents mentioned in
Annexure III to the said Regulations at column (4) of item No. 9.
5. Meaning of sufficient cause.-Acquisition of shares in violation of Takeover
Code of SEBI and also the provisions of the Companies Act, 1956 had to declared that the company in question had refused
registration of transfers with sufficient cause occurring in section 111A(2)
proviso. Gujarat Machinery Manufacturers
Ltd. v. Nile Ltd., [2001] Vol. XXIX SEBI & CLJ 10 (CLB). The expression
"sufficient cause" takes within its sweep not only those
contingencies specified in sub-section (3) of section 111 A but also other circumstances and reasons. Karamsad Investments Ltd. v. Nile Ltd.,
(2002) 108 Com Cases 58 (AP). Apart from the grounds mentioned in section
111 A, a public company cannot refuse to register a transfer of shares on any
other grounds whatsoever and therefore a mere stop transfer advice was not a
sufficient cause for refusing to register transfer of shares. Maruti Udhyog Ltd. v. Pentamedia Graphics
Ltd., (2002) 111 Com Cases 56 (CLB).
Appeal against refusal to register transmission of shares
S. 111A(2) proviso-Appeal against refusal to register
transmission of shares Board Resolution
WHEREAS the company had received an intimation of transfer under section 108 (1) second proviso of the Companies Act, 1956 from Mr. XYZ for transmission of 2000 equity shares of the company On ……2003 along with necessary documents;
AND WHEREAS the company had
refused to register transmission of shares within 2 months from the date of
intimation of transfer delivered to the company;
AND WHEREAS Mr. XYZ had made
an appeal against the company's refusal to register transmission of shares to
the Company Law Board by way of petition a copy of which has been received by
the company;
NOW, THEREFORE, IT IS RESOLVED
that the appeal made to the Company Law Board against the refusal by the
company to register transmission of 3000 equity shares of the company in favour
of Mr. XYZ be defended before the Company Law Board;
RESOLVED FURTHER that the
Secretary of the company be directed to take necessary steps to defend the
company in the proceedings before the Company Law Board and be authorised to
sign necessary documents and papers in connection therewith and to appoint
authorised representative to appear before the Company Law Board.
PRACTICE NOTES
Same as given under Resolution No. 372.
Application for rectification of register of members
S. 111A(3)-Application for rectification of register of
members-Board Resolution
WHEREAS the company had made
an application under section 108(l) of the Companies Act, 1956 to ABC Ltd., for
transfer of 55,000 equity shares of that company on ……2002 along with instrument of transfer;
AND WHEREAS one and half
months had passed from the date on which the instrument of transfer of the said
shares was delivered to the said company;
NOW, THEREFORE, IT IS
RESOLVED that an application be and is hereby made to the Company Law Board for
a direction to rectify the register of members of the said company;
RESOLVED FURTHER that the Secretary
of the company be directed to take necessary steps to make the application by
way of a petition to the Company Law Board and also be authorised to sign the
petition and other requisite documents and papers in connection therewith and
to appoint authorised representative to appear before the Company Law Board.
PRACTICE NOTES
1. Application for rectification of register of members-Sub-section
(3) of
section 111A relates to rectification of register of members or record of
depository in case any transfer is made in contravention of the provisions of'
SEBI Act, 1992 or Sick Industrial Companies (Special Provisions) Act, 1985 or
any other law on an application being made by the aggrieved depository,
company, participant or investor or SEBI within 2 months from the date of
transfer. Application filed beyond the prescribed period of two months will be
time barred. CLB is also empowered to pass interim orders regarding exercise of
voting rights on impugned shares pending final hearing of the application. The
word “,may" used in sub-section (3) of' section 111A has to be
considered as shall. Bombay Dyeing and
Mfg. Co. Ltd. v. Artin Kuniar Bajoria, (2001) 107 Com Cases 535.
2. Petition before CLB-An application
under this sub-section may be made by way of a petition to the concerned
Double Member Bench of the Company Law Board as per procedure" laid down
in the Company Law Board Regulations, 1991 along with a fee of Rs. 500/-
and accompanied by the documents mentioned in Annexure III to the said
Regulations given in column (4) of Item
No. 9.
3. Penalty for default.-If default is made in complying with any of the provisions of section
111 A the company and every officer of the company who is in default will be
punishable with fine of upto Rs. 500/-t, for every day during which the
default continues. [Section II1(12) read
with section 111A(7)].
4. Power of Company Law Board.- The jurisdiction of Company
Law Board under this section relating to public companies is limited to the
rectification arising out of transfer of shares and for rectification of
register on other grounds, the remedy perhaps lies in a civil suit. Turner Morrison Ltd. v. Jenson &
Nicholson (India) Ltd., (1998) 29 CLA 449 (CLB).
5. Splitting of joint holding.- The refusal by a company to
accept splitting up of a joint holding was held to be Justified where neither
the consent of other joint shareholders was filed nor the original
certificates, neither the sale deeds duly signed and stamped as required under
the Act were furnished. Rajiv Das (Dr.)
v. United Press Ltd., (2002) 1 Comp LJ 170
(CLB).
6. Contravention of any other law.- The expression
"contravention of any other law" in section IIIA does not include
case law and a public company refusing to register the transfer of shares to a
business rival was held to be not a permissible grounid of refusal under this
section. McDowell & Co. Ltd. v. Shaw
Wallace & Co. Ltd., (2002) 108 Com Cases 306 (CLB).
Application for rectification of records of depository
S.111A-Application
for rectification of records of depository-Board Resolution
WHEREAS the company has come
to know from the depository that 10,000 equity shares of ABC Co. Ltd. held by
the company have been transferred in the name of XYZ Co. Ltd. wrongly;
AND WHEREAS the depository
of ABC Co. Ltd, has informed the company that the transfer of the aforesaid
shares has been made by the depository in its record;
AND WHEREAS two months have
not yet expired from the date of transfer of the aforesaid shares held by the
depository;
NOW, THEREFORE, IT IS
RESOLVED that an application be and is hereby made to the Company Law Board for
a direction to rectify the records of ft. depository;
RESOLVED FURTHER that the
Secretary of the company be directed to take necessary steps to make the
application for rectification of records of the depository by way of a petition
to the Company Law Board and also be authorised to sign the petition and other
requisite documents and papers in connection therewith and to appoint
authorised representative to appear before the Company Law Board.
PRACTICE NOTES
Same as given under Resolution No. 374.
Certification of transfer, pending registration of shares
S.
112-Application for Certification of transfer-Board Resolution
"WHEREAS the Company
has purchased the shares of M/s. Jaideep Industries Ltd. and lodged the
instruments of transfer for registration in its favour;
AND WHEREAS the registration
of shares may take some time which may go beyond 31st March, 2002, being the
closing day of the Annual Accounts;
AND WHEREAS the Auditors of
the Company are insisting on positive evidence about the purchase of shares by
parting with the funds of the Company;
NOW THEREFORE IT IS RESOLVED
that an application be made by the Secretary of the Company to the said M/s.
Jaideep Industries Ltd. for certification of the instruments of transfer lodged
with the said M/s. Jaideep Industries Ltd., the Secretary of the Company taking
care to see that the certification of the instruments of transfer is made by an
authorised officer of the said M/s. Jaideep Industries Ltd."
PRACTICE NOTES
1. Prima facie title.- Certification of instrument of transfer of shares
will indicate prima facie title to the shares in the transferor named in the
instrument of transfer but it will not amount to representation that the
transferor has actual title to the shares.
2. Company liable.-The concerned company who has given the
certification will be liable if the certification has been made fraudulently
and if any person acts on the faith of an erroneous certification made
negligently by the company.
3. Specific endorsement in the instrument.-The instrument of transfer should bear
specific endorsement with the words "certificate lodged" or some
other words to the like effect.
4. Proper authorisation needed.- Certification of an
instrument of transfer shall be deemed to be made by a company if the person
issuing the certificated instrument is a person authorised to issue such
instrument of transfer on behalf of the company. The certification should be
under the signatures of any officer or servant of the company or any other
person who is authorised to certificate transfers on behalf of the company and
in case the body corporate has been authorised to do so any officer or servant
of that body corporate can do the certification. Any certification shall be
taken to be signed by any person if it is authenticated by that person's
signature unless it is shown that the said signature was made therein neither
by himself nor by any person authorised to use the signature for the purpose of
certification of transfer on behalf of the company.
Certification of Transfers in respect of shares or debentures
S.
112-Certification of Transfers-Board Resolution
"RESOLVED that in pursuance of the provisions of section 112 of the Companies Act, 1956 Shri …… Director and Shri ……Secretary of the Company be and are hereby severally authorised to issue certification of instrument of transfer on company's behalf in respect of shares or debentures of the company held by the transferor thereof."
PRACTICE NOTES
1. Certification of transfers.-When the
holder of shares executes a transfer thereof, it is for the transferee to get
the transfer registered and in order to do this, he must be prepared to hand
over or to procure the handing over, to the company of the transferor's
certificate of title to such shares. If the certificate comprises the shares
transferred and no more, it can of course, be handed over with the transfer to
transferee but very commonly the certificate includes other shares. For example
the certificate may certify that A is the holder of 100 shares, if he transfers
only 50, he retains 50, and there for does not want to hand over his
certificate and in if having 100
shares, he sells 50 to B and 50 to C, he cannot hand over the certificate to
both. In such cases the transferor usually lodges his certificate with the
company and then at his request, or at the request of his broker, the secretary
certifies the transfers (before- they are handed over to the transferee)
by stamping in the margin of the form of certificate, and signing the same.
Issue of share certificates when letter of allotment lost or destroyed
RESOLVED that company's
issuing Share Certificate Nos. from 17007 to 17314 to Shri SKM and Ms. SJ, both
shareholders, of the company without production of relative letters of
allotment and on the basis of Indemnity Bonds furnished by them be and is
hereby approved."
PRACTICE NOTES
1. Issue of share certificate.- When a company issues any capital, no
certificate of any share or shares in the company shall be issued except in
pursuance of a resolution passed by the Board and on surrender to the company
of its letter of allotment or of its fractional coupons of requisite value,
save in cases of issues against letters of acceptance or of renunciation or in
cases of issue of bonus shares.
2. When letter of allotment lost/destroyed.-However, if the letter of allotment is lost or destroyed the Board may
impose such reasonable terms, if any, as to evidence and indemnity and the
payment of out of pocket expenses incurred by the company in investigating
evidence as the Board thinks fit.
Sub-division of share certificates
Ss.
113/84-Sub-division of share certificates-Board Resolution
"WHEREAS a letter dated
the 2002 from Mr. PXY requesting for sub-division of the share
certificate number ……for ……equity shares, having distinctive numbers
from ……to ……both inclusive, into ten share certificates being tabled,
NOW THEREFORE IT IS RESOLVED
that ten share certificates of shares
each be and are hereby issued to Mr. PXY in lieu of the aforesaid share scrip,
which are in the marketable lot for the shares of the company.
RESOLVED FURTHER that the
aforesaid share scrip number ......... be cancelled in exercise of the power
conferred on the Board by article ……of
the Articles of Association of the company."
PRACTICE NOTES
1. Members of listed company may ask for sub-division of shares
into marketable lot.-Share certificates can be
issued in any lot. The recognised Stock Exchanges, where shares or debentures
of a company are listed or dealt with, fix a marketable lot for each kind of
share capital or debentures. If the original issues of share certificates are
not in marketable lots, the members concerned may ask to subdivide such share
certificates in marketable lots without any charge for such services.
Similarly, small odd lots of shares having different share certificates may be
converted or consolidated into the certificate representing marketable lot of
shares.
2. Board Resolution required for sub-division of share
certificates.-Although
section 84 or section 113 does not specifically deal with consolidation or
subdivision of share certificates, the Companies (Issue of Share Certificates)
Rules, 1960, require a Board Resolution to be passed for this purpose and that
a fee exceeding Rs. 2 be not charged.
3. Listing agreement prohibits charging of fee for splitting.-If the shares are quoted, agreement with the Stock Exchange would
prevent the charging of any fee for splitting.
4. Par value of shares.-The SEBI
Board abolished the fix par value of shares of Rs. 10/- and Rs. 100/subject
to clause 3.7 of its (Disclosure and Investor Protection) Guidelines 2000
decided that company should be given the freedom to issue shares at a fixed
amount to be determined by them in accordance with section 13(4) of the
Companies Act, 1956, keeping in mind that such shares are not issued in decimal
of a rupee. The company should be free to change the existing fixed amount
indicated by them in the Memorandum of Articles of Association under section
13(4) where their shares are dematerialised and the existing companies which
have already issued shares at Rs. 10/- or at Rs. 100/can also avail of
this change by splitting/ consolidating their existing shares.
This measure of
liberalisation will benefit both the investors and the companies and will harmonize
the existing separate disclosure and entry point norms for par and premium
issues. These measures are also in accordance with the international practices.
5. Petition to Company Law Board.- a petition under sub-section (3) can be filed if there is a subsisting
default in the delivery of share certificates. There is no scope under this sub-section
for a petition for the payment of any damages for a hypothetical loss of
profits by reason of any alleged delay in delivery of the certificates. Harish Kumar Agarwal v. Punjab
Communications Ltd., (1998) 28 CLA 249 (CLB).
Delayed issue of Share Certificates
"WHEREAS NVs. ABC Ltd.
has issued letter of allotment, allotting one thousand shares in favour of the
Company;
AND WHEREAS more than three
months have elapsed after the said allotment of shares;
AND WHEREAS MJs. ABC Ltd.
has committed a default even after service of notice of compliance and a period
of ten days after service of notice have already expired.
NOW THEREFORE IT IS RESOLVED
that an application be made to the Company Law Board for an order for complying
with the provision of the sub-section (1) of section 113, including an
order for payment of costs of, and incidental to this application."
PRACTICE NOTES
1. Application by the aggrieved.- The aforesaid resolution
will be passed when the company is the aggrieved party. In case of individuals
the application to the Company Law Board can be made directly by them after
waiting for a period of ten days subsequent to the service of the notice.
2. Duplicate Certificates.-
Where in a case of prevention of oppression one of the allegations was non-delivery
of share certificates, but records show that were delivered, the company was
directed to issue duplicate certificates, the company being a family concern
and the shares were closely held. Suryakant Gupta v. Rajarain Corn Products
(Punjab) Ltd., (2002) 108 Corn Cases 133 (CLB).
3. Compliance Certificate.-A company
whose paid-up share capital is less than Rs. 21 crores but is equal to or
more than Rs. 10 lakhs must obtain a compliance certificate from a secretary in
whole-time practice to be filed with the Registrar of Companies
mentioning therein inter alia that the company has delivered all certificate of
shares on allotment and on lodgement therefor for transfer/transmission or any
other purpose in accordance with the provisions of the Act as per paragraph
13(i) of the Form of Compliance Certificate appended to the Companies
(Compliance Certificate) Rules, 2001 prescribed under section 383-A(l)
proviso.
4. Procedure.- The application should be made to the concerned
Regional Bench of the Company Law Board by way of a petition in Form No. 1 of
the Company Law Board Regulations, 1991 alongwith copies of letter of allotment
and notice served on the company requiring to make good the default, affidavit
verifying the said petition and a fee of rupees fifty.
5. Penalty.-For non compliance of the provisions of sub-section
(1) of section 113 of the Act, the company, and every officer of the company
who is in default shall be punishable with fine which may extend to rupees five
thousand for every day during which the default continues.
6. -Compounding of offence.- If the fine does not exceed
rupees five thousand, the application for compounding of offence will lie
before the concerned Regional Director as per section 621A(l)(b). In case the
fine exceeds rupees fifty thousand the application for compounding of offence
will lie before the concerned Regional Bench of the Company Law Board as per
section 621A(l)(a).
Issue of share warrants (S. 114, 115 and 116)
Share warrants cannot be
issued without the previous approval of the Central Government. The shares must
be fully paid-up. The share warrants should be issued under the common
seal of the company stating therein that the bearer of warrant is entitled to
the shares as also payment of future dividend on the shares specified therein.
The holder of a share warrant is entitled to credit as regards tax deducted at
source in the same way as a shareholder is entitled. CIT Bombay v. Julliet M.
Fateh, (1979) 49 Comp Cases 112 (DB-Bom). On the issue of a share warrant
the company should strike out of its register of members the name of the
existing member specified in the warrant as if he had ceased to be a member and
should enter in the said certain particulars given in sub-section (1) of
section 115. The bearer of the share warrant will be deemed to be a member of
the company till he surrenders the share warrants for cancellation. Section 116
provides for penalty for deceitfully personating an owner of any share or
interest in a company or if any share warrant or coupon issued and thereby
obtains or attempts to obtain any such share or interest or share warrant which
is imprisonment for 3 year and also fine.
Issue of share warrants to bearer
Ss.
114/115- Issue of share warrants to bearer-Board Resolution
"WHEREAS the Articles
of Association of the company authorises the company to issue share warrants to
bearer;
AND WHEREAS, on an
application made in this behalf, the Central Government and the Reserve Bank of
India have accorded approval to the company to issue such share warrants to the
bearer;
AND WHEREAS, the equity
shares in lieu of which the share
warrants are to be issued are all fully paid-up shares;
NOW THEREFORE IT IS RESOLVED
that 'share warrants' be and are hereby issued to such members holding shares
of specified numbers as per the Register of Members under the common seal of
the company stating that the bearer of such warrant be entitled to the shares
specified therein, as also the coupons for the payment of future dividends on
the shares specified in the warrant;
RESOLVED FURTHER that the
Secretary be instructed to strike out of its Register of Members the names of
the members entered therein as holding the shares specified in the warrant to
be issued and enter their particulars as required under section 115(l)(a) and
(b) of the Companies Act, 1956."
PRACTICE NOTES
1. Issue of share warrant.- 'Share warrants' may simplify the work of
the secretarial department of a company, but such issue of warrants is very limited
in a commercial undertaking. 'Debentures' are more common compared to share
warrants. Also the financial institutions favour secured debentures.
2. Bearer of share warrant not a member.-As per the definition of 'member' in section 2(27), the bearer of a
share warrant is not a member. Section 115, therefore, provides that on the
issue of a share warrant, the company shall strike out of its Register of
Members the name of the members entered therein as holding the shares specified
in the warrant as if he had ceased to be a member.
3. Procedure to be followed for issue of share warrants to bearer in
respect of fully paid shares.-In case,
the company wishes to issue share warrants to bearer in respect of fully paid-up
shares, the following procedure may be followed:
(a) An application in a letter form (as
there is no prescribed form in this regard), should be made to the Central
Government giving therein or attaching thereto the following:
(i) Detailed reasons for such issue;
(ii) List of members to whom and the manner
in which the same will be issued and number and amount of shares held by each
of them;
(iii) A copy of the Memorandum and the Articles
of Association and the latest audited balance-sheet;
(iv) Relevant Board Meeting minutes;
(v) Treasury/Bank challan showing that fees
have been deposited.
(b) A similar application should
be made to the Reserve Bank of India as the share warrants would virtually
amount to issue of bearer instruments.
(c) On receipt of the Government approval,
share warrants should be prepared, stamped, sealed and signed and then
intimation should be given to the members concerned and the share warrants
delivered in exchange of the share certificates.
(d) Coupons should be attached to the share warrants for the
payment of the future dividends.
(e) Names of the members to whom
share warrants are issued should be struck off from the Register of Members and
the following details entered 2 in their place:
(i) the fact of the issue of the warrant;
(ii) a statement of the shares specified in
the warrant, distinguishing each share by its number;
(iii) the date of the issue of the warrant.
4. Regulations containing provisions for issue of share warrants.-Regulations 41
to 43 of Table 'A' to Schedule I to the Companies Act, 1956, which are
relevant to the issue of share warrants provide that
(a) The bearer of a share
warrant may at any time deposit the warrant at the office of the company, and
so long as the warrant remains so deposited, the depositor shall have the same
right of signing a requisition for calling a meeting of the company, and of
attending, and voting and exercising the other privileges of a member at any
meeting held after the expiry of two clear days from the time of deposit, as if
his name were inserted in the Register of Members as the holder of the shares
included in the deposited warrant. Not more than one person shall be recognised
as depositor of the share warrant. The company shall, on two days' written
notice, return the deposited share warrant to the depositor. (Reg. 41)
(b) No person shall, as bearer of a share
warrant, sign a requisition for calling a meeting of the company, or attend, or
vote or exercise any other privilege of a meeting at a meeting of the company,
or be entitled to receive any notices from the company. The bearer of a share
warrant shall be entitled in all other respects to the same privileges and
advantages as if he were named in the Register of Members as the holder of the
shares included in the warrant, and he shall be a member of the company. (Reg.
42)
(c) The Board may, from time to time, make
rules as to the terms on which (if it shall think fit) a new share warrant or
coupon may be issued by way of renewal in case of defacement, loss or
destruction. (Reg. 43)
5. Penalty for default.-If default
is made in complying with any of the requirements of section 115, the company
and every officer of the company who is in default will be punishable with fine
of upto Rs. 5001- for every day during which the default continues.
There is no occasion to
refer to the interpretation of the term "securities" for tile purpose
of the Securities Contracts (Regulation) Act, 1956, to determine the scope and
ambit of the expression "debenture" and securities" for the
limited purpose of a winding up petition under section 433 and 434 read with
section 439. This is so because, while the Parliament incorporated the
definition of "securities" as contained in section 2(h) of the
Securities Contracts (Regulation) Act, 1956 in section 2(12) read with section
2(45AA), once that definition is taken as written with ink and pen in the Act,
no further references is required to be made to the Securities Contracts
(Regulation) Act, 1956. Gramercy Emerging
Market Fund v. Essar Steel Ltd., (2002) 111 Com Cases 1 (Guj).
Rollover and Credit Rating of Debentures
(S. 117)
Debentures can be of three
types. Non-convertible Debentures, Partly Convertible Debentures and
Fully Convertible Debentures. Credit rating is compulsory for all the three
types of debentures irrespective of the period of maturity. Non-convertible
Debentures and Partly Convertible Debentures are rolled over with or without
change in the interest rate. In case of PCDs/NCDs issued by a listed company
value of which exceeds Rs. 50 lakhs roll over without change in interest rate
can be done but before such roll over, fresh credit rating should be obtained
within a period of 6 months prior to the due date of redemption and should also
be communicated to debenture- holders before roll over. An option should
be compulsorily given to debenture holders to redeem the debentures as per the
terms of the offer document Roll over should be done only in cases where
debenture holders have sent their positive consent and not on the basis of the non-receipt of their negative
reply. Fresh trust deed should be executed at the time of such roll over. Fresh
security should be created in respect of such debentures to be rolled over. If
the existing trust deed or the security documents provide for continuance of the
security till redemption of debentures, fresh security may not be created.
[Clause 10.7. 1. 1]. These provisions are as per SEBI (Disclosure and
Investors' Protection) Guidelines 2000 and are applicable to existing listed
companies or to companies which are going for listing.
The SEBI has framed
regulations for regulating Credit Rating Agencies. The said regulations cover
rating of securities only since the jurisdiction of SEBI Act, 1992 is only over
securities and it does not cover fixed deposits, foreign exchange, country
ratings or real estates.
Debenture issue
Ss. 117-120-Debenture
issue-Board Resolution
"RESOLVED that a sum of
Rs. 100,00,000/-be borrowed by the issue of 10,000 debentures of Rs.
1,000/- each, redeemable at par on or before 2002, unless extended for a further period of ten years, such
debentures to bear interest at the rate of eleven per cent per annum payable
half-yearly as on 30th September and 31st March every year on the
debentures remaining outstanding as on the date of such payment.
RESOLVED FURTHER that the
repayment of the said debentures be secured by a trust deed expressed to be
made between the company of the one part and CKD Trustees & Co. Ltd. as the
debenture-holders on the other part, incorporating therein the rights and
obligations of the company, the duties and obligations of the trustees hereof
in relation to the company and the holders of the said series of eleven per
cent 10,000 secured debentures.
RESOLVED FURTHER that two of the Directors of the company, namely, Mr ……and Mr ……be and are hereby authorised to execute such deed on behalf of the company under the common seal of the company in the presence of the aforesaid two Directors and the Secretary of the company, pursuant to the provision of article ............... of the Articles of Association of the company."
PRACTICE NOTES
1. Issue of debenture carrying voting right prohibited.-Pursuant to section 117, no company, after the commencement of the
Companies Act, 1956, can issue any debenture carrying voting rights at any
meeting of the company, whether generally or in respect of particular classes
of business. But, the debenture- holders certainly can exercise such
rights according to the terms and conditions of the trust deed in relation to
only such matters regulating, for example, the enhancing or extension of
redemption period etc., of the debentures.
2. SEBI (DIP) Guidelines, 2000 on requirement of Debenture Trustee
(a) Appointment of Debenture Trustees in
case of issue of debentures with maturity period of more than 18 months.
(b) No person should be
appointed as Debenture Trustee unless he holds a certificate granted by SEBI
under SEBI (Debenture Trustees) Regulations, 1993.
(c) The company should obtain the consent of
the person concerned in writing to act as Debenture Trustee before the issue of
debentures for subscription.
(d) The names of the debenture trustees must be stated in the
offer document.
(e) Trust deed should be
executed within 6 months of the closure of the issue.
3. Furnishing a copy of trust
deed to debenture holders/members.-Pursuant
to the provisions of section 118, a copy of any trust deed for securing any
issue of debentures must be forwarded to the holder of any such debentures or
any member of the company,,, at his request and within seven days of the making
thereof on payment of one rupee (printed trust deed) or six annas for every one
hundred words.
4. Debenture trust deed exempting trustee against liability for breach
of trust void.-Any provision contained in a
trust deed for securing an issue of debentures or in any contract with the
holders of debentures secured by a trust deed, shall be void in so far as it
would have the effect of exempting a trustee thereof from, or indemnifying him
against, liability for breach of trust, where he fails to show the degree of
care and diligence required of him as trustee, having regard to the provisions
of the trust deed conferring on him any powers, authorities or discretions
(Section 1 19(l)).
5. Issue of debenture made irredeemable on happening of contingency not
invalid.-After the commencement of
the Companies Act, 1956, issue of any debenture which is made irredeemable on
the happening of a contingency or on the expiration of a period, shall not be
invalid by reason only that the debentures were made irredeemable (Section
120).
6. Action to be taken.- The following further actions are called for
(i) Observe Securities and Exchange Board
of India (Disclosure and Investor Protection) Guidelines, 2000 in regard to the
issue of debentures.
(ii) In case the company is a public company or its subsidiary
(a) Permission of the General Meeting by ordinary resolution should be taken unless bon-owing is within the borrowing limits already sanctioned under section 293(l)(d).
(b) Permission of the General Meeting by
ordinary resolution should be taken under section 293(l)(a), if the whole or
substantially the whole or any of the company's undertaking is proposed to be
charged against the debentures.
7. Interest on call money.- Allottees of debentures when called upon to pay the call money by a certain
date and the said date was subsequently extended, the allottees who had already
paid the amount of call money by the first date were entitled to interest from
the date of payment up to the time of the extended date. Lt. Col. M.G. Kapoor v. U01, (2001) 103 Com Cases 924 (Del-DB).
8. Compliance Certificate.-A company
whose paid-up share capital is less than Rs. 2t crores but is equal to or
more than Rs. 10 lakhs must obtain a Compliance Certificate from a secretary in
whole-time practice to be filed with the Registrar of Companies
mentioning therein inter alia that
the company has issued debentures during the financial year and compiled with
the provisions of the Act as per paragraph 19 of the Form of Compliance
Certificate appended to the Companies (Compliance Certificate) Rules, 2001
prescribed under section 383-A(l) proviso.
Approval of debenture trust deed
Ss.
117-120-Trust deed approval-Board Resolution
"RESOLVED that the
trust deed between the company and M/s. A.B. Ltd., the debenture trustees, a
copy of which is placed before the
meeting and duly initialed by the Chairman, be and is hereby approved and M/s.
X and Y, Directors of the company be and are hereby empowered to sign and
execute the trust deed, under the common seal of the company in the presence of
the Secretary of the company."
PRACTICE NOTES
1. Nomination of Trustee.-Where secured
debentures are issued, it is common for the company to nominate a person
(usually a bank) as 'debenture trustees' and to execute a trust deed in their
favour spelling out the rights and obligations of the company vis a vis the debenture- holders
and vice versa. Only a person who has
been authorised by SEBI to act as such can be appointed as Debenture Trustee.
Such a Debenture Trustee should be appointed before issue of prospectus or a
letter of offer to the public for subscription of debentures. Before the
appointment also obtain his consent to act so. [Section 117B(l)]
2. Obligations and duties of Debenture Trustee.- Every Debenture
Trustee should accept among other matters, the trust deed which contains the
matters set out Schedule IV to the SEBI (Debenture Trustees) Regulations, 1993
and perform the duties set out in Regulation 15 and follow the code of conduct
given in Schedule III to the said Regulations. Debenture trustees should
supervise.
3. Trust deed not to violate provisions of section 119 of the Act.-The terms of the trust deed must not
violate the provisions of section 119 of the Companies Act.
4. Furnishing of copy of the Trust deed to debenture-holders.-The company is bound to furnish to each debenture-holder, on his
request, a copy of the trust deed, within 7 days of such request, on his making
a payment of such sum as may be prescribed by the Government in the case of
printed trust deed and such sum as may be prescribed by the Government for
every 100 words or part thereof required to be copied where the trust deed is
not printed.
5. Penalty for refusal of a copy of trust deed.-If a copy of trust deed is refused or is
not forwarded within 7 days of the request made, the company and every officer
of the company who is in default will be punishable for each offence with fine
of Rs. 5001- and with a further
fine of Rs. 200/- for everyday during which the offence continues.
6. Trust deed to be kept open for inspection.-The trust deed should be open for inspection to any member or
debenture- holder, of the company and he should also be entitled to
obtain copies of trust deed on payment of such sum as may be prescribed. [Section 117A(2)].
Execution of debenture trust deed
Ss.
117-120-Execution of Debenture Trust Deed-Board Resolution
WHEREAS the Board informed that (Financial Institution) (hereinafter referred to as ) has been appointed as the Trustees for Non-Convertible Debentures of Rs ……issued by the Company;
AND WHEREAS as per the terms
of issue of the said Debentures, the debentures shall be secured by mortgage on
all the immovable properties of the Company, subject to prior charges on
bankers goods for securing working capital facilities;
AND WHEREAS the mortgage and
charge referred to be created by the Company shall rank pari passu with the
mortgages/charge s created in favour of the participating institutions/banks
for the various term loans/ foreign currency loans sanctioned to the Company;
AND WHEREAS the Company would be creating a Debenture Trust Deed in favour of the Trustees thereby creating a first legal mortgage in English form on the Company's properties situate at in the State of and completing the delivery of the Debenture Certificate pursuant thereto;
"NOW THEREFORE IT IS
RESOLVED that the Company do secure the
……% Non-Convertible Debentures of the face value of Rs ……each of the aggregate nominal value of Rs together with interest, premium payable on
redemption, compound interest (where applicable), remuneration of the Trustees,
costs, charges, expenses and all other monies payable in respect thereof by
creating
(a) A first legal mortgage in English Form
under a Debenture Trust Deed on the Company's immovable and movable properties
situate at ……District in the State of
…………… together with all plant and machinery and other assets thereon; and
(b) a first floating charge on the entire undertaking of the Company pertaining to the properties.
RESOLVED FURTHER that Mr ……and Mr ……Directors of the Company be and are hereby severally authorised to finalise and settle on behalf of the Company, draft of the Debenture Trust Deed as and when received from the Trustees and also to approve and finalise such other deeds, documents and writings as may be required in connection therewith.
RESOLVED FURTHER that the
Common Seal of the Company be affixed to the stamped engrossment of the
Debenture Trust Deed as may be finalised between the Company and the Trustees
and to such other documents as may be required to be executed under the Common
Seal of the Company in the presence of any one of the following Directors,
viz. Mr ……and …… of the Company who do sign the same in
token thereof.
RESOLVED FURTHER that after
execution of the Debenture Trust Deed by the Company and the Trustees, the same
be lodged for registration with the concerned Sub-Registrar of Assurances
or any other registering authority competent in that behalf.
RESOLVED FURTHER that the Company do file the particulars of the Debentures with the Registrar of Companies immediately upon execution of the Debenture Trust Deed.
RESOLVED FURTHER that upon
receipt of the Certificate of registration of charge, the Company do deliver
the Debenture Certificates in terms of the draft set out in the Debenture Trust
Deed with such modifications as may be finalised in consultation with the
Trustees under the common seal of the company in the presence of any one of and who
do sign the same in token thereof.
RESOLVED FURTHER that the
Company do enter the particulars of issue of the Debentures and the Debenture
Certificates in the Register of Debenture-holders maintained by the
Company in that behalf.
RESOLVED FURTHER that any one of the authorised Directors namely and of the Company be and is hereby authorised to make a declaration on oath on behalf of the Company in respect of its properties and to do and execute all acts and deeds and to approve and finalise such other deeds and documents as may be required by the trustees in connection with the Debentures and where necessary, the Common Seal of the Company be affixed thereto in the presence of any one of Mr ……Mr ……and Mr ……of the Company who do sign the same in token thereof, and in the event of Common Seal not required, the same be executed severally by any of the authorised Directors of the Company in that behalf.
RESOLVED FURTHER that copies
of the aforesaid resolution certified to be true be furnished to the Trustees
and they be requested to act thereon."
PRACTICE NOTES
1. Copy of Trust Deed.-Any debenture
holder or member may ask for a copy of the trust deed and within seven days of
such request a copy should be given on payment of rupees ten if the trust deed
is a printed one and if it is not printed then on payment of rupee one to the
company. Penalty for refusing to give a copy within the aforesaid time will
make the company and every officers of the company who is in default punishable
for each offence with fine of Rs. 500/- and with a further fine of Rs.
200/- for every day during which the offence continues.
2. Filing of charge.-On execution
of the trust deed and creation of a charge, the company should file Form Nos. 8
and 13 within thirty days of creation of charge with the Registrar of Companies
along with requisite filing fee as prescribed under Schedule X of the Act.
3. Debenture Trust Deed.-Section 117A has been inserted by the
Companies (Amendment) Act, 2000, w.e.f. 13-12-2000 requiring the
trust deed to be in such form as prescribed and it should be executed within
such period as prescribed.
Execution of Trustee agreement and Deed of Hypothecation
Ss. 117-120-Execution of trustee agreement and
deed of hypothecation-Board Resolution
WHEREAS the ……has been appointed as Trustees for the Debentures of the nominal value of Rs privately placed by the Company with ............and (hereinafter referred to as "the Debenture- holders") and has agreed to act as Trustees for the issue;
AND WHEREAS it is also
necessary that the Company do execute a Common Subscription Agreement in favour
of the Debenture holders incorporating the terms and conditions of the said
financial assistance;
AND WHEREAS the Debenture holders have agreed to accept a mortgage by extension of deposit of title deeds in favour of as the Trustees to secure their said financial assistance and an Agreement between the Company and as the Trustees is necessary to detail the rights of the Trustees in the events of default;
AND WHEREAS it is also
necessary that the Company do execute in favour of the Trustees an Unattested
Memorandum of Hypothecation of move ables and later on, create an equitable
mortgage by extension of deposit of title deeds in favour of the Trustees for
the benefit of Debenture-holders;
AND WHEREAS the Agreement to
be executed between the Company and also the Trustees would be complementary to
the Common Subscription Agreement proposed to be executed by the company in
favour of Debenture- holders;
NOW THEREFORE IT IS RESOLVED
that the said draft Common Subscription Agreement be and is hereby approved and
Mr . .............. and Mr ……Directors of the Company be and are hereby
severally authorised to agree to such
modifications as may be acceptable to the Debenture-holders.
RESOLVED FURTHER that the
Common Subscription Agreement in favour of Debentureholders be and is hereby
authorised to be executed by any two of the directors viz. Mr ……Mr
……and Mr ……of the Company and if so required, the
Common Seal of the Company be affixed thereto in the presence of the aforesaid
directors who do sign the same in token thereof.
RESOLVED FURTHER that the Company do execute an agreement with Trustees for the debentures in terms of the draft placed on the table and initialed by the Chairman for the purpose of identification and subject to such modifications as may be agreed to by Debenture-holders and/or Debenture Trustees.
RESOLVED FURTHER that Mr ……Mr ……and Mr. ……Directors of the Company be and are hereby severally authorised to agree to such modifications to the aforesaid deed and agreement as may be acceptable to the Debenture holders and/or Debenture Trustees.
RESOLVED FURTHER that Mr ……and Mr ……Mr …… Directors of the Company be and are hereby severally authorised to execute the aforesaid agreement with the Debenture Trustees, and if so required, the Common Seal of the Company be affixed thereto in the presence of any two of the aforesaid Directors who do sign the same in token thereof.
RESOLVED FURTHER that the
Company do create a first charge by way of hypothecation of all the movable
properties present and future (save and except book debts) in favour of
debenture trustees acting for the benefit of the Debenture holders, the charge
to be subject to the charges created and/to be created by the Company in favour
of its bankers on the stock of raw materials, semi-finished and finished
goods, stores and spares (not relating to plant and machinery) including
consumable stores, spare parts and book debts for its working capital requirements.
RESOLVED FURTHER that the
Company do execute in favour of the Debenture holders/Debenture Trustees the
unattested memorandum of hypothecation, in terms of the drafts thereof placed
on the table and initialed by the Chairman for the purpose of identification
and subject to such modifications as may be agreed to by Debenture
holders/Debenture Trustees and accepted on behalf of the Company by Mr.
.............Mr .and Mr . ……Directors of the Company who are hereby severally
authorised for this purpose.
RESOLVED FURTHER that the
Common Seal of the Company be affixed to the aforesaid Deed of Hypothecation in
the presence of any two of Mr . Mr
. and Mr . ................ Directors
of the Company who do sign in token thereof.
RESOLVED FURTHER that Mr ……, Mr..... and Mr ……Directors of the Company, be and are severally authorised to execute and deliver on behalf of the Company and in favour of the Debenture holders/Debenture Trustees such deeds, documents, declarations undertakings, instruments and other writings as the Debenture Trustees may so require.
RESOLVED FURTHER that Mr . ……Secretary of the Company be and is hereby authorised to file the necessary returns with the Registrar of Companies within the prescribed time-limit.
RESOLVED FURTHER that copies of the aforesaid resolutions certified to be true by Mr . ……Secretary of the Company who is hereby authorised to forward the aforesaid resolutions to the Debenture holders/Debenture Trustees and. they be requested to accept the same and act thereon.
PRACTICE NOTES
See under Resolution No. 384.
Debenture Redemption Reserve
S.
117C-Creation of debenture redemption reserve-Board Resolution
"RESOLVED that in order
to provide for the redemption of 60,000, 14% secured non-convertible
debentures of Rs. 100/-each due for redemption on 2002, a Debenture Redemption Reserve be and is hereby created
and a sum of Rs. ……be transferred to the Debenture Redemption Reserve from the
profits of the company for the year ended."
PRACTICE NOTES
1. Creation of Debenture Redemption Reserve.-A company has to create DRR in case of issue of debentures with
maturity of more than 18 months. Clause 10.3.2 (c), (a) (b) and (c), of the
SEBI (Disclosure and Investor Protection) Guidelines, 2000 provides for the
creation of a DRR equivalent to 50% of the amount of debenture issue before
debenture redemption commences. Drawal from DRR is permissible only after 10%
of the debenture liability has been redeemed by the company. Creation of DRR is
not required for infrastructure companies. Even under section 117C a company
issuing debentures after the commencement of the Companies (Amendment) Act,
2000 w.e.f. 13-12-2000, is required to create a debenture
redemption reserve to which adequate amounts should be credited from out of its
profits every year until such debentures are redeemed and should utilize the
same exclusively for redemption of a particular set or series of debentures
only. No DRR is required for debentures issued by All India Financial
Institutions replated by RBI and banking companies for both public as well as
privately placed debentures. For other financial institutions within the
meaning of section 4A, DRR will be as applicable to NBFC's registered with RBI.
For NBFC's registered with RBI, the adequacy of DRR will be 50% of the value of
debentures issued through public as per the SEBI Guidelines and no DRR is
required in the case of privately placed debentures. For Manufacturing and
infrastructure companies, the adequacy of DRR will be 50% of the value of debentures
issued through public issue and 25% for privately placed debentures. Section
117C will apply to non-convertible portion of debentures issued whether
they are fully or partly convertible.
2. Amount of DDR.-The DRR
in respect of debentures issued for project finance may be created either in
equal installments or higher amounts if profits permit. DRR will be treated as
a part of general Reserve for consideration of bonus issue proposals and for
price fixation related to post tax return."
3. DRR for PCDs & new
companies.-In the case of partly
convertible debentures DRR shall be created in respect of non-convertible
portion of debenture issue on the same lines as applicable for fully non-convertible
debenture issue.
Creation of Debenture Redemption Reserve
Ss.11C-120-Creation
of debenture redemption reserve-Board Resolution
"RESOLVED that a
Debenture Redemption Reserve be and is hereby created for the redemption of the
90,000 partly convertible debentures of the company issued in 2002 and due for
redemption on ...............
RESOLVED FURTHER that a sum of Rs . ……be transferred annually to the Debenture Redemption Reserve from the profits of the company until balance in the reserve reaches a value equivalent to 50% of the total value of the non-convertible portion of the debentures."
PRACTICE NOTES
See under Resolution No. § 386.
Appointment of trustees of the debenture holders
Ss.117C-120-Appointment of trustees of debenture
holders-Board Resolution
"RESOLVED that M/s . ……be and are hereby appointed as trustees of the debenture holders of 50,00,000, 15% Non-convertible Secured Redeemable Debentures of Rs. 100/- each to be issued by the company and that Shri A&B, Secretary/D i rectors be and hereby are authorised to execute the Trust Deed and agreement with the trustee."
PRACTICE NOTES
1. Registration Certificate from SEBI.-Only a person who holds a certificate granted by SEBI under SEBI
(Debenture Trustees) Regulations, 1993 can
act as Debenture Trustee.
2. Consent in writing.- A Debenture Trustee can act as such only if he
gives his consent in writing to the issuing company to act as Debenture Trustee
under the Trust Deed. The consent of the Debenture Trustee should be given
before the issue of debentures for subscription.
3. Responsibilities of Debenture Trustee.-The Debenture Trustee is entrusted with
the responsibility, inter alia, of
supervising the implementation of the condition regarding creation of security
for the debentures and of Debenture Redemption Reserve.
4. Requirement with SEBI (DIP) Guidelines 2000.-These Guidelines mandate the appointment of a trustee whose name is to
be mentioned in the prospectus in respect of debentures with maturity of more
than 18 months. [Clauses 10.2.1 & 10.2.21
5. Execution of Trust Deed.-The trust
deed must be executed in favour of the debenture trustees within six months of
the closure of the issue.
Rights and Public Issue of Fully Convertible Debentures and Non-Convertible
Debentures
S.
117- Rights and Public Issue of FCDs and NCDs-Board Resolution
WHEREAS the means of
financing of the project as appraised by the lead financial institution,
envisages issue of fully convertible debentures of Rs ……on rights basis to the existing shareholders
of the company and the public, as also issue of non-convertible debentures
of Rs ……crores to the public, subject
to such consents, approvals, sanctions and permissions as may be necessary
from the appropriate authorities;
AND WHEREAS the Board
considered the price of issue of these debentures, their period of redemption
and their other terms and conditions;
"NOW THEREFORE IT IS
RESOLVED that subject to the approval of the financial institutions and/or
consortium bankers who have granted financial facilities to the Company, the
trustees for holders of the debentures issued by the Company and such other
consents, approvals, sanctions and permissions as may be necessary and subject
to such conditions and modifications as may be required by them and the
Securities and Exchange Board of India . ……% Secured Fully Convertible
Debentures of Rs.... each aggregating Rs... (hereinafter referred to as
Convertible Debentures) and % Secured
Redeemable Non-Convertible Debentures of Rs ……each aggregating Rs ……
(hereinafter referred to as "Non-Convertible Debentures") both
for cash at par be issued and offered for subscription as follows:
1. Convertible Debentures of Rs ……each for cash at par aggregating Rs ……be offered separately through a letter of offer to the existing Equity Shareholders of the Company on Rights basis in the ratio of Convertible Debentures for every 100 Equity shares or part thereof held- as on (the record date) by the Equity shareholders.
2. Convertible Debentures of Rs ……each for cash at par aggregating Rs ……be offered for subscription to the public in terms of a Prospectus.
Out of which, subject to the Guidelines of SEBI in the regard,
reservations for preferantial allotment be made as follows:
(i) Convertible
Debentures be reserved for preferential allotment to equity shareholders of group
companies.
(ii) Convertible Debentures be reserved for preferential allotment to Foreign Institutional Investors, including non-resident Indians and overseas corporate bodies on repatriation basis.
(iii) Convertible Debentures be reserved for preferential allotment of Indian and Multilateral Development Financial Institutions and Scheduled Banks.
(iv)
Convertible Debentures be reserved
for preferential allotment to Indian Mutual Funds.
(v) Convertible Debentures be reserved for preferential allotment to the permanent Employees (including Indian working directors)/workers of the company (hereinafter referred to as "the employees").
(vi)
Convertible Debentures be offered to
Indian Public.
3 . .......... % Secured Redeemable Non-Convertible Debentures of Rs ……each for cash at par aggregating Rs be offered to the public for subscription in terms of a Prospectus.
Out of which, subject to the Guidelines of SEBI in this regard,
reservations for preferential allotment be made as follows :
(i) Non-Convertible Debentures be reserved for preferential allotment to Indian and Multilateral Development Financial Institutions and Scheduled Banks.
(ii)
Convertible Debentures be reserved
for preferential allotment to Indian Mutual Funds.
(iii)
Non-Convertible Debentures be
offered to Indian Public.
RESOLVED FURTHER that:
(a) Unsubscribed portion, if any, out of the
Convertible Debentures offered to the persons under category 2(i) to (v) above
will be added back to the offer to the Indian Public i.e. category 2(vi).
(b) Unsubscribed portion, if any, out of the
Non Convertible Debentures reserved for preferential allotment under category
3(i) above will be added back to the offer to the Indian Public under category
3(ii) above.
RESOLVED FURTHER that the
major terms of issue of convertible debentures and non-convertible
debentures offered for sub scription shall be as follows
(A) Value
(i) Convertible Debenture s.-Each convertible debenture shall have a face value of Rs ……consisting of two parts viz. Part A of Rs ……and Part B of Rs ……
(ii) Non-convertible debentures.-Each non-convertible
debenture shall have a face value of Rs. 100/-each.
(B)
Conversion/redemption
(i) Convertible debenture s.-Each
convertible debenture will be compulsorily converted, without any further act
or application by the debenture holders into equity shares of the company of
Rs. 10/- each credited as partly/fully paid up, as the case may be, in
the following manner:
(a) Part A of Rs ……each into ……equity
shares of the face value of Rs. 10/- at a premium of Rs ..... per share
at the end of ……months from the date of
allotment.
(b) Part B of Rs ……each into ……equity
share of the face value of Rs. 10/- at a premium of Rs ……per share at the end of months from the date of allotment.
(ii) Non-convertible debentures.-The
Non-Convertible Debentures shall be redeemed at the end of 5th, 6th, 7th,
8th and 9th years from the date of allotment in five equal installments, with a
premium of 5% of the face value being payable to the debenture holders at the
end of 7th year.
(C) Terms of
payment
The amount of Rs ……per convertible debenture and Rs ……per non-convertible debenture will be payable as under:
Convertible
Debenture Non-Convertible
Debenture
(Rs.) (Rs.)
On application ................ ................
On
allotment ................ ................
On
call(s) ................ ................
(D) Interest
The Convertible Debentures and Non-Convertible Debentures shall carry interest at the rate of % and % per annum respectively subject to deduction of income-tax at source, if any, at the rates for the time being prescribed under the Income-tax Act, 1961 and the Rules made there under or any other statutory modifications or re-enactment(s) thereof. The interest will be paid on the paid up value of the debentures outstanding from time to time.
(E) Security
The principal amount of the
convertible debentures, until they are fully converted into equity shares of
the company and the non-convertible debentures together with interest,
remuneration of the Trustees for the Debenture holders (hereinafter referred to
as "Trustees") and other amounts payable in respect thereof would be
secured by way of mortgage and charge of such ranking on all or a part of such
of the immovable and movable properties of the Company as the Board may
determine in consultation with the Trustees and the participating financial
institutions/banks.
(F) Power of repurchase and reissue of non-convertible debentures
The Company shall have the
right, exercisable at its sole discretion, to repurchase the Non-Convertible
Debentures or part thereof at any time prior to the specified date of
redemption and cancel or reissue them from time to time in accordance with the
provisions of section 121 of the Companies Act, 1956. Upon such reissue, the
persons entitled to the Non-Convertible Debentures shall have and shall
be deemed always to have had the same rights and priorities as if the Non-Convertible
Debentures had never been redeemed. Where the company has redeemed any Non-Convertible
Debentures comprised in the present issue, then the company shall have, and
shall be deemed always to have had, the power to re-issue such Debentures
either by reissuing the same debentures or by issuing other debentures in their
place.
(G) Ranking
The Equity Shares of Rs. 10/-
each, which will be issued upon conversion of the Convertible Debentures as
aforesaid, shall rank pari passu in all respects with the then existing fully
paid up Equity Shares in the capital of the company except that they shall rank
for dividend pro rata from the respective date(s) of conversion and will be
subject to the provisions of the Memorandum and Articles of Association of the
Company.
(H) Bonus
shares
In the event of issue and
allotment of Bonus shares by the Company before conversion of the Convertible
Debentures into Equity Shares as herein mentioned, the entitlement of Debenture
holders to be issued Equity Shares on conversion shall stand augmented proportionately,
provided the amount paid on Convertible Debentures appropriated towards Part A
of Convertible Debentures has resulted into Equity Shares of Rs. 10/-each
being fully paid on the relevant date.
RESOLVED FURTHER that all
other terms and conditions for the proposed issue of Convertible Debentures
shall be as set out in the draft prospectus in respect of the public issue of
Convertible and Non-Convertible Debentures and as set out in the Letter
of Offer in respect of rights issue of Convertible Debentures.
PRACTICE NOTES
1. Preferential allotment.-Preferential issue of Fully Convertible Debentures/Partly convertible
debentures by listed companies to any select group of persons under section 81
(1 A) on private placement basis should be governed by Chapter XIII of SEBI
(DIP) Guidelines 2000.
2. Conversion within thirty-six months.- (a) Conversion is optional at the hands of the debenture holders if
the conversion is to take place at or after 18 months, but before 36 months
from the date of allotment. SEBI (DIP) Guidelines 2000 prohibit issue of fully
convertible debentures having a conversion period of more than thirty-six
months unless conversion is made optional with "put" and
"call" option.
(b) Letter of option for
conversion of debentures the value of which exceeds Rs. 50 lakhs shOLld be forwarded through the Lead Manager/Merchant
Banker to SEBI.
3. Credit Rating.- Credit rating should be obtained in respect of all
public or rights issue of Partly Convertible Debentures and in respect of Fully-Convertible
Debentures and also in respect of Non-Convertible Debentures compulsorily
irrespective of their period of maturity. If the public or rights issue of
debentures is greater than or equal to Rs. 100 crores, two ratings from two
different credit rating agencies should be obtained.
4. Premium amount.-Premium amount
on conversion and time of conversion in stages should be pre-determined
and should be mentioned in the offer document. Redemption amount, period of
maturity, yield on redemption should also be mentioned in the offer document.
5. Creation of security not required.-If the Fully Convertible Debentures are to be converted into Equity
Shares before the expiry of IS months from the date of allotment, it is not
necessary to appoint Debenture Trustee or create Debenture Redemption Reserve.
6. Creation of Debenture Redemption Reserves.-It is compulsory to create a debenture redemption reserve for all
types of debentures with maturity period of more than 18 months. In such a case
names of debenture trustees must also be stated in the prospectus and the trust-deed
should be created within six months of the closure of the issue. Creation of
DRR is not required for infrastructure companies.
7. Disclosure in offer document.- The offer document should set out, inter alia, full information relating to the terms of offer for re-purchase of the
Non-convertible portion partly convertible Debentures (Khokhas) including
the name(s) of the party(ies) to purchase the Khokhas, the discount in which
the offer is made and the effection price that Would work out to the investor
as a result of such discount.
8. Debenture Holders option.-In case
the Non-convertible portion of Partly Convertible Debentures and Non-convertible
Debentures whose value exceeds Rs. 50 lakhs are to be 'rolled over' without
change in interest, the debenture- holders should be given the option to
withdraw from the debenture programme and to encash. Roll-over should be
done only in cases where the debenture holders have sent their positive
consent, and not on the basis of the non-receipt of a negative reply.
9. Fresh Credit Rating.-Before roll-over of debentures, fresh credit rating should be
obtained 6 months prior to the original due date of redemption and should be
communicated to the debentureholders before roll-over.
10. Fresh Security.- A fresh Trust Deed should be executed at the time
of roll-over of debentures. Fresh security should be created in respect
of such to be rolled over. It is not required if the existing trust deed on the
security documents provide for continuance of security till redemption of
debentures. Letter of option regarding roll over option of debentures should be
filed with SEBI.
Extension of redemption date of debentures
Ss.
119-121-Extension of redemption date of debentures-Board
Resolution
"WHEREAS the date of
redemption of the series of eight per cent 100,000 secured debentures of Rs.
100/- each falls due on ............. 2002;
AND WHEREAS, the company
presently is in need of finance required for the expansion project and cannot
afford to make capital repayment by way of redemption of debentures;
AND WHEREAS, the trust deed
securing such issue of debenture provides for the power of the Board to extend
date of redemption;
AND WHEREAS, the date of
repayment of the aforesaid eight per cent 100,000 secured debentures of Rs. 100
each secured by the issue of trust deed dated the ……2002 be extended to
2002, subject to the approval and
confirmation of the holders of such debentures at a meeting to be duly
convened;
NOW THEREFORE IT IS RESOLVED
that the redemption date of such debentures be and is hereby extended by a
period of ten years from 2002 ……to
……2002 and that in
consideration of such extension of time for the redemption of the said series
of 100,000 debentures of Rs. 100/-each, the rate of interest on such
debentures be enhanced to the prevailing maximum rate of interest of thirteen
per cent per annum.
RESOLVED FURT14ER that the
provisions of the trust deed securing the issue of such debentures be accordingly
amended by executing a supplemental trust deed pursuant to the terms contained
in the original trust deed."
PRACTICE NOTES
1. Deferring date of redemption of debenture.-The action of deferring the date of redemption is to be initiated by
the Board of Directors subject, however, to the confirmation of the debenture-holders
at a meeting of such holders agreeing to the modification of the terms'and
conditions contained in the original trust deed as per the provisions contained
in section 119 of the Act. The redemption date may be extended by executing a
supplemental trust deed to be entered into between the company on one part and
the then trustees for the debenture-holders on the other part.
Re-issue of redeemed debentures (S.
121)
The power to re-issue
debentures does not authorise the issue in the place of the redeemed
debentures, of debentures different in their terms from those which have been
redeemed. Autofagasta etc. Rly. Co. Trust
Deed v. Schroder & Ors., (1939) 2 All ER 461 (Ch D). Section 121 does
not empower the company to re-issue debentures on different terms nor can
debentures be redeemed and re-issued with a different redemption date.
Fresh stamp duty will have to be paid on re-issue of debentures.
Redemption/Re-issue of debentures
(S. 121)
It will be necessary first
to show in the balance-sheet of the company the particulars of the
redeemed debentures. Sewa Singh v. Mukha
Singh, AIR 1936 Lah 727.
The power to re-issue
debentures does not authorise the issue in the place of the redeemed debentures,
of debenture different in their terms from those which has been redeemed. Autofagasta etc. Rly. Co. Trust Deed v.
Schroder & Ors., (1939) 2 All ER 461 (Ch D).
Redemption and issue of new debentures
S.
121- Redemption and issue of new debentures-Board Resolution
"RESOLVED that for the
purpose of paying off the 9,000 ten per cent debentures at par, the Company do
raise money (or borrow money) to the order of a sum equivalent to Rs.
90,00,000/-by issue of 9,000 debentures of Rs. 1,000/-each bearing
interest at the rate of thirteen per cent per annum payable half-yearly
as on 30th September and 31st March every year secured by a trust deed and that
the new debentures and trust deed aforesaid be framed in accordance with the
drafts of such documents submitted to this meeting and initialled by the
Chairman for identification.
RESOLVED FURTHER that Mr. JKW and Mr. PKW, the Directors of the Company, be and are hereby authorised to do or undertake any formalities of documentation, arranging bankers and any other action that may be found necessary and expedient, and that the said Mr. JKW and Mr. PKW, the Directors of the Company be also authorised at their sole discretion to issue any of the said new debentures in exchange, at par, for any of the existing debentures, the holders of which may desire to renew."
PRACTICE NOTES
1. Redemption of one series and issue of new series.-The Directors may redeem one series of debentures and issue another
new series with changed terms and conditions as to rate of interest, period of
redemption, etc. The factors to be checked are whether the articles of the
company confer powers for the issue of such debentures by the Board of
Directors. The authority and the power of the Board to borrow money, however,
is limited to the extent provided by section 293(l)(d), which means that money
borrowed should not exceed the aggregate of the paid-up capital of the
company and its free reserves.
2. Power to issue debentures to be exercised at Board Meeting.-Power to issue debentures by the Board is provided in section 292,
requiring that this power should be exercised only by means of a resolution
passed at a meeting and, therefore, a resolution by circulation will vitiate
the authority of such issue. It is also sufficiently clear from the intent and
provisions of section 292 that the power to issue debentures could only be
exercised at a Board Meeting and not by any committee of Directors.
3. Compliance Certificate.-A company
whose paid-up share capital is less than Rs. 2 crores but is equal to or
more than Rs. 10 lakhs must obtain a Compliance Certificate from a secretary in
whole-time practice to be filed with the Registrar of Companies
mentioning therein inter alia that
the company has redeemed debentures and also issued new debentures during the
financial year after complying with all the provisions of the Act as per
paragraphs 21 and 19 of the Form of Compliance Certificate appended to the
Companies (Compliance Certificate) Rules, 2001 prescribed under section 383-A(l)
proviso.
Issue of redeemed debentures
S.
121- Issue of redeemed debentures-Board Resolution
"RESOLVED that pursuant
to the provisions contained in article of
the Articles of Association of the Company and pursuant to the provisions of
the terms and conditions of the trust deed relating to the issue of ten and a
half per cent 50,000 secured debentures of Rs. 1,000/-, each, and ten and
a half per cent 50,000 debentures which were redeemed fully but were not
cancelled and had been kept alive for the purposes of re-issue, be and
are hereby re-issued to the applicants for such debentures, a list of
which is tabled after being initialed by the Chairman, on the same terms and
conditions in every respect as to the aforesaid debentures and also be secured
by the same trust deed between the company of the one part and CKD Trustee
& Co. Ltd., trustees of the debenture-holders of the other
part."
PRACTICE NOTES
1. Articles to empower company.- Pursuant to section 121, a
company may redeem debentures previously issued if there are provisions,
whether express or implied, in the articles of the company, or in the
conditions of issue, or in any contract entered into by the company or if the
company has not, by passing a resolution to that effect or by some other act,
manifested its intention that the debentures shall be cancelled. The re-issued
debentures shall have the same rights and enjoy the same priorities as if the
debentures had never been redeemed.
Redemption of debentures and keeping them alive
S. 121-Redemption of debentures and keeping them alive-Board
Resolution
"RESOLVED that nine and a half per cent 10,000 debentures of Rs. 1,000/- each having distinctive numbers from to be and are hereby redeemed at par, and that such debentures after redemption, be kept alive for the purpose of re-issue."
PRACTICE NOTES
1. Keeping debentures after redemption alive for re-issue.-One
essential
requirement for re-issue of redeemed debentures is to pass a to cancel
the redeemed debenture. Pursuant to the terms and conditions of the issue of
debenture, the debentures in suitable lot may either the purchased by the
company from the open market or the company may redeem a lot every year decided
by ballot to be conducted by the trustees of the debenture-holders
usually witnessed by the Auditors of the company. The re-issue, as
considered in section 121, should be, of such debenture as were once redeemed
and kept alive for re-Issue. The power to re-issue debentures in
place of redeemed debentures does not authorise issue of debentures differing
in their terms, from those already redeemed.
Redemption/Re-issue of debentures
S.
121- Redemption/Re-issue of debentures-Board Resolution
"RESOLVED that consent
of the Board of Directors of the company be and is hereby given to redeem at
par the 10% debenture stock issued in 2002 numbered 1001 to 2002 of Rs. 5,000/each
and that such debentures after redemption be kept alive for re-issue.
RESOLVED -FURTHER that Shri … ……M.D. be and is hereby authorised to take all requisite steps in terms of the requirements of the trust deed to give effect to the resolution."
1. Particulars of redeemed debentures to be shown in balance-sheet.-It will be necessary first
to show in the balance-sheet of the company the particulars of the
redeemed debentures. Sewa Singh v. Mukha Singh, AIR 1936 Lah 727.
2. Redemption to be as per deed of Trust.--Consult the deed of trust where under the debenture stock was created and secured and redemption should be in accordance with the provisions contained therein.
3. Articles to empower re-issue of debentures.-Redeemed debentures can be kept alive only if the deed of trust provide for such eventuality. A fresh trust deed is to be executed in case of roll-over of debentures.
4. Articles to empower company to reissue debentures.-Consult the articles of the
company also if they provide for the re-issue of the debentures. If there
is no such provision or there is a prohibition in the articles to such re-issue,
carry out necessary alterations in the Articles of Association of the company
first by following the procedure.
5. Reissue of debentures not to be different in terms from those which
have been redeemed.-The power to re-issue debentures does not authorise the issue in
the place of the redeemed debentures, of debentures different in their terms
from those which have been redeemed. Autogagasta etc. Rly. Co. Trust Deed v.
Schroder & Ors., (1939) 2 All ER 461 (Ch D).