SPECIMEN FORMATS
OF GENERAL MEETING RESOLUTIONS
Conversion of private into
public company
S. 13/21-Conversion
of private into public company-Special Resolution
"RESOLVED that the Articles of Association of
the Company be and is hereby altered in the following manner, namely
(a) delete article 4 including marginal notes thereon and
substitute there for the following new article:
Capital of the company 4. The capital of the company is Rs.
5,00,00,000 divided into etc. etc
(b) delete article 6 including marginal notes thereon.
PRACTICE NOTES
1. Convening of Board Meeting.-Call a Board Meeting and pass the
above resolution for deletion of articles which are required to be included in
the articles of a private company and recommend it to the shareholders for
adoption by them at a General Meeting.
2. Fixing date, time etc. for convening general meeting.-Fix up the date, time, place and
agenda for convening a General Meeting in the aforesaid board meeting.
3. Notice of general
meeting.- Give 21 days' clear notice for the General Meeting proposing the
Special Resolutions with suitable Explanatory Statement.
4. Private company on conversion not required to obtain Certificate of
commencement of business.-When a private company is converted into a public company
it is not required to obtain the certificate of commencement of business.
5. Filing of prospectus or statement in lieu of prospectus.-File either the prospectus in the
form as prescribed under Schedule 11 or a statement in lieu of prospectus in
the form as prescribed under Schedule TV within thirty days of passing of the
above Special Resolution in the manner as stated in section 44.
6. Filing of Special Resolution.-File the Special Resolution
passed and the Explanatory Statement in Form No. 23 with the Registrar within thirty days of its passing (Section
192).
7. Penalty.-Penalty for non-filing
of statement in lieu of prospectus as aforesaid is fine of upto Rs. 50,0001-
and penalty for non-filing of special resolution as aforesaid is fine of
upto Rs. 200/- for every day during which the default continues for the
company and every officer of the company who is in default.
8. Application to Registrar for fresh Certificate of Incorporation.-Apply
to the
Registrar for the issue of a fresh certificate of incorporation in the changed
name, viz., the existing name with the word 'private' deleted. On issue of such
fresh certificate, the change of name of the converted company shall be final
and complete (Section 23). As per the Citizen's Charter of the Department of
Company Affairs Schedule 111, Serial No. 3 the said approval should be given
within 15 working day [Press Note No.
9199, dated 98-1999].
9. Change in name effective on issue of fresh Certificate of
Incorporation-It is to be noted that although the company becomes a public company as
soon as the Special Resolution to change the articles to make it a public
company is passed the change in its name becomes effective only on the issue of
the fresh certificate of incorporation by the Registrar in the changed name.
10. Compliance Certificate.-
Companies
having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to
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 altered
its articles of association after obtaining approval of members in the general
meeting held on a particular date and the amendments to the articles of
association have been duly registered with the Registrar of Companies as per
paragraph 30 of the Form of Compliance Certificate appended to the Companies
(Compliance Certificate) Rules, 2001.
Alteration of Memorandum (S. 16)
The alterations of matters
other than conditions in the memorandum may be affected in the same manner as
alterations of articles or in a manner provided by the Act. Only those
provisions required by section 13 or any other provision of the Act to be
stated in the memorandum and not any other matters which may be additionally
stated therem are to be deemed to be the conditions. Where, for instance, the
right to a dividend in respect of any class of shareholdets is inserted in the
Memorandum of Association of company, limiting the dividend to a certain percentage,
it cannot be regarded as a condition but may be altered by a Special
Resolution. Re, Rainpuria Cotton Mills
Ltd., (1959) 29 Corn Cases 82 : AIR
1959 Cal 253. A statement in the
memorandum as to the terms, conditions and remuneration of any managerial personnel
does not become a part of the memorandum and it can be altered without any
external sanction. Chandulal and Co. Ltd.
v. Natwarlal C. Blialakia, (1957) 27 Corn Cases 277 (Born-DB). Though for instance alteration of limited
liability of Directors into unlimited liability is an alteration of a condition
contained in the memorandum, section 323 provides
for such alteration by Special Resolution and no confirmation by Court is
necessary therefor.
Alteration of Memorandum of Association (Capital Clause)
S. 16/94-Alteration of capital clause of the Memorandum-Special
Resolution
"RESOLVED that clause 5 of the Memorandum of Association of the Company including the marginal
notes thereto be deleted and the following new clause 5 be substituted therefore:
Capital of the
company 5. The share capital of the
company is Rs. 10,50,00,000 divided
into 100,00,000 equity shares of Rs. 10/ each and 50,000 /- per cent redeemable cumulative shares of Rs. 100/
each."
PRACTICE NOTES
1. Alteration of capital clause.- Alteration of
capital clause can be done by passing a Special Resolution. With the increase
in the authorised capital of the company the company will have to pay the fees
for the increase in the nominal share capital of the company, that is, the
difference between the fees payable on the increased share capital on the date
of filing the notice for registration of company and the fees payable on
existing authorised capital, at the rates prevailing on the date of filing
calculated in accordance with Schedule X to the Companies Act, 1956.
2. Procedure to be followed for increasing authorised share capital.-For
increasing the
authorised share capital of the company
(i) Articles of Association should be gone
through to see whether they authorise increase of the share capital (Section
94). If it does not so authorise,
articles should be altered. Follow the procedure for alteration of articles as
given in practice notes under Resolution No.
217-B. Alternatively this could be achieved by passing the resolution
as a Special Resolution, which resolution will have the force of amending the
articles.
(ii) A Board Meeting should be called to
decide about the increase and to fix up the date, time, place and agenda for a
General Meeting to pass an ordinary resolution (or special one, if so required
by the articles) for the same (Section 94(2)).
(iii) Immediately after Board Meeting, the
concerned Stock Exchange should be intimated by letter or by telegram, the
short particulars of the increase of capital.
(iv) Notices for the General Meeting should be issued with suitable
Explanatory Statement.
(v) The General Meeting should be held to pass the resolution.
(vi) A copy of the proceedings of the General
Meeting should be forwarded to the concerned Stock Exchange.
(vii) If the resolution passed is a Special
Resolution, the same should be filed with Explanatory Statement with the
Registrar of Companies concerned in Form No. 23f within thirty days of the
passing of the resolution.
(viii) Notice of increase should be filed with
the Registrar in Form No. 5-1-
within thirty days where after the Registrar will make necessary changes in
the Memorandum and Articles of Association of the company (Section 97).
(ix) While film,- the above notice, the
registration fees for the increased authorised capital has to be paid. The
amount payable will be the fees as mentioned in the above practice note.
(x) Necessary changes should be made in
every copy of the Memorandum and the Articles of Association and in all other
papers and documents.
3. Compliance Certificate.-Com pan les having paid-up share capital of
less than Rs. 2 Crores but equal to
or more than Rs. 10 lakhs are required to 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 altered the provisions of the memorandum with respect to share
capital of the company during the year under scrutiny and complied with the
provisions of the Act as per paragraph 29
of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Alteration of Memorandum of Association (Capital Clause)
(Another format)
Ss. 16/94-Alteration of capital clause of the Memorandum-Special
Resolution
"RESOLVED that the
existing clause V of the Memorandum of Association of the Company be and is
hereby substituted by the following:
V. The authorised capital of
the company is Rs. 50,00,000/- divided into 4,00,000 equity shares of Rs.
10/- each and 10,000 redeemable preference shares of Rs. 100/- each
with power to increase, divide, sub-divide into various classes of shares
and attach thereto such preferential/deferred, special
rights/privileges/conditions as may be determined by the company in accordance
with its regulations."
Or
RESOLVED that clause V of
the Memorandum of Association of the Company be and is hereby amended as
follows:
"the words and figures 'Rs. 30,00,000 divided
into 3,00,000 equity shares of Rs. 10/- each' occurring thereon be
substituted by the words and figures 'Rs. 70,00,000 divided into 7,00,000
equity shares of Rs. 10/- each.
PRACTICE NOTES
1. Convening of Board Meeting for calling General Meeting.-Call a Board Meeting to resolve
the increase/ division/sub-division etc. of the share capital of the
company and pass the above resolution for recommending it to the shareholders
to be passed as a Special Resolution at the Annual General Meeting,-/Extraordinary
General Meeting as the case may be. Fix up the date, time, place and agenda for
a General Meeting.
2. Notice of Meeting.- Give 21 days' clear notice
for calling the Annual General Meeting/Extraordinary General Meeting and annex
to the notice of the meeting the Explanatory Statement pursuant to section 173(l) of the Companies Act, 1956.
3. Consequential amendments in capital clause of Articles.-Carry out
consequential amendment in the Capital Clause of the Articles of Association of
the company.
4. Intimation to Stock Exchange.-If the company's shares are
registered with any recognised Stock Exchange, send an intimation to the Stock
Exchange concerned regarding the increase of capital.
5. Filing of Form No. 23 along
with Explanatory Statement with Registrar.-File the Special Resolution in
Form No. 23 with Explanatory
Statement with the Registrar of Companies concerned on payment of requisite
film,,,, fee within thirty days of the passing of the resolution.
6. Filing of notice of increase and payment of fee on
increased authorised capital.-Notice of increase should also be filed
with the Registrar of Companies concerned in Form No. 5 along with amended copies of the Memorandum and Articles of
Association on payment of requisite filing fee within thirty days. The
registration fee for the increased authorised capital will also have to be paid
to the Registrar of Companies concerned as per Schedule X to the Companies Act,
1956.
If default is made in
complying with the aforesaid requirement under section 97, the company and every officer of the company who is in default
will be punishable with fine ofRs. 500/- for everyday during which the
default continues.
7. Carry out alteration in
every copy of Memorandum and Articles.-After the alteration in the
memorandum is registered by the Registrar of Companies, ensure that the
alteration is carried out in every copy of the Memorandum and Articles of
Association in stock and any copy of the Memorandum or Articles issued
thereafter should be the amended copy thereof.
8. Limiting dividend to certain
percentage not a condition but be altered by Special Resolution.-Where the right to a dividend in
respect of any class of shareholders is inserted in the Memorandum of
Association of a company, limiting the dividend to a certain percentage, it
cannot be regarded as a condition but may be altered by a Special Resolution.
in Re, Rampuria Cotton Mills Ltd., (1959)
29 Comp Cases 85 : AIR 1959 Cal 253.
9. Amendment of Articles when capital clause mentioned therein.-If
the
authorised capital is mentioned in the Articles of Association, then the
articles also will have to be amended by a Special Resolution.
Alteration of Memorandum by classifying unclassified shares
S. 16/94-Alteration of Capital Clause by classification of
unclassified shares-Special Resolution
"RESOLVED that 8,00,000
unclassified shares of Rs. 10/- each, forming part of the authorised
capital of the Company be and are hereby classified as 8,00,000 equity shares
of Rs. 10/- each with differential voting rights."
"RESOLVED FURTHER that
the Memorandum of Association of the Company be and is hereby amended by
substituting the following for the existing clause V thereof:
Clause V-The
authorised capital of the company is Rs. 5,00,00,000/ consisting of 50,00,000/ -
equity shares of Rs. 10/- each".
"RESOLVED FURTHER that
Articles 3 of the Article of Association of the Company be amended by
substituting the following for the existing Article:
The share capital of the
company is Rs. 5,00,00,000/- consisting of 50,00,000 equity shares of Rs.
10/- each."
PRACTICE NOTES
1. Passing of Resolution.- Where it is not necessary
to amend the articles and it is merely the Memorandum of Association which
requires amendment, this can be passed as an Ordinary Resolution.
2. Filing of special resolution in Form 23 along with Explanatory
Statement. -Where it is passed as a Special Resolution, a certified copy of
the resolution along with the Explanatory Statement will have to be filed in
Form No. 23 with the Registrar of Companies within 30 days of the passing of
the resolution together with the requisite filing fees specified in Schedule X
to the Act.
3. Annexing of Resolution to
every copy of Articles unless incorporated in Articles.-Where the articles have been
registered, a copy of the resolution unless it is incorporated in the articles
should be annexed to every copy of the articles issued after the date of the
resolution.
Alteration of the Object Clause (S. 17)
The alteration of the object
clause must be only in relation to objects, or of some provision pertaining to
the manner in which the company may carry out its objects. Re, Scientific Poultry Breeders' Association, 1933
Ch 227 : (1933) 3 Comp Cases 89. Where the directors and members are willing to
undertake new business, there are no objecting creditors and the company is
financially sound, the Court should permit alterations. Orissa Cement Ltd. v, Registrar of Companies, Orissa, 1975 Tax LR
1330 (Orissa). The additional business must not be destructive of or
inconsistent with its existing business. Re, Parent Tyre Co., (1923) 2 Ch 222: Re, Bolsom Bros., (1928) Ltd., 1935 Ch 413. The
Company Law Board will not
sanction an alteration for carrying on a new and totally independent business
if ]It cannot be conveniently or advantageously combined with any of' the
existing business. Re, Bharat Mining
Corporation Ltd., (1967) 1 Comp LJ 119 : (1967) 37 Comp Cases 430 (Cal).
There is no power to confirm an alteration which does not fall within seven sub-clauses
of sub-section (1) of' section 17 of
the Act. Indian Iron and Steel Co. Ltd., (1957)
27 Comp Cases 361 (Cal).
The time taken in drawing up
of' the order and in obtaining a certified copy thereof is excluded.
Alteration of Memorandum of Association (Object clause)
S. 17-Alteration of Objects Clause of Memorandum of Association-Special
Resolution
"RESOLVED that pursuant
to section 17 of the Companies Act, 1956 the Memorandum of Association of the
Company be altered in the manner following namely:
(i) In clause III(a) of the Memorandum of
Association the following words shall be added after the word .........
(ii) Existing clause III(b) be deleted and substituted with the
following new clause ( ).
(iii)
In clause III(c) the words beginning with and
ending with ............... be deleted."
PRACTICE NOTES
1. Change of objects".-Change of objects
should be made for the purpose of one of the matters mentioned in clauses (a)
to (g) of section 17(1) of the Act.
2. Filing of Special Resolution, File the special resolution along with
Explanatory Statement with the Registrar of Companies concerned within thirty
days in Form No. 23 after paying the requisite filing fee as prescribed under
Schedule X,- of tile Act.
3. Postal Ballot.-If the company is a listed
company, alteration of object clause must be made by passing the special
resolution through postal ballot as per Rule 4(a) of the Companies (Passing of
the Resolution by Postal Ballot) Rules, 2001.
4. Compliance Certificate.-Com pan les having paid-up share capital of
less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to
obtain a Compliance Certificate from a secretary in whole-time practice
to be filed with tile Registrar of Companies mentioning therein inter alia that the company has altered
the provisions of the memorandum with respect to the objects of the company
during the year under scrutiny and compiled with provisions of the Act as per
paragraph 27 of the Form of Compliance Certificate appended to the Companies
(Compliance Certificate) Rules, 2001.
Alteration of the Object Clause
S. 17-Alteration of the object clause-Special Resolution
RESOLVED that Objects Clause
III of the Memorandum of Association of the company be altered by insertion of
the undermentioned sub-clauses after sub-clause (5) as sub-clauses
(5A) and (513):
(5A) To carry on the business of manufacturing
of enamel wares, electric shades and hospital appliances and other items.
(513) To manufacture plant and machinery, tools
and equipments required for the manufacturing of the above referred
items."
PRACTICE NOTES
1. Board Meeting.- Hold a Board Meeting and
approve the alterations proposed to be made in the object clause. Fix up the
day, time and agenda for a General Meeting for passing a special resolution in
this regard.
2. General Meeting.- At the General Meeting pass
a special resolution approving the alteration by three fourths majority. Listed
companies should pass the said resolution through postal ballot.
3. Filing of Special
Resolution.- File the special resolution along with Explanatory Statement with the
Registrar of Companies concerned within thirty days in Form No. 23 after paying
the requisite filing fee as prescribed under Schedule X of the Act.
Amendments of Objects Clause and commencement of new business
(composite resolution)
S. 17-Amendment of Objects Clause and commencement of new
business Special Resolution
"RESOLVED that under
section 17 of the Companies Act, 1956, the Objects Clause III(A) of Memorandum
of Association of the Company be altered by deletion of the present clause
number 3 of the main objects of the Company and by replacement thereof by the
following clause as new clause number 3.
RESOLVED FURTHER that
approval pursuant to section 149 (2A) of the Companies Act, 1956, be and is
hereby accorded to the Company for commencing and carrying on the business of
in terms of clauses of the Memorandum of Association of the Company specified
in the foregoing Special Resolution."
PRACTICE NOTES
See under Resolution No. 787.
Alteration of the Objects Clause
(Another Format)
S. 17-Alteration of the Objects Clause-Special Resolution
"RESOLVED that pursuant
to the provisions of section 17 of the Companies Act, 1956, the Objects Clause
of the Memorandum of Association of the Company be altered by adding the
following new clause 3(b) after the existing clause 3(a) thereof:
"3(b) To carry on the business of purchase, sale,
manufacture and otherwise deal in all kinds of oil, petroleum oil and
lubricants and also liquid and solid hydrocarbon and all products
thereof."
PRACTICE NOTES
See under Resolution No. 787.
Change of Registered Office from one State to another (S. 17)
A company cannot, however,
alter its Memorandum of Association so as to change its Registered Office from
one country to another nor has the Company Law Board ally Jurisdiction to
sanction such alteration. Kriemens Oil
Mills Pvt. Ltd. v. Registrar of Companies, (1958) 2 MLJ 141 : AIR 1958 Mad
450. Where the Registered Office is changed from one State to another, the
State has no right to object on the ground of loss of possible future revenue,
though it may do so as a creditor in respect of arrears of revenue due to it.
The shifting of the Registered Office purely a domestic matter for the
shareholders of the company. Mac-kinnon
Mackenzie & Co. Private Ltd., (1967) 37 Comp Cases 5 16 (Cal). A change
of Registered Office sought on the ground of less tax burden in the other State
is not a good ground. Orient Paper Mills
Ltd. v. State, (1958) 28 Comp Cases 523 (Orissa).
Alteration regarding change
of registered office from one state to another to bring about a synergy in
operation and management allowed by the Company Law Board imposing conditions
to safeguard the interest of creditors. Re : Seaways Maritime (P) Ltd., (2001) 1 Comp LJ 141 (EB).
A resolution to shift the
registered office of a company from one state to another was sanctioned by the
Comp(any Law Board subject to the condition that the interest of employees
working at the registered office should not be adversely affected. EEC (India) Software Centre Ltd. Re, (2001)
32 SCL 298 (CLB).
The decision to shift rests
with the shareholders and the company is the best as to the location of its
registered office. The grounds for shifting could not be rebutted by the State
Government and it cannot interfere. Usha Deltron
Ltd., Re, (2000) CLC 2216 (CLB).
A change of' registered
office from one State to another should be either or more of the grounds
provided under section 17(l)(a) to (g).
The time taken in drawing up of the order and
obtaining a certified copy thereof is excluded."
Change of Registered Office from one State to another
S. 17-Change of Registered office from one State to another-Special
Resolution
"RESOLVED that subject
to the confirmation of the Company Law Board, the Registered Office of the
Company be shifted from the National Capital Territory of Delhi to the State of
Haryana and Clause II of the Memorandum of Association of the company be
altered by substituting the words 'National Capital Territory of Delhi' by the
words 'State of Haryana'."
PRACTICE NOTES
1. Board Meeting.- Hold a Board Meeting and approve
the transfer of registered office to another State. Fix up the day, time and
agenda for a General Meeting for passing Special Resolution in this regard
subject to the confirmation of the Company Law Board.
2. General Meeting.-At the General Meeting pass
a special resolution approving the transfer of registered office to another
State subject to the confirmation of the Company Law Board.
3. Filing of Special
Resolution.- File the special resolution along with Explanatory Statement with the
Registrar of Companies concerned within thirty days in Form No. 23 after paying
the requisite filing fee. Penalty for not filing this resolution within time is
fine of Rs. 200/- per day.
4. Publication of General Notice.-Not less than one month before
the filing of the petition, publish a general notice at least once in the
District in the daily newspaper published in English and in the principle
language of the District in which the registered office of the company is
situated and circulating in that State clearly indicating therein the substance
of the petition and stating that any person whose interest is likely to be
affected by the proposed transfer of registered office may intimate to the
Bench Officer within twenty-one days of the date of the publication of the
notice, the nature of interest and the grounds of opposition.
5. Service of individual notice.-Serve by certificate of posting
individual notices on each debenture holder and creditor of the company, unless
otherwise required by the Bench to be sent by registered post setting out
clearly that in case anybody's interest is likely to be affected by the
proposed transfer of registered office, he may intimate to the Bench Officer
within twenty-one days of the date of receipt of notice his objections
duly supported by an affidavit to the Bench Officer and forward a copy thereof
to the petitioner company at its registered office.
6. Service of notice on Chief Secretary/Administrator/Lt. Governor.-Serve a notice
together with a copy of the petition on the Chief Secretary to the Government
of the State in which the registered office of the company is situated or to
the Administrator/Lt. Governor of the Union Territory where the registered
office is situated in a Union Territory. (Regn. 36(2)).
7. Petition to Company Law Board.-The petition is required to be
submitted by the company to the concerned Bench of the Company Law Board under
the Company Law Board Regulations, 1991.
8. Documents to be attached to the petition.-The petition should accompany
the following documents
1. Certified true copy of the memorandum and articles of
association.
2. Certified true copy of the notice calling for the meeting
with Explanatory Statement.
3. Certified true copy of the Special Resolution sanctioning
the alteration by the members of the company.
4. Certified true copy of the minutes of the meeting at which
the Special Resolution was passed.
5. Affidavit verifying the petition.
6. Bank draft evidencing payment of application fee of Rs.
1,000/-.
7. Memorandum of appearance with copy of
the Board Resolution or the executed Vakalatnama, as the case may be.
8. Certified true copy of the latest
audited balance- sheet with the profit and loss account of the company
with auditor's report and directors' report.
9. Affidavit proving despatch
and service of notice together with newspaper cuttings.
10. Affidavit verifying list of creditors as per regulation
36(7).
11. Acknowledgement receipts from the
Registrar of Companies/Regional Director and/or from the Chief Secretary of the
State Government/Administrator, where applicable. (See regulation 14(3))
9. Proof of
despatch.-File an affidavit along with the petition proving the despatch,
publication and service of notices.
10. Information about the number of creditors and total amount due to them.
The petition should contain information relating to the number of creditors
and the total amount due to them up to the latest practicable date preceding
the date of filing of the petition which shall not precede the date of filing
of the petition by more than two months. The list of creditors and debenture
holders shall also be filed along with the petition.
11. Verification of the list.-The Secretary of the company and
not less than two directors, one of whom shall be a managing director, where there
is one, are required to file an affidavit along with the petition to the effect
that they have made a full enquiry into the affairs of the company and having
done so, have formed the opinion that the list is correct, that the estimated
value as given in the list of the debts or claims payable on a contingency or
not ascertained are proper estimates of the values of such debts and claims
included in the list are borne out by the books and records of the company and
that there is no other debts or claims against the company to their knowledge.
12. List to be kept for inspection.-An authenticated copy of the
list of creditors and debenture holders showing their names, addresses and the
amount due to each of them should be kept for inspection at the registered
office of the company during the ordinary hours of business so that the person
desirous of inspecting the same may inspect and take extracts from the same on
payment of rupees ten to the company.
13. Transfer of registered
office outside India.-Where a company wants to transfer its registered
office from a State in India to outside India, such a change does not come
within the purview of the section. (Kriemens
Oil Mills Private Ltd. v. Registrar of Companies, AIR 1958 Mad 450).
14. State has no right to object on ground of loss of revenue.-Where the
registered office of the company is transferred from one State to another, the
State has no right to object on the ground of loss of possible future revenue
though it may do so as a creditor in respect of arrears of revenue due to it.
The shifting of the registered office is purely a domestic matter for the
shareholders of the company. (Mackinnon
Mackenzie & Co. Private Ltd., (1967) 37 Comp Cases 516 (Cal).
15. Interest of company ipso facto interest of shareholders.-If the
transfer of registered office is in the interest of the company, it is ipso facto also in the interest of the
shareholders. (Rank Film Distributors of
India Ltd. v. The Registrar of Companies, West Bengal, AIR 1969 Cal 32).
16. Loss of revenue not relevant consideration.-The consideration
that by transfer of the registered office the economy and revenue of the State
will suffer, appears to be unreal or at the most speculative and is therefore
not a relevant consideration. In any event, the loss of revenue in one State
will be accompanied by increase in revenue in the other. In the administration
of justice, the interests of a particular State ought not to be thought of in a
sectional manner and what has to be considered is the interest of the country
as a whole. In re: Orisa Chemicals &
Distilleries Private Ltd., AIR 1961 Orissa
and Orient Paper Mills Ltd. v. State, AIR 1957 Orissa 232 dissented from. (Rank Film Distributors of India Ltd. v. The Registrar of Companies,
West Bengal, AIR 1969 Cal 32).
17. CLB not to adjudicate claims and counter claims.-In a
proceeding under section 17 before the Company Law Board for confirmation of
shifting of registered office from one State to another a dispute relating to
payment of dues to a creditor cannot be adjudicated even though the creditor is
another group company of the petitioner because both of them are two different
entities. Deutsche Babcock Power Systems
Ltd., In re, (1999) 97 Com Cases 341 (CLB-SR).
18. Action to be taken on receipt of order of the Company Law Board
confirming the alteration
(1) Filing.-File a
certified copy of the order with the Registrar of Companies concerned along
with Form No. 21 Also file a certified
copy of the same together with a printed copy of the Memorandum of Association,
as altered, within three months from the date of the order with the Registrar
of Companies of each of the State after paying the requisite filing fee. The
Registrars of Companies of both the States will register the same and certify
under their respective hands the registration thereof within one month.
(Section 18(1)).
(2) Time taken for obtaining copies to be excluded.-Please note
that as per the provisions contained in section 640A the time taken for
obtaining a copy of the order will be excluded in computing the period of time
for filing it with the Registrar. (Saroja
Mills Ltd. v. Registrar of Companies, (1964) 34 Comp Cases 336).
(3) Filing of Form 18.-File the notice of change
with the Registrar of Companies of the new State in Form No. 18 within thirty
days from the date when the change becomes effective, after paying the
requisite filing fee.
(4) Alteration to be noted.-Make necessary changes in every
copy of the Memorandum of Association, letter heads, vouchers, registers,
office papers, records, books, documents, signboards, common seal etc.
(5) Notification
of change in newspapers.-Notify the change of registered office in
the newspapers.
(6) Information to stock exchange.-If the shares of the company
are listed with any recognised stock exchange then notify the change of
Registered office to the concerned stock exchange.
(7) Appeal.-An appeal will lie to the
High Court under section 10F, against the order of the Company Law Board passed
under this section.
19. Compliance Certificate.-Companies having paid-up share
capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are
required to 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 obtained
necessary approval of the Company Law Board for altering the provisions of the
memorandum of association with respect to situation of the company's registered
office from one State to another during the year under scrutiny after complying
with the provision of the Act as per paragraphs 17 and 26 of the Form of
Compliance Certificate appended to the Companies (Compliance, Certificate)
Rules, 2001.
20. Postal Ballot.-Listed companies must pass the special resolution
though postal ballot as per Rule 4(e) of the Companies (Passing of Resolution
by Postal Ballot) Rules, 2001.
Change of Registered Office from one State to another
(Another Format)
S. 17-Change of Registered Office-Special Resolution
"RESOLVED that, subject
to the sanction of the Company Law Board, the Memorandum of Association of the
Company be altered by incorporating the words 'State of Maharashtra' in
substitution of and while deleting the words 'State of Karnataka' in Clause II.
RESOLVED FURTHER that on
obtaining the confirmation from the Company Law Board, the Registered Office of
the Company be transferred from the State of Karnataka to any place in the
State of Maharashtra."
PRACTICE NOTES
Same under Resolution No.
791.
Change of Registered office within a State (S. 17A)
Any company desirous of
changing the place of its registered office from one place to an other within a
State must also obtain confirmation from the Regional Director to do so, if
such change amounts to changing the registered office from the jurisdiction of
one Registrar of Companies to the jurisdiction of another Registrar of
Companies within the same State.
# 440. Extension of time for registration of alteration of
Memorandum of Association (Ss. 18 & 19)
While calculating the time of three months prescribed in sub-section (1) of section 18 of the Act for filing the certified copy of the Company Law Board order made under section 17(5) of the Act, the time spent in obtaining the certified copy of the order is to be excluded. Shri Amba Motor Agencies (P) Ltd. v. Registrar of Companies, (1978) 48 Comp Cases 89 (Delhi). If the certified copy of the order is not filed within the period of three months or within the period extended by the Company Law Board, such alterations and the order of the Company Law Board and all proceedings connected therewith shall become void and inoperative. However, in such a contingency an application can be made within one month for the revival of the order before the Company Law Board and the Board on sufficient cause being shown may revive the order. Shiv Parkash Janakraj & Co. (P) Ltd. v. Registrar of Companies, (1963) 2 Comp LJ 228 (Punjab). The Company Law Board can extend time only so long as the order is alive i.e. before it becomes void and inoperative. Janardhana Mills Ltd. v. Registrar of Companies, (1964) 2 Comp LJ 34 : (1964) 34 Comp Cases 333 (Mad).
Change of name by a company (S. 21)
No approval of the Central
Government is required where the change in the name of a company is the addition
or deletion of the word 'Private' consequent on the conversion of a public
company into a private company or of -a private company Into a public
company in accordance with the provisions of the Act.7 The name proposed should
not be identical with or too nearly resembles the name of an existing company.8
The change of name does not affect the entity of the company or its continuity
as the same entity. Pioneer Protective
Glass Fibre (P) Ltd. v. Fibre Glass Pilkington Ltd., (1995) 3 Comp LJ 309. The proceedings commenced by the
company in its former name can be continued under its new name. Solvex Oils and Fertilizers v. Bhandari
Cross-Fields (P) Ltd., (1978) 48 Comp Cases 260 (P&H).
Change of name
S. 21-Change of name by a company-Special Resolution
"RESOLVED that pursuant
to section 21 of the Companies Act, 1956, and subject to the approval of the
Central Government the name of the Company be changed from M/s. Rushabh
Management & Infosys.
PRACTICE NOTES
1. Application for availability of name.-For change of name, the company
concerned is to make an application first to the Registrar of Companies for the
availability of the name in Form No. IA. A fee of Rs. 5001- is charged
for the same. The fee can be paid by cash or by means of a demand draft or a
treasury challan. As per the Citizen's Charter of the Department of Company
Affairs, Schedule 111, Serial No. 1, the said approval should be given by the
Registrar of Companies within 3 working
days. [Press Note No. 9199, dated 9-8-1999].
2. Call Board Meeting for- fixing day, time, place and agenda for
convening general meeting.-On confirmation from the Registrar that
the new name is available for adoption, the day, time, place and agenda in the
Board Meeting is fixed for convening a General Meeting for. passing a Special
Resolution to change the name, subject, of course, to the approval of the
Central Government.
3. Issue of notice of General Meeting.-Notice proposing the Special
Resolution with, suitable Explanatory Statement should be issued.
4. Listed company to send notice to Stock Exchange concerned.-If the company is enlisted with
a recognised Stock Exchange, a copy of the notice issued to the shareholders
should be sent to the exchange concerned.
5. Hold General Meeting for passing Special Resolution.-Thereafter,
the General
Meeting should be held to pass the Special Resolution.
6. Filing with Registrar.-The Special Resolution with Explanatory Statement
in Form No. 23 should be filed with
the Registrar.
7. File six copies of the amended Memorandum of Association, one of the
copies to be certified, with Stock Exchange concerned.-With the Stock Exchange, there
should be filed six copies of the amendments made in the Memorandum of
Association as soon as they are adopted by the company in the General Meeting.
One of the copies must be certified copy.
8. Application to Registrar for approval of change of name.-Apply
to the
Registrar of Companies (delegated by the Central Government) concerned for
approving the change in name under section 21.
As per the Citizen's Charter of the Department of Company Affairs, Schedule
111, Serial No. 3, the said approval should be given within 15 working days. [Press Note No. 9199, dated 9-8-19991. Application
for change of name by the company may be made in proforma to be obtained from
the Registrar of Companies concerned. The following details and papers should
be given in and/or enclosed with the application:
(a) A detailed reasons for the change of name;
(b) an up-to-date copy of the Memorandum and the
Articles of Association;
(c) a certified true copy each of the
balance- sheet and the profit and loss account for the last two financial
years;
(d) a certified true copy of the
communication received from the Registrar in token of his having recorded the
Special Resolution in terms of Section 192
of the Act, (in case the said acknowledgment has not yet been received, the
receipt, granted by him at the time of filing the Special Resolution should be
sent);
(e) where the change is due to alteration in
the objects of the company as set out in its Memorandum of Association, the
information whether a certified copy of the order of the Company Law Board
Linder section 17 has been filed with the Registrar or not and whether the
requisite certificate of registration has been obtained from him under section
18 of the Act or not;
(f) a certified true copy of the Special Resolution;
(g) total number of members;
(i) on the register as on the date of
passing of the resolution,
(ii) who voted against the resolution with the
grounds of their objection,
(iii) who voted in favour of the resolution,
(iv) who expressed no opinion;
(h) whether absentee members communicated any objection to the
passing of the resolution;
(i) date of incorporation of the company
with the registration number;
(i) certified true copies of the Director's
Reports on the annual accounts Of the company, for two financial years.
(k) the evidence of payment of fee into the
Punjab National Bank. The amount of fee to be paid will be determined on the
basis of the table provided in the Companies (Fees on Application) Rules, 1999.
9. Forward old Certificate of
Incorporation for issue of fresh Certificate of Incorporation.-On receiving the approval, an
application should be made to the Registrar along with the old certificate of
incorporation for a fresh certificate of incorporation. On the issue of such
certificate by the Registrar, the change in name will be effective (Section
23).
10. Carry out necessary changes in every copy of Memorandum, Articles,
office papers, etc.-Necessary changes should be carried out in every
copy of the Memorandum and the Articles of Association, office papers, records,
books, documents, sign boards, common seal, etc., etc.
It. Central Government approval not required for either addition or
deletion of word "Private".-If the change in name amounts
to either addition thereto or deletion there from of the word
"private" as a result of conversion of a public company into a
private company or vice versa then
Central Government's approval is not required under section 21 proviso but for
converting a public company into a private company Central Government's
approval under section 3 1 (1) proviso is necessary.
12. Compliance Certificate.-Companies having paid-up share
capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are
required to 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 altered
the provisions of the memorandum of association with respect to name of the
company during the year under scrutiny and complied with the provisions of the
Act, as per paragraph 28 of the Form of Compliance Certificate as appended to
the Companies (Compliance Certificate) Rules, 2001.
Change of name
(Another Format)
S. 21-Change of name by a company-Special Resolution
"RESOLVED that subject
to the approval of the Central Government pursuant to section 21 of the Companies Act, 1956, the name of the Company be and is hereby changed
from 'ABC Company Limited' to 'ABC (INDIA) Company Limited'.
RESOLVED FURTHER that the
name 'ABC Company Limited' wherever it occurs in the Memorandum and Articles of Association of the Company be substituted by the new name 'ABC (INDIA) Company
Limited'."
PRACTICE NOTES
Same under Resolution No. 793.
Rectification of name of company (S. 22)
Section 22 provides for
compulsory change of name and the word "or otherwise" mentioned
therein should be construed ejusdem
generis with the preceding word "inadvertence". Kalpana Polytec India Ltd. v. UOI, (2001)
106 Com Cases 558 (Cal-DB).
The change of name does not
bring into existence a new company. The company remains the same entity as it
was before. Only the name changes. A new certificate of incorporation has no
doubt to be issued but that does not incorporate a new company. Shree Choudhary Cold Storage, (1972) v. Ruby
General Insurance Co. Ltd., AIR 1982 Cal
124. The rights and liabilities are
not at all affected by change of name. Economic
Investment Corpn. v. CIT, (W13), AIR 1970
Cal. 389. A decree can be
executed in the new name or in the old name of the company. Abdul Quyum (FS) v. Manindra Law &
Building Corporation Ltd., (1995) 25 Comp Cases 143.
Change of name
(Another Format)
S. 21 -Change
of name by a company-Special Resolution
"RESOLVED that subject
to the approval of the Central Government under section 21 of the Companies
Act, 1956 the name of the Company be changed form A B C Limited to X Y Z
Limited and that the name of the Company shall be X Y Z Limited with effect
from the date of issue of certificate of incorporation by the Registrar of
Companies in that behalf, and accordingly the name A B C Limited wherever it
occurs in the Memorandum and Articles of Association of the Company be
substituted by the name X Y Z Limited."
PRACTICE NOTES
1. Special resolution and Central Government approval required for
change of name.-Section 21 of the Companies Act lays down that a company
may, by special resolution and with the approval of the Central Government
signified in writing, change its name.
2. Change of name does not affect entity of company.-The change of name does not
affect the entity of the company or its continuity as the same entity. It
remains for all practical purposes the same entity with the same rights,
privileges and liabilities as before. (Pioneer
Protective Glass Fibre (P) Ltd. v. Fibre Glass Pilkington Ltd., (1985) 3 Comp
U 309).
3. Listing companies to notify stock exchange.-Where the company's shares are
listed on any stock exchange, the change of name must be notified to the Stock
Exchange concerned.
4. Proceedings commenced in old name can be continued in new name.-Proceeding commenced by the company
in its former name can be continued under its new name. Solvex Oils and Fertilizers v. Bhandari Cross-Fields (P) Ltd.,
(1978) 48 Com Cases 260 (P&H).
5. Registrar of Companies to be approached for issue of fresh
certificate of incorporation.-On receipt of approval from the Registrar of Companies
apply to him for a fresh certificate of incorporation and obtain the same.
6. Necessary changes to be carried out in every copy of Memorandum and
Articles and other books.-Make necessary changes in every copy of the Memorandum
and Articles, books, records, documents, registers, letter-heads and sign
boards of the company.
7. Previous approval of Central Government not required.-Section 21
of the Act does not prescribe previous approval of the Central Government so
far as change of name under the section is concerned (Bihavi Mills Ltd., (1985) 58 Comp Cas 6 (Guj)).
Rectification of name of company
S. 22(l)(a)-Change in name-Ordinary Resolution
"RESOLVED that, as approved by the Central Government vide letter No ……..dated the ……..2002 ……..the existing name of the Company 'ABC & Company Limited' be changed to Rushabh Management & Infosys. Limited'."
PRACTICE NOTES
1. Rectification of name.-If, through inadvertence or otherwise, a company,
on its first registration or on its registration by a new name, is registered
by a name which according to the Central Government, resembles the name of some
other company, the former company may be required, by ordinary resolution and
with the previous approval of the Central Government signified in writing, to
change its name.
2. No approval required when change of name is addition or deletion of
word "Private".-No approval is required where the only change in the
name of the company is the addition thereto, or as the case may be, the
deletion there from, the word 'private' consequent on the conversion in
accordance with the provisions of the Companies Act, 1956, of a public company
into a private company or of a private company into a public company (S. 21).
3. No appeal made after 5 years.-The Central Government will not
consider any application made to it by a registered proprietor of a trade mark
after 5 years of coming to notice of registration of a company.
4. Compliance Certificate.-Companies having paid-up share
capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are
required to 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 altered
the provisions of the memorandum of association with respect to name of the
company during the year under scrutiny and complied with the provisions of the
Act, as per paragraph 28 of the Form of Compliance Certificate as appended to
the Companies (Compliance Certificate) Rules, 2001.
Rectification of name on direction of the Central Government
"RESOLVED that as per
directions of the Central Government pursuant to the provisions of section 22
of the Companies Act, 1956, the name of the Company be changed from 'SAS Co.
Limited' to 'NAM (India) Co. Ltd."'
PRACTICE NOTES
1. Rectification of name.-If, through inadvertence, or otherwise a company,
on its first registration or on its registration by a new name is registered by
a name, which in the opinion of the Central Government, is identical with or
too nearly resembles the name of other company, the former company may by
passing an ordinary resolution and with the previous approval of the Central
Government change its name.
2. Application to Registrar for availability of name.-Make an application" to the
Registrar of Companies concerned for availability in Form No. 1 -A. A fee
of Rs. 5001is to be paid to the Registrar of Companies for the same, in cash.
3. Convening Board Meeting for calling general meeting.-On receipt of confirmation from
the Registrar of Companies concerned, that the new name is available, call a
Board Meeting and pass the above resolution recommending them to the
shareholders to be passed as an ordinary resolution at the Annual General
Meeting/Extraordinary General Meeting as the case may be. Fix up the date,
time, place and agenda for a General Meeting.
4. Notice of General Meeting.-Give 21 days' clear notice for
calling the Annual General Meeting/Extraordinary General Meeting and annex
thereto the Explanatory Statement pursuant to section 173(l) of the Companies
Act, 1956.
5. Application to Regional Director for approval of change in name.-Make
an
application" to the Regional Director (Delegated by the Central
Government) for approval of change in name. A fee as per the Companies (Fees on
Applications) Rules, 1999 is to be
paid for the same, by way of either demand draft or treasury challan. As per
citizen's charter of the Department of Company Affairs, Schedule 11, Serial No.
I the said approval should be given by the Regional Director within 30 days. [Press Note No. 9199, dated 9-8-1999].
6. Forward old Certificate of Incorporation for issue of fresh
Certificate of Incorporation-On receipt of the approval, forward to the Registrar of
Companies concerned old certificate of incorporation for the issue of fresh
certificate of incorporation. On issue of fresh certificate of incorporation by
the Registrar of Companies, the change in name will become effective.
7. Carry out necessary changes in every copy of Memorandum, Articles,
office papers, etc.-Carry out the necessary changes in the Memorandum and
Articles of Association, letter heads, common seal, documents, records, sign
boards, etc.
8. Rights and liabilities not affected.-The rights and liabilities are
not at all affected by change of name. Economic
Investment Corporation Ltd. v. CIT (WB), AIR 1970 Cal 389.
9. Entity of Company not affected.-The change of name does not
bring into existence a new company. The company remains the same entity as it
was before. Only the name changes. A new certificate of incorporation has no
doubt to be issued but that does not incorporate a new company. Shree Choudhary Cold Storage (1972) v. Ruby
General Insurance Co. Ltd., AIR 1982 Cal 124.
10. Decree can be executed either in old or new name.-Decree can
be executed in the new name or in the old name of the company. Abdul Qayum (F.S.) v. Manindra Land and
Building Corporation Ltd., (1955) 25 Comp Cases 143.
11. Penalty.-If a company makes default
in complying with any direction given under section 22(l)(b), the company, and
every officer who is in default will be punishable with fine of upto Rs. 1,000/-
for every day during which the default continues.
Resolution of an Association registered under Section 25 of the Act,
deleting the word ‘LIMITED' from its name
Section 25-Resolution deleting the word 'LIMITED' from
the name of a Company-Special Resolution
"RESOLVED that pursuant to the licence dated granted by the Regional Director, Mumbai the name of the Company be and is hereby changed from X and Co. Ltd. to X and Co. and consequently the name of X and Co. Ltd., wherever it occurs in the Memorandum and Articles of Association of the Company be substituted by the name X and Co."
PRACTICE NOTES
1. Amendment of objects.-A Company registered under the Act can amend
its objects so as to bring it in accordance with the objects set out in section
25 of the Act.
2. Alteration of object clause with approval.-A body licensed under this
section cannot alter any provision of its memorandum in respect of its objects,
except with the previous approval of the Central Government (Delegated to
Regional Directors). If the alteration comes within any of the clauses of sub-section
(1) of section 17, the provisions of that section must also be complied with, inter alia, by passing a special
resolution.
3. Application to Regional Director for registration of company as
section 25 company and deletion of word "Limited".-After the confirmation of the
amendment, the company should apply to the Regional Director (Delegated by the
Central Government) for permission to be registered as a section 25 company and
for deletion of the word 'Limited' from its name.
4. Grant of licence.-The Regional
Director may then grant a licence in the form prescribed in Annexure-IV
of the Companies Regulations 1956 permitting the company to delete the word
'Limited' from its name. As per the citizen's charter of the Department of
Company Affairs, Schedule 11, Serial No. 2,
licence should be granted by the Regional Director within 30 days. [Press Note No. 9199, dated 9-8-1999].
5. Passing of Special Resolution.-A Special Resolution for the
purpose will then have to be passed.
6. Filing of Special Resolution along with Explanatory Statement in
Form 23 with Registrar.-Within 30 days of the passing of the above resolution, a
certified copy of the special resolution along with the Explanatory Statement
in Form 23 has to be filed with the
Registrar along with requisite fees as per Schedule X.
7. Payment of filing fee.-The filing fee for
making the application to the concerned Regional Director will be Rs. 5001- as per the Companies (Fees
on Applications) Rules, 1999.
8. Issue of fresh Certificate of Incorporation by Registrar.-The Registrar
will then enter the new name on the Register and issue a fresh certificate of
incorporation.
9. Delegation of powers to Regional Directors.-The
powers of the
Central Government under this section have been delegated to the Regional
Directors.
10. Charitable companies licensed under this section and other laws.-The ("rant of a licence under this section is not
conclusive of the fact that a company is registered for a charitable
purpose,withm the meaning of s. 2(15) of
the Income-tax Act. It is only a
relevant consideration. (Hyderabad Race
Club, Hyderabad v. CIT, API, Hyderabad, (1985)153 ITR 521 (AP) (FB)).
11. Minimum paid-up capital.-A company registered under
section 25 before or after the
commencement of the Companies (Amendment) Act, 2000 is not required to have minimum paid up capital of Rs. 1 lakh
or Rs. 5 lakhs as the case may be
under subsection (6) of section 3.
Alteration of Articles of Association
S. 31-Alteration of Articles of Association-Special Resolution
"RESOLVED that subject
to the approval of the shareholders pursuant to section 31 of the Companies
Act, 1956, and other applicable provisions, if any, the Articles of Association
of the Company be altered in the manner following:
Article 6 of the Articles of
Association be deleted and in its place the following new article shall be
substituted:
6. The Directors shall have
power from time to time at their discretion to borrow, raise or secure the
payment of any sum or sums of money for the purposes of the company."
In Article 8 of the Articles
of Association, the words "thirty days" be substituted for the words
"two months".
After Article 9 of the
Articles of Association a new Article 9A be inserted:
9A. The company in General
Meeting may, from time to time, increase the capital by the creation of new
shares of such amount as may be deemed expedient."
"RESOLVED FURTHER that
approval of the Company be and is hereby given to the deletion of the existing
Article 21 with all its marginal notes and substitution thereof by the
following new articles with marginal notes:
21
"No fee on No
fee shall be charged for registration of transfer, grant of probate, grant of
registration of transfer,
probate, letters of administration,
certificate of death of marriage, Power of Attorney or similar other
instruments."
21 A.
"Form of transfer An
instrument of transfer of any share shall be in writing and in the form
prescribed by and under section 108 of the Act, or as near thereto as
circumstances will admit."
PRACTICE NOTES
1. Convene Board Meeting for calling General Meeting.-Convene
a Board Meeting
for recommending the above resolution to the shareholders to be passed as a
Special Resolution. Fix up the date, time, place and agenda for a General
Meeting.
2. Notice of General
Meeting.- Give 21 days' clear notice for calling the Annual General Meet]
ng/Extraordinary General Meeting as the case may be and annex thereto the
Explanatory Statement pursuant to section 173(l)
of the Companies Act, 1956.
3. Listed company to forward notice of meeting to Stock Exchange.-In
case the
company's shares are enlisted on a recognised Stock Exchange, a copy of the
notice calling the Annual General Meeting/Extraordinary General Meeting should
be sent to the Stock Exchange concerned.
4. Filing of Special Resolution in Form No. 23 together with
Explanatory statement with Registrar.-The Special Resolution in Form No. 23 together with Explanatory
Statement be filed with the Registrar of Companies concerned on payment of
prescribed fee within thirty days of the passing of the resolution.
5. Forward six copies of amended articles one copy duly certified to
Stock Exchange.-Forward to the Stock Exchange concerned six copies of the
amendment made, one copy duly certified, soon after its adoption by the company
in General Meeting.
6. Obtain approval of Registrar of Companies where alteration has the
effect of converting public company into Private Company.-Approval of the Central Government,
that is, the Registrar of Companies be obtained where the alteration has the
effect of converting a public company into a private company. As per the
citizen's charter of the Department of Company Affairs, Schedule 11, Serial No.
3, the approval should be given by the Registrar of Companies within 15 working
days. [Press Note No. 9199, dated 9-8-1999]
7. Delegation of powers to Registrar of Companies.-The powers of the Central
Government under this section have been delegated to the Registrar of
Companies.
8. Filing of Resolution and approval of Registrar.-In the case of conversion of
public company into private company, two filings of the resolution with the
Registrar are required, first, a copy of the special resolution altering the
Articles for converting the public company into a private company will have to
be filed as required by, and within the time provided in section 192. Then after obtaining approval of
the Central Government, another filing as required by sub-section (2A) of
section 31 has to be made within one month of the date of receipt of the order
of approval.
9. Bonafide for benefit of Company as a
whole.-The power of alteration of the article must be exercised bonafide for the benefit of the company
as a whole. Shuttle worth v. Cox Brox.
& Co., (18 27) 2 KB 2.
10. Alteration not to be inconsistent with provisions of Act.-Also ensure
that the alteration in the Articles of Association is not inconsistent with the
provisions of the Act. (S. 9) or is against public policy. For instance no
alteration which provides for expulsion of a member will be registered.'
11. Increase in members'
liability.- Likewise any change which tends to increase the liability of any
member already on the register of members of the company to contribute to share
capital or otherwise will be ultra vires of
the Act.
12. Rectification of mistake in Articles.-A mistake whether
clerical or otherwise in any of the articles of the company be rectified by
alteration of the articles by passing a Special Resolution pursuant to section
31 of the Act. Scott i,. Scott (Frank f
) (London) Ltd., 1940 Ch 794.
13. Alteration in Articles not to be inconsistent with Memorandum.-One
of the limitations envisaged by section 31 of the Act upon the power of
alteration is that there should be nothing in the altered articles which is inconsistent
with the memorandum. British and American
Trustee and Finance Corporation v. Couper, (1894) AC 399 at 417 and Andrews v. Gas Meter Co., (1897) 1 Ch 361 (CA).
14. Passing of Special Resolution inconsistent with Article not enough.-The
mere passing of a Special Resolution inconsistent with an existing article,
is not enough unless it expressly alters the articles concerned. 10
15. Retrospective
alteration.- Articles may be so altered as to have retrospective operation. Allen v. Gold Reefs of West Africa, (1900) 1
Ch 656, Sidebotton v. Kershaw Leese
& Co. Ltd., (1920) 1 Ch 154.
16. Notice of Meeting for alteration of articles to disclose full facts.-Notice
of meeting for alteration of articles should disclose full facts and be
accompanied by a copy of the proposed amendments. Bimal Singh Kothari v. Muir Mills Co. Ltd., (1952) 22 Comp Cases 248: 56 CWN 36 1: AIR 1952 Cal 645.
17. Articles can never be replaced.- A company can never replace
its articles. It is only the regulations contained therein which may be
changed.
18. Compliance Certificate.- Companies having paid-up
share capital of less than Rs. 2 Crores
but equal to or more than Rs. 10 lakhs are required to 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 altered I ts articles of association~ after
obtaining approval of members in the general meeting held on a specified date
and the, amendments to the articles of association have been duly registered
with the Register of Companies as per paragraph 30 of the Form of Compliance Certificate appended to the Companies
(Compliance Certificate) Rules, 2001.
Alteration in authorised
capital in Articles of Association
S. 31-Alteration in authorised capital in Articles-Special
Resolution
"RESOLVED that pursuant
to Section 31 of the Companies Act, 1956, the Articles of Association of the
Company be altered by substituting the following Article for Article 3:
Art. 3. The authorised Share
Capital of the company is Rs. 1000,00,000/- (Rupees Ten Crores) divided
into 80,00,000 (Eighty Lacs) Equity Shares of Rs. 10/- (Rupees Ten) each
20,00,000 (Twenty Lacs) equity shares with differential voting rights of Rs.
10/- (Rupees Ten) each."
PRACTICE NOTES
1. Company cannot escape its contractual obligations by amending
articles.-By effecting alterations in the articles a company cannot defeat or escape
from its contractual obligations. (Southern
Foundries 1926) Ltd. v. Shirlaw, (1940) 10 Com Cases 255 (HL)).
2. Company cannot alter Articles to carry on illegal scheme.-Articles
cannot be
altered, if the alteration is repugnant to, or inconsistent with, any statute
or general law or if it is such as to defeat the provisions of any law. The
articles cannot be altered to enable the company to carry on an illegal scheme
(lottery business). (Pioneer Mutual
Benefit Society v. Asst. Registrar, (1933) 3 Com Cases 37 (Mad)).
3. Power to alter Article a Statutory power.-The power to alter articles is a
statutory power and a company cannot contract itself out of the power, and
provide that any of its articles are to remain unaltered. Any restriction on
the exercise of the power except to the extent provided in the Act or any other
law will be invalid. (Bushell V. Faith,
(1969) 1 All ER 1002 (CA)).
4. Power of alteration not to be exercised in a manner that would
constitute fraud on minority.-The power of alteration cannot be exercised in a manner
that would constitute a fraud on the minority. An alteration in the articles
whereby the majority may require any member to sell his shares to any other
members is liable to be struck down if the compulsion is not for the benefit of
the company as a whole. (Clemens v.
Clemens Bros. Ltd., (1976) 2 All ER 268;
Brown v. British Abrasive Wheel Co., (1919) 1 Ch 290).
5. Power to alter cannot be used to violate any statutory provision of
law.-The power to alter cannot be used to violate any statutory
provision or principle of law, e.g., to take away a shareholder's right to
present a winding up petition. (Rama-
krishna Industries (P) Ltd. v. P.R. Ramakrishnan, (1988) 64 Com Cases 425 (Mad)).
6. Table A to be excluded in clear language.-If Table A is to be excluded it
must be done in clear language. Where articles are not registered, sub-section
(2) of this section will apply. Prayan Prasad v. Gaya Bank & Traders
Association Ltd., (1931) 1 Com Cases 85.
7. Regulations will apply where articles do not exclude regulations in
Table A.Even
if articles are registered to the extent to which they do not exclude or modify
the regulations in Table A, those regulations will also be applicable. (Seth Mohanlal v. Grain Chambers Ltd.,
(1968) 38 Com Cases 543).
8. Articles binding on members and between members inter se.-The Articles of the company are binding on members and between
members inter se. (Link Industries Ltd.,
(1957) 27 Cornp Cas 468 (Mad); Ramakrishna Industries (P) Ltd. v. V.P.R.
Ramakrishnan, (1988) 64 Comp Cas 425 (Mad)).
9. Articles imposing additional restriction on transferability of
shares.-The Private agreement whereunder there was a restriction that a
living member could transfer his shareholding only to a member of his own
branch of the family imposed additional restrictions on the transferability of
shares contrary to the provisions of the Articles and was therefore not binding
on the company (V.B. Rangaraj v. V.B.
Gopalakrishnan, (1992) 73 Comp Cas 20
1).
10. Equity shares with
differential voting rights.- Companies (Amendment) Act, 2000 has substituted
section 86 relating to new issue of
share capital to be only of two kinds to include equity share capital with
differential rights as to dividend, voting or otherwise in accordance with such
rules and subject to such conditions as prescribed by the Companies (Issue of
Share Capital with Differential Voting Rights) Rules, 2001.
Alteration of Articles for Conversion of a Deemed Public Company into
Private
"RESOLVED that pursuant
to the alteration in the Articles of Association of the Company vide Special Resolution passed at the
Annual General Meeting/Extraordinary General Meeting held on
................... and as a consequence thereof the Company having become a
private company from a public company, an application be made to the Registrar
of Companies for addition of the word "Private" before the word
"Limited" in the name of the company."
RESOLVED FURTHER that the
Company having ceased to be a Public Company within the meaning of sub-sections
(1)/(1A)/ (1B)/(1C) of section 43A of the Companies Act, 1956, an application
be made to the Central Government seeking their approval to the conversion of
the Company into a private company.
RESOLVED FURTHER that the
Managing Director/Secretary of the company be and is hereby authorised to make
an application to the Central Govt. and to take such other steps as may be
necessary for the implementation of the resolution."
PRACTICE NOTES
1. Application to Registrar
of Companies for conversion of Public company into Private.- Powers of the Central Govt.
under section 3](1) has been
delegated to the Registrar of Companies. Therefore an application in Form IB is
to be made to the Registrar of Companies giving therein as to how the company
is no longer a public company and has become a private company. As per the
citizen's Charter of the Department of Company Affairs, Schedule III, Serial
No. 3, the approval should be given within 15 working days. [Press Note No. 9/99, dated 9-8-
1999].
2. Annex to application a copy of Balance-sheet and profit and loss
account.-Annex to the application a copy of the balance-sheet
and profit and loss account for the preceding three years and the Board's
resolution.
3. Payment of application fee.-A demand draft or a treasury
challan evidencing the payment of the requisite fee as prescribed under the
Companies (Fees on Application) Rules, 1999, is also to be attached with the
application.
4. Filing of Special Resolution in Form 23 along with Explanatory
Statement with Registrar.-File the Special Resolution in Form No. 23 together with
Explanatory Statement with the Registrar of Companies concerned on payment of
prescribed fee within thirty days of the passing of the resolution.
5. Conversion of Public company into private only when company closely
held.- Conversion of a public company into a private company will be
allowed only if the applicant company is closely held one having no public
interest involved in it.
6. Consent of
unsecured creditors required.-To protect the interests of' unsecured creditors
consent to conversion of every creditor to whom the company owes substantial
amounts is require .
7. Certificate of incorporation to be changed within 4 weeks by ROC.-Where
a public company becomes a private company on or after the commencement of
the Companies (Amendment) Act, 2000 w.e.f. 13-12-2000, it should
inform the Registrar of Companies who will substitute the word 'private
company' for the word, public company and will also make the necessary
alterations in the certificate of incorporation issued to the company and in
its memorandum of association within 4 weeks from the date of the application
made by the company.
8. Postal Ballot.-Listed companies are required
to pass the special resolution for alteration of articles of association in
relation to insertion of provisions defining public through postal ballot as
per clause (b) of Rule 4 of the Companies (Passing of the Resolution by Postal
Ballot) Rules, 2001.
Alteration of Articles for
conversion of Public Company into Private Company
"RESOLVED that subject
to the sanction of the Central Government, the Company be and is hereby
converted into private limited company and consequently the word 'Private' be
added to the name of the company, wherever the same appears in the Memorandum
and Articles of Association of the company.
RESOLVED FURTHER that the
Articles of Association of the Company be amended to make provisions for the
following:
1. The number of members of
the company (excluding the persons who are in the employment of the company and
of persons who, having been formerly in the employment of the company are while
in such employment and have continued after the determination of such
employment to be members of the company) shall not exceed fifty.
2. No share shall be
transferred to a person who is not a member of the company, so long as any
member is willing to purchase the same at a fair value.
3. The company shall not
invite the public to subscribe for its shares and debentures.
4. The company shall be
prohibited from issuing share warrants to bearer.
5. The company shall not
invite or accept deposits from persons other than its members, directors or
their relations.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to take further steps for
giving effect to this resolution."
PRACTICE NOTES
1. Filling of Special
Resolution with Registrar in Form No. 23 along with Explanatory Statement.-Within
30 days of
passing of this resolution, the company will have to register the same, along
with the Explanatory Statement by filing Form 23 with the Registrar of Companies
together with the requisite fee, in cash as per Schedule X. (As amended by S. 0. 419(E), dated 2 7-4-2000,
w. e.f. 1-5-2000)
2. Approval of Central Government required when alteration of articles has
effect of converting public company into private.-No alteration to the
articles, which has the effect of converting a public company into a private
limited company can be done without the approval of the Central Government
(Delegated to Registrars of Companies).
3. Application to Registrar
of Companies .-Within 3 months of the passing of this resolution an application in
Form No. 1B, is to be made to the Registrar of Companies. With the application
enclose the following:
(a) A certified true copy of
the present Memorandum and Articles of Association.
(b) Certified true copy of
latest profit and loss account and balance-sheet,
(c) A certified true copy of
the minutes of the meeting approving the conversion.
(d) A statement regarding
the existing capital structure of the company.
(e) The number of members at
the time of passing of the resolution.
(f) The reasons for the
conversion.
(g) Evidence of payment of
fee in accordance with the Companies (Fees on Application) Rules, 1999'.
4. Guiding criterion for considering application.-In considering applications for
conversion, the guiding criterion is whether a proposal would be in the best
interest of the company itself and that there is a large measure of agreement
among the shareholders to the proposed conversion. In particular, an attempt is
made to ascertain if the proposal is prompted merely by a desire to overcome
the restrictions imposed by some of the provisions of the Companies Act, which
apply only to public companies e.g., sections 295, 372 etc., or if the
conversion is generally needed for carrying on the business of the company more
efficiently. A company having more than 25 shareholders is advised to obtain
the written consent of all the shareholders who had not voted for the
conversion before Government's approval is considered. To protect the interests
of unsecured creditors, the Department has also been insisting on companies
obtaining the consent to conversion of every creditor to whom the company owes
substantial amounts. 14
5. Filing of printed copy of Articles with Registrar.-Within one month of receipt of
(Government's sanction) a printed copy of the articles as altered should be
filed with the Registrar of Companies along with the order of the Central
Government. The Registrar will then effect necessary changes in the Memorandum
and Articles of Association already filed with him as also the certificate of
incorporation of the company. All copies of the Memorandum and Articles of
Association of the company issued after the date should carry the amendments.
6. Automatic application of provisions.-Sub-clause (d) of clause (III) of sub-section
(1) of section 3 was added by the Companies (Amendment) Act 2000 with effect
from 13th December 2000 providing that all private companies should by articles
of association prohibit any invitation or acceptance of deposits from persons
other than its members, directors or their relatives. A private which has
failed to amend its articles to incorporate the aforesaid provision cannot be
treated as a public company and the provisions of the Act will automatically
govern all private companies. G. Venkitapathy
v. Prakathi Spinners (P) Ltd., (2002) 49 CLA 97 (CLB).
Alteration of Articles (S. 31)
A company may alter its
articles of the Articles of Association by passing a Special Resolution. The
power of alteration of the articles must be exercised bona fide for the benefit of the company as a whole. Shuttleworth v. Cox Bros. & Co., (1827)
2 KB 2. Ensure that the alteration in the Articles of Association is not
inconsistent with the provisions of the Act, or is not against public policy.
For instance no alteration which provides for expulsion of a member will be
registered." Likewise any change which tends to increase the liability of
any member already on the register of members of the company to contribute to
share capital or otherwise will be ultra
vires the Act. A mistake whether clerical or otherwise in any of the
articles of the company be rectified by alteration of the articles by passing a
Special Resolution pursuant to section 31 of the Act. Scott v. Scott (Frankf) London Ltd., 1940 Ch 794. One of the
limitations envisaged by section 31 of the Act upon the power of alteration is
that there should be nothing in the altered articles which is inconsistent with
the memorandum. British and American
Trustee and Finance Corporation v. Couper, (1894) AC 399 at 417 and Andrews v. Gas Meter Co., (1897) 1 Ch
361 (CA).
The mere passing of a
Special -Resolution inconsistent with an existing article, is not enough
unless it expressly alters the articles concerned. 16 Notice of meeting for
alteration of articles should disclose full facts and be accompanied by a copy
of the proposed amendments. Bimal Singh
Kothari v. Muir Mills Co. Ltd., (1952) 22 Comp Cases 248: 56 CWN 361: AIR 1952 Cal
645. Articles may be so altered as to
have retrospective operation. Allen v.
Gold Reefs of West Africa, (1900) 1 Ch 656;
Sidebotton v. Kershaw Leese Co. Ltd., (1920) 1 Ch 154.
An alteration of articles of
association for providing therein that the shares of an expelled member would
be compulsorily transferred even against his wishes and without his signature
was held to be valid exercise of the power of alteration. Gothami Solvent Oils Ltd. v. Mallina Bharathi, (2001) 105 Com Cases
7 10 (A.P.).
A company can never replace
its articles. It is only the regulations contained therein which may be
changed. 17
Alteration of Articles to Adopt new set of Articles
S. 31-Alteration of Articles o Association for Adoption of new
set of Articles-Special Resolution
"RESOLVED that, the new
Articles of Association of the Company, a copy of which is placed before the
meeting, duly initialled by the Chairman, be and are hereby approved and
adopted as the Articles of Association of the Company in substitution of the
existing articles.
RESOLVED FURTHER that the
Secretary of the Company is hereby authorised to take all steps for giving
effect to the resolution."
PRACTICE NOTES
1. Conversion of public company into private.-No alteration of articles of
association can be made without the approval of the Central Government where
such alteration amounts to conversion of a public company into private.
2. Alteration valid.-Any alteration of articles of association
by special resolution will be as valid as if originally contained in the
articles and will be subject to alteration by special resolution.
3. Filing of Special
Resolution.-File the special resolution along with Explanatory Statement with the
Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee
as prescribed under Schedule X of the Act, in cash.
Alteration of Articles to adopt new set of Articles
(Another Format)
S. 31-Alteration of Articles o Association for Adoption of' new
set of Articles-Special Resolution
"RESOLVED that all the Articles No. I to contained in the Articles of Association of the Company be and are hereby deleted and are substituted by the Articles contained in the printed document placed before the meeting duly initialled by the Chairman of the meeting for identification."
PRACTICE NOTES
Same under Resolution No. 803.
Replacement of Articles
S. 31-Alteration of Articles by way of Replacement of Articles-Special
Resolution
"RESOLVED that the regulations contained in the draft Articles of Association submitted co this meeting, duly initialled by the Chairman for the purpose of identification, be and are hereby approved and adopted as the Articles of Association of the Company in substitution for, and to the exclusion of all the existing Articles thereof.
RESOLVED FURTHER that the Secretary of the Company be and is hereby authorised to take all necessary steps for giving effect to the resolution."
PRACTICE NOTES
1. Adoption of new set of regulation.-A company can never replace
its articles, it is only the regulations contained therein which may be
changed. Accordingly the concerned company can adopt an entirely new set of
regulations in place of those now contained in its existing articles by passing
a special resolution to that effect in accordance with the provisions of
section 31 of the Companies Act, 1956. The new set of regulations proposed to
be adopted should form a part of the special resolution and the explanatory
statement to be annexed to the notice of the general meeting under section
173(2) of the Act should set out all material facts concerning the pro-
posed alterations in the existing articles. (Circular
Letter No. 8/32(31)/63-PR, dated 23-10-1963).
2. Alteration against memorandum.-One of the limitations envisaged
by Section 31 upon the power of alteration is that there should be nothing in
the altered articles which is inconsistent with the memorandum. (British and American Trustee and Finance
Corporation v. Couper, (1894) AC 399).
3. Alteration of articles by consent.-When all the shareholders
interested in a company entered into an agreement which modified the articles
of association but was not drafted as a resolution nor passed at a general
meeting, the articles could nevertheless be deemed to be effectively modified.
This is on the basic principle of company law that all the shareholders of
company acting together can do anything intra
vires the company. Section 31(l) does not undermine that principle but
merely lays down the procedure whereby some only of the shareholders can
validly alter the articles. (Cane v. Jones,
(198 1) 1 All ER 533 (Ch D).
4. Notice of meeting for alteration of articles.-Notice of meeting for alteration of
articles should disclose full facts and be accompanied by a copy of the
proposed amendments. (Bimal Singh Kothari
v. Muir Mills Co. Ltd., (1952) 22 Com Cases 248).
5. Amendment
to be within scope of notice.-The amendment must be within the scope of the notice and
should not commit the meeting to anything beyond the business proposed in the
resolution of which notice had been sent to the members.
Alteration of Articles-To
Refuse Splitting of shares
"RESOLVED that after
Article No. 19, the following new article may be inserted as Article 19A."
"19A-The Board
may refuse an application for sub-division or consolidation of the number
in denomination of less than 100 equity shares or less than 10 preference
shares as the case may except when such sub-division or consolidation is
required to be made in compliance with any law or an order or decree of a
competent Court."
PRACTICE NOTES
1. Alteration of Articles empowering Board to refuse too much
splitting.-In order to avoid application for sub-division of share
certificates, it may be appropriate to alter the Articles of Association of the
company to empower the Board refusing too much splitting up of the shares.
2. Obtaining of approval for transfer of shares.- Ensure that transfer of
shares is not subject to the approval of the Central Government or any other
authority under any other law. If so, their approval should be obtained before
transferring the shares.
3. Proper instrument of transfer-Meaning of.-Proper instrument of transfer means
an instrument of transfer which complies with all the formalities required by
the Act including stamp duty to be affixed thereon. Re: Paradise Motor Co. Ltd., (1968) 2 All ER 625: (1968) 2 Comp LJ 216.
4. Registering unstamped instrument not lawful.-A company registering an
instrument of transfer which is not duly stamped, it will be doing an act which
is unlawful Re: Jagodish Mills Ltd., 56 Bom
LR 525.
5. Transfer by operation of law.-Transmission by operation of law is not a
transfer. Indian Chemical Products Ltd. v
State of Orissa, (1966) 2 Comp LJ 63.
6. Transfer of shares by or in favour of NRIs.-Before any transfer of shares by or
in favour of non-residents is considered, it is necessary to see whether
it contravenes any provision of the Foreign Exchange Management Act, 1999".
7. Company be restrained by injunction from transferring shares for non-
compliance with requirement of section.-A company may be restrained
by injunction from effecting a transfer where the requirements of this section
are not complied with. Somani (KK) v. Somani
(D.K.), (1984) 2 Comp LJ 363.
8. Transfer not effective until
transfer registered in company's register.-A transfer effective between
transferor and the transferee is not effective as against the company and any
person without notice of the transfer until the transfer is registered in the
company's register. Life Insurance
Corporation of India v. Escorts Ltd., (1986) 59 Comp Cases 548 at 618.
9. Only bona fide shareholder can apply for
registration of transfer.-In all cases only a bona
fide holder will have the right to fill in his name or the name of a person
for whom he is acting under an authority and apply for registration of the
transfer. Colonial Bank v. Hepworth, (1887)
35 Ch D 36.
10. Transfer relates back to date of execution.-A transfer when
accepted relates back to the date of execution of the instrument. Killick Nixon Ltd. v. Dhanraj Mills Pvt.
Ltd., (1983) 54 Comp Cases 432 (Bom-DB).
11. Director under no obligation to register unstamped instrument of
transfer.-If an instrument of transfer does not bear the stamp before
or at the time of execution, the Directors are under no obligation to register
the transfer. Killick Nixon Ltd. v.
Dhanraj . Mills Pvt. Ltd., (1983) 54 Comp Cases 432 (Bom-DB).
12. Registration invalid when transfer application not accompanied with
share certificates.-Without production of the share certificate along
with the application for transfer, the transfer cannot be registered and if
registered, the registration will be void. Philipose
(E.J.) v. Vanchinad Rubber Produce Co. Ltd., (1953) 23 Comp Cases 536.
13. Transfer be effected in the names of heirs of deceased as joint
shareholders. -Where the heirs of a deceased Joint shareholder had obtained
a succession certificate and the surviving joint shareholder had disclaimed
interest in the shares, the company ought not to refuse registration of the
shares in the names of the heirs of the deceased joint shareholder. Mrs. Kamala V. Pai v. Messrs. Esso Standard
Refuining Company of India Ltd. (Hindustan Petroleum Corporation Limited,
Appeal No. I of 1977 order dated 23rd February, 1977 of the Company Law Board.
In the case of listed companies ensure compliance with the requirement of the
Securities Contracts (Regulation) Act, 1956, in case it is proposed to refuse
registration of any transfer.
14. Government companies exempted.-This section does not apply to
Government companies with respect to shares held by nominees of Government
Alteration of Articles by Addition
S. 31-Alteration of Articles of Association by way of Addition of
Articles Special Resolution
"RESOLVED that the Articles of Association of the Company be altered by adding following proviso at the end of article ……..of the Articles of Association of the Company:
Provided that the preference shareholders have voting power at a General Meeting
like any other member holding equity shares ............ in the event the dividend on such preference shares are in
arrears ……..etc
PRACTICE NOTES
1. Section 192 requires filing of Special Resolution in Form No. 23
along with Explanatory Statement with Registrar.-Following the provisions of section
192 of the Act, a copy of every resolution (together with a copy of statement
of material facts annexed under section 173 to the notice of the meeting in
which such resolution has been passed) must be filed with the Registrar within
thirty days after passing with the text of the resolution duly certified. Where
a company has registered with the Registrar, Articles of Association, a copy of
every resolution altering' the article must be embodied in or annexed to every
copy of the articles issued after passing of the resolution altering the
articles.
Alteration of Articles by
Substitution
S. 31-Alteration o Articles of Association by way of Substitution
of Articles-Special Resolution
"RESOLVED that the
Articles of Association of the Company be altered in the following manner, that
is to say, the word 'five' appearing in the fourth line of the existing article
of the Articles of Association of the
Company be deleted and substituted by the word ‘nine'."
PRACTICE NOTES
1. Substitution of articles for increasing number of directors.-Under
the
existing articles of the company, the company could have a maximum of five
Directors on the Board of the company. By virtue of the above alteration, the
company would be in a position to appoint nine Directors. The maximum number of
Directors a company is permitted to have is limited to twelve and less but the
prescribed minimum' number must be retained by the company in order to make the
company function. Pursuant to the proviso to section 259 of the Act, a company
can increase permissible number of Directors in the articles up to twelve but
any resolution seeking to increase permissible maximum number of Directors
above twelve will have no effect unless approved by the Central Government and
shall become void if and in so far as, it is disapproved by the Central
Government. Government Directors appointed under section 408 and nominee
Directors of certain financial institutions governed by special statutes which
dispense with the requirements of these provisions of the Companies Act, 1956,
will not be taken into account while counting the number of Directors.
2. Private company exempted.-The section does not apply to
private companies.
3. Form of application to Central Government.-For approval of the Central
Government of any increase in number of Directors application is required to be
made in Form No. 24.
4. Requirements to be fulfilled for making application to Central
Government. Where
an application is made to the Central Government
(a) A general notice has to be given to all
the members indicating the nature of the application to be made to the Central
Government. The notice should be published at least once in a newspaper of the
principal language of the district in which the registered office of the
company is situate and circulating in that district and at least once in
English language in an English newspaper circulating in that district (Section
640B).
(b) A copy of the application along with all the documents should
be sent to the Registrar (Rule 20A).
(c) Three copies of the general notice
published in the newspapers should be forwarded to the Stock Exchange if the
company is listed on it. This is according to the Standard Listing Agreement.
(d) With the application in Form No. 24, the following should be
attached:
(i) Certified true copies of each of the
present Memorandum and Articles of Association and of those which were in force
on 21st July, 1951, or, if the company came into existence later on, then on
the date of its registration;
(ii) A certified true copy of the resolution
passed and the full proceedings of the General Meeting with full details about
votings in a separate sheet;
(iii) A treasury challan showing the fees
having been deposited as per the Companies (Fees on Application) Rules, 1999;
(iv) Copies of the notices together with a
certificate by the company as to the due publication thereof.
5. Appointment of Directors to be effective on receipt of approval.-The
appointment
of the Director made in the General Meeting will be effective only on receipt
of the approval of the Central Government.
Alteration of Articles by substitution
(Another Format)
S. 31-Alteration of Articles o Association by way of substitution-Special
Resolution
"RESOLVED that the
Articles of Association of the Company be altered in the following manner, that
is to say, 'Rs. 100/- (Rupees one hundred)' appearing in the 2nd line of
the article of the Articles of
Association of the company be substituted by the words and figures 'Rs. 5,0001-
(Rupees five thousand)'."
PRACTICE NOTES
1. Articles to provide fee payable to directors for attending Board or
Committee Meeting.-The articles of the company should provide for the fees
payable to a Director for attending meetings of the Board of Directors or any
committee thereof.
2. Sitting fee not to exceed beyond prescribed limit without approval of
Central Government.-The Companies Act, 1956, (not even Table 'A'
Schedule 1) does not fix any minimum amount of fees to be paid to a Director
(not Whole-time or Managing Director) which should be fixed by the
articles of the company. Restrictions, however, have been imposed on the
company under proviso to section 3 10 of the Act, read with Rule 10B of the
Companies (Central Government's) General Rules and Forms, 1956, so that,
without the approval of the Central Government, any provision in or any
amendment of the Articles of Association which purports to increase, or which
has the effect of increasing the amount of the remuneration only by way of a
fee for each meeting of the Board or a committee meeting attended by any such
Director beyond those prescribed under the aforesaid rules. The prescribed
limit of sitting fee at present is Rs. 50001- per meeting.
Adoption of Table A
S. 31-Adoption of Regulations contained in Table A'-Special
Resolution
"RESOLVED that the
regulation contained in Table 'A' of Schedule I of the Companies Act, 1956,
shall apply to the Company in so far as they are not inconsistent with or
repugnant to any of the regulations contained in. the printed copy of the
Articles of Association of the Company, submitted to the meeting and initialled
by the Chairman hereof, for the purpose of identification."
PRACTICE NOTES
1. Table 'A' of Schedule I not to apply to companies covered by Chapter
IX unless adopted by Special Resolution.-Part IX of the Companies Act,
1956, deals with companies or associations of person or any other combination
thereof which came into existence on the 1st May, 1882, under any statute,
charter or any other Act of the Parliament of the United Kingdom or letters
patent in force or under any other Indian or foreign law and these companies
may be registered (with the exception of the companies registered under the Indian
Companies Act, 1913), under the Companies Act, 1956, as a company limited by
share (Section 565). Section 578(3)(a) provides that Table 'A' 'of Schedule I
shall not apply to these companies unless and except in so far as it is adopted
by Special Resolution.
2. Table 'A' of the Indian Companies Act, 1913 continues to apply to
existing companies unless words "Table A of" the Companies Act, 1956
substituted therefor by Special Resolution.-Pursuant to the provisions of section
657, Table 'A' adopted by the companies in accordance to the one annexed to the
earlier Acts (mentioned in Part IX) will continue to be operative and as
respects companies registered prior to 1st April, 1956, Table 'A' of the Indian
Companies Act, 1913, will continue to apply unless Table 'A' of the Companies
Act, 1956, is made applicable and the words "Table 'A' of the Companies
Act, 1956" is made applicable in substitution for Table 'A' of the Indian
Companies Act, 1913, by suitable amendment to the Articles of Association and
new Table 'A' is adopted by passing a Special Resolution.
3. Companies generally exclude Table 'A' and adopt it with suitable
modification.-Present tendency is to exclude the exact provision of the
Table 'A' and apply the regulations contained therein by suitably modifying
them either by passing a Special Resolution or by inserting a clause in the
Articles of Association reading, say as: save as reproduced herein the
regulations contained in Table 'A' of Schedule I to the Act (Companies Act,
1956) shall not apply to the company.'
Other amendments in Articles
S. 31-Other amendments in the Articles of Association-Special
Resolution
"RESOLVED that a new
article numbered as 25A be inserted immediately after article 25 of the
Articles of Association of the Company."
Deletion (full)
"RESOLVED that the articles to governing regulations in connection with powers and privileges of the managing agents of the Company be deleted, these being rendered redundant."
Deletion (part)
"RESOLVED that the
Articles of Association of the Company be altered in the following manner by
deleting the words 'managing agents' from any and every clause of the articles
wherever they occur."
Substitution
"RESOLVED that the
Articles of Association of the Company be altered in the following manner by
deleting the existing article 29 with all marginal notes there for and
substitution of the following new article 29 (with the marginal notes there
for)."
Composite amendment
"RESOLVED that the articles of the Articles of Association of the Company be altered in the following manner:
(a) by insertion of a new article numbered 29A immediately after
article 29, reading as follows:
"29A. That
notwithstanding any provision to the contrary contained in the articles and
pursuant to section 255 of the Companies Act, 1956, all Directors including the
Managing Director or the Whole-time Director shall retire by rotation at
every Annual General Meeting-"
(b) by deletion of article 93 substituting
therefor a new article 93 with marginal notes reading as 'What is deemed to be
net profit', as follows:
"93. Subject to the
provisions of the Companies Act, the declaration of the Board as to the amount
of the net profits of the company shall be conclusive."
(c) by deletion of the words and figures
'Rs. 100/- (Rupees one hundred) in line 5 of article 77 and substitution
therefor of the words and figures 'Rs. 250/- (Rupees two hundred
fifty)'."
PRACTICE NOTES
1. Person whose period of office liable to determination by retirement of
directors by rotation.-As regards item (a) above, unless the articles
provide for the retirement of all Directors at every Annual General Meeting,
not less than two- thirds of the total number of Directors of a public
company shall be persons whose period of office is liable to determination by
retirement of Directors by rotation. There are companies which are managed by
professional managers who are either Managing and/or Whole-time
Directors. In such cases, as far as the Whole-time Directors who retire
by rotation and reappointed in the same meeting as Directors are concerned the
services of such Directors remain continuous.
2. Articles not to be amended
to provide for expulsion of member.-Articles of Association should not be
amended in such a way as to provide for expulsion of a member from the company.
Such an amendment is opposed to the fundamental principles of company
jurisprudence and ultra vires the
company. (Circular No. 32/ 75, dated
1- 11- 1975).
Conversion of public company into private
S. 31-Change of public into private company-Special
Resolution
"RESOLVED that the
approval of the Central Government
having been obtained vide letter
dated the ............... 2002, the Company be converted into a Private Ltd.
Company."
PRACTICE NOTES
1. Private Company becoming a public company and reconversion thereof
into Private Company.-By virtue of operation of section 43A, a private company may become a public company and in the
similar way in the absence of those factors such public company, by virtue of
section 43A may again be a private
company.
2. Procedure" for converting deemed public company into Private
Company:- For
converting a deemed public company again into a private company, it is
necessary to:
(i) make an application to the Registrar of
Companies concerned on a plain paper explaining the change in circumstances
which no longer obtain so as to make the company a deemed public company.
(ii) Following documents should be furnished along with the
application:
(a) a copy of the balance-sheet and
profit and loss account of the company for the last three years;
(b) a copy of the Board's resolution;
(c) a treasury challan evidencing the
payment of the requisite fee as prescribed under the Companies (Fees on
Application) Rules, 1999.
(iii) On receipt of or before applying for the
approval (if the approval is conditional in the former case) call a Board
Meeting to fix the date, time, place and agenda of the General Meeting to pass
a Special Resolution converting the deemed public company into a private
company (if section 31 applies) or
for converting the private company into a public company by deleting the
articles which constitute a private company (S. 43).
(iv) Issue notices with suitable Explanatory Statement and hold the
General Meeting.
(v) Register the Special Resolution, within thirty days of its
passing, with the Registrar in Form No. 23.
(vi) After the approval is obtained, request
the Registrar to issue a fresh certificate of incorporation, and on such issue,
the deemed public company again becomes a private company or the private
company becomes public company.
(vii) If the company is enlisted on any
recognised Stock Exchange, then forward to it, three copies of the notices and
a copy of the proceedings of the General Meeting.
Where the shareholding of a
body corporate in a deemed public company falls below 25% of the paid-up share capital of that company and its
average annual turnover falls below the prescribed sum (presently Rs. ten
crores w.e.f. 18-9-1990), the
company can convert itself again into a private company by complying with the
provisions of subsection (4). (Letter No.
32/21/75-CL-III dated 20-10-1975.)
Reconversion of S. 43-.4, Company into Private Company
After a private company
becomes a deemed public company by virtue of operation of Section 43-A, it can be reconverted into
private company only with the prior approval of the Central Government.
Delegation of powers under sub-section (4) of section 43-A
The powers of the Central
Government under sub-section (4) have been delegated to the Registrar of
Companies.
A private
company which becomes a pubic company under this section is enjoined by sub-section
(2) to inform the Registrar of this
fact. If a company makes default in complying with this provision, the company
and every officer of the company who is in default is punishable with fine
which 'may extend to five hundred rupees for every day during which the default
continues. The offence is compoundable under section 621A.
813
Re conversion of a deemed public company into a private company
Ss. 31/43A –Re
conversion of a deemed public company into a private company-Special
Resolution
"RESOLVED
that subject to the sanction of the
Central Government the Company be and is hereby re-converted into a Private
Limited Company, consequent on the annual average turnover for the last three
years having been less than rupees ten crores.
RESOLVED
FURTHER that the Secretary of the Company be and is hereby authorised to take
all further steps for giving effect to this resolution."
PRACTICE NOTES
1. Application to the concerned Registrar of Companies.-Application
to the
Central Government in Form No. I-B should be made to the concerned
Registrar of Companies along with requisite application fee as prescribed under
the Companies (Fees and Application) Rules, 1999.
Conversion of private company into public company
Ss. 31 and 44-Conversion of private company into public
company-Special Resolution
"RESOLVED that subject
to the provisions of sections 31 and 44 of the Companies Act, 1956 and other
applicable provisions, if any, the Company be and is hereby converted into a
public company and that the Directors be and are hereby authorised to take all
such steps as may be necessary or proper for effectuating such conversion.
RESOLVED FURTHER that
consequent to the above, the word "Private" be and is hereby deleted
from the name of the Company wherever occurring in the Memorandum and Articles
of Association of the company and the name of the company shall henceforth be X
Y Z Limited."
PRACTICE NOTES
1. Conditions of conversion of private into public company and vice versa.-The name of a
company is a condition contained in the memorandum within the meaning of
section 13. If a private company is converted into a public company it involves
a change of name, and the change can be effected only in the manner pro-vided
by section 21. So, where a private company wants to convert itself into a
public company, a special resolution will be necessary.
Further, the following requirements
also should be noted.
(1) Alteration of articles so as to delete the restrictive
clauses mentioned in section 3(l)(iii).
(2) If the number of members is less than
seven, it must be raised at least to seven (Vide
sections 12(l) and 45).
(3) If the number of directors is less than three it must be
raised to not less than three (section 252).
2. Section 44 applicable to a private company.-If a private company becomes a
deemed public company under section 43A, and then excludes the provisions in
its articles relating to the matters specified in section 3(l)(Iii) apparently
section 44 will not be attracted at all, since in terms of section 44 it only
applies to a private company.
3. Legal personality of a company not effected.-No change in the
legal personality of a company is brought about by conversion to a public
company nor does the company cease to exist bringing into existence may new
company. (Hindusthan Lever Ltd. v. B.S.
Factory, AIR 1964 Mys 173).
4. Conversion of public into private company.-There is no express provision
except the reference in the proviso to section 13 (1) and (2-A) for
converting a public company into a private company. Such conversion will
require; (1) a spec I al resolution authorising the conversion and altering the
Articles so as to contain the matters specified in section 3(l)(iii); (2) changing the name of the company by special
resolution as required by section 21 read with section 13(l)(a) and filing the
same with the Registrar as required by section 23; (3) obtaining the approval
of the Central Government as required by section 3 1 (1) proviso; and (4) after
obtaining the approval of the Central Government, a printed copy of the
articles as altered should again be filed with the Registrar within one month
of the receipt of the approval as required by section 31(2-A). Power of
Central Government under section 31 is delegated to the Registrars of
Companies.
5. Section does not prevent conversion of public company into private by
alteration of articles.-This section does not prevent conversion of
public company into a private company by alteration of its articles. (Radiant Chemical Co. Ltd. In re, (1943)
13 Com Cases 186).
Alteration of Articles to authorise a Company to Buy-Back its
shares
S. 31/77A-A Iteration of Articles to authorise a Company to Buy-back
its shares-Special Resolution
RESOLVED that pursuant to
section 31 read with section 77A(2)(a) of the Companies Act, 1956 articles of
association of the company be and is hereby altered by way of addition of the following
new Article 4A after the existing Article 4:
"4A - Pursuant to
section 77A of the Act the company may purchase its own shares or other
specified securities from out of its free reserves or out of its securities
premium account or out of the proceeds of an earlier issue other than fresh
issue of shares made specifically for buyback purposes by passing a special
resolution in the general meeting of the company subject to the provisions of
sub-section (2) of section 77A and section 77B of the Act."
PRACTICE NOTES
1. Buy-back of shares up to 25 per cent.-The Companies (Amendment) Act
1999 with retrospective effect from 31st October, 1998 has allowed companies to
buy-back its own shares up to 25 per cent of its total paid up capital
and free reserves. These shares should be purchased only if it is authorised by
its articles of association and for alteration of articles of association of a
company under section 31 of the Companies Act, 1956, a special resolution is
required to be passed.
2. Filing of Special Resolution.-File the special resolution along
with an Explanatory Statement with the Registrar of Companies concerned within
thirty days in Form No. 23 after paying the requisite filing fee as prescribed
under Schedule X of the Act, in cash.
3. Procedure.-After passing of
the special resolution the buy-back process should be completed within
twelve months. The companies going for buy-back of shares should not make
any further issue of the same kind of shares including allotment of further
shares under clause (a) sub-section 81 or other specified securities
within the period of twenty four months from the date they complete the process
of buy-back of securities except by way of bonus issue, conversion of
warrants/preference shares/debentures or stock option schemes or sweat equity.
It is also obligatory on the part of companies buying back their shares to
extinguish and physically destroy the securities within seven days from the day
of buy-back the shares to bought back. Companies which have defaulted in
repayment of deposits, redemption of debentures/preference shares and re-payment
to financial institutions will not be allowed to buy-back their shares.
In case of listed companies opting for buy-back of shares they should
also comply with guidelines prescribed by Securities and Exchange Board of
India for this purpose on 14th November, 1998 and unlisted companies should
comply with provisions of the Private Limited Company and Unlisted Public
Limited Company (Buy-back of Securities) Rules, 1999.
4. Compliance Certificate.-Companies having paid-up share
capital of less than Rs. 2tCrores but
equal to or more than Rs. 10 lakhs are required to 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 bought back shares during the financial year
ending on a certain date after complying with the provisions of the Act as per
paragraph 20 of the Form of
Compliance Certificate appended to the Companies (Compliance) Certificate
Rules, 2001.
5. Postal Ballot.-Listed companies are required to pass the special
resolution for buyback of own shares through postal ballot as per clause (c) of
Rule 4 of the Companies (Passing of the Resolutions by Postal Ballot) Rules,
2001.
Alteration of Articles for issue of sweat equity shares
S. 31/79A-Alteration of Articles for issue of sweat equity shares-Special
Resolution
RESOLVED that pursuant to
section 31 read with section 79A of the Companies Act, 1956, the articles of
association of the company be altered by addition of the following new article
15 A after the existing article 15:
"15A - The
company may exercise the powers of issuing sweat equity shares conferred by
section 79A of the Act of a class of shares already issued subject to the
following conditions
(a) the issue of sweat equity shares is
authorised by a special resolution passed by the company in the general
meeting;
(b) the resolution specifies the number of
shares, their value and the class or classes of directors or employees to whom
such equity shares are to be issued;
(c) not less than one year has at the date
of the issue elapsed since the date on which the company was entitled to
commence business;
(d) the sweat equity shares are issued in
accordance with the regulations made by the Securities and Exchange Board of
India in this behalf."
PRACTICE NOTES
1. Companies (Amendment) Act, 1999.-With retrospective
effect from 31st October, 1998 the Companies (Amendment) Act, 1999 has inserted
a new section 79A in the Companies Act, 1956 to allow companies to issue sweat
equity shares subject to passing of a special resolution in a general meeting.
The alteration of articles is necessary in order to give effect to this new
provision made in the Act.
2. Filing of Special Resolution.-File the special resolution
along with an Explanatory Statement with the Registrar of Companies concerned
within thirty days in Form No. 23 after paying the requisite filing fee as
prescribed under Schedule X of the Act, in cash.
3. SEBI Regulations.- Listed Companies should be
issued Sweat Equity shares in accordance with SEBI (Issue of Sweat Equity)
Regulations, 2002 issued vide Not. S.O. 103 1 (E), dt. 24-9-2002.
Alteration of Articles to provide nomination facility to all shareholders/debenture
holders/fixed deposit holders.
RESOLVED that pursuant to
section 109A and section 109B read with section 58A and further pursuant to
section 31 of the Companies Act, 1956 articles of association of the company be
altered by addition of the following Article 50A after the existing Article
50:_
"50A - Every holder of shares or debentures or fixed deposits of the
company will have freedom to nominate at any time a person to whom his share
s/debentures/deposits shall vest in the event of his death. Where the
shares/debentures/deposits are held by more than one person jointly, the joint
holders may together make such nomination. The nomination should be made in the
prescribed manner and the nominee shall, on the death of the shareholder or
holder of debentures of the company or, as the case may be, on the death of the
joint holders become entitled to all the rights in the shares or debentures of
the company or, as the case may be, all the joint holders in relation to such
shares in or debentures of the company to the exclusion of all other persons
unless the nomination varied or cancelled in the prescribed manner. Where
nominee is the minor it shall be lawful for the holder of the shares or holder
of debentures to make the nomination to appoint in the prescribed manner any
person to become entitled to shares in or debentures of the company in the
event of his death during the minority.' Any person who becomes nominee as
aforesaid upon the production of such evidence as may be required by the Board
of Directors of the company, elect either to be registered himself as holder of
the shares or debentures or to make such transfer of the shares or debentures
as the deceased shareholder or debenture holder could have made. The Board of
Directors of the company shall in either case have the same right to decline or
suspend registration as it would have had, if the deceased shareholder or
debenture holder had transferred the shares or debentures before his
death."
PRACTICE NOTES
1. Companies (Amendment)
Act, 1999.- With effect from 31st October, 1998, the Companies (Amendment) Act,
1999 has inserted two new sections 109A and 109B and has also inserted sub-section
(11) in section 58A of the Companies Act, 1956 to provide for nomination
facility by every shareholder, debenture holder and fixed deposit holder of a
company. The nomination is to be made in the manner to be prescribed by the
Central government in order to allow a company to make such a provision
alteration of articles of association of a company by addition of a new article
is necessary so that a company can adopt the said article easily.
2. Filing of Special
Resolution.- File the special resolution along with an Explanatory Statement with
the Registrar of Companies concerned within thirty days in Form No. 23 after
paying the requisite filing fee as prescribed under Schedule X of the Act, in
cash.
Registration of unlimited company as a limited company
S. 32-Registration of an unlimited company as a limited company-Special
Resolution
"RESOLVED that the
Company be and is hereby registered as X AND CO. LTD., a company limited by
shares, under the provisions of the Companies Act, 1956, with an authorised
capital of Rs ................. divided
into equity shares of Rs . ……..each."
PRACTICE NOTES
1. Special Resolution for addition of word 'Limited' for registration
of unlimited company as a limited company.-This will have to be passed as a
Special Resolution, since the addition of the word 'Limited' to the name
entails a change of name, necessitating compliance with section 21 of the Act.
2. Procedure for incorporation of company to be complied with.-After
passing this resolution, the company will have to adopt the same procedure
as for incorporation of a company and will have to file the requisite documents
with the Registrar of Companies concerned.
Variation of contract
mentioned in prospectus
S. 61-Variation of contract mentioned in prospectus-Ordinary
Resolution
"RESOLVED that consent
of the Company be and is hereby given to the increase in the rate of
underwriting commission payable to the Industrial Development Bank of India
from one and a half per cent to two per cent on the issue of shares by the Company pursuant to the prospectus
dated 22nd July, 2002.
RESOLVED FURTHER that the
draft of supplemental agreement to be executed between the Industrial
Development Bank of India and the Company, duly initialled by the Chairman of
the meeting, be and is hereby approved.
RESOLVED FURTHER that the
Managing Director of the Company be and is hereby authorised to execute the
supplemental agreement on behalf of the Company with the Industrial Development
Bank of India."
PRACTICE NOTES
1. Board to approve alteration subject to ratification by members.-The
Board of Directors may approve the alteration subject to the same being
ratified by the members of the company in General Meeting.
2. Variation of terms of contract.-The terms of the contract
referred to in the prospectus or statement in lieu of prospectus may be varied
only subject to the approval of the members of the company in a General
Meeting.
Variation of terms of
contract mentioned in prospectus
(Another Format)
S. 61-Variation in terms of contract mentioned in the prospectus-Ordinary
Resolution
"RESOLVED that the
Board of Directors of the Company be and is hereby authorised to increase the
rate of underwriting commission payable to M/s. CPR & Company Private Ltd.,
the main underwriter to the issue of 3,00,00,000 equity shares through
prospectus to the public, from one and a half per cent, as has been agreed to
by the Company in the said prospectus, to two per cent and that the draft supplemental
agreement between the company and the said M/s. CPR & Company Private Ltd.
in connection therewith be and is hereby approved.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to execute the aforesaid
supplemental agreement in pursuance of the authority hereby given by this
meeting."
PRACTICE NOTES
1. Convening of Board Meeting for recommending resolution to
shareholders :- Call a Board Meeting and pass the above resolutions recommending them
to the shareholders for being passed by them as an ordinary resolution at the
General Meeting.
2. Fixing up date, time, place and agenda of General Meeting.-Fix
up the
date, time, place and agenda for convening a General Meeting.
3. Notice of General Meeting.-Give 21 days' clear notice for
the General Meeting with suitable Explanatory Statement regarding the proposed
variation to be made in terms of any contract mentioned in the prospectus or
statement in lieu of prospectus.
4. Intimation to Registrar and riling of resolution along with
Explanatory Statement.-Intimate the Registrar of Companies concerned and forward to
him a copy of the resolution passed along with Explanatory Statement
immediately after the holding of the General Meeting.
5. Listed company to forward copy of resolution to Stock Exchange
concerned.:- If
the shares of the company are enlisted on a recognised Stock Exchange, forward
it also, a copy of the resolution.
6. Variation in terms of contract to be done on authority given by
company in General Meeting.-A company is not authorised to vary the terms of a
contract referred to in the prospectus or statement in lieu of prospectus
except with the approval of or except on the authority given by the company in
General Meeting. The variation should be in consultation with the lead
manager(s) and should be intimated to SEBI.
Power of company to purchase its own securities from the existing
shareholders.
RESOLVED that pursuant to section 77A of the Companies Act, 1956 read with article of the Articles of Association of the Company ……..equity shares of the Company be and are hereby purchased from the existing equity shareholders of the company on a proportionate basis at the price of Rs ……..per share out of the company's free reserves.
RESOLVED FURTHER that the
aforesaid buying back of the equity shares of the company be made in accordance
with the SEBI (Buy Back of Securities) Regulations, 1998.
RESOLVED FURTHER that the
directors of the company be authorised to carry out the aforesaid buying back
of securities and to take every step that may be necessary in connection
therewith or ancillary or incidental thereto.
PRACTICE NOTES
1. Pre-requisites of buy-back.-The buy-back of securities
under section 77A should be authorised by the Articles of Association of the
company and should not exceed 25% of the total paid-up capital and free
reserves of the company. The buy-back of equity shares in any financial
year should not exceed 25% of a company's total paid-up equity capital in
that financial year. The ratio of debt owed by the company at the time of
buying back of securities should not be more than twice the capital and its
free reserves after such buy-back. The Central Government may prescribe a
higher ratio of the debt than that specified above for a class or classes of
companies. The securities which are to be bought back should all be fully paid-up.
2. SEBI Regulation 1998.-SEBI has framed SEBI (Buy-Back of
Securities) Regulations, 1998 on 14th November, 1998 by which it has provided
for conditions of buy back through tender offer from the existing shareholders
of a company on a proportionate basis, from open market through book building
process or stock exchange or from odd-lot holders. A company should not
buy back its share from any person through negotiated deals, whether on or off
the stock exchange or through spot transactions or through any private
arrangement. No person or no insider should deal in securities of the company
on the basis of unpublished information relating to buy-back of shares of
the company.
3. Filing of the Special Resolution.-File the
special resolution along with an Explanatory Statement with the Registrar of
Companies concerned within thirty days in Form No. 23 after paying the
requisite filing fee as prescribed under Schedule X of the Act, in cash. A copy
of the special resolution passed at the general meeting should also be filed
with the SEBI as well as with all the stock exchanges where shares of the
company are listed within seven days from the date of passing of the
resolution.
4. Explanatory Statement to be annexed to the notice of the Special
Resolution. :- Section 77A sub-section (3) read with regulation 5 sub-regulation
(1) and regulation 7 requires that the Explanatory Statement to be annexed to
the notice for the general meeting should contain disclosures as specified in
Schedule I to the said regulations. It should also contain the following
disclosures, namely:
(a) The price at which the
buy-back of shares will be made.
(b) If the promoters intends
to offer their shares within the quantum of shares proposed to be tendered and
the details of their transactions and their holdings for the last six months
prior to the passing of the special resolution for buy-back including
information of number of shares acquired, the price and date of acquisition.
5. Public announcement.-The company
which has passed a special resolution for buy-back of shares must make a
public announcement prior to buy-back of shares in at least one English
national daily, one Hindi national daily and regional language daily, all with
wide circulation at the place where the registered office of the company is
situated and the said public announcement should contain all the material
information as specified in Schedule II to the SEBI (Buy-Back of
Securities) Regulations, 1998. The
public announcement should specify a date which will be the specified date for
the purpose of determining the names of the shareholders to whom the letter of
offer shall be sent. The said specified date should not be earlier than thirty
days and not later than forty two days from the date of the public
announcement.
6. Filing of offer documents.-The company,
within seven working days of the public announcement, as mentioned above, must
file with the SEBI a draft letter of offer containing disclosures as specified
in Schedule III to the SEBI (Buy-Back of Securities) Regulations, 1998
through a merchant banker who is not associated with the company.
The said draft letter of
offer should be accompanied with fees as specified in Schedule IV to the SEBI
(Buy-Back of Securities) Regulations, 1998 as under:
Size of the buy-back offer Proposed
fee (Rs.)
Up to 5 crores 25,000
More than 5 crores & up to 10 crores 50,000
More than 10 crores & up to 50 crores 75,000
More than 50 crores & up to 100 crores 1,00,000
More than 100 crores & up to 500 crores 2,00,000
More than 500 crores 5,00,000
The said fees should be paid
by a Demand Draft in favour of 'Securities and Exchange Board of India' payable
at Mumbai. The letter of offer should be despatched to the existing
shareholders not earlier than twenty-one days from its submission to the
SEBI. In case the SEBI specifies modifications, if any, in the draft letter of
offer within twenty one days from the date of submission of the draft letter of
offer, the company in consultation with the merchant banker, should carry out
such modifications before the letter of offer is despatched to the
shareholders. The company should also file along with a draft letter of offer,
a declaration of solvency in the prescribed form and in the manner prescribed
in section 77A(6) of the Companies Act, 1956.
7. Offer procedure.-Pursuant to Regulation 9 of the SEBI
(Buy-Back of Securities) Regulations, 1998, the offer for buy-back
must be kept open to the members for a period of not less than fifteen days and
not exceeding thirty days. The date of the opening of the offer should not be
earlier than seven days or later than thirty days after the specified date. The
letter of offer should be sent to the shareholders so as to reach them before
the opening of the offer. In case the number of shares offered by the
shareholders is more than the total number of shares to be bought back by the
company, the acceptances per shareholder should be equal to the acceptances
tendered by the shareholders divided by the total acceptances received and
multiplied by the total number of shares to be bought back. The company should
complete the verifications of the offers received from the shareholders within
fifteen days from the closure of the offer and the shares lodged should be
deemed to be accepted unless a communication of rejection is made within
fifteen days from the closure of the offer.
8. Escrow account.-Pursuant to sub-regulation (1) of regulation 10
of the SEBI (Buy-Back of Securities) Regulations, 1998, a company which
is proposing to buy-back its shares should as and by way of security for
performance of its obligations under the said regulations deposit in escrow
account on or before the opening of the offer such sun as specified in sub-regulation
(2) of the said regulation. Sub-regulation (2) specifies that if the
consideration payable does not exceed Rs. 100 crores, 25% of the consideration
should be payable to the escrow account. If the consideration payable exceeds
Rs. 100 crores, 25% upto Rs. 100 crores and 10% thereafter should be payable to
the escrow ac. count. Sub regulation (3) of the said regulation provides that
the escrow account should consist of cash deposited with a scheduled commercial
bank or consist of bank guarantee in favour of-the merchant banker, or
should consist of deposit of acceptable securities with appropriate margin with
the merchant banker or should consist of any combination of the aforesaid three
ways. Where the escrow account consists of deposit with a scheduled commercial
bank, the company should while opening the account, empower the merchant banker
to instruct the bank to issue a banker's cheque or Demand Draft for the amount
lying to the credit of the escrow account. Where the escrow account consists of
bank guarantee, such bank guarantee should be in favour of the merchant banker
an( should be valid until thirty days after the closure of the offer. Where the
escrow account consists of securities, the company should empower the merchant
banker to realise the value of such escrow account by sale or otherwise and if
there is any deficit on realisation of the value of the securities, the
merchant banker should be liable to make good any such deficit. In case the
escrow account consists of bank guarantee or approved securities, these should
not be returned by the merchant banker till completion of all obligations of
buy-back of shares under the said regulations. Where the escrow account
consists of bank guarantee or deposit of approved securities, the company
should also deposit with the bank in cash a sum of at least 1% of the total
consideration payable as and by way of security for fulfillment of the
obligations under the said regulations by the company. On payment of
consideration to all the shareholders who have accepted the offer and after
completion of all formalities of buy-back, the amounts, guarantee and
securities in the escrow, if any, should be released to the company. The SEBI
in the interest of the shareholders may in case of non-fulfillment of
obligations under the said regulations by the company forfeit the escrow
account either in full or in part. The amount forfeited, as above, may be
distributed pro-rata amongst
the shareholders who accepted the offer and balance, if any, should be utilised
for investor protection.
9. Payment to shareholders.-Regulation II of the SEBI (Buy-Back
of Securities) Regulations, 1998 provides
that the company should immediately after the date of the closure of the offer,
open a special account with a banker to an issue registered with the SEBI and
deposit therein such sum as would, together with the amount lying in the escrow
account make up the entire sum due and payable as consideration for buy back
and for this purpose may transfer the funds from the escrow account. The
company should within seven days after the expiry of fifteen days from the
closure of the offer make payment of consideration to those shareholders whose
offer has been accepted or returned the share certificates to the shareholders.
10. Extinguishments of certificate.-Pursu ant to sub-section
(7) of section 77A read with regulation 12 of the SEBI (Buy-Back of
Securities) Regulations, 1998, the
company should extinguish and physically destroy the share certificates so
bought back in the presence of a Registrar or the Merchant Banker and the
Statutory Auditor within seven days from the date of acceptance of the shares.
The shares offered for buy-back, if already demateriallsed should be
extinguished and destroyed in the manner specified under the SEBI (Depositories
and Participants) Regulations, 1996 and the bye-laws framed there under.
The company should furnish a certificate to the SEBI within seven days of
extinguishment and destruction of the certificates duly verified by the
Registrar and whenever there is no Registrar through the Merchant Banker, two
whole-time directors including the Managing Director and the Statutory
Auditor of the company certifying the compliance of physical destruction and
extinguishment of the share certificates. The particulars of the share
certificates extinguished and destroyed should also be furnished to the stock
exchanges where the shares of the company are listed within seven days of
extinguishment and destruction of the certificates. The company should also
maintain a record of share certificates which have been cancelled and destroyed
as prescribed in sub section (9) of section 77A of the Companies Act, 1956.
11. Further issue of securities prohibited.-Where a company completes a buy back of its securities under section 77A
of the Act, it should not make further issue of securities within the period of
six months except by way of bonus issue or in the discharge of subsisting
obligations such as conversion of warrants, stock option schemes, sweat equity
or conversion of preference shares or debentures into equity shares.
12. Completion of Buy-back
procedure and filing.-Every buy-back procedure
should be completed within twenty four months from the passing of a special
resolution under sub-section (2) clause (b) of section 77A of the Act. A
company should after the completion of the buy back under the said section file
with the Registrar of Companies concerned and also with SEBI return in Form No.
4C relating to the buy back within
thirty days of such completion unlisted public companies and private companies
need not file the return with SEBI.
13. Penalty.-If a company makes default in complying with the
provisions of section 77A or any rules made there under, the company or any
officer of the company who is in default is punishable with imprisonment for a
term which may extend to two years or with a fine which may extend to Rs.
50,000/- or with both. SEBI may also suo-motu or upon information
received by it, cause an investigation to be made in respect of the conduct and
affairs of any person associated with the process of, buy-back, by
appointing an officer of the SEBI under sub-regulation (1) of regulation
22 of the SEBI (Buy-Back of Securities) Regulations, 1998. The
investigating officer appointed by the SEBI, on completion of the investigation
will submit a report to the said board and on receipt of the said report, the
SEBI may initiate such action as may be empowered to do so in the interest of
investors and securities market. The SEBI may also give such directions as it
may deem fit including the following:
(a) directing the person concerned not to further deal in the
securities in any particular manner;
(b) prohibiting the person concerned from
cancelling any of the securities bought back in violation of the Companies Act;
(c) directing the person concerned to sell
or divest the shares acquired in violation of the provisions of these
regulations or any other law or regulations;
(d) taking action against the intermediaries
registered with Board in accordance with the regulations applicable to it;
(e) prohibiting the persons concerned, its
director, partners, members, employees and associates of such person, from
accessing the securities market;
(f) disgorgement of any ill-gotten gains or profit or
avoidance of loss;
(g) restraining the company from making a further offer for buy
back.
In case any person is guilty
of insider trading or market manipulation the person concerned will be dealt
with by the SEBI in accordance with the provisions of SEBI (Insider Trading)
Regulations, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to the Securities Market) Regulations, 1995.
14. Rules framed by the Department.-The Department of
Company Affairs has framed the Private Limited Company and Unlisted Public
Limited Company (Buy-back of Securities) Rules, 1999, with effect from
6th July, 1999". Private companies and unlisted public companies should
follow these Rules.
15. Postal Ballot .-Listed companies are required to pass the
special resolution for buy-back of securities through postal ballot as
per Rule 4(c) of the Companies (Passing of Resolution by Postal Ballot) Rules,
2001.
16. Compliance Certificate.-Companies having paid-up share capital of
less than Rs. 2 f Crores but equal to or more than Rs. 10 lakhs are required to
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 kept and
maintained all registers stated in Annexure A to this certificate as per the
provisions and the Rules made there under and all entries therein have been
duly recorded and it has also duly filled the forms and returns as stated in
Annexure B to this certificate with the Registrar of Companies or any other
authorities within the time prescribed under the Act and the Rules made there
under as per paragraphs I and 2 of the Form of Compliance Certificate appended
to the Companies (Compliance Certificate) Rules, 2001.
Power of company to purchase its own securities from odd lot holders
S. 77A-Power of company to purchase its own securities from odd
lot holders-Special Resolution
RESOLVED that pursuant to section 77A of the Companies Act, 1956 read with article ……..of the Articles of Association of the Company ……..equity shares of the company be and are hereby purchased from odd lot holders of the shares of the company at a price of Rs ……..per share out of the company's premium account.
RESOLVED FURTHER that the
aforesaid buying back of the equity shares of the company be made in accordance
with the SEBI (Buy Back of Securities) Regulations, 1998.
RESOLVED FURTHER that the
directors of the company be authorised to carry out the aforesaid buying back
of securities and to take every step that may be necessary in connection
therewith or ancillary or incidental thereto.
PRACTICE NOTES
Same as given under Resolution 821.
Power of company to purchase its own securities from open market
S. 77A-Power of company to
purchase its own securities from open market-Special Resolution
RESOLVED that pursuant to section 77A of the Companies Act, 1956 read with article of the Articles of Association of the Company equity shares of the company be and are hereby purchased from the open market through stock exchange/book building process at a maximum price of Rs per share out of the company's free reserves.
RESOLVED FURTHER that the
aforesaid buying back of the equity shares of the company be made in accordance
with the SEBI (Buy Back of Securities) Regulations, 1998.
RESOLVED FURTHER that the directors of the company be authorised to carry out the aforesaid buying back of securities and to take every step that may be necessary in connection therewith or ancillary -or incidental thereto.
PRACTICE NOTES
1, 2, 3
and 4 same as given under Resolution 821.
5. Buy-Back through stock exchange.-Where the
company is buying back its own shares from the open market through stock
exchange it should follow the following:
(a) the special resolution referred to in regulation 5 shall specify the maximum price at which the buy-back shall be made;
(b) the buy-back of
the shares shall not be made from the promoters or persons in control of the
company;
(c) the company shall
appoint a merchant banker and make a public announcement as referred to in
regulation 8;
(d) the public announcement
shall be made at least seven days pri or to the commencement of buy-back;
(e) a copy of the public
announcement shall be filed with the Board within two days of such announcement
alongwith the fees as specified in Schedule IV;
(f) the public announcement
shall also contain disclosures regarding details of the brokers and stock
exchanges through which the buy-back of shares would be made;
(g) the buy-back shall
be made only on stock exchanges with electronic trading facility;
(h) the buy-back of
shares shall be made only through the order matching machanism except 'all or
none' order matching system;
(i) the company and the
merchant banker shall give the information to the stock exchange on a daily
basis regarding the shares purchased for buy-back and the same shall be
published in a national daily;
(j) the identity of the
company as a purchaser shall appear on, the electronic screen when the order is
placed.
6. Extinguishment of certificate.-Pursuant to sub section (7) of
section 77A read with regulation 12 of
the SEBI (Buy-Back of Securities) Regulations, 1998, the company should extinguish and physically destroy the
share certificates so bought back in the presence of a Registrar or the
Merchant Banker and the Statutory Auditor within seven days from the date of
acceptance of the shares. The shares offered for buy-back, if already
dematerialised should be extinguished and destroyed in the manner specified
under the SEBI (Depositories and Participants) Regulations, 1996 and the bye-laws
framed there under. The company should furnish a certificate to the SEBI within
seven days of extinguishment and destruction of the certificates duly verified
by the Registrar and whenever there is no Registrar through the Merchant
Banker, two whole-time directors including the Managing Director and the
Statutory Auditor of the company certifying the compliance of physical
destruction and extinguishment of the share certificates. The particulars of
the share certificates extinguished and destroyed should also be furnished to
the stock exchanges where the shares of the company are listed within seven
days of extinguishment and destruction of the certificates. The company should
also maintain a record of share certificates which have been cancelled and
destroyed as prescribed in sub-section (9) of section 77A of the Companies
Act, 1956. The company buying back
its own shares from open market through stock exchange should complete the
verification of acceptances within fifteen days of pay out.
7. Further issue of securities prohibited.-See practice note II as given in
Resolution No. 821.
8. Completion of Buy-back procedure and filing.-See practice note 12 as given in
Resolution No. 821.
9. Penalty.- See Practice Note 13 as given in Resolution No. 821.
10. Buy-Back through book building.-Where a company buys
back its shares from the open market through the book building process it
should comply with the following:
(a) The special resolution passed for buy-back
of shares must specify the maximum price at which the buy-back is to be
made.
(b) The company must appoint a merchant
banker and make a public announcement as per the details given in Practice
Notes No'. 5 above.
(c) The public announcement, as mentioned
above, should be made at least seven days prior to the commencement of buy-back.
(d) The company should also open an escrow
account as per details given in Practice Notes No. 8 under Regulation § 821
subject to the following two conditions:
(i) The deposit in the escrow account shall
be made before the date of the public announcement.
(ii) The amount to be deposited in the escrow
account shall be determined with reference to the maximum price as specified in
public announcement.
(e) A copy of the public announcement should
be filed with the SEBI within two days of such announcement alongwith fees as
specified in Schedule IV of the SEBI (Buy-Back of Securities)
Regulations, 1998 details of which are given in Practice Notes No. 6 under
Resolution No. 821.
(f) The public announcement should contain
the detailed methodology of the book building process, the manner of
acceptance, the format of acceptance to be sent by the shareholders pursuant to
the public announcement and the details of bidding centres.
(g) The book building process should be made through an
electronically linked transparent facility.
(h) The minimum number of bidding centres
should be thirty and there should be at least one electronically linked
computer terminal at all the bidding centres.
(i) The offer for buy-back should be
kept open to the shareholders for a period of not less than fifteen days and
not exceeding thirty days.
(j) The price of the buy-back of
shares should be decided and determined by the merchant bankers in consultation
with the company on the basis of the acceptances received.
(k) The final buy-back price which will
be determined should be the highest price accepted and such price must be paid
to all holders whose shares have been accepted for buy-back.
11. Payment
to shareholders.-Same as Practice Notes No. 9 given under Resolution
No. 821.
Reduction of share premium
S. 78-Reduction of share premium account-Special Resolution
"RESOLVED that pursuant
to section 78 of the Companies Act, 1956, and subject to confirmation of Court,
consent of the company be and is hereby accorded to the reduction of Share
Premium Account from Rs ……..to Rs . ……..and to effect such reduction
by paying a sum of Rs . ……..per share to the equity shareholders of the
Company."
PRACTICE NOTES
1. Authority must exist in Articles.-The Articles of Association of
the company will first have to be verified to see whether this power is
contained therein; otherwise, the articles will first have to be amended'.
2. Procedure for reduction of capital to be followed for reduction of
Share Premium Account.-The procedure for reduction of capital will have to be
followed in case of reduction of the Share Premium Account as well. Unless this
procedure is followed, it is not permissible for a company to distribute Share
Premium Account as dividend to the shareholders.
3. Procedure need not be followed when amount utilized for purposes
specified in sub-section (2) of section 78.-The procedure for reduction need
not, however, be gone through when the company proposes to apply the Share
Premium Account:
(a) in paying up un issued shares of the company to be issued to
the members as fully paid bonus shares,
(b) in writing off the preliminary expenses of the company,
(c) in writing off the expenses of, or the
commission paid or discount allowed on, any issue of shares or debentures of
the company,
(d) in providing for the premium payable on
the redemption of any redeemable preference shares or of any debentures of the
company.
4. File Special Resolution in Form No. 23 along with Explanatory
Statement with Registrar.-The Special Resolution, together
with the Explanatory Statement, will have to be registered with the Registrar
of Companies in Form No. 23 by filing it within 30 days of the passing thereof
along with the requisite filing fee as per schedule X.
5. Writ petition.-A writ petition filed inter alia to stop a company from utilising the premium amount for
any purpose other than that stated in section 78(3) and to refuse approval to
the rights issue with a premium was dismissed by the court as it could not in
its writ Jurisdiction issue such type of general directions to respective
bodies of the government who were regulating the sale and purchase of shares of
public limited companies. Murlidhar
Sodani v. SEBI, (2001) 105 Com Cases 815
(MP).
Issue of shares at discount
S. 79-Application to the
Company Law Board for Issue of shares at discount-Ordinary Resolution
"RESOLVED that consent
of the company be and is hereby given to the issue of 50,000 equity shares of
the Company of the nominal value of Rs. 10/- in the capital of the
Company at a discount of Rs. 2/- per share i.e., 20%.
RESOLVED FURTHER that
pursuant to sub-section (2) of section 79 of the Companies Act, 1956, an
application be made to the Company Law Board seeking their approval to the
issue of shares at discount."
PRACTICE NOTES
1. Authority must exist in Articles.-Ensure that the Articles of
Association of the company provide for the issue of shares at discount. If not,
first amend the Articles of Association.
2. Shares to be issued should be of class already issued.-Shares proposed to be issued at
discount should be of a class which has already been issued and not of a class
being issued for the first time.
3. Convening of General Meeting for getting resolution passed by
shareholders.:- After passing the resolution by the Board, a General Meeting of the
company be convened for getting the above resolution passed by the
shareholders. Fix up date, time, place and agenda for a General Meeting.
4. Resolution to be treated as special business.-Even though the resolution shall
be an ordinary resolution to be passed by a simple majority, it will be a
special business and a statement pursuant to section 73(l) of the Act will be
necessary.
5. Petition before Company Law
Board.-The petition for seeking the sanction of the Company Law Board under sub-section
(2) has to be made in Form No. 1 of
Annexure II to the Company Law Board Regulations, 1991, with an application fee of Rs. 1000/- and accompanies by the following
documents:
(1) Certified true copy of
Memorandum and Articles of Association.
(2) Certified
true copy of notice calling the meeting with explanatory statement and the
resolution sanctioning issue.
(3) Certified true copy of
minutes of the meeting at which the resolution was passed.
(4) Certified true copies of
last 3 years' audited balance-sheets and profit and loss account,
auditor's reports and directors' reports.
(5) Affidavit
verifying the petition.
(6) Bank draft evidencing
payment of fee.
(7) Memorandum of appearance
with copy of the Board resolution or the executed Vakalatnama, as the case may
be.
6. Filing of certified copy of order of Company Law Board with
Registrar.-After the Company Law Board, has
approved the issue of shares at a discount, file a certified copy of the order
with the Registrar of Companies within one month from the order. Only on such
filing the order shall become effective.
7. Prospectus.-Every prospectus relating to
issue of shares at a discount by a company shall contain particulars of the
discount allowed and the extent to which it has not been written off at the
date of the issue of the prospectus.
8. Shares at discount to be issued after complying with required
formalities.-After completion of above formalities, shares can be
issued at a discount as per the resolution of shareholders.
9. Justification to be given in petition for allowing discount of more
than ten per cent.-In case the rate of discount is more than 10% show in
the petition the circumstances under which it is Justified.
10. Shares to be issued within two months after issue sanctioned by Company
Law Board or within extended time.-Ensure that shares are issued
within two months after the date the issue is sanctioned by the Company Law
Board or within such extended time the Company Law Board may allow.
11. Reissue of partly paid forfeited shares.-Where partly paid shares are forfeited for non-payment of further
call, if they are reallotted not as partly paid shares but as fully paid shares
the reallotment will amount to a allotment at a discount and will therefore be
invalid. Biochemical and Synthetic
Products Ltd. v. Registrar of Companies, (1962) 32 Comp Cases 654: AIR 1962 AP 459.
12. Discount issue in violation of section.-Where shares are
issued at a discount contrary to the provisions of the section, not only the
Directors authorising the unauthorised issue but the allottees, if they have
been entered in the register of members and have accepted the allotment will be
liable to the company for the full amount of the shares.
13. Section not applicable to debentures to be issued.-The section does not apply to debentures which may be issued at a
discount. Debentures do not form part of the capital of the company.
14. Penalty for failure to make disclosure in prospectus.-For failure to make the disclosure in the prospectus the company and every
officer of the company, who is in default, is liable for punishment with fine
up to five hundred rupees. The offence is compoundable by the Regional Director
under Section 62 IA.
15. Penalty for default.-No
penalty has
been specifically provided in the section for the violation of its provisions,
except in regard to sub-section (4) for non- disclosure of
prescribed information in the prospectus. Accordingly, the company and every
officer of the company, who is in default, shall be punishable under section
629A for issue of shares without sanction of the Company Law Board. The
offence, however, is compoundable under section 621A.
16. Compliance Certificate.-Companies having paid-up share
capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are
required to 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
shares at a discount during the financial year and complied with the provisions
of the Act as per paragraph 19 of the Form of Compliance Certificate as
appended to the Companies (Compliance Certificate) Rules, 2001.
Issue of share at a discount
(Another Format)
S. 79-Application to the
Company Law Board for Issue of shares at discount-Ordinary Resolution
RESOLVED that, subject to
the approval of the Company Law Board, the consent of the Company be and is
hereby given to the issue of 70,000 equity shares of the company of the nominal
value of Rs. 10/in the capital of the company at a discount not exceeding Rs.
1/- per share i.e., 10%.
PRACTICE NOTES
1. Approval of the Company
Law Board.- Prior approval of the Company Law Board should be obtained before
issuing shares at a discount as per section 79(2) (1) of the Act. The
application for approval should be made in Form No. I of the Company Law Board
Regulations, 199 1.
2. Particulars of discount in the prospectus.-Every prospectus
relating to the issue of shares at a discount should contain particulars of the
discount allowed on such issue of shares.
Issue of shares at a discount
(Another Format)
S. 79-Issue of shares at a discount-Ordinary Resolution
"RESOLVED that pursuant
to the provisions of section 79 of the Companies Act, 1956, and subject to the
sanction of the Company Law Board to such issue, that the Board of Directors be
and is hereby authorised to issue 30,00,000 equity shares of Rs. 10/-
each in the capital of the company at a discount of Re. I per share (ten per
cent)."
PRACTICE NOTES
1. Shares to be issued to be
of class already issued.- The shares involved in the issue at a discount
should be of a class already issued. By virtue of sub-section (2) of
section 79 a mere resolution by the company I n the General Meeting is not
enough for purpose of obtaining sanction of the Company Law Board to the issue
of shares at a discount. The Company Law Board, at its sole judgment, will fix
the amount of discount that will be applicable to the issues of such shares and
the said Board is not bound to sanction any issue if the maximum rate of
discount specified in the resolution exceed ten per cent. It is also the
absolute discretion of the Company Law Board to sanction issue of any class of
shares if the percentage of discount on the nominal value of shares exceeds ten
per cent depending absolutely on the merit and special circumstances of each
case.
2. Requirements for issue of
shares at a discount.-A company cannot issue shares at a discount before not
less than one year has, at the date of the issue, elapsed since the date on
which the company was entitled to commence business. Any of the aforesaid
stipulations regarding percentage of discount will, however, not apply if the
issue of shares at a discount is sanctioned by the Company Law Board or is as a
result of any proceedings relating to such sanction which is pending before the
Company Law Board.
3. Formalities required to be complied with for issue of shares at
discount.-For the issue of shares at a discount, it is necessary to
(i) Hold a Board Meeting to decide the
number of shares to be issued at a discount, the rate of discount and to fix up
the date, time, place and agenda of the General Meeting.
(ii) Issue notices and hold the General
Meeting and pass the resolution giving authority to issue shares at a discount
subject to the approval of the Company Law Board and to see that the resolution
specifies the maximum rate of discount at which shares are to be issued.
(iii) Forward promptly to the Stock Exchange, if
the company is listed, three copies of the notice and a copy of the proceedings
of the General Meeting.
(iv) Make an application to the concerned
Bench Officer of the Company Law Board in the form of a petition in Form No.
1 in Annexure II to the Company Law
Board Regulations, 1991.
(v) Send the petition along with the following documents:
(a) Certified true copy of the Memorandum
and the Articles of Association of the company;
(b) Certified true copy of the notice
calling for the General Meeting and resolution sanctioning issue along with the
explanatory statement;
(c) Certified true copy of the minutes of
the meeting at which the resolution was passed;
(d) Certified true copy of each of the last
three years' audited balance sheets, profit and loss accounts, Auditors' report
and the Directors' reports;
(e) Bank draft evidencing payment of
application fee of Rs. 1000/
(f) Affidavit verifying the petition;
(g) Memorandum of appearance Form No. 5 in
Annexure II to the Regulations with a copy of the Board Resolution, or where
the petition is filed by an advocate, duly executed Vakalatnama.
(vi) Send a copy of the petition along with the other documents to
the Registrar of Companies.
(vii) Deliver on receipt of the copy of the order
of the Company Law Board, a certified copy of the order to the Registrar for
registration within one month from the date of the order (time taken in
supplying a copy of the order by the Company Law Board will be excluded in
computing the period of one month).
(viii) Issue the prospectus, if a prospectus is to
be issued on receipt of the order of the Company Law Board.
(ix) See that the prospectus contains
particulars of the discount allowed on the issue of shares or of so much of
that discount as has not been written off at the date of the issue of the
prospectus.
(x) Deliver a copy of the prospectus, if
issued, to the Registrar of Companies for registration (Section 60) or if no
prospectus is issued, to deliver a statement in lieu of prospectus at least
three days before the allotment of shares (Section 70(l).)
(xi) Make an application for listing with the Stock Exchange, if
listing is desired.
4. Filing of return with Registrar.-File return
with the Registrar of Companies in Form No. 2 within thirty days of the date of
allotment (pursuant to section 75(l)(c)(ii)), after allotment of shares at a
discount along with requisite fees as per Schedule X.
Issue of shares at a discount
(Another Format)
S. 79-Application to the Company Law Board for Issue of Shares at
a Discount-Ordinary Resolution
"RESOLVED that pursuant
to the provisions of section 79 of the Companies Act, 1956, and subject to the
approval of the Company Law Board, approval of the shareholders be and is
hereby accorded to the Board of Directors of the Company to issue 5,50,000
equity shares of Rs. 10/- each at a discount not exceeding Rs. 2/-
per share."
PRACTICE NOTES
1. Discount-Meaning.-At a discount means at a price less than the
nominal value.
2. Obtaining of approval of
Company Law Board.-For issue of shares at a
discount, approval of the Company Law Board has to be obtained.
3. Shares issued at discount to be of class already issued.-The shares
issued at a discount should be of a class already issued.
4. Reissue of forfeited shares.-Where partly
paid shares are forfeited for nonpayment of further call, if they are
reallotted not as partly paid shares but as fully paid shares, the reallotment
will amount to allotment at a discount and will, therefore, be invalid. Biochemical and Synthetic Products Ltd. v.
Registrar of Companies, (1962) Com Cases 654 : AIR 1962 AP 459.
5. Section not applicable to debentures.-This
section does
not apply to debentures which may be issued at a discount. Debentures do not
form part of the company's capital.
6. Discount issues in violation of section.-Where shares
are issued at a discount contrary to the provisions of the section, not only
the Directors authorising the unauthorised issue but the allottees, if they
have been entered in the register of members and have, accepted the allotment
will be liable to the company for the full amount of the shares.
Issue of Sweat Equity Shares at a discount
S. 79A-Issue of Sweat Equity Shares at a discount-Special
Resolution
RESOLVED that pursuant to article ……..of the Articles of Association of the company and also pursuant to section 79A of the Companies Act, 1956 . sweat equity shares at Rs ……..per share be and are hereby issued at a discount of 10% to the employees of the company who are working as ……..in the Thane Factory of the company.
RESOLVED further that the
Board of Directors of the company be and is hereby authorised to take each and
every action in order to implement the aforesaid resolution and/or anything
that is related to it or ancillary or incidental to it.
PRACTICE NOTES
Same as given under Resolution 816
Issue of Sweat Equity Shares for consideration other than cash
S. 79A-Issue of Sweat Equity Shares for consideration other than
cash Special Resolution
RESOLVED that pursuant to article ……..of the Articles of Association of the company and also pursuant to section 79A of the Companies Act, 1956 . ……..sweat equity shares at Rs ……..per share be and are hereby issued for consideration other than cash to the employees of the company who are working as ……..in the Thane Factory of the company.
RESOLVED further that the
Board of Directors of the company be and is hereby authorised to take each and
every action in order to implement the aforesaid resolution and/or anything
that is related to it or acillary or incidental to it.
PRACTICE NOTES
Same as Practice Notes No. 1 and 2 under Resolution
816 and,
3. Compliance Certificate.-Companies having paid-up share
capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are
required to 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 sweat
equity shares during the financial year and complied with the provisions of the
Act as per paragraph 19 of the Form of Compliance Certificate as appended to
the Companies (Compliance Certificate) Rules, 2001.
Issue of redeemable preference shares on Rights
S. 80-Issue of redeemable preference shares on rights basis-Special
Resolution
"RESOLVED that the
consent of the Company be and is hereby given to the issue of 80,000 cumulative
redeemable preference Shares of Rs. 100/each to be issued for cash at par and
that these shares be offered to the existing holders of equity shares in the
proportion of one preference share for every ten equity shares held by them on
1st January, 2002.
RESOLVED FURTHER that notice
of this offer be given to all equity shareholders whose names appear on the
Register of Members of the Company as on 1- 1-2002, giving them an
option to apply for the allotment of shares to which they are entitled along
with payment of the value thereof and providing for a time limit within which
the offer if not accepted shall be deemed to have been declined.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to allot such preference shares
as may be surplus or offers whereof have been declined by the equity
shareholders in such manner as they deem fit and proper.
RESOLVED FURTHER that the
80,000 redeemable preference shares of Rs. 100/- each now being issued
shall carry a dividend of 9% per annum and the same shall accrue to the holders
of these shares from the date of allotment to them.
RESOLVED FURTHER that the
shares may be redeemed by the company at any time after the expiry of twenty
years from the date of issue.
PRACTICE NOTES
1. Articles must empower
company.- Check up whether the articles of the company provide for the issue of
redeemable preference shares. If not, carry out necessary alterations in the
Articles of Association" for providing such a provision first pursuant to
section 3 1.
2. Convening Board Meeting
for calling Annual General Meeting.- Call a Board Meeting and pass the above
resolution recommending them to the shareholders for being passed by them as a
Special Resolution. Fix up date, time, place and agenda for a General Meeting
to all the shareholders of the company.
3. Notice of General
Meeting.- Give 21 days' clear notice of the General Meeting.
4. Filing of Resolution with Explanatory Statement with Registrar.-File
the
resolution in Form No. 23 along with the Explanatory Statement with the
Registrar of Companies concerned within thirty days of the passing of the
resolution by paying the prescribed filing fee.
5. Right to renounce shares in favour of other person.-Unless the
articles provide that the offer to apply for the issue of new shares given to
holders of equity shares shall not include a right to renounce the said shares
in favour of any other persons, while offering the shares, also specify that
they have also a right to renounce the shares offered to them in favour of any
other person and a notice shall contain specifically a statement to this
effect.
6. Ordinary Resolution in case shares offered to existing equity
shareholders.-If the shares are being offered strictly in accordance with the provisions
of section 81(l) of the Act, that is, an offer is being made to the holders of
equity shares to apply for the new issue in proportion to their existing equity
shareholding, an ordinary resolution of the company shall suffice. A Special
Resolution has been recommended as an abundant caution so as to take care of
the situation in which some shares may have to be allotted. Otherwise than in
strict proportion to the existing shareholdings of equity shareholders.
7. Issue of irredeemable preference shares to be redeemable after
expiry of more than twenty years not permissible.-Issue of irredeemable preference
shares or shares which are redeemable after the expiry of the period of more
than twenty years is not permissible.
8. Issue of preference capital to be within authorised capital.-Please
ensure that
the preference capital now being issued is within the authorised capital of the
company. If not, take steps to increase the authorised capital.
9. No right to demand redemption before expiry of period fixed.-Preference
shareholders
cannot demand redemption of the shares earlier than after the expiry of the
period of redemption provided in the issue.
10. Conversion of preference shares into redeemable preference shares.-If
any issued preference shares are to be converted into redeemable preference
shares, the proper course is to effect a reduction of capital to be followed by
a subsequent increase. St. James Court
Estates Ltd., (1944) Ch 6.
11. Credit Rating.- Credit rating should be obtained
from any of the Credit Rating agencies and disclosed in the draft letter of
offer to be submitted for vetting by SEBI.
12. Compliance Certificate.-Companies having paid-up share
capital of less than Rs. 2 Crores but
equal to or more than Rs. 10 lakhs are required to 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 redeemable preference shares on rights
basis during the financial year and complied with the provisions of the Act as
per paragraph 19 of the Form of Compliance Certificates as appended to the
Companies (Compliance Certificate) Rules, 2001.
Issue of Redeemable Preference Shares on Rights
(Another Format)
S. 80-Issue of redeemable preference shares on Right basis-Special
Resolution
"RESOLVED that pursuant to the provisions contained in section 80 of the Companies Act, 1956, the Board of Directors of the Company be and hereby authorised to issue redeemable Cumulative Preference Shares of Rs. 100/- each to the existing equity shareholders of the Company in proportion of ……..preference shares for ……..equity shares whose names appear on the Register of Members as on ……..2002.
RESOLVED FURTHER that
notwithstanding anything contained in Section 81(1A) of the Companies Act,
1956, the Directors of the Company be and are hereby authorised to offer the
preference shares not taken up by the existing equity shareholders to other
person(s) on such terms and conditions or in such manner as the Directors think
fit and proper.
RESOLVED FURTHER that the said Cumulative Preference Shares shall carry a fixed dividend of ……..per cent per annum on the amount of capital paid up thereon.
RESOLVED FURTHER that the
Company shall be entitled to redeem the said Cumulative Preference Shares out
of the profits immediately on the commencement of tenth year from the date of
issue."
PRACTICE NOTES
1. Articles to empower
company.- The Articles will have to be perused to see whether the power to issue
redeemable preference shares is contained therein; otherwise the articles will
first have to be amended.
2. Preference shares redeemable after twenty" years prohibited.-Issue of
any preference share which is irredeemable or is redeemable after the expiry of
a period of twenty" years from date of issue is prohibited.
3. Conditions of redemption.-The redemption can be effected only
on the following conditions:
(i) Redemption of such shares must be
effected on such terms and in such manner as laid down in the Articles of
Association of the company;
(ii) Such shares can be redeemed out of the
profits or out of proceeds of a fresh issue of shares made for this purpose;
(iii) Such shares must be fully paid-up;
(iv) Premium, if any, payable on redemption of
such shares should be provided from out of the profits or out of company's
share premium account; and
(v) An amount equal to redemption amount
must be transferred to 'capital redemption reserve account' where the
redemption is effected out of profits otherwise available for distribution as
dividend.
Issue of redeemable
preference shares to public
S. 80-Issue of redeemable preference shares to public-Special
Resolution
"RESOLVED that,
pursuant to the provisions of section 80(l) of the Companies Act, 1956, the
Board of Directors of the Company be and is hereby authorised to offer for
public subscription, under a prospectus (and subject to such modifications or
suggestions as the Securities and Exchange Board of India may make), a draft of
which has been produced at this meeting and authenticated by the Chairman
hereof, second series of 1,00,000 eleven per cent redeemable cumulative
preference shares of Rs. 100/- each containing the following terms and
conditions, namely that out of 1,00,000 eleven per cent cumulative preference
shares, 25,000 shares be offered to the registered holders as at 19 ……..at par payable at the rate of Rs. 25/- on application and Rs.
25/- on allotment, and that 25,000 of such shares be offered to Development Corporation in terms of
agreement with the aforesaid as fully
paid-up at par and the balance 50,000 eleven percent cumulative
redeemable preference shares not taken up by any of the aforesaid, be offered
for public subscription at par payable at the rate of Rs. 25/- on application
and Rs. 25/- on allotment and the Board will make calls on the said
second preference shares remaining partly paid within the terms of the
prospectus under which the aforesaid second cumulative redeemable preference
shares are being issued.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to arrange for underwriting by
any financial institution of any other body or person for the whole or any part
of the issue of the said preference shares subject to the provisions of section
76 of the Companies Act, 1956.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to take all or any of the step s
necessary for the implementation of the directives in this regard."
PRACTICE NOTES
1. Article must empower company.-The Articles
of Association of the company must authorise the issue of redeemable preference
shares. In the event of subsequent issue, the right of preference shareholders
holding the first series is that at least a portion of such new series are to be
offered to them.
2. Convening Board Meeting for calling Annual General Meeting.-Call
a Board Meeting
and pass the above resolutions recommending them to the shareholders for being
passed by them as an ordinary resolution (Special Resolution if the articles so
require) at a General Meeting.
3. Redeemable preference shares carrying participating or conversion
rights not exempted.-If the issue of redeemable preference shares carry
participating or conversion rights, then there is no exemption.
4. Notice of General Meeting.-Fix up
date, time, place and agenda for convening a General Meeting. Give 21 days'
clear notice for the General Meeting with suitable Explanatory Statement.
5. Issue of redeemable preference shares and conditions governing
exemption.:- Redeemable
preference shares may be issued stipulating a date on which they would be
redeemed, or in the alternative they may be made redeemable at the option of
the company. The period of redemption, however, cannot exceed twenty years from
the date of issue of such shares by virtue of provisions of sub-section
(5A).
The redemption can be effected only on the following
conditions:
(i) Redemption of such shares must be
effected on such terms and in such manner as laid down in the Articles of
Association of the company;
(ii) Such shares can be redeemed out of the
profits or out of proceeds of a fresh issue of shares made for this purpose;
(iii) Such shares must be fully paid-up;
(iv) Premium, if any, payable on redemption of
such shares should be provided from out of the profits or out of company's
share premium account; and
(v) An amount equal to redemption amount
must be transferred to capital redemption reserve account, where the redemption
is effected out of profits, otherwise available for distribution as dividend.
6. Fees and stamp duty.-No fee is payable, for the issue of shares to
redeem the preference shares is not an increase in capital. Further if the old
shares are redeemed within one month of the issue of new shares, no stamp duty
would be payable.
7. Utilisation of capital redemption reserve account.-The amount
credited to capital redemption reserve account, on redemption of the redeemable
preference shares, can be applied by the company by way of issue of Bonus
shares, which should, however, be fully paid-up.
8. Issue of preference shares irredeemable or redeemable after expiry
of twenty years period prohibited.-No company limited by shares shall issue any
preference shares which are' irredeemable or are redeemable after the expiry of
a period of twenty years from the date of issue.
9. Filing of Special Resolution with Registrar.-If the resolution passed is a
Special Resolution file the same with the Registrar of Companies concerned in
Form No. 23 within thirty days of its passing.
10. Shares already issued cannot be converted into redeemable preference
shares.-Other shares already issued cannot be
converted into redeemable preference shares even by means of a scheme of
arrangement. If any issued preference shares are to be converted into redeemable
preference shares, the proper course, is to effect a reduction of capital to be
followed by subsequent increase. St.
James Court Estates Ltd., In re: 1944 Ch. 6.
11. Redeemable preference shares to be specified in Balance-sheet.-Pursuant to the provisions of Schedule VI to the Companies Act, 1956, the
preference shares, if they are 'redeemable' preference shares, must be
specified as such in the balance-sheet of the company.
Issue of redeemable Preference Shares to Public
(Another Format)
S. 80-Issue of redeemable preference shares to public-Special
Resolution
"RESOLVED that,
pursuant to the provisions of section 80(l) of the Companies Act, 1956, the
Board of Directors of the Company be and is hereby authorised to offer,
3,00,000,11 per cent second redeemable cumulative preference shares of Rs. 100/-
each to the public at par under a prospectus subject, inter alia, to the following terms and conditions namely,
(a) that no such shares when due for
redemption shall be redeemed except out of profits of the company which would
otherwise be available for dividend, that is, out of general reserve created by
ploughing back of distributable profits; or
(b) that such redemption may be made out of
the proceeds of a fresh issue of shares made for the purpose of redemption; or
(c) that no such share shall be redeemed unless they are fully
paid up at the time of redemption; or
(d)
that the redemption shall be made
as on 2000, and such redemption shall be
at par; or
(e) that the other terms and conditions as to redemption shall be
governed by the provisions of articles and
of the Articles of Association of
the company."
PRACTICE NOTES
1. Special Resolution required in absence of specific provisions in
Articles.-A company may issue redeemable preference shares under a Special
Resolution in the absence of a specific provision in the Articles of
Association of the company.
2. Redemption of redeemable preference shares either out of profits or
out of capital
especially raised.-Pursuant to section 80 of the Companies Act, 1956, redemption of redeemable
preference shares at maturity may be made either out of the profits of the
company or out of capital especially raised for the purpose and not from the
sale proceeds of other property of the company.
3. Penalty for default.-For non- compliance -with
the provisions of this section, the company, and its every officer who is in
default, is punishable with the fine which may extend to ten thousand rupees.
The offence is compoundable by the Regional Director under section 621A. The
section does not provide as to what remedy the shareholders will have, in case
the company fails or is unable to redeem any preference shares which 1~ has
issued as redeemable by a certain date. In most of the cases, the terms of
issue of redeemable preference shares contain an option for redemption of the
preference shares after the fixed date and in most of the cases the company
takes its own time under thf shelter of the option reserved for the company.
Redemption of Preference Shares
S. 80-Redemption of Preference Share's-Ordinary Resolution
"RESOLVED that 14%
cumulative redeemable preference shares numbering 50,000 of Rs. 100/-
each issued on 1-6-1992 having become redeemable on 1-6-2002
be redeemed by the issue of fresh 50,00,000 equity shares of Rs. 10/-
each.
or
RESOLVED that 50,000
redeemable preference shares of Rs. 100/each carrying interest at 14% per annum
issued on 1-6-1992 having become redeemable on 1-1-2002
be and are hereby redeemed and redemption amount payable on these shares be
paid out of the available profits of the company.
RESOLVED FURTHER that the
Capital. Redemption Reserve Account of the value of Rs. 50,00,000/- be
created pursuant to section 80(l)(d) of the Act."
PRACTICE NOTES
1. Mode of redeeming redeemable preference shares.-There are
only two ways to redeem the redeemable preference shares i.e.
(i) by issue of fresh capital; or
(ii) Out of the profits of the company which
would have otherwise become available for payment of dividend.
In either case, first ensure
that there is a provision in the Articles of Association of the company and if
not, make necessary alterations.
2. Convening Board Meeting for calling General Meeting.-Call
a Board Meeting
and pass the above resolutions recommending them to the shareholders for being
passed by them as an ordinary resolution. Fix up date, time, place and agenda
for a General Meeting.
3. Notice of General
Meeting.- Give 21 days' clear notice of the General Meeting to all the
shareholders of the company.
4. Shares to be redeemed must be fully paid.-Only fully paid-up shares
can be redeemed.
5. Shares redeemed out of profit will not tantamount to reduction of
capital.:- When shares are redeemed out of the profits of the company, it
will not amount to reduction of the authorised share capital of the company
because the Capital Redemption Reserve Account of a sum equal to the nominal
value of the shares redeemed will be simultaneously opened and the provisions
of the Act relating to reduction of capital shall apply to this account. If the
shares are redeemed by way of issue of fresh equity shares, there will not be
any increase in the net authorised capital of the company. However, if all the
authorised equity capital stands already issued, necessary steps to increase the
share capital will have to be taken.
6. Compliance Certificate.- Companies having paid-up
share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs
are required to 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
preference shares during the year after complying with the provisions of the
Act as per paragraph 21 of the Form of Compliance Certificate appended to the
Companies (Compliance Certificate) Rules, 2001.
S. 80-Reduction of Capital-Reduction Reserve Account-Special
Resolution
"RESOLVED that pursuant
to section 80 of the Companies Act, 1956, and subject to confirmation of Court,
consent of the Company be and is hereby accorded to the cancellation of the
Capital Redemption Reserve Account of the company and to effect such
cancellation by treating the sum of Rs now
standing -to the credit of the Capital Redemption Reserve Account, as the
profits of the Company."
PRACTICE NOTES
1. Articles must empower company.-The articles
will have to be perused to see whether this power is contained therein,
otherwise the articles will first have to be amended.
2. Procedure for reduction of capital to be followed for reduction on
cancellation of Capital Redemption Reserve Account.-For the
reduction on cancellation of the Capital Redemption Reserve Account, the
procedure for reduction of capital provided in Ss. 100-105 will have to
be followed save where it is used in paying up un-issued shares of the company
to be issued to the member as fully paid bonus shares.
3. Filing of Resolution along with Explanatory Statement with Registrar.-The resolution
and Explanatory Statement will have to be registered with the Registrar of
Companies by filing Form No. 23 along with the requisite filing fee, in cash as
per Schedule X.
Redemption of redeemable preference shares otherwise than out of new
issue
S. 80-Redemption of redeemable preference shares otherwise than
out of new issue-Ordinary Resolution
"RESOLVED that the Board of Director of the Company be and is hereby authorised to serve notice to the members holdings 7 ľ per cent cumulative preference shares of Rs. 100/each fully paid-up still remained outstanding, to be redeemed to ………… 2002, and that the Board of Directors be authorised to redeem the 73/4 per cent redeemable preference shares still outstanding on the books out of accumulated profits of the company.
RESOLVED FURTHER that in
terms of the issue the redemption shall be at par and no premium is to be paid
on redemption and that an amount equivalent to Rs. 10,00,000 representing the
amount of shares involved in redemption hereof be transferred to a reserve
fund, to be called 'the capital redemption reserve account'."
PRACTICE NOTES
1. Conditions governing redemption of redeemable preference shares. -Pursuant to the
provisions of section 80 of the Companies Act, 1956, redemption of redeemable preference shares can be made on the
following conditions:
(i) it should not be made except out of
profits of the company which would otherwise be available for dividend or out
of the proceeds of a fresh issue of shares made for the purpose of redemption;
(ii) no such shares shall be redeemed unless they are fully paid;
(iii) the premium, if any, payable on redemption
shall have been provided for out of the profits of the company or out of the
company's shares premium account, before the shares are redeemed;
(iv) where any such shares are redeemed out of
the profits of the company, the amount of such redeemed shares being the
nominal amount of shares redeemed shall be transferred to reserve fund to be
called 'the capital redemption reserve account', and the provisions of this Act
relating to the reduction of the share capital of the company shall apply,
except as provided in this section, as if the capital redemption reserve
account was the paid-up-share capital of the company;
(v) redemption of preference shares may be
effected on such terms and in such manner as may be provided by the articles of
the company.
Transfer to Capital Redemption Reserve
"RESOLVED that a sum of Rs being the nominal value of redeemed preference share capital of the Company be and is hereby transferred from the General Reserves of the Company to the Capital Redemption Reserve Account of the Company."
PRACTICE NOTES
1. Transfer to Capital Redemption Reserve a sum equal to amount of
shares redeemed.-Where any shares are redeemed by a company otherwise than
from the proceeds of a fresh issue, a sum equal to the nominal amount of the
shares redeemed should be transferred to the Capital Redemption Reserve Account
from profits which would otherwise be available for distribution as dividend.
2. Procedure for reduction of capital to be followed for reduction of
Capital Redemption Reserve Account.-For any reduction of the Capital
Redemption Re-serve Account, the procedure for reduction of capital will
have to be followed, except where it is used to pay up bonus shares to be
issued to the members of the company.
Transfer of profits for redemption of shares
S. 80-Transfer of profits for redemption of shares-Ordinary
Resolution
"RESOLVED that a sum of
Rs. 30 lakhs being the nominal value of 3,00,000 13% redeemable preference
shares of Rs. 10/- each be and is hereby transferred, out of the profits
for the year ended 31-3-2002 which would otherwise have been
available for dividend, to the Capital Redemption Reserve Account of the
Company."
PRACTICE NOTES
1. Treated as share capital.- Capital redemption reserve
account should be treated as paid up share capital for the purpose of reduction
of share capital but redemption of preference shares itself will not amount to
reduction of share capital.
2. Redemption not out of proceeds of fresh issue.-Capital Redemption Reserve Account is
not to be provided only when the redemption is out of the proceeds of a fresh
issue of shares of the company. It is to be provided only when the redemption
of preference shares is made out of the profits of the company.
Redemption of Irredeemable Preference Shares
S. 80A-Redemption of Irredeemable Preference Shares-Ordinary
Resolution
"RESOLVED that 55,000
irredeemable preference shares of Rs. 100/each of the company issued on 1-1-1987
having become redeemable, pursuant to section .80A of the Companies Act, 1956,
be and are hereby redeemed and the Company being not in a position to redeem
them and to pay the dividend already accrued thereon, a petition be moved
before the Company Law Board praying for permission to issue further redeemable
preference shares equal to the amounts due (including the dividend thereon) in
respect of these 55,000 unredeemed preference shares of Rs. 100/- each.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to file a petition before
the Company Law Board and to take such steps as may be deemed necessary in this
connection.
RESOLVED that 55,000
irredeemable preference shares of Rs. 100/_ each of the company issued on 1-1-1987
having become, redeemable, pursuant to section 80A inserted in the Companies
Act, 1956, by the Companies (Amendment) Act, 1988, be and are hereby redeemed
and in lieu thereof 5,50,000
redeemable preference shares of Rs. 10/- lying un issued be issued to the
holders of these irredeemable preference shares."
PRACTICE NOTES
1. Prescribed Rules adhered to-While making a petition to the
Company Law Board please ensure that the rules prescribed in this respect are
strictly followed.
2. Convening of Board Meeting for calling Annual General Meeting.-Call a
Board Meeting and pass the above resolutions recommending them to the
shareholders for being passed by them as an ordinary resolution. Fix up date,
time, place and agenda for a General Meeting.
3. Notice of General Meeting.-Give 21 days' clear notice of the
General Meeting to all the shareholders of the company.
4. Compulsory redemption of irredeemable preference shares.-The section
provides for the compulsory redemption of irredeemable preference shares within
a period of five, years from the date of the commencement of the Companies
(Amendment) Act, 1988. Therefore, the shares are to be compulsorily redeemed.
The issue of irredeemable preference shares or shares which are redeemed after
a period of more than twenty years has been completely prohibited by this Act.
The provision for compulsory redemption of the existing irredeemable preference
shares or of shares redeemable after the expiry of more than twenty years, is
therefore a corollary to this policy of the Central Government. Redemption have
to be done in accordance with section 80 of the Act by payment of redemption
amount out of such profits as would be available for payment of dividend or by
issue of fresh equity if it is available for such allotment or by increase in
the authorised capital for facilitating issue of fresh equity. 21
5. Penalty.-Default committed by a
company for not complying with the provisions of section 80A is punishable with
fine of upto Rs. 10,000/- for every day during which such default
continues and default committed by any officer of a company is punishable with
imprisonment of 10 years and also with fine.
6. Redundant Provision.-It may be noted that the proviso to sub-section
(1) of section 80A is a transitory provision and is redundant after the expiry
of 5 years from the commencement of the Amendment Act of 1988 on 14-6-1993 in respect of
cases covered by sub-section (1)(a) of the said section and would be
redundant on expiry of 10 years on 14-6-1998 in respect of cases
covered by sub-section (1)(b) of the said section. Therefore, redemption
of redeemable preference shares by issue of further redeemable preference
shares will be governed solely by section 80. Mangalore Chemials and Fertilisers Ltd., Re, (1994) 79 Com Cases 551 (CLB-Mad).
7. Conditional approval of redemption.-The Company Law Board can
grant a conditional approval for redemption and the condition that new shares
should be issued at a higher rate of dividend was upheld by the court. Raja Ram Corn Products (Punjab) Ltd. v. CLB,
(2001) 106 Com Cases 563 (P&H-DB).
Where a company is not in a
position to redeem any shares within the stipulated period and to pay the
dividend, if any, due thereon, it may with the consent of the Company Law Board
on a petition made by it in this behalf and notwithstanding anything contained
in the Act issue further redeemable preference shares equal to the amount due,
including the dividend thereon, in respect of unredeemed preference shares, and
on the issue of such further redeemable preference shares, the unredeemed
shares shall be deemed to have been redeemed.
Follow procedure for making petition to Company Law Board
The petition has to be made under the Company Law
Board Regulations, 1991.
Documents to be attached with the petition.
The petition should accompany the following
documents
1. certified
true Copy of the Memorandum and Articles of Association.
2. certified true copy of the notice
calling for the meeting with Explanatory Statement and the Resolution
sanctioning the issue.
3. certified
true copy of the minutes of the meeting at which' the resolution was passed.
4. certified true copies of the 1st three
years' audited balance-sheets and profit and loss accounts, auditor's
report and directors' reports.
5. Affidavit
verifying the petition.
6. Bank
draft evidencing payment of application fee.
7. Memorandum of appearance with a copy of
the Board Resolution or the executed Vakalatnama, as the case may be. The fee
payable on application is Rs. 1000/-
Further Issue of Capital as Rights Shares
S. 81-Further Issue of Capital as rights shares-Ordinary
Resolution
1. Ordinary Resolution
"RESOLVED that 4,00,000
equity shares of Rs. 10/- each lying unissued out of the authorised share
capital of the Company be and are hereby issued and offered to all existing
holders of equity shares of the company, in proportion, as nearly as circumstances
admit, to the capital paid-up on these shares on the date of the offer.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby directed to notify the number of
shares offered to equity shareholders of the Company requiring them to exercise
the option to accept the offer within one month from the date of the offer and
making it clear that on failure to do so within the time prescribed, the offer
shall be deemed to have been declined by them and further that the shareholder
has the right to renounce the shares offered to him/her or any of them in
favour of any other person or persons.
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to allot the
shares on the basis of the applications received as a result of the offers from
the existing equity shareholders of the Company and to dispose of the shares
remaining unaccepted in such manner as the Board may think beneficial to the
company."
2. Special Resolution
"RESOLVED that pursuant
to sub-section (1A) of section 81 of the Companies Act, 1956 and subject
to other statutory approvals, if necessary, the Board of Directors of the
Company be and is hereby authorised to offer 4,00,000 equity shares of Rs. 10/-
each in the authorised capital of the Company to persons mentioned below:
1. 100,000 equity shares of Rs. 10/-
each to the employees of the company provided that not more than 200 shares
shall be allotted to any single employee;
2. 100,000 equity shares to IDBI.
3. 100,000 equity shares to LIC.
4. 100,000 equity shares be issued to public at par.
RESOLVED FURTHER that the
Board of Directors of the company be
and is hereby authorised to do all acts, deeds and things as may be necessary
to complete the above allotment."
PRACTICE NOTES
1. Further issue of capital.-The section provides that
further issue of capital should ordinarily be offered to the existing holders
of equity shares in proportion to their existing shareholdings. The Board is
fully empowered to issue further capital strictly as right issue to the
existing shareholders and if this offer is accepted nothing further is to be
done.
2. Existing shareholders to either accept offer or renounce the offer.-The
shareholders to whom an offer is made can either accept the same in part or
in full. Alternatively, they may renounce the offer in favour of one or more
other persons. In either case, the Board shall allot the shares according to
the wish of the existing shareholders.
3. Power of Board to offer further issue to any person if Special
Resolution passed to that effect.-If the offer is declined either in part or in
full, the Board is free to allot the balance shares in any manner, which it may
decide in its discretion, and is beneficial to the interest of the company. If
the Board is of the opinion that the further issue of the capital should be
made in a different manner, the company will have to pass Special Resolution at
the General Meeting. For this purpose, the Board will pass its own resolution
and recommend it to the shareholders at the Annual General Meeting if it is
being held or by calling an Extraordinary General Meeting of the company. If
the Special Resolution is passed with the requisite 3/4th majority, the Board
shall be empowered to make allotment of the further issue in accordance with
that resolution. If, however, the resolution is passed by a simple majority,
the Board has two options namely, (1) to drop the proposal and to issue shares
by offering them to the existing shareholdings or (ii) to make an application
to the Central Government to permit it to make allotment in accordance with the
proposal contained in the Special Resolution recommended to the General
Meeting. If the Central Government is satisfied that the proposal is beneficial
to the company, it may accord its approval. When the. approval is received, the
Board may make allotment in accordance with the resolution. If the company has
taken loans from any financial institutions or issued debentures, which contain
a term that the holder has the option to convert the loan into equity, the
company will have to convert these loans into equity if the debenture-holders
exercise the option.
4. Obtain clearance from SEBL-
Ensure to get draft of letter of
offer/prospectus scrutinised by the Securities and Exchange Board of India, if
the Company is a listed Company.
5. Increase of authorised capital if there is no unissued capital.-Increase
the
authorised capital of the company if there is no unissued authorised capital
for the shares to be issued.
6. Resolution of general body required for further issue of capital.-Resolution
of the
General Meeting will be required where it is proposed to issue shares any time
after the expiry of two years from the formation of the company or at any time
after the expiry of one year from the allotment of shares in the company made
for the first time after the incorporation, whichever is earlier.
7. Shareholders' right to allot shares by passing Special Resolution
unrestricted.-The power of the shareholders to allot shares by passing a Special Resolution
with requisite majority is unrestricted. Mls.
Kalings Tubes Ltd. and others v. Shanti Prasad Jain & others, AIR 1963 Orissa 189: (1964) 1 Comp LJ 117
(13B).
8. Private placement at sole
discretion of Board of Directors.-Shareholders can also provide for
allotment privately at the sole discretion of the Board of Directors if the
resolution is passed with 3/4th majori ty.69 Reservation for preferential
allotment or firm allotment to Employees/IDBI/LIC should be in conformity with
the SEBI Guidelines for preferential allotment dated 4-8-1994 amended by Clarification XIV dated 1-3-1996.
9. Approval of Reserve Bank required for allotment of shares to NRIs.-Obtain
approval of
the Reserve Bank of India if the shares are allotted to persons residing outside
India.
10. Filing Special Resolution along with Explanatory Statement with
Registrar. The Special Resolution along with the Explanatory Statement
should be filed with the Registrar of Companies concerned in. Form No. 23
within thirty days. Form No. 5 is to be filed if the authorised capital is
increased pursuant to direction issued by the Central Government under section 81(4) of the Act.
11. Approval of Central Government not necessary for issue of debentures to
in stitutions specified by Central Government.-While issuing
debentures containing clause for conversion into equity, approval of the
Central Government will not be necessary if the debentures are issued to
institutions specified by the Central Govt. under the Public Companies (Terms
of Issue of Debentures & Raising of Shares) Rules, 1977. In such cases, only Board Resolution will suffice. In the
case of other institutions, prior approval of the Central Government is
necessary.
12. Prior approval of Central Government not required for issuing debentures
in con. formity with rules.-Where the issue of debentures is in
conformity with the rules made by the Central Government, prior approval of
that Government will not be required.
13. Appeal against Government's order.-If the terms and
conditions of conversion communicated by the Central Govt. to the company are
not acceptable to the company, the company may prefer an appeal to the High
Court within thirty days of the order or within such extended time as the Court
may allow and the order of the Court shall be final and conclusive.
14. Section 81 not applicable to sale of forfeited shares.-Section 81 is not applicable to the
sale of forfeited shares for which no allotment is necessary.
15. Reckoning of one year.-The one year specified in section 81 is to he counted from the date on
which the company has allotted any share for the first time. 23
16. Issue or allotment of shares within two years of formation or within
one year of first allotment not affected by section 81-Any issue or
allotment of shares within two years of the formation of a company or within
one year after the first allotment whichever event occurs earlier, will not be
affected by the provisions of section 81.24
17. Section applicable to further issue of shares.-The section
applies only to cases where it is proposed to increase the subscribed capital
of the company by allotment of further shares.
18. Right of company of further issue not dependent on capacity of
shareholders.-The right of a company to make an issue of
shares under this section is not dependent upon the capacity of any shareholder
to take up the shares offered.
19. No right of existing shareholders to object to increase of share capital.-The existing shareholders cannot object to increase on the ground that
the value of the present shares would be thereby reduced. Chandrakant Mulraj v. Tata Engineering and Locomotive Co. Ltd., (1984)
2 Comp LJ 278.
20. Section not applicable to allotment of shares in discharge of debts.-The
provisions of this section will not apply to the allotment of any shares
made in payment of the amounts due to Directors or other persons. Sree Ayyanar Spinning and Weaving Mills Ltd.
v. V. V. V. Rajendran, (1973) 43 Comp Cases 225 (Mad).
21. Allotment to renouncee.- When a shareholder
renounces any of the rights shares offered to him in favour of third person, it
is not in the nature of a transfer of such shares and the Board of Directors
cannot refuse to allot the shares to the third person unless the articles
provide therefor. Simco Securities Trust
Ltd., (1972) 42 Comp Cases 457.
22. Hypothecation of shares against loans granted by company to employees
for buying shares.-Where the employees are granted loans by the
company for the purposes of buying shares under 'Stock Option Scheme for Employees
of public limited companies these shares may be allowed to be hypothecated
against such loans to the companies themselves .
23. Compliance Certificate. -Companies having paid-up share
capital of less than Rs. 2 Crores but
equal to or more than Rs. 10 lakhs are required to 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 right share during the financial year and
complied with the provisions of the Act as per paragraph 19 of the Form of
Compliance Certificate appended to the Companies (Compliance Certificate)
Rules, 2001.
Issue of further shares on rights basis
(Another Format)
S. 81-Issue of further shares on rights basis-Special
Resolution
"RESOLVED that the Board of Directors of the Company be and is hereby authorised to offer, issue and allot 10,00,000 equity shares of Rs. 10/- each hereinafter called 'equity right shares' for subscription for cash at par payable in full on application to the members holding the existing equity shares of the Company and whose names appear in the 'equity share register of members' of the company as on the ……..2002 in the proportion of one equity rights shares for every equity shares held as on that date ignoring the fractions and that such equity rights shares shall rank in all respects pari passu with the existing equity shares of the company save and except that the equity rights shares shall only rank for and participate in any dividend declared by the company in respect of its financial year ended on the ……..2002 on pro rata basis and as usual thereafter.
RESOLVED FURTHER that the
Board of Directors of the company be and is hereby authorised to take such
action as it may deem most beneficial to the Company in disposing of any
'equity rights shares' remaining unapplied for including the rights and
authority to offer the same to any person or persons which may not be an
offeree in the first instance.
RESOLVED FURTHER that the
Board -of Directors of the Company be and is hereby authorised to take
such action as it may deem most beneficial to the Company in disposing of any
'equity rights shares' arising out of the fractions involved in the offer of
the said equity rights shares in the proportion aforesaid including the right
to allot them to such persons who may be applying for any additional equity
rights shares.
PRACTICE NOTES
1. Further issue of capital regulated by Section 81.-Further issue of shares by a company
at any time after the expiry of two years from the formation of the company or
at any time after the expiry of one year from the allotment of shares in that
company is regulated by the provisions of section 81 of the Act. It would
appear that any issue or allotment of shares within two years of the formation
of the company or within one year after the first allotment, whichever event
occurs earlier cannot be called "further issue" and by implication,
may be called "initial issue" of capital.
2, Offer of further issue of capital to existing members to be made by a
Resolution adopted at General Meeting.-It is felt that even the
proposal for the issue of shares to the existing members should be done by a
resolution adopted in a General Meeting. The reason is that the Act provides
that they shall be offered to the persons who at the date of the offer are
holders of the equity shares of the company. A 'member' may be a 'holder' of
shares but a 'holder' may not be a member. A person whose name is on the
register of members may have sold his shares and from the moment his property
in the shares has passed to his purchaser, he ceases to be a 'holder' of those
shares. Under section 81, such a person is not entitled to accept offers of new
shares or to exercise any right of renunciation. Kedernath v. Jay Engineering Works Ltd., (1962) 66 Cal W.N. 1049.
3. Further issue should cover all shareholders.-The way the section is worded,
it appears that the proposed issue
covers all the shareholders or any increase in subscribed capital of the company
for the purpose of offering further shares to the public.
4. Private Company exempted.- This section, except sub-section
(4), is not applicable to a private company, including a private company which
is a subsidiary of a public company, and, thus, any private company may offer
or issue further capital without complying with the formalities prescribed by
section 81.
5. Filing with SEBI.-The draft letter of offer should be filed with SEBI only
if the aggregate value of securities, including premium if any of a listed
company exceeds Rs. 50 lakhs at least 21 days prior to the filing of the letter
of offer with regional stock exchange.
Issue of further shares on rights basis
(Another Format)
S. 81 -Issue of further shares on rights basis-Special
Resolution
"RESOLVED that the Board of Directors of the Company be and is hereby authorised to issue .... further Equity Shares of Rs ……..each (hereinafter referred to as the new Equity Shares) in the authorised capital of the Company on the following terms and conditions:
(i) that the approval of the Financial
Institutions and International Finance Corporation, USA being obtained in terms
of the Company's Agreements with them dated ............. and respectively;
(ii) that the issue of the new Equity Shares will
be subject to the allotment being made of the Bonus
Shares in accordance with the quantum and the other terms prescribed in the
separate resolution to be passed in this behalf at the Meeting;
(iii) that the Board of Directors be and is
hereby authorised to issue the new Equity Shares for cash and at such premium
as may be agreed between the Board and the Securities and Exchange Board of
India and payable on such terms as the Board may determine and subject to such
other terms and conditions as to number of shares, terms of payment or
otherwise as may be required by or agreed with the Securities and Exchange
Board of India;
(iv) that the Board be and is hereby
authorised to offer the new Equity Shares of Rs each at such premium as aforesaid in the first instance for
subscription for cash to those members of the Company (other than the members
who are resident outside India) holding not less than ……..Equity Shares in the Company and whose names shall appear on the
Register of Members of the Company at the close of business on such date as may
be determined by the Board (hereinafter referred to as the said date) in the
proportion of ……..new Equity Shares for every
Equity Share registered in their respective names on the said date (fraction of
a new Equity Shares being disregarded) with a right to renounce all or any of
the shares so offered to them in favour of any other person (other than any
person who is resident out side India);
(v) that the Board be and is hereby further
authorised to offer out of the new Equity Shares which shall be available after
the consolidation of fractions and out of the balance of new Equity Shares
remaining available by deducting the total of the new Equity Shares offered
under clause (iv) above in the proportion therein referred to from the total ……..new Equity Shares proposed to be issued (hereinafter collectively
referred to as the "fractional residue") on new Equity Share to each
of the members (other than members resident outside India) whose names appear
on the Register of Members on the said date referred to in clause (iv) and
shown in the said Register of Members on the said date to be holding less than shares and being thereby excluded from the
offer of the new Equity Shares under the said clause (iv) above provided
however that if the fractional residue is not sufficient to make the offer of new Equity Share to each of the members
hereinbefore referred to then and in that event, the Board be authorised to
offer the fractional residue among the members hereinbefore referred to in
consultation with the Delhi Stock Exchange;
(vi) that the new Equity Shares of Rs. . ……..each to be offered for
subscription in accordance with clauses (iv) & (v) hereof to those members
referred to therein be offered by a letter of Rights specifying the number of
shares to which they are entitled and providing therein that the offer, if not
accepted within thirty days from the date of the offer (such date of thirty
days after the date of the offer being hereinafter referred to as the acceptance
date) shall be deemed to have been declined and further specifying the terms as
the payment for each of the new Equity Shares so offered as the Board may
determine;
(vii) that in respect of the ultimate residue of
the new Equity Shares (i.e., the quantum representing the total of new Equity
Shares hereby offered that is ……..less
than the number of new Equity Shares fully subscribed and paid for within the
acceptance date), the Board be and are hereby authorised to offer, issue and
allot the same for cash and at the same premium as applicable to all other new
Equity Shares, to any Indian Financial Institution or Institutions as the Board
may in its absolute discretion determine;
(viii) that for the purpose of clause (vii) the
Board be further authorised to negotiate with and enter into any agreement/
agreement with any Indian Financial Institution/Institutions whereby such
Institution/Institutions will undertake to subscribe for the ultimate residue
of new Equity Shares as mentioned in clause (vii) above. In the event of such
Institution/Institutions not agreeing to subscribe for the same, or the
entirety thereof, then the Board be further authorised to issue, allot and
distribute the ultimate residue or so much thereof as will remain unsubscribed
in such manner as the Board may in its discretion determine;
(ix) that such new Equity Shares shall in all
respects rank pari passu with the existing Equity Shares in the Company except
that they shall be entitled only to such dividends as may be declared after
allotment of the said new Equity Shares, and they shall not participate in any
dividend which may be declared in respect of the financial year or any period
prior to the allotment thereof. The new Equity Shares shall be subject to the
Memorandum & Articles of Association of the Company in all respects;
(x) that any question arising on the issue
of allotment of such new Equity Shares -or any of them to the members or
any difficulty pertaining to the allotment and issue of the new Equity Shares
shall be determined by the Board in its absolute discretion, and the Board be
authorised to negotiate with statutory authorities and the Financial
Institutions and International Finance Corporation, USA referred to in clause
(1) above and to agree to any condition or conditions which may be imposed by
them in connection therewith if the Directors consider the same to be expedient
and generally to prescribe the various documents, give all requisite
discretions and take all necessary actions as the Directors may consider
appropriate in respect of the issue and allotment/distribution thereof;
(xi) that the proportion of one new Equity
Share for every ..... .......... existing
Equity Shares mentioned in clause (iv) above has been determined on the basis
of the shareholdings of the members resident in India as existing on ....... and
in the event of any significant variation in such shareholdings of the members
resident in India between the said ……..and
the said date referred to in clause (iv) above as a result of purchases from
or sales to non-resident members which could affect the said pro
portion, then the Board be further authorised to make such consequential
changes in the said proportion as the Board may consider expedient so that the
application of the proportion to the total number of shares held by members
resident in India as on the said date referred to in clause (a) above will
produce a total of new Equity Shares to be offered to members resident in India
under clauses (iv) & (v) above as nearly as circumstances may admit to the
total of new Equity Shares proposed to be
issued in terms of this Resolution."
PRACTICE NOTES
1. Board Meeting.- Hold a Board Meeting and
fix date, time and venue of the General Meeting for passing a special
resolution under section 8 1 (1 A) of the Companies Act, 1956 for making issue
of further shares to any person.
2. Intimation to Stock Exchange.-Send necessary intimation to Stock Exchange(s) on which
the shares of the company are listed.
3. General Meeting.- Hold the General Meeting
and pass the resolution.
4. Pricing.- The price is to be fixed by
the Board of Directors in consultation with the lead Manaaer to the issue. A
listed company making a composite issue of capital may issue securities at
differential prices in its public and rights issue. Justification for price
difference is to be disclosed in the letter of offer.
5. No prohibition of offering rights shares at lower premium than public issue.-It
is to be
noted that there is no prohibition for offering rights shares at lower premium
than the price for public issue.
6. Period of Subscription.-Right issue should be kept
open for at least 30 days and not more than 60 days.
7. Appointment of merchant banker.-It is to be noted that
appointment of merchant banker is not mandatory when the shares by way of
rights by a listed company do not exceed rupees fifty lakhs. However, when the
rights issues exceed rupees fifty lakhs then the issue has to be managed by the
authorised merchant banker.
8. Minimum subscription.-If the company does not receive 90% of the
issued amount including the amount from underwriters the company is required to
refund the entire amount of subscription received to the applicants within
forty two days from the date of closure of the issue. If there is delay in
refunding the amount by more than eight days, the company shall pay interest as
per provisions of section 73 of the Companies Act, 1956.
9. FCDs/PCDs 'holders' rights.-(a) No company should pending
conversion c FCDs/PCDs issue any shares by way of rights unless similar benefit
is extended to the holders of FCDs or PCI)s through reservation of shares out
of rights in pro-portion v convertible part of FCDs/PCDs.
(b) The reserved shares may
be issued at the time of conversion of the debentures 01 the same terms and
conditions on which rights issue was made.
10. Letter of offer.- If the rights issue exceeds
Rs. 50 lakhs, a copy of the letter of offer should be sent to the concerned
Regional Office of SEBI, with reference to the location of the issuing company,
but does not exceed Rs. 20 crores, as below:
Eastern Regional Office: States of West Bengal, Bihar, Orissa, Assam, Sikkim,
Amachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Union
Territo6 of Andaman and Nicobar Islands. [Regional Manager SEBI FMC Fortuna 5th
Floor 234/3A, AJC Bose Road Calcutta-100 020].
Northern Regional Qjrice: States of Delhi, Punjab, Haryana, Jammu and Kashmir,
E machal Pradesh, Uttar Pradesh, Rajasthan and Union Territory of Chandigarh.
[Region; Manager, SEBI, Kailash Building, 4th Floor, 26-Kasturba Gandhi
Marg, New Delhi-110 001].
Southern Regional Office: States of Tamil Nadu, Kerala, Pondicherry, Andhra Pradesh
Karnataka and Union Territories of Lakshwadeep and Minicoy Islands. [Regional
Manager, SEBI, Karumuthu Centre, 498-Anna Salai, Nandanam, Madras-600
035].
States of Maharashtra,
Gujarat, Madhya Pradesh and Goa and Union Territories Daman, Diu, Dadra and
Nagar Havell will be under the jurisdiction of the Western Region and shall be
looked after by the Head Office till such time a Western Regional office is set
up.
Letter of offer for issues
exceeding Rs. 20 crores in respect of all regions and issues (irrespective of
their size) by public sector undertakings, banks and financial institutions
will be looked after by Head Office of SEBI at Mumbai.
11. Disclosure to be made in letter of offer.- Ensure that the
letter of offer conforms to the disclosures prescribed in Form 2A under Section
56(3) of the Companies Act, 1956, read with Chapter VI section III of SEBI
(Disclosure and Investor Protection) Guidelines, 2000.
12. Over subscription not to be retained.-The company cannot
retain any part of over subscription.
13. Issue when to be made fully paid-up.-The issue is
required to be made fully paid-up within twelve months. It is to be noted
that where the issue exceeds Rs. 500 crores
(a) it is not necessary to make the issue fully paid-up
within twelve months,
(b) the amount called on application, allotment and on calls
should not exceed 25% of the total issue,
(c) necessary arrangements be made for monitoring of use the proceeds by one of the financial institutions,
(d) a copy of the monitoring report be filed
with SEBI as per format specified in Schedule XIX of SEBI (Disclosure of
Investor Protection) Guidelines, 2000 by the said monitoring agency on a half
yearly basis till completion of project for purposes of record.
14. Preferential allotment.- (Please note that there is prohibition for any preferential
allotment to be made along with any right issue). If the issuer company wants
to make any preferential allotments to the employees or any identified persons,
it may do so independent of rights issue by complying with the provisions of
the Companies Act, 1956.
15. Periodical Reports to SEBI.- Ensure that the two periodical reports 3 days post issue
monitoring report, 50 days post issue monitoring report, are furnished to SEBI.
The formats of these reports should be as given in Schedule XVI of SEBI
(Disclosure of Investor Protection) Guidelines, 2000.
Rights issue with a minimum offer of 100 shares
S. 81-Rights issue of equity shares (with a minimum offer of 100
shares) Special Resolution
"RESOLVED that in terms
of Section 81 and other applicable provisions, if any, of the Companies
Act, 1956 and in accordance with the provisions of the Articles of Association and of the listing agreements entered into by the Company with the
Stock Exchanges where the shares of the
Company are listed and subject to the approval of the Reserve Bank of India (RBI) and all other concerned
authorities and departments if and to
the extent necessary, and such other
approvals, permissions and sanctions as may be necessary, and subject to such
conditions and modifications as may be prescribed in granting such approvals,
permissions and sanctions and subject to such conditions as may be imposed by
the Securities and Exchange Board of India
(SEBI), which may be agreed to by the Board of
Directors of the Company
(hereinafter referred to as "the Board" which term shall be deemed to
include any Committee referred to below), at its sole discretion, the consent
of the Company be and is hereby accorded to the Board to create, offer and
issue to the holders of the Equity Shares of the Company and to such other
persons as are set out hereunder, such number of Equity Shares of the Company
of the face value of Rs. 10/- each [not exceeding ( ) in number] as may be required, for subscription for cash, in
one or more branches and at such premium./s per share as may be fixed and determined
by the Board prior t6 the issue and offer thereof to such category of persons
in consultation with the SEBI or such other authorities as may be prescribed
or in accordance with such guidelines or other provision of law as may be
prevailing at that time and otherwise ranking pari passu (except for payment of
dividend pro rata from the date of allotment) with the then existing Equity
Shares of the company on such other terms and conditions, if any, in respect
of such issue to such extent as may be then permissible, and at such time or
times or branches as the Board at its absolute discretion and in the best
interest of the Company may deem fit:
(1) To the shareholders of
the Company in the ratio of Equity
Shares of Rs. 10/- each for every ……..fully
paid- up existing Equity Shares held on such record date or dates as may
be fixed by the Board of Directors of the company for the purpose subject to
the condition that where in respect of any shareholder the entitlement in
terms of the above referred ratio is less than one hundred Equity Shares or
other than in multiples of hundred Equity Shares the entitlement shall be
rounded off to one hundred Equity Shares or to the next higher hundred Equity
Shares respectively; and
(2) To the permanent
employees of the Company including any Indian Working Director(s) on an
equitable basis such number of Equity Shares of Rs. 10/- each as would
not exceed five per cent of the number of Equity Shares offered in terms of (1)
above and up to such maximum number of shares and with the provision that any
un subscribed portion from such category shall lapse.
RESOLVED FURTHER that
inasmuch as a minimum offer of 100 shares as rights is envisaged with a view to
benefit the smaller shareholders, in order to prevent creation of holdings of
Equity Shares in less than market lots of 100, shareholders will not be
permitted to split their existing holding to less than the market lot or to
transfer their existing holding in less than the market lots and no person
shall be entitled to require the Company to record in his name any holding of
shares in the Company in less than the market lot of 100 during the period from
the date of this Notice till the date of closure of the transfer books or
record date to be fixed by the Board for the rights issue in terms of (1)
above.
RESOLVED FURTHER that the
Board shall be entitled to issue, in consultation with and subject to the
acknowledgement by SEBI and subject to the approval, if necessary, of any
concerned authority, appropriate Letters of Offer to the categories of persons
stipulated in (1) and (2) above containing the terms and conditions of such
issue as the
Board may at its absolute
discretion think fit including the provisions relating to renunciation, non-eligibility
of additional shares in the event of renouncement by the member, non-eligibility
of renouncee for additional shares, payment of subscription monies by
installment, listing of the new Equity Shares with stock exchanges, restriction
as to subscription and transfer as provided in the Articles of Association of
the Company, ranking of the new Equity Shares, allotment to nonresident Indians
subject to the permission of the RBI under the provisions of the Foreign
Exchange Regulation Act, 1973, order of preference for allotment in the event
of over- subscription and such other terms and conditions as may be
necessary or stipulated in such Letters of Offer and such other documents as
may be permitted by the concerned authority in accordance with law and the
Board be and is hereby expressly authorised and empowered to accept such
variations and modifications as the SEBI or any other concerned authority may
stipulate in that behalf and to also at its discretion to amend, modify, vary
or alter all or any of the terms of the issue including the basis or proportion
of the offer to be made to the aforesaid categories accordingly including the
right to increase, decrease or recalculate the number of Equity Shares to be
created, offered and issued the aggregate nominal value of which shall not,
however, exceed the face value of Rs ……….. and alter the terms as to premium
and their entitlement thereto and to include in the Letters of Offer or such
other documents they offer for subscription all such other terms and conditions
of offer as are necessary or expedient in the discretion of the Board and/ or
may have to be incorporated on account of any modification or amendment
required or accepted by any concerned authority.
RESOLVED FURTHER that the
Board be and is hereby authorised to delegate to a Committee of Directors (one
of whom shall be the Managing Director or the Whole-time Director of the
Company whom the Board may authorise) all or any of its powers, authorities and
discretions vested in it in terms of this resolution as may be permitted in
law."
PRACTICE NOTES
1. No preferential allotment in rights issue.-It is not mandatory to make any
reservation for preferential allotment to the employees or any other identified
person along with any rights issue. If the company so desires, such preferential
allotments should be independent of the rights issue by complying with the
provisions of the Companies Act, 1956 and Chapter XIII of SEBI (Disclosure of
Investor Protection) Guidelines, 2000. The said Chapter does not apply to
preferential issue of non-convertible debentures.
2. Advertisement in newspapers.-Listed companies desirous of making
rights issues should issue an advertisement at least seven days before the
opening of the subscription list prominently in not less than three All India
newspapers about the despatch of letters of offer together with composite
application forms by registered post giving the date of despatch of letter of
offers, date of opening and closing of subscription list.
3. Filing of special resolution.-File the Special Resolution
along with Explanatory Statement with the Registrar of Companies concerned
within thirty days in Form No. 23 after paying the requisite filing fee in cash
as prescribed under Schedule X of the Act.
Rights issue of Non-Convertible Debentures with Equity warrant
option
S. 81-Rights issue of NCD with equity warrant option-Special
Resolution
"RESOLVED that pursuant to Article of the Articles of Association of the Company and the provisions of Section 81 and other applicable provisions, if any, of the Companies Act, 1956 and subject to requisite approvals/permissions and sanctions from the appropriate authorities, institutions or bodies (hereinafter referred to as "requisite approvals") as may be necessary and subject also to such terms, conditions, alterations and modifications, as may be prescribed and specified while granting such approvals, permissions and sanctions which may be agreed to by Board of Directors of the Company (hereinafter referred to as "the Board") the consent of the Company be and is hereby accorded to the Board to create and issue for cash at ……..par % Secured Redeemable Non-Convertible Debentures of Rs ……../- each (hereinafter referred to as "NCDs") on rights basis together with detachable warrants carrying entitlement to subscribe for the equal number of equity shares of the company between 24th and 48th months from the date of allotment of NCDs as follows and on such terms and conditions as the Board may in its absolute discretion thinks fite:
(Rs. In crores)
NCDs Detachable
Warrants
(a) NCDs, of Rs ……../- each to the Equity Shareholders of the Company in the ratio
of ............ ............debenture for every ...................fully paid
equity shares held by them on a date to
be fixed by the Board together with
detachable warrants carrying entitlement to
subscribe for one equity share of Rs. 10/- each per NCD at a
premium of Rs ……../- per ….….. share.
(b) NCDs of Rs ……../
each together with detachable warrants carrying entitlement to subscribe for
one equity share of Rs. 10/- each per NCD at a premium of Rs . ……../- per
share to
the Employees of the Company on an
equitable basis as may be decided by the Board.
RESOLVED FURTHER that the
Board be and is hereby authorised to issue and allot to the holders of the
detachable warrants such number of shares as may be required to be issued
against the detachable warrants as aforesaid and also to do all such acts,
deeds, matters and things or to execute such documents or writings as may be
considered necessary or proper for the purpose of giving effect to this
resolution.
RESOLVED FURTHER that for
the purpose of giving effect to the issue of NCDs together with detachable
warrants as aforesaid, the Board be and is hereby authorised to make and/or to
accept in the interest of the Company all such modifications and alterations to
all or any of the terms and conditions of the issue as may be considered
necessary or expedient and to take all actions as may be necessary or desirable
to effect such modifications and alterations and to settle all questions that
may arise in regard to the issue of NCDs together with detachable
warrants."
PRACTICE NOTES
Same as Practice Notes No. 1
to 3 under Resolution 844 and also.
4. Compliance Certificate.-
Companies
having paid-up share capital of less than Rs. 2 Crores but equal to or
more than Rs. 10 lakhs are required to 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 Non-Convertible debentures with equity warrant
option during the financial year and complied with the provisions of the Act as
per paragraph 19 of the Compliance Certificate appended to the Companies
(Compliance Certificate) Rules, 2001.
Issue of Rights Shares at Premium
S. 81-Issue of Rights shares at a premium-Special
Resolution
"RESOLVED that pursuant
to section 81 of the Companies Act, 1956, the Board of directors be and is
hereby authorised to issue Equity shares of Rs. 10/- each upon the
following terms and conditions, subject to such modifications and conditions as
the SEBI may direct or impose and which the Board of directors are hereby
authorised to agree to if they deem fit.
(1) equity shares shall be issued and offered
at such premium not below Rs ……..and
not exceeding Rs ……..per share subject to the
Memorandum and Articles of Association of the company, ranking in all respects
(including voting rights) pari passu with the existing equity shares except
that such further equity shares shall entitle such holders to dividend, if any,
declared in respect of the company's financial years subsequent to the
financial year ................ in proportion to the capital for the time being
paid up during such financial years in respect of which the dividend is
declared.
(2) equity shares be issued and offered in
the first instance to the holders of the existing equity shares on the Register
of Members of the Company, on such date as may be fixed by the Directors on the
basis of every equity share for
existing equity shares, held by such holders.
(3) The offer aforesaid shall be made by
notice specifying the number of shares offered and the time limit, not being
less than 30 days, but not exceeding 60 days, from the date of offer within
which the offer has to be accepted failing which, it will be deemed to have
been declined and the Board shall thereafter be at liberty to extend the time
for acceptance as aforesaid from time to time either generally or in respect of
any particular holder or holders with a right exercisable by the shareholder
concerned to renounce the shares offered to him in whole or in part in favour
of nominee(s) approved by the Directors.
(4) The offer aforesaid may be made with
option to the shareholders to apply for additional shares provided that a
shareholder who has renounced his right in whole or in part shall not be
entitled to an allotment of additional shares. The allotment of additional
shares to the applicants will be made on an equitable basis, in consultation
with ....................stock exchange, with reference to the equity shares
held by them. If any further equity shares applied for are not allotted, the
amount paid on application thereof shall be refunded in due course without
interest.
(5) In the event of any person holding less
than ……..equity shares and in the event of a person
holding equity shares in excess of an exact multiple of equity shares, the company shall not issue any coupon in respect
of any fractional parts of a share that may arise but all such fractional parts
of the shares shall be consolidated into new equity shares and the same shall
be allotted to a person to be nominated by the Board who shall sell the same at
the prevailing market price and distribute the net surplus, if any, arising out
of such sale to the members entitled to the fractions in proportion to which
they are so entitled provided that the payments, if any, to the non resident
shareholders shall be subject to the permission of the Reserve Bank of India
under the Foreign Exchange Management Act, 1999.
(6) The Board be and is hereby authorised
and empowered to dispose of and allot any of the aforesaid further equity
shares not taken up by the holders of the existing equity shares entitled
thereto or remaining undisposed to such person or persons, whether shareholders
of the company or not, on such terms and at such price or prices or at the
ruling market price or the issue price, whichever is higher.
(7) The allotment to non-resident
shareholders will be subject to the sanction of the Reserve Bank of India under
the Foreign Exchange Management Act, 1999.
(8) The certificates in respect of the
further equity shares shall be completed and be delivered within six weeks of
the closing of subscription list.
(9) For the purpose of giving effect to this
resolution, the Board be and is hereby authorised to prescribe the letter of
offer, forms of application and renunciation and other documents in respect of
such further equity shares, to give such other directions as they may think fit
and proper, including directions for settling any question or difficulty that
may arise in regard to the issue and allotment of the further equity shares and
to do all acts, deeds, matters and things, as the Directors in their absolute
discretion consider necessary, expedient, usual or proper for them to do."
PRACTICE NOTES
1. SEBI (Disclosure of Investor Protection) Guidelines, 2000-Listed
companies
going for rights issue at a premium should file the letter of offer with SEBI
and should also follow the guidelines of SEBI formulated from time to time in
connecilon therewith only, if such rights issue including the premium is more
than Rs. 50 lakhs.
2. Filing of Special
Resolution.- File the special resolution along with Explanatory Statement with the
Registrars of Companies concerned within twenty days in Form No. 23 after
paying the requisite filing fee as prescribed under Schedule X of the Act.
See also Practice Notes under Resolution 843.
Rights and Public Issue of Partly Convertible Debentures and Fully
Convertible Debentures
S. 81-Composite issue of rights and public issue of PCDs1FCDs-Special
Resolution
"RESOLVED that in
accordance with the provisions of Section 81 of the Companies Act, 1956, and
subject to such approvals, premissions and sanctions of the other appropriate
authorities, as may be necessary and subject further to such terms, conditions
and modifications as may be prescribed in granting such consents, approvals and
permissions and subject to such conditions as may be imposed by the Securities
and Exchange Board of India (SEBI), which may be agreed to by the Board of
Directors of the Company (the Board) at its sole discretion, consent of the
Company be and is hereby accorded to the Board to create, Issue and offer to
the holders of the Equity Shares of the Company and/or to such other persons as
the Board may determine Secured Redeemable Partly Convertible Debentures/Fully
Convertible Debentures of an aggregate value not exceeding Rs …………. carrying
interest at such rate and on Such other terms and conditions with regard to
security, option as to conversion into and entitlement to new Equity Shares of
the Company and redemption, as may be approved by SEBI and the other
appropriate authorities and agreed to by the Board and that consent further be
and is hereby accorded to the Board to reserve for the employees (including
Indian Working Directors (Workers of the Company) such percentage of the
issue(s) as is permissible by the SEBI Guidelines in this behalf (unsubscribed
portion of which may beadded back to the public offer) and that consent be and
is hereby accorded also to the issue and allotment to the respective holders of
the Debentures of such number of Equity Shares of such value and in such manner
as may be approved by SEBI and other appropriate authorities upon conversion of
the appropriate part of the Debentures and further that for the purpose of
giving effect to the above, the Board or such of the Directors as may be
empowered by the Board for the purpose be and are hereby authorised to accept
such modifications or such terms as may be imposed or required by SEBI and
other appropriate authorities in regard to the issue or allotment of the
Debentures, issue of the new Equity Shares arising on conversion of the
convertible part of the Debentures, the period of repayment of the non-
convertible portion of the Debentures and all the other matters connected with
the issue or allotment of the Debentures and conversion thereof into new Equity
Shares and to settle any question, difficulty or doubt that may arise in regard
to the issue or allotment of the Debentures and issue of Equity Shares on
conversion, etc., as may be required by the appropriate authorities and to do
all such acts, deeds, matters or things as the Board or the Directors
authorised by the Board for the purpose may think necessary expedient or proper
in relation to any of the aforesaid matters."
PRACTICE NOTES
1. Put and call option.-No company can issue FCDs having a conversion
period of more than 36 months unless conversion is made optional with
"put" and "call" option.
2. Credit rating.- Credit rating is necessary
in respect of FCDs, PCDs and NCDs irrespective of maturity period. If the issue
is greater than or equal to Rs. 100 crores two ratings from two different
credit rating agencies should be obtained.
3. Re-purchase and
Premium.- Procedure for re-purchase of non-convertible portion of
PCDs (Khokhas) should be disclosed in the offer document. Time of conversion
and premium amount on conversion, if any, should be pre- determined in
consultation with Lead Managers. Differential premium as between rights and
public issue can be charged.
4. Creation of DRR.- Creation of Debenture
Redemption Reserve and appointment of Debenture Trustee are not required if the
maturity of debentures/conversion of debentures is less than 18 months. For
infrastructure companies, DRR is not required even where the
maturity/conversion of debentures is beyond 18 months.
5. Trust Deed.- Trust deed should be
executed within 6 months of the closure of the issue.
6. Certificates from FIs.- Certificates from the
concerned financial institutions/banks should he obtained about their no
objection for a second or pari passu charge being created in favour of the
trustees.
7. Promoters' contribution.- (No preferential allotment should
be made along with any rights issue.) If tile issuer company wants to make any
preferential allotments to the employees or any identified persons, it may do
so independent of' rights issue by complying with the provisions of the
Companies Act, 1956 and Chapter XIII of SEBI (Disclosure and Investor
Protection), Guidelines, 2000.
8. Compliance Certificate.-Corn
pan les
having paid-up share capital of less than Rs. 2 Crores but equal to or
more than Rs. 10 lakhs are required to 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 partly and fully convertible debentures to the
public as well as on rights basis during the financial year and complied with
the provisions of the Act as per paragraph 19 of the Form of Compliance
Certificate appended to the Companies (Compliance Certificate) Rules, 2001.
Rights and Public Issue of Fully Convertible Debentures
S. 81-Rights and public issue of FCDs-Special Resolution
"RESOLVED that in
accordance with the provisions of the Articles of Association of the Company
and pursuant to the provisions of section 81 (1 A) of the Companies Act, 1956
('the Act') and subject to the approval of, the consortium of bankers/financial
institutions who have granted financial facilities to the company, and acting as agents and trustees/trustees
for debenture holders and such other approvals, permissions and consents 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 (SEBI) and
which the Board of Directors of the Company (the Board) is hereby authorised to
accept, consent of the Company be and is hereby granted to the Board to create
and issue ……..% Secured Fully Convertible
Debentures of the nominal value of Rs ……..each
(the debentures) of an aggregate nominal value of Rs ……..for cash at par and on such terms and conditions and carrying such
rights and obligations as may be attached thereto in accordance with the terms
of letter of offer/ prospectus as may be finalised by the Board at the time of
such issue.
RESOLVED FURTHER that
subject to such approvals, permissions, consents and sanctions being obtained
the offer of the debentures be made for subscription for cash at par to the
following categories of persons, viz.:
Category Debentures
to be offered
A Existing Equity Aggregate
nominal value not eceeding Rs.
Shareholders by a .........
Letter of Offer
B. Employees
of the Aggregate nominal value
not eceeding Rs.
Company
.........
C. Public
by a Pro- Aggregate
nominal value not eceeding Rs.
spectus
.........
RESOLVED FURTHER that the un
subscribed portion, if any of the debentures after considering the applications
received from (A) above shall be added to the public offer.
RESOLVED FURTHER that the debentures of Rs ……..each to be is sued as aforesaid shall carry an obligation on the part of the Company to fully convert the said debentures and issue and allot such number of equity shares as are equivalent to the value of the debentures, such new equity shares being of the face value of Rs. 10/- each of the Company credited as fully paid up at a premium not exceeding Rs ……..per share without any further act or application, by the debenture holders.
RESOLVED FURTHER that the
offer of rights shares be made to the shareholders whose names appear on the
Register of Members on such date as may be decided by the Board for the said
purpose and upon such adjustment and appropriation of the equivalent sum
representing the issue price of the new equity shares (i.e. face value of
equity share and the premium as may be fixed as aforesaid) from the nominal
value of the debentures, the face value of the debentures shall stand reduced
to nil per debenture and the same shall be deemed to have been fully converted
and extinguished.
RESOLVED FURTHER that the
new equity shares of Rs. 10/- each issuable consequent upon such conversion
shall rank pari passu in all respects with the then existing fully paid up
equity shares in the capital of the Company and shall rank for dividend pro
rata from ...............
RESOLVED FURTHER that in the
event of the Company issuing bonus shares by way of capitalisation of its
profits and/or reserves prior to allotment or new equity shares as aforesaid,
the number of new equity shares to be issued and allotted against such
adjustment and appropriation shall stand augmented in the same proportion in
which the augmentation shall take place in the equity share capital of the
Company consequent upon the issue of bonus shares and the premium on the new
equity shares to be allotted on such conversion shall stand reduced pro tanto.
RESOLVED FURTHER that in
case the ratio in which such new equity shares are to be issued and allotted to
the equity shareholders accepted by the Board results in issuance of fractional
shares, no fractional shares or coupons shall be issued in respect of such
fractional shares but the shares represented by the total number of fractional
shares shall be allotted to such person(s) as may be appointed for that purpose
by the Board (including one or more of themselves and/or one or more of the
officers of the Company), who shall hold the shares so allotted as trustees for
and on behalf of the shareholders who would have been entitled to the
fractional shares if they had been issued and that the said person(s) shall as
soon as practicable sell the same and after payment of all the reasonable
expenses of sale, distribute the net proceeds to the shareholders entitled
thereto in proportion to their respective fractional entitlements.
RESOLVED FURTHER that the
debentures be issued, inter alia, on
the following principal terms and conditions, viz.:
1. Interest- Interest at the rate of per cent per annum will be payable half-yearly on ……..and ……..each year (subject to deduction of income tax at the rates applicable from time to time prescribed under the Income- tax Act, 1961, or any statutory modification or re-enactment thereof for the time being in force).
2. Security-The said debentures till the same are fully converted
into equity shares as aforesaid would be secured by a first mortgage and/or
charge on the immovable and/ or movable assets and properties of the Company at
in the State of and/or on such other
immovable and/or movable assets and properties and having such priority (including
a second charge) as the Board may in its discretion determine in consultation
with the trustees for the holders of the debentures.
3. Offer to non-residents-The debentures which are offered
to nonresident Indians/persons of Indian origin resident abroad/ Foreign
Institutional Investors and any allotment to-such persons shall be
subject to the approval of Reserve Bank of India, under the Foreign Exchange
Management Act, 1999. The consequential issue and allotment of equity shares of
Rs. 10/- each credited as fully paid-up as aforesaid upon
conversion shall also be subject to such approvals.
4. Entitlement-The offer of convertible debentures will be made in the
following ratio:
(i) For equity shareholders: -One
debenture for equity shares of Rs. 10/- each held on the record date to
be fixed for this purpose.
(ii) For the permanent employees of the
company.-As on a date to be determined by the Board, the permanent
employees of the company shall be offered debentures not exceeding an aggregate
face value of Rs ……..subject to a maximum of such
number of debentures as will result in 200 equity shares on conversion:
Provided that those equity shareholders who get nil entitlement on the above
basis will be considered for allotment of a minimum of debentures before considering the allotment against
applications received for additional debentures from the offerees who would
have applied for the rights entitlement.
5. General-The letter of offer will carry the right of
renunciation, provision to apply for additional debentures, provision for
further borrowings without requiring consent of shareholders, provision for
fixing of record dates, book closure dates, issue of allotment advice, letter
of allotment/debenture certificate, share certificate and such other terms and
conditions and provisions as the Board at its absolute discretion may provide
with authority to the Board to accept such amendments, modifications,
conditions, as the Central Government of SEBI of other concerned authorities
may prescribe in that behalf.
RESOLVED FURTHER that for
giving effect to this resolution, the Board be and is hereby authorised to give
such directions as may necessary or desirable with regard to the issue and allotment of the debentures and issue
and allotment of such new equity shares including the power to allot the
unsubscribed debentures, if any, in such manner as may appear to the Board to
be most beneficial to the Company."
PRACTICE NOTES
Same as under Resolution 847.
Issue of Equity Shares and Secured Premium Notes to Shareholders and
Employees
S. 81-Issue of equity shares and SPNs to shareholders and employees-Special
Resolution
"RESOLVED that, in
accordance with the provisions of Section 81 and other applicable provisions,
if any, of the Companies Act, 1956, and subject to such other approvals,
permissions and sanctions as may be necessary and subject to such conditions
and modifications as may be imposed by the Securities and Exchange Board of
India (SEBI) and as may be considered necessary by the Board of Directors of
the Company or as may be prescribed in granting such approvals, permissions and
sanctions and which may be agreed to by the Board of Directors of the Company,
the consent of the Company be and is hereby accorded to the Board of Directors
of the Company to issue Equity Shares and Secured Premium Notes (SPN) of an
aggregate value of Rs . to the
shareholders and to such persons as are set out hereunder, whether shareholders
of the Company or not, and at such time as the Board of Directors may in their
absolute discretion think fit, inter
alia, upon the following terms and conditions:
The
two simultaneous (but not linked) issues aggregating Rs ……..will comprise:
Amount to be issued
(Rs. crores)
A .
Equity Shares of Rs. 10 each at a price of Rs ……..per
share
……..to be offered to the following categories of
subscriber ……..
…….. …….. ……..
(i)
…….. Rights
Equity Shares to the shareholders in the ratio
of Equity Shares of Rs. 10 each at a price of
Rs . ……..per
share
for every existing Equity Shares held on
a date to be fixed
by the Board of Directors ............... ...............
(ii)
……..Equity
Shares of Rs.10 each at a price of Rs . ……..per
share to the permanent
employees/Directors of the Company
subject to a maximum of 200
equity shares per employee
Amount to be issued
(Rs. crores)
B. An Issue of 4-7
Year SPN of Rs.
....... each (with Warrants attached)
(i)
……..SPN of Rs. 300 each to the shareholders on the basis
of a minimum number of SPN (as clarified below) to
each share
holder -------------- -------------
Amount to be issued
(Rs. crores)
(ii)
……..SPN of Rs .
……..each to the
employees/Directors on the
basis
of a minimum of SPN to each
employee/Director ............... ...............
(iii)
……..Warrants
for sub scribing to 1 Equity Share per
SPN
at Rs . ……..per
share (i.e. at a premium of Rs . ............... ...............
Major Terms and Conditions:
(i) The aforesaid offer of Rights Shares and SPN shall be made by notice specifying the number of shares/SPN offered and limiting the time not being less than 30 days from the date of the off6r within which if the offer is not accepted, it will be deemed to have been declined, with liberty to the Directors from time to time to extend the date for such acceptance.
(ii) In the event of any shareholder holding
less than Equity Shares, or holding Equity Shares in excess of multiples
of shares, a fractional coupon
equivalent to ..................... of one Rights Equity Share will be
issued in respect of each share so held.
(iii) The amount of Rs . ……..per Equity Share (made up of
Rs. 10/ on capital account and Rs ……..on premium account) and Rs……. per SPN shall be
payable as follows:
(a) 50% payable on application,
(b) No amount payable on allotment,
(c) 50% payable in one call as may be
decided by the Board but not before six months from the date of allotment.
(iv) In the Rights Issue of Equity Shares to
the shareholders (item (A) above), each shareholder can apply for his/her
right's entitlement plus additional Equity Shares but only up to a maximum of
................ additional Equity Shares per shareholder (in the same name or
names) irrespective of the number of application forms submitted, provided that a shareholder who has
renounced his offer in whole or in part, shall not be entitled to apply for
additional shares. Shareholders may also renounce their Rights entitlement in
whole or in part.
(v) With a view to benefit the smaller
shareholders, in the Rights Issue of Secured Premium Notes (SPN) to the
shareholders (item (B) above), no specific ratio will be offered, but each shareholder
can apply for a minimum of SPN (in
the same name or names) irrespective of the number of forms submitted (subject
to this minimum figure being reduced to a lesser number of SPN which can be
uniformly accommodated within the total issue of SPN depending on the total
number of shareholders at the time of the Book Closure/Record Date). Each
shareholder may apply for additional SPN, provided they have not renounced
their Rights in whole or in part but allotment beyond the minimum number of SPN
to each shareholder (as explained above) will depend on the total response.
Shareholders can also renounce their entitlement of SPN but only to the extent
of the prescribed minimum number of SPN as will be indicated in the Letter of
Offer.
(vi) In order to prevent any misuse of the
minimum offer of SPNs (which has been structured in the interest of the
existing smaller shareholders), shareholders will not be permitted to split
their existing holding to less than the marketable lots or to transfer their
existing holding in less than the marketable lots during the period from the
date of this Notice till the date of Book Closure/Record Date to be fixed by
the Board of Directors for the Rights Issue. This provision will also apply to
new purchases of shares in less than marketable lots during the same period.
(vii) No interest or repayment of principal will
become due or accrue on the SPN during the first three years after allotment.
Thereafter, the principal amount of the SPN of Rs . ……..each will be repaid in equal annual installments of Rs ……..each from the end of the year
to the end of the year, together with
an equivalent additional amount of Rs ……..with
each installment. Such additional amount will represent interest and/or premium
on redemption, in such form as may be in the interest of the SPN holders
according to the then prevailing regulations and the Company will offer, before
the end of the third year, specific options (e.g. full interest or premium or
combinations thereof) to the SPN holders which options would have to be
exericised at the end of the third year.
(viii) Each SPN of Rs . ……..will have a detachable
Warrant attached to it which will give the holder the right to apply for and be
allotted ........ Equity Share by additional payment in cash of Rs ……..per share (made up of Rs. 10 on capital account and Rs on premium account) such right being
exercisable between year and years after allotment, by which time the
amount due on the SPN would be fully paid.
(ix) If any Equity Shares or SPN out of the
Rights offers to the shareholders remain unsubscribed, the Directors shall have
full discretion and absolute authority to offer them to whomsoever they may
deem fit.
(x) The unsubscribed portion, if any, out of
the offers of Equity Shares and SPN made to the employees/Directors will lapse.
(xi) The Equity Shares allotted on Rights
basis together with further Equity Shares allotted as a result of exercise of
the right under the detachable Warrant shall rank pari passu in all respects
with the existing Equity Shares of the Company except that such Equity Shares
shall carry the right to receive a proportionate dividend which may be declared
for the financial year in which the said Equity Shares are allotted.
(xii) On allotment, the Equity Shares, the Secured
Premium Notes and the detachable Warrants of the SPN are proposed to be listed
on all the Stock Exchanges on which the existing securities of the Company are
listed.
(xiii) The allotment of further Equity Shares/SPN
to non- resident shareholders will be subject to the sanction of the
Reserve Bank of India under the Foreign Exchange Management Act, 1999.
RESOLVED FURTHER that for
the purpose of giving effect to the above, the Directors be and are hereby
authorised to do all things necessary for the purposes of this issue of Equity
Shares and Secured Premium Notes and to take such action or give such
directions as may be necessary or desirable and to accept any modifications in
the proposal and terms of the issue (including the price of the Equity Shares
to be issued or the ratio or number in which the Equity Shares/SPN are to be
offered which may result in a change in the total amount of the issue) as may
be considered necessary by the Board of Directors or as may be prescribed in
granting approvals to these issues and which may be acceptable to the Board of
Directors and to decide the basis of allotment and to settle any question or
difficulty that may arise in regard to the issue and allotment of the Equity
Shares and Secured Premium Notes (with Warrants)."
PRACTICE NOTES
1. Disclosure requirements filed with SEBL-The company should make adequate
disclosure regarding the terms and conditions, redemption, security, conversion
and other relevant features of the Share Premium Notes so that an investor can
make determination of the risks and returns, safely and liquidity of the
instrument. The disclosures should be filed with SEBI.
2. Credit Rating.- Secured Premium Notes
irrespective of maturity period would require credit rating, and two credit
ratings should be obtained if the issue is greater than or equal to Rs. 100
crores.
3. Filing of Special Resolution.-File the special resolution along
with Explanatory Statement with the Registrar of Companies concerned within
thirty days in Form No. 23 after paying the requisite filing fee as prescribed
under Schedule X of the Act.
4. Compliance Certificate.-Companies having
paid-up share capital of less than Rs. 2 Crores but equal to or more than
Rs. 10 lakhs are required to 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 equity shares and secured premium notes to shareholders
and employees during the financial year and complied with the provisions of the
Act as per paragraph 19 of the Form
of Compliance Certificate appended to the Companies (Compliance Certificate)
Rules, 2001.
Roll over of Non-Convertible Debentures
S. 81-Roll over of NCD-Special Resolution
"RESOLVED that pursuant
to the provisions of Section 81 of the Companies Act, 1956, and any other
relevant provisions of law and the approval the Securities and Exchange Board
of India, in partial modification of the terms contained in the Letter of Offer
dated and
subject to the consent of holders of %
Secured Non-Convertible Debentures at a separate meeting and subject
also to such other approvals, permissions and consents of any authorities as
may be necessary and subject to such conditions and modifications as may be
prescribed by any of them while granting such approvals, permissions and
consents which the Board of Directors of the Company (hereinafter referred as
the "Board") be and is hereby authorised to accept, the consent,
authority and approval of the Company be and is hereby accorded to the Board
to revise, modify and alter the terms of issue of ……..% Secured Non-Convertible Debentures of the face value of Rs ……../-each (hereinafter referred to as "the Debentures")
aggregating to Rs …….. (Rupees .....), by effecting
alteration in the terms of redemption in the manner hereinafter stated in this
resolution:
(i) By extending the date of redemption of
the principal amount of the Debentures to ……..for
redemption at par, both in respect of the Debentures under the Non-Cumulative
Interest Payment Scheme and under the Cumulative Interest Payment Scheme;
(ii) By paying to the holders of the
Debentures with such extended period of redemption, both under the Cumulative
Interest Payment Scheme and under the Non Cumulative Interest Payment Scheme,
the premium of 5% of the face value of each Debenture, on (date);
(iii) In respect of the Debentures issued under
Cumulative Interest Payment Scheme and which are redeemable in three yearly
installment commencing from by
draw of lots as per original tern! of issue, the holders of Debentures with
such extended period of redemption shall be paid the accumulated interest
from the date of allotment of the Debentures upto (date);
(iv) The Debentures with such extended period
of redemption shall, effective from (date),
bear and carry interest at .................... %
per annum calculated only on Non-Cumulative basis and payable by equal
half yearly payments on the last day of and
the last day of ……..each year, the first of such
payment of interest to be made on for
the period commencing from ……..and last of such payment of
interest on along with repayment of
the principal amount of the Debentures with such extended period of redemption;
(v) For every Debentures with such extended
period of redemption, there will be a detachable warrant attached to the
certificate in relation thereto which will entitle the holder of such
Debentures, as on a date to be hereafter fixed by the Board to apply, during a
period to be hereafter decided by the Board but not later than for ……..Equity
Shares per warrant at a price to be determined by the Board before the subject
offer is made to the then existing holders of Debentures with such extended
period of redemption subject to such approvals as may be required and the Board
shall have the fight, at its sole discretion, by giving reasonable written
notice to call upon all warrant holders to exercise their said entitlement to
apply for ……..Equity Share per Warrant
within such period and in such manner as may then be decided by the Board and
if such right attached to a warrant is not exercised within such specified
period, the entitlement of the Warrant holder to such Equity Share will lapse
and the Board will be entitled to deal with the same as it may in its sole
discretion deem most beneficial to the Company;
RESOLVED FURTHER that the
Board shall be at liberty and be entitled to further advance, prepone,
accelerate or otherwise alter the aforesaid date(s) of redemption of the
Debentures with such extended period of redemption or the mode or manner of
such redemption with the consent of the Trustees for the holders of such
Debentures but without any further consent of the holders of such Debentures;
RESOLVED FURTHER that a
letter of option for roll over shall be issued to the holders of the Debentures
providing that the redemption period of the Debentures shall be extended on the
above terms and conditions only for those debenture holders who send their
positive consent for redemption and that those who are not agreeable to
extension of redemption period of the Debentures in the manner aforesaid should
send a negative response to the offer for roll over and such debenture holders
would be repaid the principal moneys along with premium and interest in
accordance with the existing terms of redemption of the Debentures and shall
continue to hold the Debentures on the original terms.
RESOLVED FURTHER that the
Debentures which have been redeemed by the Company as per the original terms,
may specifically be kept alive and reissued by the Board as per the existing terms of the issue but with the
aforesaid altered terms for redemption
to any persons (including Financial Institutions, Investment Institutions
or Mutual Funds or Banks) whomsoever as the Board may in its absolute
discretion decide and deem proper;
RESOLVED FURTHER that the
Buy-back Scheme shall not apply to the Debentures with the extended
period of redemption;
RESOLVED FURTHER that the
Trustees for the Debenture- holders shall continue to act as Trustees for
the holders of the Debentures with such extended period of redemption;
RESOLVED FURTHER that save
as varied and modified aforesaid, the terms of the Issue of the Debentures as
contained in the said Letter of Offer dated shall remain unchanged;
RESOLVED FURTHER that
pursuant to the provisions of Section 293(l)(a) and other applicable
provisions, if any, of the Companies Act, 1956, consent of the Company be and
is hereby granted to the Board to the continuation of the mortgages/ charges
already created by the Company at the time of the issue of the Debentures in
..................... in order to continue the existing security pertaining to
the Debentures by extending the same to secure the Debentures with the extended
period of redemption with authority to the Board to execute any Supplemental
Deeds/ Deed of modification, documents or papers as may be necessary or as the
Trustees for the holders of the Debentures with the extended period of
redemption may require, for continuing and extending the existing security upto
the extended date of redemption of such Debentures;
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to issue
Debenture Certificates in lieu of the existing certificates and to do, in the
interest of the Company, all such acts, deeds, matters and things for giving
effect to the modifications and alterations to the terms and conditions of the
Debentures as proposed in this resolution as may be considered necessary,
expedient or proper and all things connected therewith or incidental
thereto."
PRACTICE NOTES
1. Compulsory Option given.-When non-convertible
debentures are rolled-over without change in the interest rate a
compulsory option should be given to those debenture holders who want to
withdraw from the roll-over programme as per the terms of the offer
document.
2. Consent in writing.- Roll-over should be done
only in cases where the debenture holders have given their positive consent in writing and not on the basis of non- -receipt
of negative reply.
3. Security.- Fresh security need not be
created if the existing trust deed or security documents provide for
continuance of the security till the redemption period. But if that is not so
fresh trust deed should be executed and fresh security shall be created.
4. Credit Rating.-Before roll over of non-convertible
debentures fresh credit rating should be obtained within a period of 6 months
prior to the initial due date of redemption and it should be communicated to
debentureholders before roll over.
5. Filing with SEBI.-Letter of option regarding roll-over
should be filed with SEBI with regard to credit rating, debentureholders
resolution, option for conversion, Justification for conversion price and such
other terms which SEBI may prescribe from time to time, through the Merchant
Banker.
6. Application of SEBI Guidelines.-All the above practice notes
will be applicable to a listed company only when the value of NCDs exceeds Rs.
50 lakhs.
Permitting Foreign Institutional Investors, Non-Resident Indians
Person of Indian Origin and Overseas Corporate Bodies to acquire shares and
debentures
"RESOLVED that subject
to the approval of the Reserve Bank of India and/or Central Government under
the Foreign Exchange and Management Act, 1999, and subject to such other
approvals, permissions and sanctions as may be considered necessary and subject
to the applicable provisions, if any, of the Companies Act, 1956, and subject
to such conditions as may be prescribed by any of the authorities while
granting such approval s/per- miss ion/sanction s, which the Board of
Directors of the Company (hereinafter referred to as "the Board") be
and is hereby authorised to accept, the consent, authority and approval of the
Company be and is hereby accorded to the Board to allow Foreign Institutional
Investors (FIIs) Non-Resident Indians (NRIs) Persons of Indian Origin
(PIOs) and Overseas Corporate Bodies predominantly owned by NRI's PlOs and OCBs
to acquire Shares/Debentures of the company through Stock Exchanges in India
under Portfolio Investment scheme, subject to the following conditions:
(i) the total purchases by
FIIs/NRIs/PIOs/OCBs both on repatriation and non repatriation basis be within
the overall ceiling limit of:
(a) 40% of the paid up Equity Capital of the
company;
(b) 40% of the total paid up value of each
series of convertible debentures of the company;
(ii) investments made on repatriation basis
by any single NonResident Investor in the equity/preference shares and
convertible debentures of the company should not exceed 5% of the total paid up
equity or preference capital of the company or 5% of the total paid up value of
each series of convertible debentures of the company;
RESOLVED FURTHER that the
Board of Directors of the company be and is hereby authorised to do all such
acts, deeds, matters and things and to execute such documents or writings as
may be necessary, proper or expedient for the purpose of giving effect to this
resolution and for matters connected therewith or incidental thereto."
PRACTICE NOTES
1. Price of shares allotted.- Preferential allotment
should be made to His at a price not less than the higher of the following :
(i) the average of the weekly high and low, or
(ii) the average of the weekly high and low
of the closing prices of the related shares quoted on a stock exchange during
the 2 weeks preceding the relevant date.
2. RBI's Approval.- Prior approval of RBI is no
longer required as RBI has given general permission in such cases and therefore
a declaration within 30 days of the allotment of shares should be filed with
the concerned regional office of the RBI in the prescribed form.
3. No lock-in-period.-No lock-in-period
is applicable.
4. Portfolio Investments in unlisted companies.- NRIs/PlOs/OCBs are
now permitted to invest in unlisted companies as well under the Portfolio
Investment Scheme in conformity with the norms and approval procedures
applicable to Portfolio investments in listed companies. Portfolio investments
in unlisted companies by NRIs/PlOs/OBCs are subject to individual and aggregate
investment limits applicable to investments in listed companies in the
following manner:
(a) Investment limit by a single Non-Resident
Indian (NRI)/Persons of Indian Origin (PlOs)/Overseas Corporate Bodies (owned
by such persons to the extent of at least 60 per cent) (OCBs) will be subject
to a ceiling of 5 per cent of the paid-up equity capital of the investee
company.
(b) The aggregate investment limit for all
NRIs/PIOs/OCBs in an unlisted company will be subject to a ceiling of 10 per
cent of the paid-up equity capital. The aggregate investment limit may be
enhanced upto 24 per cent subject to the general body resolution by the
company.
Issue of Equity Shares with Differential Voting
S. 81/86-Issue of Equity Shares with Differential Voting Rights-Special
Resolution
"RESOLVED that pursuant
to section 81 read with section 86(a)(ii) and any other applicable provisions
of the Companies Act, 1956 and relevant provisions of the memorandum and
articles of association of the Company, the Board of Directors of the Company
be and is hereby authorised on behalf of the Company to issue and allot 1,00,000
(One lakh) equity shares of Rs. 10/- (Rupees Ten) each at par with
differential voting rights as to dividend, voting or otherwise in accordance
with and subject to the terms and conditions of the Companies (Issue of Share
Capital with Differential Voting Rights) Rules, 2001 to ..............
PRACTICE NOTES
1. Conditions to be fulfilled before issue.-Before issue of shares with
differential voting rights your company must follow the conditions mentioned in
Rule 3 of the Companies (Issue of Share Capital with Differential Voting
Rights) Rules, 2001.
2. Register to be
maintained.-Rule 4 of the said Rules provides that every company referred
to in Rule 3 shall maintain a register as required under section 150 containing
the particulars of differential rights to which the holder is entitled to.
3. Compliance Certificate.- Companies having paid-up
share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs
are required to 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
equity shares with differential voting rights during the financial year and
complied with the provisions of the Act and has kept and maintained the register
as stated in Annexure A to this certificate as per the provisions and rules
made there under and all entries therein have been duly recorded as per
paragraphs 1 and 19 of the Form of Compliance Certificate appended to the
Companies (Compliance Certificate) Rules, 2001.
4. Postal Ballot.- Listed companies are
required to pass the special resolution for issue of equity shares with
differential voting rights through postal ballot as per Rule 4(d) of the
Companies (Passing of Resolution by Postal Ballot) Rules, 2001.
EURO Issue
S. 81-EURO Issue-Special Resolution
"RESOLVED that pursuant
to section 81 and any other applicable provisions of the Companies Act, 1956
and relevant provisions of the memorandum and articles of association of the
Company and the listing agreements entered into by the Company subject to any
necessary approval, consent, permission and/or sanction of the Government of
India, Reserve Bank of India and any other appropriate authorities,
institutions or bodies, and subject to such conditions as may be prescribed by
any of them in granting any such approval, consent, permission, or sanction,
the Board of Directors of the Company (hereinafter referred to as "the
Board", which term shall be deemed to include any committee referred to below),
and duly authorised committee thereof for the time being exercising the powers
conferred on the Board by this Resolution be and is hereby authorised on behalf
of the Company to issue and allot, in the course of international offerings in
one or more foreign markets, equity shares and/or any securities convertible
into equity shares at the option of the company and/ or holder of the security
and/or securities linked to equity shares any instruments or securities
representing either Equity shares or convertible securities (hereinafter
referred to as "Securities") subscribed in foreign currency(ies) to
foreign investors (whether institutions and/or incorporated bodies and/ or
individuals or otherwise, and whether or not such investors are members of the
company), for (or which, upon conversion of all securities so issued or
allotted, could give rise to the issue of) an aggregate face value of equity
shares of upto 5 1 % of the authorised share capital of the company, such issue
and allotment to be made at such time or times, in such iranche or tranches, at
such price or prices at a discount or premium to market price or prices, in
such manner as the Board may, in its discretion think fit, in consultation with
the lead manager and underwriters, and otherwise on such terms and conditions
as may be decided and deemed appropriate by the Board at the time of issue or
allotment;
RESOLVED FURTHER that
without prejudice to the generality of the above, the aforesaid issue of
securities may have all or any terms or combination of terms in accordance with
international practice including but not limited to conditions in relation to
payment of interest, additional interest, premia or redemption, prepayment and
any other debt service payments whatsoever, and all such terms as are provided
in international offerings of this nature including terms for issue of
additional equity shares or variation of the conversion price of the security
during the duration of the security, and that the Company is also entitled to
enter into and execute all such arrangements with any lead managers, company
lead managers, underwriters, guarantors, depositories, custodians and all such
agencies as may be involved or concerned in such offerings of securities and to
remunerate all such agencies including the payment of commissions, brokerage,
fees or the like, also to seek the listing of such securities or securities
representing the same in one or more international stock exchanges.
RESOLVED FURTHER that the Company and/or any agency or body authorised by the Company may issue Depository Receipts representing the underlying equity shares issued by the Company in registered or bearer form with such features and attributes as are prevalent in international capital markets for instruments of this nature and to provide for the tradeability or free transferability thereof as per the international practices and regulation, and under the forms and practices prevalent in the international markets.
RESOLVED FURTHER that the
securities issued as above shall be deemed to have been made abroad in the
market and/or at the place of issue of the security in the international market
and shall be governed by English or New York law, as the case may be.
RESOLVED FURTHER that the
Board be and is hereby authorised to issue and allot such number of equity
shares as may be required to be issued and allotted upon conversion of any
securities referred to in paragraph (a) above or as may be necessary in
accordance with the terms of the offering, all such shares being pari passu
with the equity shares of the company in all respects, expecting such right as
to dividend as may be provided under the terms of the issue and in the offer
document.
RESOLVED FURTHER that for
the purpose of giving effect to any issue or allotment of Equity Shares or
Securities or instruments or securities representing the same, as described in
paragraph (a) above, the Board be and is hereby authorised on behalf of the
Company to do all such acts, deeds, matters and things as it may at its discretion
deem necessary or desirable for such purpose, including without limitation the
entering into of underwriting, marketing and depository arrangements and with
power on behalf of the Company to settle any questions, difficulties or doubts
that may arise in regard to any such issue or allotment as it may in its
absolute discretion deem fit."
PRACTICE NOTES
1. Global Depository Receipts (GDRs) American Depository Receipts
(ADRs) and Foreign Currency Convertible Bonds (FCCBs).-GDRs/ADRs/FCCBs can be freely transferred
outside India without making any reference to the company. GDRs/ADRs/FCCBs can
be converted into shares on surrendering them to the International Depository
which is normally an overseas bank. GDRs/ADRs/FCCBs are held in trust by the
Domestic Custodian Bank appointed by the Company. Only a company with
consistent track record of three years is eligible to float GDRs/ADRs/FCCBs.
The provision of 3 year track record requirement in the case of companies
seeking GDR/ADR/FCCB issues to finance investments in infrastructure industries
such as power generation, telecommunication, petroleum, petroleum explorating
and refining, ports, airports and roads will not apply.
2. Euro Issue of unlisted companies.-With effect from, 22nd
May, 1998 unlisted companies are also permitted to float Euro/ADRs provided
they fulfill the three years track record eligibility requirement. These
unlisted companies floating GDR/ADR/FCCB issues would need to comply with the
standard listing requirement of listing on the domestic stock exchanges within
3 years of having started making profit.
3. What are Euro -
Bonds.-
Euro- bonds are unsecured bonds convertible into equity shares at a price
determined at the time of the issue.
4. Price.-Price of the equity shares
on conversion should be determined in consultation with the Lead Manager.
5. Conformity with general accounting practice.-The company's
accounts should be re-structured so as to be in conformity with the
UK/USA Generally Accepted Accounting Practice.
6. Lead Managers.- The Lead Manager arranges
the appointment of Depository Agent to deal with issue/transfer/ cancellation
of Depository Receipts.
7. Limit of Foreign Investment.-The aggregate foreign investments through
GDRs should not exceed 51% of the issued and subscribed capital. If the
aggregate foreign investment exceeds/likely to exceed 5 1 % of the issued
capital, prior approval of FIPB is to be obtained before final approval by
Ministry of Finance.
8. End Uses.- GDRs/ADRs are equity
instruments and there is no repayment liability on the issuing company. Unlike
a commercial borrowing or a foreign currency convertible bond which carries a
repayment liability on the company, GDRs/ADRs are fully risk equity. It has,
therefore, been decided that all end use restrictions on GDR/ADR issue proceeds
be removed. The existing ban on investment of GDR/ ADR issue proceeds be
removed. The existing ban on investment of GDR/ADR issue proceeds in real
estate and stock markets will, however, continue.
9. Deployment of proceeds of GDRs./ADRs-GDP,/ADR raising companies are
allowed full flexibility in deploying the proceeds. Upto a maximum of 25% of
the total proceeds may be used for general corporate restructuring, including
working capital requirements of the company raising GDR. Companies may retain
the proceeds abroad or may remit funds into India in anticipation of the use of
funds for approved end-uses. The GDRs redeemed and underlying shares sold
in terms of the Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depository Receipt Mechanisms) Scheme, 1993 may be reissued to the
extent of such redemption and sale made in the domestic market. Such reissuance
will be in terms of Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident Outside India) Regulations, 2000 as amended from time to
time and the guidelines issued in this regard.
10. Number of Issues.- There is no restrictions on
the number of Euro-Issues to be floated by a company or a group of
companies in a financial year.
11. Euro Issue Guidelines.- Companies Making Euro-issues
should adhere to Euro Issue Guidelines issued by the Ministry of Finance dated
19-6-1996 modified from time to time.
12. Validity period.- The guidelines issued on
19th June, 1996 as mentioned above had provided that both the 'in principle'
and final approval will be valid for 90 days from the date of their respective
issues. With effect from 22nd May, 1998, in partial modification of the above
requirement, the 90 days validity period for final approval for GDRs/ADRs is
withdrawn.
13. Stock option scheme for Indian software companies.-A special
stock option scheme was announced in the budget speech of the Finance Minister
for Indian software companies linked with ADR/GDR offerings by these companies
as an instrument to enable these companies to provide incentives to retain
their highly skilled professionals. The scheme would enable Indian software
companies to offer terms comparable to the packages, offered by international
companies in the field. This scheme would be governed by the guidelines given
in F. No. 17/2/97 NRI, dated 23-6-1998 Issued by the Ministry of
Finance (Investment Division). Following this on 10th November, 1999, Ministry
of Finance, Department of Economic Affairs has issued a scheme called Issue of
Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipt Mechanism) Amendment Scheme, 1999 by way of an amendment to the Issue
of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipt Mechar1ism) Scheme 1993. Under this, Indian Companies engaged in
information technology software and information technology services are
eligible to offer to their nonresident/resident permanent employees (including
Indian and Overseas working directors) GDRs against issue of ordinary shares
under the scheme subject to the operational guidelines/conditions issued from
time to time by the Government.
By a press note dated 16th
June, 2000, Government has expanded the scope of issue of ADR/GDR linked
employees stock options as above to cover employees of subsidiary companies
also.
The aforesaid original
scheme has been further amended by the Foreign Currency Convertible Bonds and
Ordinary Shares (Through) Depository Receipt Mechanism) (Amendment) Scheme 11
2002 vide Notification No. GSR 532(E) dated 29-7-2002 inserting sub-para
3(l)(1)(ii)(111) and (iv) after para 3(l).
14. Eligibility/entitlements of GDR/ADR holders to the rights and bonus
issues.- A GDR/ADR holder is entitled to hold or transfer GDRs/ADRs, or redeem
them into underlying ordinary shares with the option to continue holding
underlying shares, and thus has a right to the ordinary shares underlying
GDRs/ADRs. Therefore, if an ordinary shareholder of the issuing company
acquires a right or entitlement by virtue of ownership of ordinary shares, the
GDR/ADR holder also matures the same rights or entitlements owing to his rights
over underlying ordinary shares. GDR/ADR holders, therefore, are entitled to
same bonus and rights issue of shares as any ordinary shareholders of the
company. Similarly, if ordinary shareholders of a company 'A' become entitled
to shares of another company 'B' as a consequence of a genuine business
reorganisations, and which is duly approved by the High Court under section
391/394 of the Indian Companies Act, then the GDR/ADR holders of company 'A'
also mature the same entitlement to shares of company '13'. Furthermore, when
GDR/ADR holders mature an entitlement to shares in a company, the company would
need to issue and place ordinary shares with the domestic custodian against
which the overseas depository would issue corresponding ADRs/GDRs to the
ADR/GDR holders. It has, therefore, been decided to allow Indian companies to
issue GDRs/ADRs in cases of bonus or right issue of shares or genuine business
reorganisation duly approved by the High Court, in accordance with the
provisions of the Scheme and the guidelines issued thereunder. Indian companies
would be required to apply to the Department of Economic Affairs for obtaining
approval for issue of GDRs/ADRs in all these cases. The Department of Economic
Affairs would consider such requests on the basis of necessary supporting
documents to assess that the proposed GDRs/ADRs issue is on account of the
entitlements of GDR/ADR holders as stated above.
15. Compliance Certificate.-Companies having paid-up share capital of
less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to
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 Euro Shares during the financial year and complied with
the provisions of the Act as per paragraph 19 of the Form of Compliance
Certificate appended to the Companies (Compliance Certificate) Rules, 2001.
Issue of rights shares to the members of the company
S. 81(1)-Issue of rights shares to the members of the company-Special
Resolution
"RESOLVED that in terms
of section 81(l) and other applicable provisions, if any of the Companies Act,
1956 and in accordance with the provisions of articles of association of the
Company and subject to the consent of the Securities and Exchange Board of
India (SEBI) and all other concerned authorities and departments if and to the
extent necessary and such other approvals, permissions and sanctions as may be
necessary and subject to such conditions and modifications as may be prescribed
in granting such approvals, permissions and sanctions which may be agreed to by
the Board of Directors of the Company at it sole discretion, the consent of the
company be and is hereby accorded to the Board of Offer ……..equity shares of Rs. 10/- each on rights basis to the existing
members of the Company at a premium of Rs . ……..per share in the ratio of equity shares of Rs. 10/ each for every-fully
paid equity share of Rs. 10/- each held by such members who are borne on
the register of members of the Company at the close of business hours on ……..or on such date as may be determined by the Board (hereinafter referred
to as the 'record date') with a right to renounce all or any of the shares so
offered to them in favour of any other person (other than any person who is
resident out side India).
RESOLVED FURTHER that the necessary intimation be given to the Stock Exchanges where the Company's shares are enlisted of the said record date 42 days in advance.
RESOLVED FURTHER that the
draft letter of offer as per the draft prepared in consultation with the Lead
Manager copy whereof placed on the Table be and is hereby approved.
RESOLVED FURTHER that be and are hereby appointed as the Registrars and Transfer Agents of the 'company to the proposed issue of rights shares are per draft letter of appointment placed on Table and initialled by the Chairman for purposes of identification.
RESOLVED FURTHER that Shri ……..director and Shri ……..Secretary of the Company be and are hereby authorised to finalise the date of opening and closing of the subscription list and to issue letters of offer to the members after approval of SEBI and Stock Exchanges and to do all such acts and things as may be deemed necessary in this regard".
PRACTICE NOTES
1. Intimation to Stock Exchange.-The Stock Exchange
concerned should be intimated 48 hours in advance of the Board Meeting about
the consideration of proposal by the Board regarding issue of rights issue.
2. Board's approval.-The issue price will be approved by the Board.
3. Further intimation to Stock Exchange.-After the
Board Meeting the Stock Exchange will be apprised of the proposal to issue
right shares, the quantum, price and the ratio in which the rights shares will
be offered.
4. General Meeting's Approval.-Hold the general meeting and get suitable
resolutions passed.
5. Finalisation of draft letter.-Finalise the
draft letter with the Lead Manager.
6. Filing form No. 5 with Registrar of Companies.-File Form
No. 5 about the increase in authorised capital with the Registrar of Companies
it' any.
7. Allotment to Non-resident shareholders.-Make the
necessary application to the Reserve Bank of India for allotment of rights
share to non-resident if any.
8. Approval of SEBI and Stock
Exchange of letter of rights issue.-Obtain approval of SEBI and Stock
Exchange concerned of the letter of rights issue.
9. Obtain approval of the Board of Directors with respect to:
(1) Appointment of bankers.
(2) Opening of Bank accounts.
(3) Approval of collecting bankers and Lead Bankers.
(4) Fixing of Record date in consultation with Regional Stock
Exchange.
(5) Printing of letter of rights.
(6) Appointment of committee of Directors to decide matters
concerning rights issue.
(7) Authorisation for signing
Listing application.
(8) Printing of share certificates.
(9) Appointment of Registrars to the issue.
(10) Opening of issue and closing of subscription list.
(11) The letter of offer (LOF) containing
disclosures, as prescribed by Chapter VI, Section III of the SEBI (Disclosure
and Investor Protection) Guidelines, 2000 should be filed with SEBI if the
issue including premium exceeds Rs. 50 lakhs.
(12) Rights issue shall be kept open for at least 30 days and not
more than 60 days.
(13) Differential pricing in a composite issue,
i.e., rights-cum-public issue is permissible only in respect of
issues made by existing listed companies; justification for differential
pricing is, however, required to be given in the offer documents.
(14) All listed companies making rights issue
shall, one week before the date of opening of subscription list, make the
announcement in not less than 3 all India newspapers about despatch of Letters
of offer with composite application forms by registered post, giving the date
of despatch and dates of opening and closing of subscription list, etc. In case
of non-receipt of" the original composite application forms, the
shareholders shall be provided the freedom to make the application on plain
paper.
(15) Any issue of shares by way of rights by a
company listed in a recognised stock exchange and exceeding Rs. 50 lakhs shall
be managed by an authorised/ registered merchant banker. Full justification and
parameters used for issue price should be clearly mentioned in the letter of
offer.
Issue of further shares at Board's discretion
S. 81-Issue of further shares at Board's discretion-Special
Resolution
"RESOLVED that pursuant to sec. 81(IA) of the Companies Act, 1956 equity shares of Rs ……..each being the un-issued shares capital of the Company, be issued at
par and allotted to any person or persons or in such manner and at such time as
the Board of Directors may deem fit."
PRACTICE NOTES:
1. Offer of further issue of
capital.-A public company, making an
issue of shares, after its formation, or I year after its first allotment,
should in the first instance offer the shares to the existing members. It is,
however, open to the company to pass a Special Resolution authorising the
Director to offer the shares to members of the public in the first instance.
2. Filing of Resolution along with Explanatory Statement with Registrar.-The resolution along with the Explanatory Statement should be filed
with the Registrar of Companies in Form No. 23 together with the requisite
filing fee within thirty days of the passing of the resolution.
3. Compliance Certificate.- Companies having paid-up
share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs
are required to 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
further shares during the financial year and complied with the provisions of
the Act as per paragraph 19 of the
Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Issue of debentures with right of conversion
S. 81(3)-Issue of debentures with right of conversion-Special
Resolution
"RESOLVED that in
accordance with the provisions of the Articles of Association of the Company
and provisions of Section 81 and other applicable provisions, if any, of the
Companies Act, 1956, and subject to the approval of trustees of privately
placed debentures and such other approvals, permissions and consents as may be
necessary and subject to such conditions and modifications as may be required,
which the Board of Directors of the Company be and is hereby authorised to
accept, the consent of the Company be and is hereby accorded to the Board of
Directors of the Company to create and issue not more than 7,00,000/14%
secured convertible debentures of Rs. 200/- each (hereinafter referred to
as the "Debentures") for cash at par aggregating up to Rs. 14 crores
for subscription from the members of the public through prospectus on such
terms as the Board of Directors may in their absolute discretion think fit and
providing inter alia for offer on
preferential basis of allotment to the following categories of persons:
(a) resident Indian equity shareholders of the Company;
(b) depositors of the Company;
(c) employees, directors and their friends/relatives and business
associates.
Subject to the following
terms and conditions-.
(i) Each debenture of Rs. 200/- shall
consist of two parts viz., Convertible part of Rs. 60/- and Non-convertible
part of Rs. 140/-.
(ii) In the event of over subscription to the
debentures offered on preferential basis of allotment as aforesaid, the Board
of Directors in consultation with the Stock Exchange at Bombay shall allot the
debentures on a suitable basis.
(iii) The unsubscribed portion, if any, of the
debentures offered on preferential basis of allotment as aforesaid shall be added
to the debentures offered to the public for subscription for cash at par.
(iv) The Debentures will carry interest at the
rate of 14% per annum, payable half yearly, subject to deduction of tax at
source at the rates for the time being prescribed under the Income-tax
Act, 1961, or any statutory modification or reenactment thereof, on the, amount
for the time being outstanding thereon.
(v) (a) The
proposed Debentures would carry an obligation on the part of the Company to
issue to the holders of every such fully paid Debentures within one year from
the date of allotment of such Debentures without any further act or application
on the part of the holders of such Debentures, three equity shares of Rs. 10/-
each credited as fully paid up at a premium of Rs. 10/- per share against
adjustment and appropriation of a sum equivalent to the face value of the three
equity shares and a premium as aforesaid against the convertible part of each
such Debenture which shall thereupon pro
tanto stand redeemed.
(b) Such new Equity Shares when issued and
allotted as aforesaid shall rank for dividend declared for the financial year
of the Company in which the Equity Sharesare allotted as from the date of
allotment there-of pro rata and in all respects pari passu with the then existing
fully paid up Equity Shares of the Company.
(c) In the event of the Company issuing
Bonus Shares by way of capitalisation of its profits and/or reserves prior to
allotment of shares on conversion/redemption of convertible part of the
debentures as referred to hereinabove, the number of Equity Shares to be issued
and allotted against such adjustment and appropriation shall, stand augmented
in the same proportion in which such augmentation shall take place in the
Equity Share Capital of the Company consequent upon the issue of Bonus shares
and the premium on the Equity Shares shall thereupon also stand reduced pro
tanto.
(d) In case the Company makes any Rights
Issue of Equity Shares to the then existing Equity Shareholders before the
allotment of shares on conversion/redemption of the convertible part of the
Debentures, the holders of the proposed Debentures shall also be entitled to,
apply for said Equity Shares as Right basis with all the attendant rights and
conditions that the then existing Equity Shareholders would be entitled to.
(vi) The Non-convertible part of Rs.
140/- of the proposed Debentures shall be redeemed at par in four equal
annual installment of Rs. 35/- each to be paid on the completion of the
5th, 6th, 7th and 8th years from the date of allotment of the Debentures.
(vii) (a) The Debentures may also be
repurchased by the Company, after the date of conversion and/or nonconvertible
part of Debentures, from the market and the same may be re-issued at a
rate not less than par if the Board of Directors consider it to be in the
interest of the Company and accepted by the Board of Directors on the company's
behalf.
(b) Where the company has redeemed or
repurchased any of the proposed Debentures, then the company shall have and
shall be deemed always to have had the right to keep such debentures alive for
the purpose of reissue and in exercising such right, the company shall have and
shall be deemed always to have had, power to reissue such Debentures either by
reissuing the same Debentures or by issuing other Debentures in their place.
(viii)
The
proposed Debentures shall be transferable and transmittable in the same manner
and to the same extent and be subject to the same restrictions and limitations
as in the case of existing Equity Shares of the Company and the pro
(ix)
visions
relating to the transfer and transmission of shares in the Articles of
Association of the Company shall apply mutatis mutandis to these Debentures.
(ix) The proposed Debentures shall be offered
subject to the Memorandum and Articles of Association of the Company and the
terms of the:
(a) Prospectus; and
(b) Application Form.
(x) The proposed Debentures together with
interest thereon will be secured by a mortgage and/or charge in such form and
over such immovable and movable properties, present and/or future of the
Company as may be agreed to between the Company and the Agents and Trustees for
the holders of the Debentures. The mortgage and/or charge so agreed to be
created may rank pari passu with the existing charges or the charges that may
be created hereafter".
"RESOLVED FURTHER that
the Board of Directors of the Company be and is hereby authorised to finalise
with the Agents and Trustees of the Debenture holders the documents and other
agreements for creating mortgage and/or charges as aforesaid and to do all such
acts, deeds, matter and things as may be necessary or expedient for giving
effect to this resolution."
"RESOLVED FURTHER that
for the purpose of giving effect to the above, the Directors be and are hereby
authorised to prescribe the forms of application, determine the amount payable
on application, allotment and by way of further calls, if any, to issue
prospectus, appoint Lead Managers to the issue, Issue Houses, under writers
and/or brokers etc., for the purpose of issue, pay underwriting commission
and/or brokerage as may be lawful and reasonable and to take such actions or
give such directions as may be necessary or desirable and to obtain any
approvals, permissions, sanctions which may be necessary and to settle any
question or difficulty that may arise in regard to the issue and allotment of
these Debentures."
PRACTICE NOTES
1. Approval of General Meeting.-Pursuant to the provisions contained
in subsection (3) of Section 81 of the Act, the issue of debentures with option
to convert them into shares shall have to be approved by a Special Resolution
by the Company in the General Meeting.
2. Exemptions from Central Government's approval.-Approval of the Central Government
will not be required if the terms of issue of shares is in conformity with
"The public Companies (Terms of Issue of Debentures and Raising of Loans
with Option to Convert such Debentures or Loans into Shares) Rules, 1977"
namely
(a) the debentures or loans may be issued or raised either through
private subscription or through the issue of a prospectus to the public;
(b) a public financial institution either
underwrites or subscribes to or sanction the whole or part of the issue of
debentures or the raising of loans, as the case may be;
(c) having regard to the financial position
of the company the terms of issue of the debentures or the terms of the loans,
as the case may be, the rate of interest payable on the debentures or loans,
the capital of the company, its loans liabilities, its reserves, its profits
during the immediately preceding five years and the current market price of the
shares of the company, as may be applicable, the financial institutions provide
for the terms including the term providing for an Option to convert such
debentures or loans or any part thereof, into shares in the company or to
subscribe for shares therein either at par or at a premium not exceeding twenty-five
per cent of the face value of the shares.
3. Private Company.- A private company is not
entitled to issue debentures to the public.
4. Debentures Trust Deed.-In case
of issue of debentures with maturity of more than 18 months, a Debenture
Trustee should be appointed. A debenture trust deed is to be drawn up and got
approved. It should contain, inter alia,
matters set out in Schedule IV to SEBI (Debenture Trustees' Regulations, 1993.
Debenture Trust Deed should be executed within 6 months of the closure of the
issue.
5. Credit Rating.- The Company should obtain
credit rating from the appropriate Credit Rating agency and the credit rating
should be disclosed in the offer document.
6. Filing.- File the special resolution
along with Form No. 23 within thirty
days of passing of resolution.
7. Information to Stock Exchange.-In case debenture are listed
on the Stock Exchange, the concerned Stock Exchange is to be informed
accordingly.
8. Filing with SEBI.-Draft offer document should be
submitted with SEBI by the concerned Lead Manager(s) and should be finalised on
the basis of the modifications/suggestions made by SEBI. The final re-used
offer document should be resubmitted to SEBI.
9. Central Government
approval.- The application for approval of the Central Government if required is
to be made to the Department of Company Affairs, Shastri Bhavan, Dr. Rajendra
Prasad Road, New Delhi along with requisite fee as prescribed by the Companies
(Fees on Applications) Rules, 1999.
10. Listing on Stock Exchange.-When the Company
desires to list the debentures on a Stock Exchange, finalise the proposal in
consultation with the Stock Exchange.
11. Filing.-File Form No. 10 together
with Form No. 13 with the Registrar
of Companies concerned by paying the requisite filing fee. Ensure to endorse
the certificate obtained from the Registrar of Companies on the debenture
certificate.
12. Registration of Trust deed.-Ensure to get trust deed registered
under the Indian Registration Act.
13. Compliance Certificate.- Companies having paid-up
share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs-,
are required to 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 with right of
conversion during the financial year and complied with the provisions of the Act as per paragraph 19 of the Companies (Compliance Certificate) Rules, 2001.
Taking of loan with right of conversion
S.
81(3)(b)-Taking of loan with right of conversion-Special Resolution
"RESOLVED that in accordance with the provisions of Section 8](3)(b) and other applicable provisions, if any, of the Companies Act, 1956 and subject to the approvals of the Central Government and to such modifications as the Central Government may require which the Board of Directors of the Company is hereby authorised to accept, consent of the Company be and is hereby accorded to the Board of Directors of the Company raising
(a) an additional Rupee Loan
not exceeding Rs. 150 lakhs (Rupees one hundred and fifty lakhs only) from
Industrial Development Bank of India (IDBI);
(b) an additional Rupee Loan
not exceeding Rs. 200 lakhs (Rupees two hundred lakhs only) from Industrial
Finance Corporation of India (IFCI);
(c) an additional Rupee Loan
not exceeding Rs. 200 lakhs (Rupees two hundred lakhs only) from the Industrial
Credit and Investment Corporation of India Limited (ICICI);
(d) a Rupee Term Loan not
exceeding Rs. 10 lakhs (Rupees ten lakhs only) from Life Insurance Corporation
of India (LIC);
upon such terms and
conditions as may be agreed to by the Board of Directors on behalf of the
Company on the one hand and IDBI, IFCI, ICICI and LIC on the other hand, such
terms and conditions to provide, inter alia, for an option to IDBI, IFCI, ICICI
and LIC to convert a part of their respective additional Rupee Loans/Term Loan
upto an amount not exceeding 20% thereof into fully paid-up equity shares
of the Company at par such option/options to be exercised by IDBI, IFCI, ICICI
and LIC at any time on one or more occasions during the period between October
4, 2000 to September 30, 2002 (both days inclusive) and issuing and allotting
the requisite number of fully paid-up equity shares of the Company to
IDBI, IFCI, ICICI and LIC at par as aforesaid."
1. Approval of General Meeting.-Pursuant to the provisions
contained in subsection (3) of section 81 of the Act, the raising of loans with
option to convert them into shares shall have to the approved by a Special
Resolution by the Company in the general meeting.
2. Exemption from Central Government's approval.-Approval of the Central
Government will not be required if the terms of Issue of shares is in
conformity with "The Public Companies (Terms of Issue of Debentures or
Loans with option to convert such Debentures or Loans into Shares) Rules, 1977"
namely-
(a) the loans may be raised
either through private subscription or through the issue of a prospectus to the
public;
(b) a public financial institution either underwrites or subscribes to or sanction the whole or part of the raising of loans;
(c) having regard to the
financial position of the company the terms of the loans, the rate of interest
payable on the loans, the capital of the company, its loans liabilities, its
reserves, its profits during the immediately preceding five years and the current
market price of the shares of the company, as may be applicable, the financial
institutions provide for the terms including the term providing for an option
to convert loans or any part thereof, into shares in the company or to
subscribe for shares therein either at par or at a premium not exceeding twenty-five
per cent of the face value of the shares.
3. Private Company.-A private company is not entitled to issue shares to
the public.
4. Filing.-File the special resolution along with Form No. 23 within thirty days
of passing of Resolution. If default is made in complying with the aforesaid
provision, the company, and every officer of the company who is in default will
be punishable with fine of up to Rs. 100/-.
5. Finalisation of Loan Agreement.-Finalise the loan agreement
in consultation with the financial institutions and have the same approved at
the Board Meeting.
6. Information to Stock Exchange.-In case shares are listed on
the Stock Exchange, the concerned Stock Exchange is to be informed accordingly.
7. Listing on Stock Exchange.-When the company desires to list the shares
on a Stock Exchange, finalise the proposal in consultation with the Stock
Exchange.
8. Filing.-File Form No. 8 together with Form No. 13 with the Registrar of
Companies concerned by paying the requisite filing fee. Default made in
complying with this requirement will make the company and every officer of the
company or other person who is in default punishable with fine of up to Rs.
5,000/-.
Taking of loan with option to convert into shares
(Another Format)
"RESOLVED that subject to the approval of the Central Government as also subject to other approvals, if necessary, the loan of Rs. 70,00,000/- (Rs. Seventy lakhs only) sanctioned by the Industrial Finance Corporation of India (IFCI) containing, inter alia, terms/conditions providing for an option on the part of the IVCI to convert a sum not exceeding Rs. 10,00,000/- (Rs. Ten lakhs only) being a portion of the said sanctioned loan into equity shares of the Company, as set out hereunder, be and is hereby approved and accepted under Section 81(3)(b) of the Companies Act, 1956:-
"The Borrower (i.e.,
the Company) agrees that 1FCI shall have the right to convert, at its option,
which may be exercised once or more than once, a part of the loan not exceeding
Rs. 10.00 lakhs (Rupees ten lakhs only) during the period from 1st October,
2000, to 30th September, 2002, into fully paid up equity shares of Borrower of
an aggregate face value of Rs. 10,00,000/- at par as will be specified in a
notice in writing given by IFCI to the Borrower not less than one month prior
to the date on which the conversion is to take effect to be specified in the
said notice (hereinafter called "the date of conversion") provided,
however, in case the entire amount of the loan is not advanced to the Borrower,
the part of the loan convertible into equity shares will be reduced proportionately.
On receipt of the notice of conversion, the Borrower shall allot and issue the
requisite number of fully paid-up equity shares to IFCI on the date of
conversion and IFCI shall accept the same in satisfaction of the principal
amount of the loan to the extent so converted. The portion of the loan so
converted shall cease to carry interest as from the date of conversion and the
loan shall stand correspondingly reduced. Upon such conversion the last
instalment(s) of the loan as per repayment schedule hereinafter incorporated
shall stand correspondingly reduced in inverse order of maturities. The equity
shares so allotted and issued to IFCI pursuant to its exercising the right of
conversion shall carry the right to receive the proportionate dividends and
other distributions declared or to be declared in respect of the said shares
from the date of allotment of shares. Save as aforesaid, the said shares shall
rank pari passu with the existing equity share capital of the Borrower in all
respects. Provided further that the Borrower shall at all times maintain
sufficient unissued equity shares to satisfy the outstanding right of
conversion for the time being available to IFCI."
RESOLVED FURTHER that the
Board of Directors of the Company be and are hereby authorised to issue and
allot to the IFCI aforesaid number of equity shares for conversion of the said
portion of the loan to the extent of Rs.10,00,000/- (Rupees ten lakhs) or
for such lesser amount, as may be desired by the IFCI."
CONVERTIBLE LOAN
"RESOLVED that in
accordance with the provisions of Section 81(3)(b) and other applicable
provisions, if any, of the Companies Act, 1956, and subject to the approval of
Central Government and other approvals, if necessary, and subject to such
modifications as the Central Government may require and which the Board of
Directors of the Company are hereby authorised to accept, the consent of the
Company be and is hereby accorded to the Board of Directors of the Company
for-
(a) raising a rupee loan of
Rs. 150 lakhs from Industrial Development Bank of India (IDBI);
(b) raising a rupee loan of
Rs. 70 lakhs from Industrial Finance Corporation of India (IFCI); and
(c) issuing privately placed
Debentures of the aggregate nominal amount of Rs. 80 lakhs to Life Insurance
Corporation of India (LIC),
upon such terms and
conditions as may be agreed to by the Board of Directors on behalf of the
Company on the one hand and IDBI, IFCI and LIC on the other hand; such terms
and conditions to provide inter alia for an option to IDBI, IFCI and LIC to
convert a part of their respective loans/debentures as mentioned hereinbelow
into fully paid up Equity Shares of the Company at par of the face value of Rs.
10/- each, such options to be exercised by IDBI, IFCI and LIC on one or more
occasion(s) during the period 1st October, 2000 to 30th September, 2002 (both
days inclusive)
Financial Institution |
Maximum Amount of Loan/Debentures
to be converted into Equity Shares Rs. |
IDBI |
Rs. 24,00,000 |
IFCI |
Rs. 10,00,000 |
LIC |
Rs. 10,00,000 |
The fully paid up equity
shares so allotted and issued to the financial institutions pursuant to their
exercising the right of conversion shall carry the right to receive the
proportionate dividends and other distributions declared or to be declared for
the period commencing from the date of conversion till the end of relevant
financial year. Save as aforesaid, the fully paid up equity shares allotted to
the financial institutions shall rank pari passu in all respects with the
existing fully paid up equity shares of the company provided further that the
Company shall at times maintain sufficient unissued equity shares to satisfy
the outstanding right of conversion for the time being available to the
financial institutions.
RESOLVED FURTHER that the Board of Directors be and are hereby authorised to accept such modifications and to accept such terms and conditions as may be imposed or required by the financial institutions arising from or incidential to the aforesaid term providing for such option and to do all such acts and things as may be necessary to give effect to the above resolution."
PRACTICE NOTES
1. Draft resolutions generally given by lending institutions.-It is to be noted that
resolutions to be passed by the company are generally provided by the lending
financial institutions.
2. Approval of
shareholders.-The approval of shareholders by a special resolution at a general
meeting before raising of loan is necessary.
3. Approval of Central Government.-When issue is not in
conformity with the Public Companies (Terms of Issue of Debentures and Raising
of Loans into Shares) Rules, 1977 prior approval of Central Government is
necessary. However, no approval is necessary when such issue is in conformity
with the Rules.
4. Order for conversion prospective in effect.-The order passed for
conversion is not retrospective in effect but only prospective in effect. Where
loans are converted into shares, the holder thereof is entitled to all the
rights of a member including voting rights at meetings of the company. In case
retrospective conversion is made, the entire voting pattern of meetings of a
company which had taken place in the interim period would be upset.
5. Filing of Forms.-Ensure to file Form No. 23 within thirty days of the
passing of the resolution with the Registrar of Companies concerned as non-filing
of this form will attract fine of up to Rs. 100/-.
"RESOLVED that pursuant to article _________ of the Articles of Association of the Company and subject to other statutory approvals, if any, _________ 10% cumulative convertible preference shares of Rs. 100/- each and forming part of the authorised capital of the Company and remaining unsubscribed, be issued at par and allotted to any person or persons as the Board of Directors may deem fit, subject to the following terms and conditions:
(a) The holders of the
shares shall be entitled to receive a cumulative preferential dividend of 10%
per annum in respect of the capital paid-up on the shares;
(b) The holders of the
shares shall be entitled to attend meetings and vote on resolutions directly
affecting their rights, or where the dividend due on their shares is in arrears
for not less than two years before the meeting, on all resolutions at every
meeting of the company;
(c) In a winding up, the
holders of the shares shall be entitled to a preferential right of return of
the capital paid-up thereon together with arrears Of Cumulative
preferential dividend due thereon but without any further right or claim over
the assets of the company;
(d) The entire issue shall
be converted into equity shares of Rs. 10/- each ranking pari passu with the
existing equity shares of the company, between the end of three years and five
years from the date of the issue.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to accept on behalf of the
Company, any modifications to these terms which may be proposed by SEBI and
which the Directors in their discretion think fit and proper."
1. Articles must empower company.-The articles of the company
should be perused to see if they permit the issue of this class of shares. Otherwise
a Special Resolution will first have to be passed amending the articles.
2. Further issue of preference shares.-When a public company
issues preference shares two years after its formation or one year after the
first allotment of shares, it is bound to offvr the shares to the existing
shareholders. However, if the company passes a Special Resolution in the above
terms, the Directors are empowered to make an offer to the public without
offering it first to the existing shareholders.
3. Filing of Special Resolution in Form No. 23 along with Explanatory
statement with Register.-The Special Resolution passed should be filed along
with the Explanatory Statement in Form No. 23 within thirty days of the passing
of the resolution with the Registrar of Companies together with the prescribed
filing fee.
4. Payment of filing fee.-The filing fee for the return will be at the rates
specified in Schedule X to the Act and may be paid by cash to the Registrar, or
by treasury challan drawn on specified branches of the Punjab National Bank or
by demand draft drawn in favour of the Pay and Accounts Officer Department of
Company Affairs of the area concerned and submitted to the Registrar together
with the return.
5. Guidelines for issue of cumulative preference shares to be complied
with.-The
guidelines issued for the issue of cumulative convertible preference shares
have to be complied with.
6. Compliance Certificate.-Companies having paid-up share capital
of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required
to 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 cumulative convertible preference shares
during the financial year and complied with the provisions of the Act as per
paragraph 19 of the Form of Compliance Certificate appended to the Companies
(Compliance Certificate) Rules, 2001.
"RESOLVED pursuant to
the provisions of section 81(1A)(a) of the Companies Act, 1956, that the
Directors of the Company be and are hereby authorised to issue and allot
3,00,000 fully paid-up equity shares in the Company of the face value of
Rs. 10/- per share at a premium of Rs._________ ranking pari passu with
the existing equity shares in all respects to M/s ABC Corporation, Missouri,
U.S.A., without offering the same to the persons who at the date of the offer
are holders of the equity shares of the company."
1. Automatic Approval.-By Press Note No. 2 (2000 Series) dated 11th
February, 2000 Government placed all items/activities under automatic route for
FDI/NRI and OCB investment except the following : (i) all proposals that
require an industrial licence; (ii) all proposals in which the foreign
collaborator has a previous venture/tieup in India; (iii) all proposals
relating to acquisition of shares in an existing Indian company in favour of a
foreign/NRI/OCB investor; (iv) all proposals falling outside notified sectoral
policy/caps or under sectors in which FDI is not permitted and/or whenever any
investor chooses to make an application to the FIPB and does not want to avail
of the automatic route. All proposals for investment in public sector unit as
also for EOU/EPZ/EHTP/STP units would quall fy for automatic route subject to
the above parameters. By another Press Note dated 28th July, 2000, Government
has allowed FDI up to 100% for E-Commerce activities subject to the
condition that such companies would divest 26% of their equity in favour of the
Indian public in 5 years, if these companies are listed in other parts of the
world. Further these companies would engage only in business to business E-Commerce
and not in retail trading. The same Press Note also has raised the level of FDI
in oil sector under automatic route from existing 49% to 100% and further
removed dividend balancing so far applicable to 22 specified consumer goods
industries and upper investment limit of Rs. 1,500/- crores in respect of
the power projects relating to electric generation, transmission and
distribution (other than atomic reactor power plant). By Press Note No. 9 (2000
Series) dated 8th September, 2000 FDI upto 100% is allowed through the
automatic route for all manufacturing activities in Special Economic Zones
except certain activities like arms and ammunition, explosives etc. FDI up to
100% is also allowed by the said Press Note for certain activities in the
telecom sector subject to certain conditions. By another Press Note No. 10
(2000 Series) dated 19th October, 2000, foreign equity participation upto 26%
in the Insurance sector as prescribed in the Insurance Act, 1999, is allowed
under the automatic route but the companies who bring in FDI will be required
to obtain necessary licence from the Insurance Regulatory and Development
Authority for undertaking insurance activities.
2. Preferential Allotment.-Preferential allotment to foreign
collaborators should be at the market related price determined on the basis of
the monthly average of the 'high' and 'low' rates quoted at the stock exchanges
during the 6 months immediately proceeding the date of the resolution. Before
making preferential allotment of shares to select group a listed company should
also adhere to Chapter XIII of SEBI (Disclosure & Investor Protection)
Guidelines, 2000.
3. Certificate.-Computation of the price in terms of 2 above duly
certified by a Chartered accountant should be submitted to RBI along with the
application for approval.
4. Guidelines to be followed.-Follow the guidelines laid down by the RBI
and the Department of Industrial Development.
5. Compliance Certificate.-Companies having paid-up share capital
of less than Rs.2 Crores but equal to or more than Rs. 10 lakhs are required to
obtain a Compliance Certificate from a secretary In whole-time practice
to be filed with the Registrar of Companies mentioning therein inter cilia that
the company has issued equity shares to foreign collaborators during the
financial year and complied with the provisions of the Act as per paragraph 19
of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Issue of bonus shares to stock holder
S. 81/Regn. 96/TableA-Issue of bonus shares to
stockholders-Ordinary Resolution
"RESOLVED that pursuant to the recommendation of the Board of Director and article _________ of the Articles of Association of the Company and subject to vetting by SEBI and Such other authorities as may be necessary a sum of Rs. _________ standing to the credit of the company's general reserves be capitalised and such amount be applied in paying up in full equity shares of Rs. _________ each in the capital of the company, to be allotted and distributed as fully paid shares to the members of the company registered as the holders of the stock of the company in the proportion of one equity share for every one unit of stock held by the company.
RESOLVED FURTHER that the
equity shares to be issued in pursuance of this resolution shall be subject to
the Memorandum and Articles of Association of the company and shall in all
respects rank pari passu to the existing equity shares of the company,
provided, however, that the new equity shares shall not be entitled to
participate in any dividend declared or to be declared for any year or period
prior to the issue of the said shares.
RESOLVED FURTHER that the
Board of Directors of the company be and is hereby authorised to convert the
new equity shares into stock of the company after allotment."
1. Issue of Shares to stockholders.-There is provision in
section 205(3) proviso of the Act for such an issue. Reg. 96 of Table A
provides for the issue of bonus shares and Reg. 36 gives power to the company
to convert shares into stock.
2. Guidelines issued by SEBI to be complied with.-The guidelines for a bonus
issue laid-down in Chapter XV of SEBI (Disclosure and Investor
Protection) Guidelines, 2000 have to be complied with if the company is a
listed company. Further the draft offer document of the issue should be filed
with SEBI and requirements under standard listing agreement should be followed
by a listed company.
3. Filing of return with Registrar of Companies.-After the fresh issue is
made and converted into stock, the company has to file a return in Form No. 5
within 30 days of the conversion together with the requisite filing fee, as
prescribed under Schedule X to the Act.
4. Compliance Certificate.-Companies having paid-up share capital
of less than Rs.2 Crores but equal to or more than Rs. 10 lakhs are required to
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 bonus shares to stock holder during the financial year
and complied with the provisions of the Act as per paragraph 19 of the Form of
Compliance Certificate appended to the Companies (Compliance Certificate)
Rules, 2001.
Issue of bonus shares
(Another Format)
"RESOLVED that a sum of Rs out of the Company's Special Reserve and Rs._________ out of the Company's General Reserve aggregating to Rs._________ forming part of the undistributed profits of the Company be capitallsed and that the said sum so capitallsed be applied in paying up in full at par _________ new Equity Shares of Rs. _________ each (hereinafter referred to as the "said Bonus Shares") in the share capital of the Company and the said Bonus Shares be appropriated as capital and not as income and allotted and distributed as fully paid up Bonus Shares to and amongst the persons registered in the Register of Members as the holders of the existing Equity Shares of the Company on such date as may hereafter be determined by the Directors, in the proportion of said Bonus Shares for every existing Equity Share held by such per sons respectively provided that the issue and allotment of the said Bonus Shares are subject to the following terms and conditions:
(i) that the vetting, if
any, from Securities and Exchange Board be got done for such issue;
(ii) that the necessary
approval of the Reserve Bank of India, if any, be obtained under the Foreign
Exchange Management Act, 1999 to the issue and allotment of the proportionate
Bonus Shares to those shareholders who are resident outside India;
(iii) that the approval of
the Financial Institutions be obtained in terms of the Company's Agreement with
them dated _________ 2002 _________
(iv) that the said Bonus
Shares shall in all respects rank pari passu with the existing Equity Shares
except that they shall be entitled to participate only in such dividends which
may be declared after allotment of the said Bonus Shares and they shall not
participate in any dividend which may be declared in respect of the financial
year or any period prior to the allotment of the said Bonus Shares. The said
Bonus Shares shall also be subject to the Memorandum and Articles of
Association of the Company in all respects;
(v) that no allotment letter
shall be issued to the allottees of the said Bonus Shares and that Certificates
in respect of the said Bonus Shares allotted shall be sent to the respective
allottees within four months of the respective dates of allotment thereof;
(vi) that in making the
allotment of the said Bonus Shares, the Directors shall not issue fractional
certificates but the total number of the said Bonus Shares representing such
fractions shall be allotted to a person or persons appointed by the Directors to
act as a trustee or trustees for and on behalf of the members who would have
been entitled to fractional certificates if such certificates would have been
issued, and that the said person or persons shall hold the said shares so
allotted to him in trust to sell the same and, after payment of all expenses of
the sale, to distribute the net proceeds of such sale amongst the members in
proportion to their respective fractional entitlements thereto;
(vii) that for the purpose
of implementing the Resolution, the Board of Directors be and are hereby
authorised-
(a) to negotiate with the
relevant statutory authorities and the Financial Institutions, referred to in
clauses (i), (ii) and (iii) above and settle with them any question or
difficulties pertaining to the issue of the said Bonus Shares in such manner as
the Directors may think fit and to agree to any condition or conditions which
may be imposed by them in connection therewith if the Directors consider it
expedient and generally to prescribe the various documents, give all requisite
directions and take all necessary actions as the Directors may consider
appropriate in respect of the issue and allotment/distribution thereof;
(b) without prejudice to the
generality of the foregoing provisions, in particular to make, if so required
by the terms of sanction of the said statutory authorities or any of them, such
consequential changes in the quantum and proportion of the said Bonus Shares as
they may think fit and in case the requisite approval of the said statutory
authorities or any of them cannot be obtained to the issue of the said Bonus
Shares and/or to the allotment/ distribution thereof to the non-resident
shareholders or any of them, then in that event the issue of the said Bonus
Shares shall stand rescinded altogether.
(viii) that it is hereby
recorded that subject to statutory limitation of dividend, if any, and provided
cash resources are adequate and profits after taxation for the year are
sufficient to cover the dividend plus transfers to reserves which may be
required, it is the intention of the Board of Directors unless prevented by
unforeseen circumstances to recommend the declaration of a dividend of at least
Rs. _________ per Equity Share on the share capital as increased by the
proposed bonus issue in the financial year of the Company immediately after the
allotment of the said Bonus Shares. This statement of intention is not a
forecast."
1. Articles of Associations.-En sure that Articles of Association contains
a provision for issue of Bonus shares by capitallsation of reserves. In case
Articles of Association do not contain a provision, take steps to amend the
Articles of Association of the Company.
2. Authorised Capital.-Ensure that the existing authorised capital is
sufficient to cover the Bonus issue. If not, take steps to increase the
authorised capital of the company.
3. Board Meeting.-Hold a Board Meeting and fix date, time and venue of
the General Meeting for considering the proposal for issue of Bonus Shares and
also to decide about the notice of the general meeting and the relevant
explanatory statement.
4. Intimation to Stock Exchange.-Send necessary intimation to
Stock Exchange(s) on which the Company's shares are listed.
5. Closure of Register of members.-Fix record date for closure
of Register of members in consultation with the Stock Exchange concerned.
6. Other requirements.-The company has to ensure that:
(a) The bonus issue is made
out of free reserves built out of the genuine profits or share premium collected
in cash only.
(b) Reserves created by
revaluation of fixed assets are not capitalised.
(c) Issue of bonus shares
after any public/rights issue is subject to the condition that no bonus issue
shall be made which will dilute the value or rights of the holders of
debentures, convertible fully or partly. In other words, no company shall,
pending conversion of FCDs/PCDs, issue any shares by way of bonus unless
similar benefit is extended to the holders of such FCDs/PCDs, through
reservation of shares in proportion to such convertible part of FCDs or PCDs.
The shares so reserved may be issued at the time of conversion(s) of such
debentures on the same terms on which the bonus issues were made.
(d) The declaration of bonus
issue, in lieu of dividend, is not made.
(e) The bonus issue is not
made unless the partly paid shares, if any existing, are made fully paid-
up.
(f) The company has not
defaulted in payment of interest or principal in respect of fixed deposit, and
interest on debentures or on redemption of debentures. The Company has not
defaulted in respect of payment of statutory dues of the employees such as
contribution to provident funds, gratuity, bonus etc.
(g) Ensure that a company which announces its bonus issue after approval of the Board of Directors must implement the proposals within a period of six months from the date of recommendation by Board. The decision of bonus issue taken cannot be changed by the Board.
(h) File notice of increase
with the Registrar of Companies concerned.
8. Board Meeting for allotment of Bonus Shares.-Hold a Board Meeting and
make allotment of Bonus shares to members.
9. Compliance certificate.-Listed companies are required to forward a
Certificate duly countersigned by the statutory auditor or by a Company
Secretary in practice to the effect that terms and conditions of bonus issue as
laid down in SEBI (Disclosure & Investor Protection) Guidelines, 2000 have
been complied with.
§ 863
Another form of resolution for issue of bonus shares
"RESOLVED that it is desirable to capitalise a sum of Rs. _________ standing to the credit of the Company's General Reserves and that the said sum be accordingly set free for distribution not by way of payment in cash but applied in paying up in full _________ No. of un-issued Equity Shares in the company of the face value of Rs. 50/- each to be allotted and distributed and credited as Fully Paid-up to and amongst such members in the proportion of _________ No. of Bonus Shares for every _________ No. of Equity Shares of Rs. 50/- each held by such members on a date to be determined by the Board, fractions below Re. 1/2 being ignored and fractions of Re. ˝ and above being rounded off to the next higher integer.
RESOLVED FURTHER that such
new equity shares distributed as bonus shares shall rank pari passu in all
respects with the existing equity shares of the company including the right to
participate in any dividend that may be declared by the company in respect of
the year ending 31-3-2002.
RESOLVED FURTHER that the
Board of Directors be and hereby authorised and empowered to take all necessary
steps to give effect to the aforesaid Resolutions."
See under Resolution § 862.
Capitalisation of profit by Issue of Bonus Shares
"RESOLVED that pursuant to recommendation of the Board of Directors and article of the Articles _________ of Association of the company, and subject to other statutory approvals, if any, a sum of Rs.3,00,00,000 standing to the credit of the company's general reserve be capitalised and the aforesaid amount of Rs. 3,00,00,000 be applied in terms of article _________ of the Articles of Association of the company, for paying up in full at par 30,00,000 equity shares of Rs. 10/- each in the capital of the company to be allotted and distributed as fully paid bonus shares to such members holding equity shares as per the register of equity shareholders at date determined by the Board of Directors of the company, who are the holders as on the aforesaid date of the existing 30,00,000 equity shares of the company fully paid-up in proportion to one bonus share for one existing fully paid equity share upon t i he footing that they become entitled to such new equity shares as capital and not as income.
RESOLVED FURTHER that where
the proportion of the new equity shares is not in the exact proportion of the
holding of existing equity shares and results in any member becoming entitled
to fraction of new equity shares to be allotted as bonus shares, the company
shall not issue any certificate or coupon in respect of such fractional shares
but the total number of new equity shares representing such fractions shall be
allotted by the Board of Directors of the company to a nominee to be selected
by the Board of Directors who on behalf of the existing shareholders shall have
the right to be allotted such fractional shares and the company shall issue in
favour of such nominee, such equity share certificate or certificates after
consolidating all the fractional certificates into a marketable lot and
thereafter such equity shares shall be sold by such nominee at the prevailing
market rate(s) and the net sale proceeds of such shares be distributed amongst
such members who are entitled to such fractional certificates in proportion to
their respective holdings and allotment of fractional certificates therefor.
RESOLVED FURTHER that the
bonus shares to be issued as fully paid equity shares are subject to the
Memorandum and the Articles of Association of the company and shall rank in all
respects pari passu to the existing equity shares, provided, however, that such
new equity shares shall not be entitled to participate in any dividend declared
or to be declared for any year or period prior to the issue of the bonus shares
and that no letter of allotment shall be issued in relation to the bonus shares.
RESOLVED FURTHER that the
Directors of the company be and are hereby assigned the responsibility of
posting the new equity share certificates giving details on basis of bonus
shares and post such certificates to the members thereof to the registered addresses
of such members as recorded in the Register of Members (equity shares) within
two months from the date of allotment and that the allotment of new bonus
shares to any non-resident members shall be subject to the approval of
the Reserve Bank of India under Foreign Exchange Management Act, 1999."
1. Articles to empower Board to capitalise profits.-There is no specific
provision in the Act for the issue of bonus shares. Articles of the company
must empower the Board to capitalise the profits.
2. Regulation 96, Table 'A' contains provision which is usually found
in Articles.-Reg. 96, Table A contains necessary provision which is usually found in
the articles of all companies. Articles should be amended, if they are silent,
to incorporate provision similar to Reg. 91.
3. Guidelines of SEBI to be complied with.-Guidelines for issue of
bonus shares issued by the Securities and Exchange Board of India should be
fully complied with.
Capitalisation of Profit by Issue of bonus shares
(Another format)
"RESOLVED
(a) That upon the recommendation of the Board of Directors of the company and subject to the necessary approvals, if any and pursuant to Article of the Articles of Association of the Company, the sum of Rs. _________ out of the amount standing as on _________ to the credit of the Company's General Reserve, be and is hereby capitalised and the same be applied on behalf of the persons, whose names appear on the Register of members of the company at the close of business on _________ towards payment in full of ____________ unissued new equity shares of the company of the face value of Rs. 10/- each and that such new equity shares, credited as fully paid up, be accordingly allotted to such persons respectively in the proportion of two new equity shares for one existing equity share held by such persons respectively as on the said date and that the new equity shares so allotted shall be treated for all purposes as an increase in the nominal amount of the capital of the company held by each such member and not as income;
(b) That the new equity
shares shall be allotted subject to the Memorandum and Articles of Association
of the company;
(c) That the new equity
shares shall upon allotment have the same rights of voting as the existing
equity shares and be treated for all other purposes pari passu with the
existing equity shares except that they shall not be entitled to any dividend
declared or paid prior to the date of allotment.
(d) That the members to whom
the new equity shares are allotted in accordance with paragraph (a) hereof
shall accept the same in full and final settlement, satisfaction and discharge
of their respective rights and interests in the capitalised sum of Rs.
_________
(e) That no letter of
allotment shall be issued and the certificates in respect of the new equity
shares as aforesaid shall be delivered within three months from the allotment
thereof;
(f) That for the purpose of
giving effect to this resolution, the Directors of the company be and hereby
authorised to do all such acts, deeds, matters and things as they may in their
absolute discretion deem necessary or desirable and to settle any question,
difficulty or doubt that may arise in regard to the issue and the distribution
of the new equity shares or as they may think fit.
"RESOLVED FURTHER that subject to unforeseen or unavoidable adverse circumstances, the Directors intend to declare and/ or to recommend the declaration of dividend at the rate of not less than _________ percent (subject to deduction of tax) on the expanded paid up share capital of the company in the year immediately after the issue and allotment of bonus shares".
1. Necessity of bonus issue.-The idea behind the issue of bonus shares is
to bring the nominal share capital into line with the true excess of assets
over liabilities. A company would like to have more working capital but it need
not go into the market-for obtaining fresh capital by issuing fresh
shares. The necessary money is available with it and this money is converted
into shares which really means that the undistributed profits have been
permanently ploughed back into the business and converted into share capital.
Fully paid bonus shares are thus not a gift; they are merely a distribution of
capitalised undivided profit. It would be a misnomer to call the recipients of
bonus shares as donees of shares from the company.
2. Bonus issue in the form of fully paid shares not income for income
tax purposes.-Bonus shares are not issued free or ex gratia as the company gets an
adequate quid pro quo from the shareholders. It is also settled law that a
bonus issued in the form of fully paid shares of the company is not income for
income-tax purposes. the undistributed profits of the company applied and
appropriated for the issue of bonus shares would never become profits in the
hands of the shareholders at all. The bonus shares would be something in the
nature of an extra share certificate in the company. The shares allotted to a
shareholder do not represent taxable income in his hands. (Commissioner of
Income tax Madras v. AA V Ramachandra Chettair, (1964) 1 Mad LJ 281).
3. When fully paid-up bonus shares issued profits capitalised.-When fully paid-up
bonus shares are issued to the shareholders, what actually happens is that the
profits are capitalised and the existing shareholders, instead of receiving any
moneys out of the undistributed profits only, receive pro rata fresh shares out
of the old shares converted as fully paid-up or out of the new issue.
(Sivagananammal v. Thirumaggal Mills Ltd., (1948) 18 Com Cases 286).
4. Vesting of bonus shares takes place from date of resolution.-Vesting of bonus shares
takes place from the date of the company's resolution and not from the date of
actual allotment.
5. Furnishing of certificate duly signed by issuer and duly undersigned
by statutory Auditor/Secretary.-Forward a certificate duly signed by the issuer and
duly countersigned by its statutory auditor or by a company secretary in
practice to the effect that the terms and conditions for issue of bonus shares
as laid down in these guidelines have been complied with.
6. Bonus issue after public/rights issue not to dilute rights of
debenture holders, etc.-Issue of bonus shares after any public/rights issue
is subject to the condition that no bonus issue shall be made which will dilute
the value or rights of the holders of debenture, convertible fully or partly.
7. Bonus issue made out of free reserve.-The bonus issue is made out
of free reserves built out of the genuine profits or share premium collected in
cash only.
8. Reserve created by revaluation of fixed assets not capitalised.-Reserve created by
revaluation of fixed assets are not capitalised.
9. Declaration of bonus issue in lieu of dividend not made.-The declaration of bonus
issue, in lieu of dividend should not be made.
10. Bonus issue not made unless partly paid shares made fully paid-up.-The bonus issue is not made
unless the partly-paid shares, if any, existing are made fully paid up.
11. Company not defaulted in payment of interest, statutory dues, etc.-The company-
(1) has not defaulted in
payment of interest or principal in respect of fixed deposits and interest on
existing debentures or principal on redemption thereof', and
(2) has sufficient reason to believe that it has not defaulted in respect of' the payment of statutory dues of the employees such as contribution to Provident Fund, gratuity, bonus, etc.
12. Company must implement decision of the Board to issue bonus shares
within six months.-A company which announces its bonus issue after the approval of the
Board of Directors must implement the proposals within a period of six months
from the date of such approval and shall not have the option of changing the
decision.
13. Articles of Association must contain provision for capitalisation
of profit.
-There should be a provision in the articles of association of the company for
capitalisation of reserves, etc., and if not, the company shall pass a
resolution at its General Body Meeting making provisions in the articles of
association for capitalisation.
14. Increase in authorised capital. -Consequent to the issue of
bonus shares if the subscribed and paid-up capital exceed the authorised
share capital, a resolution shall be passed by the company at its General Body
Meeting for increasing the authorised capital.
15. Unlisted closely held and private companies not to issue bonus
shares out of reserves created by revaluation of fixed assets.-The existing private/closely
held and unlisted companies should not issue bonus shares out of reserves
created by revaluation of fixed assets.
Capitalisation of Profit by Issue of Bonus Shares
(Another Format)
"(1) RESOLVED that upon
the recommendation of the Directors and subject to the approval of Reserve Bank
of India and other appropriate authorities where applicable, a sum of Rs.
_________ (Rupees __________________ ) out of the sums standing to the credit
of General Reserved/Share Premium Account be and the same is hereby
capitalised and accordingly the Directors be and are hereby authorised to
appropriate the said sum for distribution to and amongst the members of the company
whose names appear in the Register of Member of Equity Shares as on such date
to be hereafter fixed by the Directors in proportion to the Equity Shares held
by them respectively and to apply the said sum in paying up in full _________
Equity Shares of Rs. 10/- each at par in proportion of _________ new
share for every _________ of the said existing equity shares then held by such
members respectively on the basis that members become entitled to the new
equity shares as capital and not as income.
(2) RESOLVED FURTHER that
the new equity shares shall be allotted subject to the Memorandum and Articles
of Association of the company and shall in all respects rank pari passu with
the existing fully paid-up equity shares of the company, with a right, if
the Directors so determine, to participate in full in dividend to be declared
after the date of allotment of these shares.
(3) RESOLVED FURTHER that no
fractional certificate shall be issued to the members in respect of their
respective fractional entitlement of bonus shares but all the fractions
remaining after allotment of the bonus shares as aforesaid shall be
consolidated into full bonus shares which shall be allotted at the discretion
of the Directors to any person or persons in trust for the benefit of those
members who are entitled to fractional entitlements of bonus shares, for the
purpose of selling such consolidated full bonus shares as soon as possible in
the market and that the net sale proceeds of such consolidated full bonus
shares after deducting therefrom the costs, charges, and expenses of sale,
shall be divided and distributed proportionately amongst those members who
would be entitled to fractional entitlements of such full bonus shares.
(4) RESOLVED FURTHER that no
letter of allotment shall be issued in respect of the said bonus shares but the
certificates in respect of the new equity shares to be allotted as fully paid
bonus shares as aforesaid shall be delivered within six months of the date of
allotment thereof by the Board of Directors of the company (Board) or within
such extended time as may be allowed by appropriate authorities.
(5) RESOLVED FURTHER that
the issue and allotment of the said bonus shares and/or payment of any sum in
cash in lieu of fractional shares as aforesaid to the extent they relate to the
non-resident members of the company, will be subject to the approval of
the Reserve Bank of India, as may be necessary.
(6) RESOLVED FURTHER that
for the purpose of giving effect to this resolution and for removal of any
doubts or difficulties, the Board be and is hereby authorised to do all such
acts, deeds, matters and things and to give from time to time such directions
as may be necessary, expedient, usual or proper and to settle any question or
doubt that may arise in relation thereto or otherwise reconsider the matter
with the changed circumstances, if any, as the Board in its absolute discretion
may think fit and its decision shall be final and binding on all members and
other interested persons.
(7) RESOLVED FURTHER that the
present intention of the Board of Directors to recommend, barring unforeseen
circumstances, and subject to the provisions of the Companies (Transfer of
Profits to Reserves) Rules, 1975 that the dividend to the members on the
expanded equity capital of the company in the year immediately after the bonus
issue, shall not be less than __________________ % be and is hereby recorded.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to take such steps as may be
necessary or desirable to give effect to these resolutions."
1. SEBI Guidelines.-Listed companies going for bonus issue should adhere
to Chapter XV of SEBI (Disclosure & Investor Protection) Guidelines, 2000.
2. Filing of Special Resolution.-The special resolution
passed should be filed along with the explanatory statement in Form No. 23
within thirty days with the Registrar of Companies along with requisite fee as
prescribed under schedule X of the Act. For non filing of this Form within
time, the company and every officer of the who is in default shall be
punishable with fine of up to Rs. 100/-.
Issue of Bonus Redeemable Preference Shares
RESOLVED that on the
recommendation of the Board of Directors of the company and subject to other
appropriate authorities wherever applicable, a sum of Rs. _________ (Rupees
__________________) out of the sums standing to the Credit of General
Reserve/Share Premium Account of the Company be and is hereby capitalised and
accordingly the Board of Directors be and is hereby authorised to appropriate
the said sum for distribution to and amongst the members of the company where
names appear in the Register of Members of Equity Shares as on such date to be
hereafter fixed by the Board of Directors in proportion to the Equity Shares
held by them respectively and to apply the said sum in paying up in full Redeemable Preference Shares of Rs. 100/-
each at par in proportion of 1 such Preference Share for every 1 existing
equity share held by such members.
RESOLVED FURTHER that the
Redeemable Preference Shares shall be allotted subject to the Memorandum and
Articles of Association of the Company and also subject to the following terms
and conditions:-
(i) that no such shares when
due for redemption shall be redeemed except out of profits of the Company which
would otherwise be available for dividend, that is, out of general reserve
created by ploughing back of distributable profits;
(ii) that such redemption
'May be made out of the proceeds of a fresh issue of shares made for the
purpose of redemption;
(iii) that the redeemable
preference shares now being issued shall carry a dividend of 9% per annum and
the same shall accrue to the holders of these shares from the date of allotment
to them;
(iv) that the redemption
shall be made as on _________ 2010,
and such redemption shall be at par;
RESOLVED FURTHER that no
letter of allotment shall be issued in respect of the said bonus redeemable
preference shares but the certificates in respect of the said preference shares
to be allotted as fully paid bonus shares as aforesaid shall be delivered
within six months of the date of allotment thereof by the Board of Directors of
the Company or within such extended time as may be allowed by appropriate
authorities.
RESOLVED FURTHER that for
the purpose of giving effect to these resolutions and for removal of any doubt
or difficulties, the Board of Directors of the Company be and is hereby
authorised to do all such acts, deeds, matters and things and to give from time
to time such directions as may be necessary, expedient, usual or proper and to
settle any question or doubt that may arise in relation thereto or otherwise
reconsider the matter with the changed circumstances, if any, as the Board in
its absolute discretion may think fit and its decision shall be final and
binding on all members and other interested persons.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to take such steps as may be
necessary or desirable to give effect to these resolutions.
Same as given in Resolution
§ 866 and add.
3. Compliance Certificate.-Companies having paid-up share capital
of, less than Rs.2 Crores but equal to or more than Rs. 10 lakhs are required
to 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 bonus 9% redeemable preference shares during
the financial year and complied with the provisions of the Act as per paragraph
19 of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
RESOLVED that on the
recommendation of the Board of Directors of the Company and subject to other
appropriate authorities wherever applicable, a sum of Rs. ________ (Rupees
________________) out of the sums standing to the credit of General Reserve/Share
Premium Account of the Company be and is hereby capitalised and accordingly
the Board of Directors be and is hereby authorised to appropriate the said sum
for distribution to and amongst the members of the company whose names appear
in the Register of Members of Equity Shares as on such date to be hereafter
fixed by the Board of Directors in proportion to the Equity Shares held by them
respectively and to apply the said sum in paying up in full 10% Secured
Redeemable Non-Convertible Debentures of Rs. 100/- (Rupees One
Hundred) each at par in proportion of 1 such Debentures for every 1 existing
Equity Shares held by such members.
RESOLVED FURTHER that the
10% Secured Redeemable No Convertible Debentures shall be allotted subject to
the Memorandum and Articles of Association of the Company and also subject to
the following terms and conditions:-
(i) that such Debentures
will be secured by a Debenture Trust Deed as per section 117A till the day they
are redeemed;
(ii) that a Debenture
Redemption Reserve for the redemption of such debentures to which adequate
amount shall be credited from o of the profits of the Company every year until
such Debentures are redeemed and this will not be utilised by the Company
except for the this purpose;
(iii) that the interest of
10% shall accrue to the holders of these Debentures from the date of allotment
to them and shall be paid them half yearly on 30th June and 31st December every
year;
(iv) that the redemption
shall be made as on ________ 2005 and such redemption shall be at par;
RESOLVED FURTHER that
letters of allotment shall be issued respect of the said Debentures to be
allotted as fully paid Bonus Debentures and the certificates in respect of
these Debentures as allow aforesaid shall be issued after the security is
created on such Debentures and the charge in respect thereof is filed with the
Registrar Companies by the Board of Directors of the Company.
RESOLVED FURTHER that for
the purpose of giving effect to the., resolutions and for removal of any doubt
or difficulties, the Board of Directors of the Company be and is hereby
authorised to do all such acts, deeds, matters and things and to give from time
to time such directions as may be necessary, expedient, usual or proper and to
settle any question or doubt that may arise in relation thereto or otherwise
reconsider the matter with changed circumstances, if any, as the Boa] of
Directors in its absolute discretion may think fit and its decision shall be
final and binding on all members and other interested person
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to take such steps as may be
necessary or desirable to give effect to these resolutions.
Same as given in Resolution
§ 849 and add.
3. Compliance Certificate.-Companies having paid-up share capital
of less than Rs.2 Crores but equal to or more than Rs. 10 lakhs are required to
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 10% secured redeemable non-convertible bonus
debentures during the financial year and complied with the provisions of the
Act as per paragraph 19 of the Form of Compliance Certificate appended to the
Companies (Compliance Certificate) Rules, 2001.
4. Deemed Dividend.-Issue of bonus debentures is treated as deemed
dividend under section 2(22) of the Income-tax Act, 1961 and the interest
on the said debentures are a tax-deductible expense.
"RESOLVED that pursuant
to the provisions of section 94(l)(a) of the Companies Act, 1956, and other
applicable provisions, if any, the authorised share capital of the Company be
and is hereby increased from Rs._________ divided into _________ equity shares
of Rs. 10/- each to Rs. _________ divided into _________ equity shares of
Rs. 10/- each.
RESOLVED FURTHER that the
existing Clause V of the Memorandum of Association of the Company as to share
capital be and is hereby deleted and in its place the following Clause V be
substituted:
"The authorised share capital of the company is Rs. _________ divided into _________ equity shares Rs. 10/- each."
Amendment of Articles of Association-Special
Resolution
RESOLVED that pursuant to
the provisions of section 31(l) of the Companies Act, 1956, the existing
article _________ of the Articles of Association of the Company be and is
hereby deleted and in its place the following article _________ be substituted
therefor:
"The authorised share capital of the company is Rs. _________ divided into _________ equity shares of Rs. 10/- each."
1. Articles must empower company.-There must be a provision in
the Articles of Association of the company permitting increase in the share
capital of the company. If there is no provision, first alter the Articles of
Association of the company by passing a Special Resolution inserting such a
provision.
2. Convening of Board Meeting for calling General Meeting.-Convene a Board Meeting, for
recommending the above resolution for adoption by the shareholders. Fix up the
date, time, place and agenda for a General Meeting.
3. Convene Extraordinary General Meeting unless Annual General Meeting
to be held.-Convene an Extraordinary General Meeting of the company unless the
Annual General Meeting is scheduled to be held for passing the resolutions
pursuant to section 94(l)(a) of the Act.
4. Annex Explanatory Statement with Notice of Meeting.-An Explanatory Statement
pursuant to section 173(l) of the Act be annexed to the notice of the meeting.
5. No approval necessary for increase in authorised capital.- In crease in authorised
capital of the company does not require the approval of the Central Government
or Company Law Board or the Court.
6. Passing of resolutions.-The ordinary resolution amending the
Memorandum of Association and Special Resolution for alteration of the Articles
of Association to this effect be passed at the same General Meeting. North
Cheshire Brewery Co., (1920) WN 149.
7. Filing of Special Resolution.-File the Special Resolution
in Form No. 23 together with Explanatory Statement with the Registrar of
Companies concerned by paying the requisite filing fee within thirty days of the
passing of the resolution.
8. Carrying out alterations in copies of Memorandum and Articles.-Effect the alteration in the
copies of Memorandum and Articles of Association.
9. Articles to empower company.-The powers under this
section can be exercised only if authorised by the articles. It has been held
that if the articles do not contain any such authorisation, the articles must
first be amended before the power can be exercised. Re: Patent Invert Sugar
Co., (1885) 31 Ch D 166.
10. Bona fide for benefit of company.- The power should be
exercised bona fide in the interest of the company and not for benefiting any
group. Fiercy v. Mills (s) & Co., (1920) 1 Ch 77.
11. Consent of meetings of classes of shareholders non-necessary.-The consent of meetings of
classes of shareholders will not be requisite as the increase of any kind of
share capital cannot be said to 'vary' or 'affect' class rights. White i,.
Bristol Aeroplane Co. Ltd., 1953 Ch 65 (CA).
Increase in Authorised Share Capital
(Another Format)
"RESOLVED that the
Share Capital of the Company be increased from Rs. _________ divided into
_________ Equity Shares of Rs. 10/- each to Rs. _________ divided into
_________ Equity Shares of Rs 10/- each by the creation of _________ new
Equity Shares of Rs. 10/- each subject to the condition that unless
otherwise determined at the time of issue the new Equity Shares shall rank
pari passu in all respects with the existing Equity Shares of the
Company."
"RESOLVED that the Articles of Association of the Company be altered by substitution for the existing Article _________ the following new Article, namely-
“_________ (Article No.) on the date of adoption of this Article, the Share Capital of the Company is Rs. _________ divided into _________ Equity Shares of Rs. 10/- each."
Same as under Resolution § 869.
Increase in Authorised Share Capital
(Another Format)
"RESOLVED that Authorised Capital of the Company be increased to Rs.50,00,00,000/divided into:
(a) 4,50,00,000 Equity shares of Rs. 10/-
each.
(b) 5,00,000 Cumulative Redeemable Preference Shares of Rs.100/-each redeemable at par at the option of the Company at any time after five years of their issue on giving three months' notice and carrying a fixed cumulative preferential dividend of 10% p.a."
Same as under Resolution § 869.
Increase of authorised capital
(Another Format)
"RESOLVED that the authorised capital of the Company be increased from Rs. 500 lakhs (Rupees five hundred lakhs) to Rs. 700 lakhs (Rupees seven hundred lakhs) by creation of 20,00,000 equity shares of Rs. 10/- each, ranking pari passu with the existing equity shares and that clause _________ of the Memorandum of Association and article _________ of the Articles of association of company be altered accordingly."
1. Passing of Resolution.-Power under this section is exercisable by ordinary
resolution only if authorised by the articles, but articles may be altered
suitably to give such power, if necessary, otherwise the resolution will have
to be passed as a Special Resolution.
2. Issue of increased share capital to be in accordance with section 81-Subject to any directions
that may be given by the company in General Meeting by means of special
resolution or ordinary resolution followed by approval of the Central
Government, the increased share capital, when issued, will have to be issued in
accordance with the provisions of section 81 of the Companies Act, 1956.
3. Formalities to be observed for increasing authorised share capital.-For increasing the
authorised share capital of the company:
(i) It is to be seen if the
Articles of Association authorise the company to increase the share capital
(Section 94). If it does not authorise, steps should be taken to alter them
accordingly;
(ii) A Board Meeting should
be called to decide about the increase and to fix up the date, time, place and
agenda for a General Meeting to pass an ordinary resolution (or special one, if
so required by the articles) for the same [Section 94(2)];
(iii) Immediately after
Board Meeting the concerned Stock Exchange should be informed by letter or by
telegram, short particulars of the increase of capital;
(iv) Notices should be
issued for the General Meeting with suitable Explanatory Statements;
(v) General Meeting should
be held to pass the resolution;
(vi) A copy of the
proceedings of the General Meeting should be sent to the concerned Stock
Exchange;
(vii) If the resolution
passed is a Special Resolution, the same along with the Explanatory Statement
should be filed with the Registrar of Companies in Form No. 23 within thirty
days (Section 192);
(viii) Increase in
authorised capital should be intimated to the Registrar in Form No. 5 within
thirty days on which the Registrar will make necessary changes in the company's
memorandum and articles (Section 97);
(ix) While filing the above notice, the registration fees for the increased authorised capital shall have to be paid. The amount payable will be the difference between the fees payable at the existing rate on the authorised capital before and after the increase;
(x) Necessary changes should be made in every copy of the Memorandum and Articles of Association and in all other papers and documents.
Increase of Authorised Share Capital
(Another Format)
S. 94 (1) (a)-In crease of Authorised Share Capital-Special Resolution
"RESOLVED that the Authorised Capital of the Company be increased from Rs. 1,25,00,000/- (Rupees one crore twenty five lacs) divided into 12,50,000 (Twelve Lacs Fifty Thousand) Equity shares of Rs. 10/- (Rupees Ten) each to Rs. 4,00,00,000/- (Rupees Four Crores) divided into 40,00,000 (Forty Lacs) Equity shares of Rs. 10/- (Rupees Ten) each and that Clause V of the Memorandum of Association of the Company be altered accordingly."
1. Convening
of Board Meeting.-Convene Board Meeting for approving the notice of' the general meeting
to consider alteration of the capital clause in memorandum and articles.
2. Intimation to Stock Exchange.-Send notice of the general meeting to all the
stock exchanges where listed.
3. Notice of Meeting.-Give 23 clear days notice of' the meeting, to all
the shareholders, the legal representatives of deceased and insolvent
shareholders and the auditors.
4. Holding of General Meeting.-Hold the general meeting and pass the
following resolutions for alteration of capital clause:-
(a) Ordinary resolution for
alteration of' capital clause in Memorandum unless the articles specify special
resolution.
(b) Special resolutions for
alteration of capital clause in articles.
5. Filing with Registrar of Companies.-File the special resolution
with the concerned ROC in Form No. 23, within 30 days of passing thereof.
6. Filing of notice of increase with Registrar of Companies.-File the notice of increase in capital with the concerned ROC in Form No. 5 within 30 days of' the general meeting.
7. Power to be exercised bona fide in the interest of company.-Tile power should he
exercised bona fide in the interest of the company and not for benefiting any
group. [Piercy v. Mill(s) & Co., (1920) 1 Ch 77; Needle Industries (India)
Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 51 Com Cases 743
(SC)].
8. Payment of fee to Registrar of Companies.-So long as the original authorised
capital, on which the company had already paid the prescribed fees under the
Companies Act, is not exceeded, the company should not be called upon to pay
any further fees. It would, however, be required to file Form No. 5-1 to
facilitate completion, of the records of the Registrar. [Circular No.
8/13(94)/59- PR, dated 12-2-1960].
Increase of Authorised Capital by creation of Redeemable
Preference Shares
"RESOLVED that the authorised capital of the Company be and is hereby increased to Rs.________ by the creation of ________ 13.5% redeemable preference shares of Rs. ________ each -subject to the terms and conditions laid down in section 80 of the Companies Act."
1. Articles to empower company.-The power to increase
capital must be available in the article, otherwise the articles will first
have to be amended by a Special Resolution.
2. Passing of resolution.-Where there is power in the article the above
resolution can be by way of Ordinary Resolution. '
3. Company to adhere to ceiling on preference dividend.-The company will have to
ensure that it adheres to the ceiling on preference dividend that may be
notified from time to time.
4. Filing with Registrar of Companies.-Within 30 days of the
passing of this resolution the company should file with the Registrar in Form
No. 5 showing the increase in the authorised capital, giving particulars of the
creation of the preference shares.
5. Fee payable to Registrar of Companies.-The fees for this return
will be at the rates prescribed in Schedule X to the Act, and may be made in
cash to the Registrar, by
means of treasury challans
from specified branches of Punjab National Bank or demand
drafts drawn in favour of
the Pay and Accounts Officer of the area concerned and sent to the Registrar
along, with the form.
6. No conversion of issued shares into redeemable preference shares
except by reduction of capital.-There can be no conversion of any of the issued
shares of the company into redeemable preference shares, except by going
through the process of reduction of capital.
7. Shares to be redeemed for acquisition of shares in private company.-Shares issued must be
redeemable within a period of twenty years from the date of issue.
Increase of authorised capital by creation of Redeemable
Preference Shares (Another Format)
"RESOLVED THAT the authorised share capital of the Company be and is hereby increased to Rs. ________ by the creation of ________ 13.5% redeemable preference shares of Rs. ________ each on the terms and conditions that-
(1) the aforesaid shares
will carry a fixed non-cumulative preferential dividend of 13.5% per
annum on the capital paid up thereon and payable out of the profits of that
year;
(2) the preference shares
will rank in priority to the equity shares for repayment of share capital and
arrears of dividend in a winding-up;
(3) the preference shares
will not be entitled to further participation in surplus assets. The preference
shares will not confer a right to vote at the company's general meetings.
(4) The preference shares will be redeemable in 20 years from the date of their issue."
The following conditions may
be substituted for conditions (1) and (2) above;
(i) the aforesaid shares
will carry a fixed cumulative preferential dividend of 13.5% per annum on the
capital paid thereon;
(ii) the aforesaid shares
will, in a winding-up, rank in priority to the equity shares for the
repayment of capital and dividend whether declared or not, until the
commencement of the winding-up;
(iii) the aforesaid shares
will also have a further right to participate in pari passu with the equity
shares in any further surplus remaining after repayment of capital and dividend
on preference shares and after repayment of capital on equity shares.
(1) The aforesaid shares
until conversion will carry a fixed non-cumulative preferential dividend of
13.5% per annum on the capital paid thereon.
(2) The aforesaid shares will be converted into ________ equity shares of Rs. ________ each at a premium of Rs. ________ each after the expiry of ________ years from the date of allotment of the aforesaid shares.
(3) The aforesaid shares on
conversion shall be eligible for pro rata dividend as equity shares and shall
in all respects rank pari passu with the existing equity shares of the company.
(4) In the event of winding
up before conversion, the aforesaid shares will rank in priority to the equity
shares for repayment of capital only and shall not have any further right of
participation in the surplus assets.
(5) Until conversion the
preference shares shall not confer a right to vote at the company's general
meeting.
(1) Each of the aforesaid shares will be converted into ________ equity shares after expiry of ________ years from the date of allotment thereof and after the registered shareholder for the time being intimates to the company at its registered office in writing of his desire to convert the shares into equity shares together accompanied by the preference share certificates. The conversion shall be effected within 15 days from the receipt of such intimation by the company and the new equity share certificates despatched within ________ weeks thereafter.
Same as under Resolution § 874.
Increase of authorised capital by creation of shares at a
premium
S. 94(1)(a)-Increase of authorised capital by creation of shares at a premium-Ordinary Resolution
"RESOLVED that the aUthorised capital of the Company be and is hereby increased from Rs. ________ consisting of ________ equity share of Rs. ________ each to Rs. ________ consisting of equity share of ________ Rs. ________ each, by the creation of ________ equity share of Rs. ________ each ranking pari passu in all respects with the existing equity share in the Company, save and except that any dividend which may be declared in respect of the financial year in which the equity shares are allotted shall be paid pro-rata from the date of allotment of the said equity shares, and that the shares be offered at a premium of not more than Rs. 2.50 per share to the existing members of the Company."
1. Authorisation by Articles.-The power can be exercised only if it is
authorised by Articles. If the articles do not contain such a provision the
Articles must first be amended.
2. SEBI Guidelines.-SEBI (Disclosure & Investor Protection)
Guidelines, 2000 with regard to issue of shares at a premium should be adhered
to by a listed company.
S. 94(l)(a)-Increase of authorised capital by issue of shares at a premium-Ordinary Resolution
"RESOLVED that the authorised capital of the Company be and is hereby increased from Rs. ________ to Rs. ________ by the creation of ________ equity shares of ________ each ranking pari passu with the existing equity shares of the company and be issued at a premium not exceeding Rs. ________ per share."
1. Authorisation by Articles.-The power can be exercised only if it is
authorised by Articles. If the articles do not contain such a provision the
Articles must first be amended.
2. Filing of Notice in Form No. 5-After the passing of the
resolution Form No. 5 should be filed with the Registrar of Companies within
thirty days of its passing along with requisite fee in cash prescribed under
Schedule X of the Act.
Increase of authorised capital to purchase controlling interest
"RESOLVED that the authorised capital of the Company be and is hereby increased from Rs. ________ consisting of ________ equity share of Rs. ________ each to Rs. ________ by the creation of ________ equity share of Rs. ________ each for the purpose of acquiring 51 % of the shareholding in X And Co. Pvt. Ltd., Mumbai.
RESOLVED FURTHER that clause ________ of the Memorandum of Association and article ________ of the Articles of Association of the Company be amended accordingly."
1. Section 372A not applicable for acquisition of shares in private
company. -
Since the acquisition is proposed to be made in private company which is not a
Subsidiary of a public company the constraints of section 372A will not apply.
Increase in authorised capital
"RESOLVED that pursuant
to the provisions of section 94(l)(a) of the Companies Act, 1956, and other
applicable provisions if any, the Authorised Share Capital of the company be
and is hereby increased from Rs. 50,000/- divided into 5,000 Equity
Shares of Rs. 10/- each to Rs. 5,00,000/- divided into 50,000
Equity Shares of Rs. 10/- each.
RESOLVED that existing
Clause V of the Memorandum of Association of the company as to Share Capital be
and is hereby deleted and in its place the following Clause V be substituted:
"The Authorised Share
Capital of the Company is Rs. 5,00,000/- (Rupees Five Lakhs) divided into
50,000 Equity Shares of Rs. 10/- each."
1. Power to increase capital to be exercised in general meeting.-The section authorises
companies to meet their capital requirements by increasing share capital by
such amount as may be expedient. This power has to be exercised in general meeting.
The increased capital may be expressed in the same currency as the existing
capital but it may as well be expressed in any other currency. (Scandinavian
Bank Group Plc., (1987) 2 All ER 70).
2. Increased capital may consist of preference shares.-The increased capital may
consist of preference shares, provided that this is not inconsistent with
rights given by the memorandum of association (Andrews ,. Gas Meter Co., (1897)
1 Ch 361.
3. Shareholders acquiescing in irregular increase cannot challenge
later.-Shareholders
who have acquiesced in the irregular increase of the share capital cannot
latter challenge such an increase (Re Athenaeum Life Assurance Society, (1988)
4 KAJ 305).
4. Articles must contain power.-The powers under section 94
of the Act can be exercised only if authorised by the articles. It has been
held that if the articles do not contain any such authorisation the articles
must first be amended, before the power can be exercised. (Re Patent Invest
Sugar Co., (1885) 31 Ch D 166).
5. Consent of meetings of classes of shareholder not required.-The consent of meetings of
classes of shareholders will not be requisite as the increase of any kind of
share capital cannot be said to vary or effect class rights. (White v. Bristol
Aeroplane Co. Ltd., 1953 Ch 65 (CA)).
Increase of Capital by the creation of Cumulative
S. 94(l)(a)-Increase of authorised capital by creation of preference shares-Ordinary Resolution
"RESOLVED that the authorised capital of the Company be and is hereby increased to Rs. ________ by the creation of ________ 15% cumulative redeemable preference shares of Rs. ________ each.
RESOLVED FURTHER that the
said shares shall confer on their holders the following rights and
restrictions:
(a) The shares shall carry a
right to a cumulative preferential dividend of 15% per annum in relation to the
capital paid-up on them.
(b) The holders of the said
shares shall have a right to attend General Meetings of the company and vote on
resolutions directly affecting their interest or where the dividends in respect
thereof are in arrears for not less than two years on the date of the meeting,
on all resolutions at every meeting of the company.
(c) In a winding up, the holders of the said shares shall be entitled to a preferential night of return of the amount paid-up on the shares together with arrears of cumulative preferential dividend due on the date of winding up, but shall not have any further right or claim over the surplus assets of the company."
1. Passing of Resolution.-The above can be by way of ordinary resolution.
2. Articles to empower company.-The power to increase
capital and create preference shares would depend upon whether the Articles of
Association of the company authorise its creation.
3. Amendment of articles where no power exists.-Where there is no such power
in the article, they will first have to be amended by a Special Resolution of
the General Body.
4. Filing with Registrar of Companies.-Within thirty days of the
passing of this resolution, the company should file with the Registrar in Form
No. 5 showing the increase in the authorised capital, giving particulars of the
creation of the preference shares.
5. Fee payable to Registrar of Companies.-The fees for this return
will be at the rates prescribed in Schedule X to the Act, and may be made in
cash to the Registrar, or by means of treasury challan from specified branches
Of Punjab National Bank or by demand drafts drawn in favour of' the Pay and
Accounts Officer of the area concerned and sent to the Registrar along with the
form.
6. Prohibition on issue of irredeemable/redeemable preference shares
after twenty years.-After 1-3-1997, on which date the Companies (Amendment)
Act, 1996, came into force, no company can issue irredeemable preference shares
or redeemable preference shares redeemable after a period of more than twenty
years.
Increase of Authorised Capital by the creation of Non
Cumulative Preference Shares
S. 94(l)(a)-Increase of capital by creation of non-cumulative
preference shares-Ordinary Resolution
"RESOLVED that the
authorised. capital of the Company be and is hereby increased to Rs. ________
by the creation of ________ 15% non-cumulative redeemable preference shares of
Rs. ________ each.
RESOLVED FURTHER that the
said shares shall confer on their holders the following rights and
restrictions:
(a) The shares shall carry a
right to a preferential dividend of 15% per annum in relation to the capital
paid-up on them.
(b) The holders of the said
shares shall have a right to attend General Meetings and vote on resolutions
directly affecting their interest or where the dividends in respect thereof are
in arrears for two financial years immediately preceding the meeting or for any
three years during a period of six years ending with the financial year
preceding the meeting, on all the resolutions at every meeting of the company.
(c) In a winding up, the
holders of the said shares shall be entitled to a preferential right of return
of the amount paid-up on the shares, but shall not have any further right
or claim over the surplus assets of the company."
1. Authorisation by Articles.-The power can be exercised only if it is
authorised by Articles. If the articles do not contain such a provision the
Articles must first be amended.
2. Filing of Notice in Form No. 5-After the passing of the
resolution Form No. 5 should be filed with the Registrar of Companies within
thirty days of its passing along with requisite fee in each as prescribed under
Schedule X of the Act.
Increase of Capital with Provision for conversion of Preference
Shares into Equity Shares on happening of contingency
S. 94(l)(a)-Increase of capital with provision for
conversion-Ordinary Resolution
"RESOLVED that the capital of the Company be and is hereby in creased to Rs. ________ by the creation of ________ 13.5% redeemable Cumulative Preference Shares of Rs. ________ each and having the following rights and restrictions:
(a) The Preference Shares
shall confer on their holders a preferential right to dividend until an
aggregate amount of Rs. 10/- per share is received thereof as and by way
of dividend.
(b) As and when the said sum
of Rs. 10/- is received as aforesaid, the Preference Shares shall cease
to have any preferential right to dividend and shall stand automatically
converted into Equity Shares, ranking pari passu in all respects with the
Equity Shares of the Company in existence on that day.
(c) In the event of the
Company being wound up before the conversion, the surplus assets of the Company
after discharging the credits of the Company will be applied in paying to the
Preference Shareholders the nominal value of their shares together with the
accumulated dividend thereon.
(d) In the event of the
Company being wound up after such conversion, the new shares shall not confer
on their holders any preferential right to payment from out of the surplus
assets of the Company."
1. Surrender of certificates by preference shareholders for fresh
equity shares certificates.-On the condition being fulfilled, the company will
have to call upon the reference shareholders to surrender their Share
Certificates and arrange for fresh equity share certificates to be issued to
them.
2. Company to carry out changes in records.-The company will then have
to carry out the necessary changes in its records.
Consolidation and division of share capital
"RESOLVED that the authorised, issued and paid-up equity share capital of the Company of Rs. 10/- each, be so consolidated that ten existing equity shares of nominal value of Rs. 10/- each are consolidated into one equity share of Rs. 100/- each and for equity shares of Rs. 10/- each being fully paid-up, ten such fully paid shares be consolidated into one equity share of Rs. 100/each fully paid-up.
RESOLVED FURTHER that the existing share certificates issued to the holders of equity shares be called back by the Directors for cancellation and issue of fresh share certificates in lieu thereof."
1. Articles to empower company for consolidation of shares.-Power of consolidation
should also be reserved or provided for in the articles of the company; and in
the absence of such a provision in the articles, the alteration of the articles
will have to be taken up first. After necessary provisions have been made in
the articles the proposed consolidation of shares will be possible by passing
an ordinary resolution. A Special Resolution can be passed directly giving
effect to the consolidation of shares as envisaged.
2. Consolidation and division of share capital into smaller
denomination not covered by section 94(l)(b).-Consolidation and division
of share capital into shares of smaller denominations are not covered by
section 94(l)(b). For this purpose, the company should move the Court under
section 391 as it amounts to reorganisation of share capital. Letter No.
40/3/71-CL. III, dated 21-7-1975. However, shares could be
subdivided into shares of smaller amounts under section 94(l)(d).
3. Procedure for consolidation and division of share capital into
shares of larger amount.-A step by step account of how one should go about in
following the procedure to consolidate and divide all or any of the company's
share capital into shares of larger amount than the existing one would be to-
(i) Consult the Articles of Association to see as to whether or not they permit such consolidation; if not, complete proceedings to alter them accordingly.
(ii) Give twenty-one days' prior notice to the Stock Exchanges with which the company is enlisted of such proposed consolidation and division (according to Standard Listing Agreement).
(iii) Make an application to the exchange for listing of the securities as changed.
(iv) Call a Board Meeting to decide about the consolidation and to fix up day, time, place and agenda for calling a General Meeting to pass an ordinary resolution (Special Resolution, if the articles so require) for the same.
(v) Issue notices for the General Meeting proposing the resolution with suitable Explanatory Statement.
(vi) Hold the General Meeting and pass the resolution.
(vii) Forward a copy of the proceedings of the General Meeting to the Stock Exchange concerned if the company is listed.
(viii) If the resolution passed is a Special Resolution, file the same with the Registrar of Companies in Form No. 23 within thirty days of the passing (Section 192).
(ix) Give notice of consolidation to the Registrar in Form No. 5 within thirty days when the Registrar will record the notice and make any alteration which may be necessary, in the Memorandum and the Articles of Association of the company (Section 95).
(x) Pay the required fee
cash by way of in accordance with Schedule X as substituted by S.O. 419(E),
dated 27-4-2000, w.e.f. 1-5-2000 or by way of cheques
or bank drafts payable or drawn on post offices or banks located in the same
city or town as the office of the Registrar (Proviso to Rule 22).
(xi) Make necessary changes
in share certificates, records, documents and registers of the company.
"RESOLVED that clause ________ of the memorandum of association of the Company and clause ________ of the Articles of Association of the Company be amended by amending the words 1,00,000 unclassified shares of Rs. 10/- each' and substituting therefor the words ________ equity shares of Rs. 10/- each and 50,000 preference shares of Rs. 10/- each."
1. Classification of Shares.-The company may have unissued unclassified
shares in its memorandum and articles. These shares may be classified by
passing a Special Resolution.
2. Not regarded as an arrangement.-As none of the unclassified
shares we have been issued and there are no share-holders for the same,
this resolution is not an arrangement within Section 390.
Conversion of equity share capital into Preference Shares and
"RESOLVED that subject to the approval of the High Court, the existing equity share capital of the company comprising 1,00,000 equity shares of Rs. 10/- each be divided into 50,000 preference shares of Rs. 100/- each and 5,000 equity shares of Rs. 10/- each.
RESOLVED FURTHER that the
existing equity shares numbered as under:
(1) number to inclusive
(2) number to inclusive
(3) number to inclusive
be converted into the aforementioned 50,000 preference shares of Rs. 10/- each and such preference shall be henceforth numbered 1 to 50,000 inclusive.
RESOLVED FURTHER that (1)
the aforesaid preference shares shall carry a fixed non-cumulative
preferential dividend of Rs. 10% per annum on the capital paid up thereon, (2)
the preference shares shall rank in priority to the equity shares for repayment
of share capital in a winding up, (3) the preference shareholders will not have
a right to vote at the company's general meetings, (4) the preference shares be
redeemable in 5 years from the date of issue thereof.
RESOLVED FURTHER that the shareholders of the existing equity shares whose share numbers are mentioned earlier do surrender their share certificates to the Company at its registered office on or be fore ________ for issues of fresh preference share certificate and that the Board of Directors be and hereby is authorised to take all necessary steps in this regard."
1. Amounts to arrangement.-Conversion and division of existing share capital
is an arrangement falling within Section 390(b) and the procedure required
under section 391 must be followed by application to the Court.
2. Alteration of Memorandum and Articles of Association.-Special Resolutions for
alteration of the memorandum and articles of association must also be passed
consequential to the division of existing equity capital.
3. Meeting convened by High Courts-All the resolutions will be
passed at the meeting convened by the High Court under section 391 (1).
"RESOLVED that the consent of the Company be and is hereby given to the consolidation of the issued and fully paid-up equity capital of the company of Rs. 3,00,000/- comprising of 30,000 equity shares of Rs. 10/- each into ________ equity shares of Rs. ________ each.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to call for -the
certificate of shares already issued for cancellation and to issue fresh share
certificates pursuant to the Companies (Issue of Share Certificates) Rules,
1960."
1. Articles to empower company.-There must be a provision in
the Articles of Association of the company permitting the consolidation of
shares.
2. Alteration of Articles where no provision exists.-If not, pass a Special
Resolution amending the Articles of Association of the company suitably so as
to insert a specific provision on the lines of section 94(l)(b).
3. Convening of Board Meeting.-Convene a Board Meeting for recommending the
above resolutions for adoption by the' shareholders. Fix up date, time, place
and agenda for General Meeting.
4. Convening of Extraordinary General Meeting.-Convene an Extraordinary
General Meeting of the company unless the Annual General Meeting is scheduled
to be held for passing the resolutions pursuant to section 94(l)(b).
5. Annex Explanatory Statement with Notice of Meeting.-An Explanatory Statement
pursuant to section 173(l) of the Act be annexed to the notice of the meeting.
6. Guidelines of SEBI to be followed.-En sure to follow SEBI
(Disclosure and Investor Protection) Guidelines, 2000, if it is a listed
company.
7. Collect existing share certificates before issuing new certificates.-En sure that the existing
share certificates are collected before new share certificates are issued.
8. Consolidation of equity and redeemable preference share capital not
covered by section 49(l)(b).-Consolidation of the equity share capital and the
redeemable preference share capital into shares of smaller denomination, i.e.,
10/- each is not covered by clause (b) of sub-section (1) of
section 94 of the Act. The company has to move the Court under section 391 for
sanction of the scheme of arrangement. Letter No. 40/3/71 -CL.III, dated
21st July, 1975.
9. Filing of Return with Registrar of Companies.-Return in Form No. 5
be filed with the Registrar of Companies concerned within thirty days of the
passing of the resolutions along with requisite filing fee, in cash as
prescribed under Schedule X of the Act.
10. Alteration in Memorandum and Articles be effected.-Effect the alteration in all
copies of Memorandum and Articles of Association.
Conversion of fully paid-up shares into stocks
"RESOLVED that 5,00,000
equity shares, bearing numbers _________ to _________ (both inclusive) of Rs.
10/- each in the capital of the Company, which are fully paid-up,
be and are hereby converted into stocks divided into 5,000 units of Rs. 1,000
fully paid-up."
Same as under Resolution § 886.
"RESOLVED that 3,00,000 equity shares of the Company forming part of the authorised capital and remaining unissued be converted into stocks of 3000 units of Rs. 1,000/- each, as and when the said shares are issued and become fully paid up."
1. Only fully paid shares to be converted into stock.-The company can convert
shares into stock when the shares are fully paid-up.
2. Power to be exercised in General Meeting.-The power of converting
shares into stock or reconverting stock into shares can be exercised by the
company in general meeting.
Reconversion of stock into fully paid-up shares of any
denomination
S. 94(l)(c)-Reconversion of stock into fully paid- up shares of any denomination-Ordinary Resolution
"RESOLVED that the consent of the Company be and is hereby given to the reconversion of stock of Rs. 1,00,000/- into 10,000 fully paid-up equity shares of Rs. 10/- each numbered I to 10,000 (both inclusive).
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to substitute the
stock certificates issued in respect of this stock substituted by share
certificates representing the value of stock in question into shares of such
denomination as may be requested by the holders of stock converted."
1. Articles to empower company.-There must be a provision in
the Articles of Association of the company permitting conversion of stock into
shares. If there is no provision, first alter the Articles of association of
the company inserting such a provision.
2. Convening of Board Meeting.-Convene a Board Meeting for recommending the
above resolution for adoption by shareholders. Fix up date, time, place and
agenda for a General Meeting.
3. Convening of Extraordinary General Meeting.-Convene an Extraordinary
General Meeting of the company unless the Annual General Meeting is scheduled
to be held for passing the resolution pursuant to section 94(l)(c) of the Act.
4. Annexing of Explanatory Statement with notice of meeting.-An Explanatory Statement
pursuant to section 173(2) of the Act be annexed to the notice of the meeting.
5. SEBI guidelines to be followed.-Ensure to follow SEBI
(Disclosure & Investor Protection) Guidelines, 2000 if it is a listed
company.
6. Filing of Return with Registrar of Companies.-Return in Form No. 5 be filed
with the Registrar of Companies concerned within thirty days of the passing of
the resolution along with requisite filing fee, in cash as per Schedule X of
the Act.
7. Stock Certificates be collected before issuing Share Certificates.-En sure that stock
certificates are collected before and share certificates in lieu thereof are
issued.
Conversion of shares into stock
S.
94(l)(c)-Conversion of shares into stock-Ordinary Resolution
"RESOLVED that the
consent of the Company be and is hereby given to the conversion of 10,000
equity shares of Rs. 10/- each numbered 1 to 10,000 (both inclusive) of
the issued and fully paid- up capital into ordinary stock worth Rs.
1,00,000/-.
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby directed to substitute the
share certificates issued in respect of these shares substituted by stock
certificates representing the value of the shares in question in such units as
may be requested by the holders of shares converted."
Same as under Resolution § 889.
Conversion of Shares into Stock
(Another Format)
"RESOLVED that the consent of the Company be and is hereby given to the conversion of 10,000 equity shares of Rs. 10/- each numbered 1 to 10,000 (both inclusive) of the issued and fully paid- up capital into ordinary stock worth Rs. 1,00,000/- divided into 10,000 units of Rs. 10/- each.
RESOLVED that shares of Rs. _________ each in the unissued equity share capital of the Company shall as and when the same are issued and become fully paid-up shares, be converted into number of ordinary stock units of a nominal value of Rs. 10/- each."
1. Shares to be fully paid up.-Only fully paid up shares can be converted
into stock and vice versa. Partly paid up shares cannot be converted into
Stock. To convert them into Stock, they should be first made fully paid up and
then convert into Stock.
2. Authorisation by Articles.-The power can be exercised only if it is
authorised by Articles. If the articles do not contain such a provision the
Articles must first be amended.
3. Filing of Notice in Form No. 5-After the passing of the
resolution Form No. 5 should be filed with the Registrar of Companies within
thirty days of its passing along with requisite fee in cash as prescribed under
Schedule X of the Act.
Sub-division of shares into smaller amount
S. 94(1)(d-Sub-division of shares into smaller
denomination-Ordinary Resolution
"RESOLVED that each of
the equity shares of the nominal value of Rs. 100/- each in the capital
of the Company fully paid-up, be divided into ten equity shares of Rs.
10/- each fully paid-up.
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to call back the
existing share certificates from the shareholders and to issue in cancellation
thereof, new share certificates in the aforesaid proportion subject to the
rules as laid down in the Companies (Issue of Share Certificates) Rules, 1960,
and the Articles of Association of the company."
1. Requirement with listing.-If a public company is going for listing for
the first time, it has to follow the conditions of listing and as per the
listing agreement the denomination of equity shares should not be more than Rs.
10/- per share.
2. Authorisation by Articles.-The power can be exercised only if it is
authorised by Articles. If the articles do not contain such a provision the
Articles must first be amended.
3. Filing of Notice in Form No. 5.-After the passing of the
resolution Form No. 5 should be filed with the Registrar of Companies within
thirty days of its passing along with requisite fee in cash as prescribed under
Schedule X of the Act.
4. SEBI (Disclosure and Investor Protection) Guidelines, 2000.-Listed Companies should
follow the provisions of paragraphs 3.7.1, 3.7.2 and 3.7.3 of the said
guidelines for changing the denomination of shares.
Sub-division of shares into smaller amount
(Another Format)
"RESOLVED that each of the equity shares of the nominal value of Rs. 100/- each in the capital of the Company of which Rs. 50/- has been called up, be and are hereby sub-divided into ten equity shares of Rs. 10/- each of which Rs.5/- shall be deemed to have been called up.
RESOLVED FURTHER that the
Board of Directors of the Company be and are hereby authorised to call back the
existing share certificates from the shareholders and, in cancellation thereof,
issue new share certificates in the aforesaid proportion of Rs. 10/- each
of which Rs. 5/- is deemed to have been called up subject to the
Companies. (Issue of Share Certificates) Rules, 1960, and the Articles of
Association of the Company."
Same as given under Resolution § 892.
Sub-division of Shares into smaller amount
(Another Format)
S. 94(l)(d)-Sub-division of shares into smaller amount-Ordinary Resolution
"RESOLVED that each and every one of the equity shares of the Company of the nominal value of Rs. 100/- be divided into 10 equity shares of Rs. 10/- each, and that in the case of equity shares which are not fully paid up, the proportion between the amount paid and the amount which is unpaid on each reduced equity share of Rs. 10/- each shall be the same as it were in the case of the existing equity share of Rs. 100/- each from which the reduced equity share of Rs. 10/- each is derived."
Same as given under Resolution § 892.
Sub-division into two classes of shares
S. 94(l)(d)-Sub-division into two classes of shares-Ordinary Resolution
"RESOLVED
that pursuant to article of the
Articles of Association of the Company, each of the existing fully paid equity
shares of Rs. 100/- each, be and are hereby sub-divided into 5
equity shares of Rs.10/- each, ranking pari passu in all respects with
the existing equity share capital of the Company and 15% preference shares of
Rs.50/- each
which shall confer on their holders the following rights and obligations:
1. Two classes of shares.-A company can only have two classes of share
capital, preference share capital and equity share capital with voting rights
or with differential rights as to dividend, voting or otherwise In accordance with
such rules and subject to Such conditions as prescribed by the Companies (Issue
of' Share Capital with Differential Voting Rights) Rules, 2001 as per sections 85 and 86 of the Act.
2. Authorisation by Articles.-The power can be exercised only if it is
authorised by Articles. If the articles do not contain Such a provision the
Articles must first be amended.
3. Filing of Notice in Form No. 5-After the passing of the
resolution Form No. 5 should be filed with the Registrar of Companies within
thirty days of 'Its passing along with requisite fee in cash as prescribed
under Schedule X of the Act.
(Another Format)
S. 94(l)(d)-Sub-division of shares into two classes-Ordinary Resolution
"RESOLVED that each of the equity shares of the nominal value of Rs. 100/- each in the capital of Company be and are hereby subdivided into one equity share of Rs. 50/- each and into one-13.5% cumulative preference shares of Rs.50/- each, having the followi