Reduction of Share Capital (Ss. 100 to 105)
A company may reduce its
capital for any proper purpose. The Court may confirm a properly authorised
reduction if safeguards are observed so that creditors are not prejudiced.
Holmes v. New Castle Upon- Tyne Free hold Abattoir Co., (1875) 1 Ch D
682. The extent and amount of reduction are domestic matters and so long as
there is no injustice to the creditors or shareholders, the Court is not
concerned with the precise amount of reduction of capital. Scottish Insurance
Corporation Ltd. v. Wilson and Clyde Coal Co. Ltd., 1949 AC 462. Neither the
transfer of the undertaking of a company to another company nor the
disappearance of assets from any cause is a reduction of capital. Shyampada
Chakravarty v. Controller of Insurance, Govt. of India, AIR 1962 SC 1355:
(1962) 32 Comp Cases 258. Capital is not lost unless it is permanently lost.
Borrow Haematite Steel Co., In re. (1901) 2 Ch 746. If the directors illegally
proceed to effect a reduction of capital, they may be restrained by an
injunction. Grosvenor Press P.L.C., In re, 1985 BCLC 286. There may be
reduction for paying off one class of shareholders e.g., preference
shareholders, or for paying off one set of shareholding such as foreign
shareholders. In all cases the Court will consider whether the reduction is
fair and equitable. Ex parte Westburn Sugar Refineries Ltd., (195 1) 1 All ER
881 (HL); Scottish Insurance Corporation Ltd. v. Wilson and Clyde Coal Co.,
Ltd., (1949) 1 All ER 1068 (HL). Where under an arrangement the company itself
is dissolved without being wound up, there is no reduction as contemplated by
the Companies Act. Waterfall Estates Ltd., (1972) 42 Comp Cases 563. A scheme
of amalgamation involving transfer of the entire assets, rights and liabilities
of the amalgamating companies to the new company which will pay off the
preference shares of the amalgamating companies, does not attract the
provisions of sections 100, 101 and 102, Re, Walker & Smith Ltd., (1903) 88
LT 792 (Ch D). Where after due confirmation the reduction was registered with
the Registrar and he issued his certificate, the same was held to be conclusive
although it was afterwards discovered that the company had no authority under
its articles to reduce capital. Re, Walker & Smith Ltd., (1903) 88LT 792
(Ch. D).
Reduction of share capital
by extinguishing liability of
shares not called up
"RESOLVED that subject to the confirmation by the High Court of Delhi, the capital of the Company be and is hereby reduced from Rs. 20,00,000/- comprising of 2,00,000 equity shares of Rs. 10/- each to Rs. 10,00,000/- divided into 100,000 equity shares of Rs. 10/- each and that said reduction be effected by extinguishing the liability on these equity shares in respect of share capital not called up and paid UP."
OR
"RESOLVED that subject
to the confirmation of the High Court of Delhi, consent of the Company be and
is hereby given to the reduction of the share capital of the company from Rs.
10,00,000/- divided into 25,000 equity shares of Rs. 10/- each and
7,500-5% cumulative preference shares of Rs. 100/- each to Rs.
5,00,000 divided into 12,500 equity shares of Rs. 10/- each and 3,570-5%
cumulative preference shares of Rs. 100/- each and such reduction be
effected by paying off 12,500 equity shares of Rs. 10/- each and
redeeming 3,570-5% cumulative preference shares of Rs. 100/-
each."
OR
"RESOLVED that subject
to the confirmation of the High Court of Delhi, the share capital of the
Company be and is hereby reduced from Rs. 10,00,000/- divided into
1,00,000 equity shares of Rs. 10/- each to Rs. 7,50,000/- divided
into 75,000 equity shares of Rs. 10/- each and that such reduction be
effected by cancelling Rs. 2,50,000/- of the paid-up equity share
capital which is unrepresented by available assets and the number of the
existing shares be proportionately reduced.
RESOLVED FURTHER that Clause
V of the Memorandum of Association of the Company be altered by substituting
the words and figures "Rs. 10,00,000"/- divided into
"1,00,000 equity shares of Rs. 10/- each" by "7,50,000 divided
into 75,000 equity shares of Rs. 10/- each".
RESOLVED FURTHER that
consequential amendment in article 4 of the Articles of Association of the
Company be also made.
RESOLVED FURTHER that the
Board of Directors of the company be and is hereby authorised to move a
petition to the High Court of Delhi for an order confirming the aforesaid
reduction and the Managing Director of the Company be and is hereby authorised
to sign and verify the petition, appoint advocates and to do all such acts,
deeds and things as may be necessary for obtaining the order of the High Court
to the reduction of capital in terms of the aforesaid resolution."
1. Alteration of Articles
when no power exists.-If the Articles of Association of the company do not
provide for reduction of share capital, they may be altered first.
2. Convening of Board Meeting for calling General Meeting.-Call a Board Meeting for approving the scheme of reduction of share capital and fix up the date, time, place and agenda for the General Meeting of the shareholders for passing the Special Resolution. After resolution is passed the same is to be filed with the Registrar of Companies concerned in Form No. 23 within 30 days of passing. Non-filing will attract penalty by way of fine of upto Rs. 100/-.
3. Procedure for calling
general meeting to be followed.-Follow the procedure for calling the General
Meeting.
4. Filing of petition.-Draw up the petition
in Form No. 18 pursuant to Rule 46 of Companies (Court) Rules, 1959.
5. Filing with Registrar of
Companies certified copies of minutes as app- roved by court and Court
order.-After
the Court has passed the order confirming the reduction of the share capital of
the company, the order and the minute approved by Court showing with respect to
the share capital of the company as altered by the order, the amount of share
capital, the number of shares in which it is to be divided, the amount of each
share etc. be filed with the Registrar of Companies, Delhi and Haryana. The
reduction shall be effective on the registration of the order and the minute by
the Registrar of Companies.
6. Publication of notice of
registration.-Notice of the registration shall be published in the manner directed by
the High Court of Delhi.
7. Minutes as approved by
High Court to be substituted for corresponding part of memorandum.-The minute as approved by
the High Court of Delhi shall be substituted for the corresponding part of the
memorandum of the company.
8. Compliance with
directions of High Court regarding reasons for reduction. - Comply with any direction
regarding reasons for reduction, if any, given by the High Court in its order
of confirmation.
9. Addition of words
"and reduced" to name of company.-If the company is ordered by
the High Court to add to its name the word "and reduced", those words
shall be used by the company with its name during the period specified in the
order.
10. Injuction against
illegal reduction of capital.-If the Directors illegally proceed to effect a
reduction of capital, they may be restrained by an injunction. Holmes v. New
Castle Upon-Tyne Freehold Abattoir Co., (1875) 1 Ch D 682.
11. Mode of reduction a domestic
matter.-The
extent and amount of reduction are domestic matters and so long as there is no
injustice to the creditors or share- holders, the Court is not concerned
with the precise amount of reduction of capital. Scottish Insurance Corporation
Ltd. v. Wilson and Clyde Coal Co., 1949 AC 462.
12. Transfer of
undertakings/disappearance of assets not a reduction of capital. -Neither the transfer of the
undertaking of a company to another company nor the disappearance of assets
from any cause is a reduction of capital. Shyampada Chakravarty v. Controller
of Insurance, Government of India, AIR 1962 SC 1355: (1962) 32 Comp Cases 258.
13. When capital lost.-Capital is not lost
unless it is permanently lost. Barrow Haematite Steel Co., In re. (1901) 2 Ch 746.
14. Reduction for bona fide
purpose.-A
company may reduce its capital for any proper purpose. The Court may confirm a
properly authorised reduction if safeguards are observed so that creditors are
not prejudiced. Grosvenor Press P.L.C, In re. 1985 BCLC 286.
15. Valid special
resolution.-Un less a Special Resolution is passed for reduction of the share
capital of a company in any way, no such reduction can be effected by the
company or confirmed by the Court.
16. Reduction to be fair and
equitable.-There may be a reduction for paying off one class of shareholders,
e.g., preference shareholders or for paying off one set of shareholding such as
foreign shareholders. In all cases the Court will consider whether the
reduction is fair and equitable. Ex parte Westburn Sugar Refineries Ltd., (195
1) 1 All ER 881 (HL); Scottish Insurance Corporation Ltd. v. Wilsons and Clyde
Coal Co. Ltd., (1949) 1 All ER 1068 (HL).
17. No reduction where
company dissolved without being wound up.-Where under an arrangement
the company itself is dissolved without being wound up, there is no reduction
as contemplated by the Companies Act. Waterfall Estates Ltd., (1972) 42 Comp
Cases 563.
18. Paying off preference
shares of amalgamating companies under scheme of amalgamation.-A scheme of
amalgamation involving transfer of the entire assets, rights and liabilities of
the amalgamating companies to the new company which will pay off the preference
shares of the amalgamating companies does not attract the provisions of
sections 100, 101 and 102. Durai Rajan (T) v. Waterfall Estates Ltd., (1972) 42
Comp Cases 563 at 567.
19. Conclusiveness of the
Certificate.-Where
after due confirmation the reduction was registered with the Registrar and he
issued his certificate, the same was held to be conclusive although it was
afterwards discovered that the company had no authority under its articles to
reduce capital. Re, Walker & Smith Ltd., (1903) 88 LT 792 (Ch D).
Reduction of share capital
by refunding the amount
"RESOLVED that pursuant
to section 100 of the Companies Act, 1956, and subject to the confirmation of
the High Court at Bombay, the share capital of the Company be reduced from Rs.
3,00,00,000/- made up of 1,00,000-7 1/2per cent cumulative preference
shares of Rs. 100/- each and 20,00,000 equity shares of Rs. 10/-
each to Rs. 2,50,00,000/- made up of 50,000-7 1/2 per cent
cumulative preference shares of Rs. 100/- each and 20,00,000 equity
shares of Rs. 10/- each by refunding pro rata the amounts already paid-
up on those shares and that the Board of Directors be and is hereby empowered
to take the necessary action in this behalf.
RESOLVED FURTHER that the
Capital Clause of the Memorandum of Association of the Company be accordingly
altered after the aforesaid reduction becomes effective and operative."
1. Modes of reduction of
capital.-Pursuant
to section 100 of the Companies Act, 1956, reduction of share capital can be
effected-
(a) to extinguish or reduce
the liability on any of its shares, in respect of share capital not paid-up;
(b) with or without
extinguishing or reducing liability on any of its share capital to reduce the
share capital which is lost, or is unrepresented by available assets;
(c) with or without
extinguishing or reducing liability on any of its shares, to pay off any paid-
up share capital which is in excess of the wants of the company.
2. Alteration of memorandum
on reduction of capital.-Corresponding alteration of memorandum should be
done to give effect to the reduction of capital including, where applicable,
the authorised Capital.
3. Articles to empower company.-Articles of the company must authorise such reduction.
4. Mode of reduction is a
domestic question.-Reduction of capital is a majority decision of the members of the
company. Subject to the confirmation of the Court (which is required for
safeguarding the interests of creditors and minority shareholders) and subject
to the condition that the reduction is fair and reasonable, reduction of
capital is a domestic affair to be decided by the majority and the Act leaves
the company to decide for itself the extent, mode, etc. of the reduction and
the application of the money released thereby. Hindustan Commercial Bank Ltd.
v. Hindustan General Electric Corporation, AIR 1960 Cal 637: (1960) 64 Cal WN
672: (1960) 30 Comp Cases 367.
5. Reduction of capital by
paying off preference shareholders.-Reduction of capital is possible even for
paying off one class of shareholders, e.g., preference shareholders. Scottish
Insurance Corporation Ltd. v. Wilson and Clyde Coal Co., (1949) AC 462: (1949)
1 All ER 1068 (HL).
6. Capital in excess of
wants.-When
the reduction is consequent upon the change in the method of carrying on the
business of the company, it is for the shareholders to decide to what extent
its capital is in excess of its wants. Of course refund of preference capital
to the members thereof in cash for this purpose is also to be considered as a
reduction of capital. A resolution for conversion of irredeemable preference
shares into redeemable preference shares is also to be considered as reduction
of capital.
Reduction of share capital
by sub-division and cancellation
"RESOLVED that subject to the confirmation of the High Court of Madras, the capital of the Company of Rs. 10,00,000/- comprising 10,000 equity shares of Rs. 100/- each sub-divided into 1,00,000 equity shares of Rs. 10/- each and that the capital sub-divided be reduced to Rs. 5,00,000/- comprising 1,00,000 equity shares of Rs. 51- each and the said reduction be effected by extinguishing the liability to the extent of Rs. 5/- on every equity share in respect of share capital not called up and paid up."
1. Provision in the
Articles.-The articles of association of the company should contain the provision
for reduction of capital.
2. Confirmation by the
court.-After
passing of the special resolution for reduction of capital such reduction
should be confirmed by the High Court. For procedure to do so Rules 46 to 65 of
the Companies (Court) Rules, 1959 should be followed.
3. Filing of special
resolution.-The special resolution so passed should be filed within 30 days of its
passing with the Registrar of Companies in Form No. 23 along with requisite
filing fee in cash as prescribed under Schedule X of the Act. Non-filing
will attract penalty by way of fine of up to Rs. 100/-.
Composite resolution for
reduction of capital
"RESOLVED that pursuant
to section 100 of the Companies Act, 1956, and subject to confirmation of
Court, the capital of the Company be and is hereby reduced from Rs.__________
consisting of __________ equity shares of Rs. __________ each to Rs. __________
consisting of __________ equity shares of Rs. __________ each and to effect
such reduction as follows:
(a) By returning to the
holders of the equity shares of the company a sum of Rs. __________ per share,
being in excess of the wants of the company.
(b) By reducing the paid up value of the equity shares of Rs. __________ per shares so as to bring the paid up capital in purity with and making it representative of the residue of the assets of the company."
Same as given under Resolution § 908.
"RESOLVED that pursuant to section 100 of the Companies Act, 1956, and subject to confirmation to the Hon'ble High Court at Bombay, the paid-up value of 50,00,000 equity shares of Rs. 10/- each fully paid be reduced to 50,00,000 equity shares of Rs. 5/- each fully paid-up so as to bring the paid-up capital in purity with and making it representative of the residue of the assets at present held by the company, being the assets as per the valuation made by the Company.
RESOLVED FURTHER that the Capital Clause of the Memorandum of Association of the Company be accordingly altered after the aforesaid reduction becomes effective and operative."
Same as given under Resolution § 908.
Reduction of Capital by
cancelling equity shares
"RESOLVED that subject
to the confirmation of the High Court of Delhi, the issued and paid-up
share capital of the Company be and is hereby reduced from Rs. 10,00,000/-
divided into 1,00,000 equity shares of Rs. 10/- each to Rs. 5,00,000/-
divided into 1,00,000 equity shares of Rs. 10/- each and that such
reduction be effected by cancelling Rs. 5/- per equity share on each and
every one of the 1,00,000 issued and paid-up equity shares, such amount
being the paid-up capital an represented by available assets.
FURTHER RESOLVED that clause __________ of the Memorandum of Association be altered by substituting the words and figures "10,00,000 equity shares of Rs. 10/- each" by the words and figures "10,00,000 equity shares of Rs. 5/- each" as and when the aforesaid reduction becomes operative."
Same as given under Resolution § 908.
Reduction of Capital on
Court's Order
"RESOLVED pursuant to
Section 100 of the Companies Act, 1956 and subject to confirmation of the High
Court of Madras, the issued and paid-up share capital of the Company
comprising 20,00,000 equity shares of Rs. 10/- each and 10,00,000
preference shares of Rs. 10/- each be reduced to 20,00,000 equity shares of
Rs. 5/- each and 10,00,000 preference shares of Rs. 5/- each and
such reduction be effected by cancelling the paid up share capital which is
lost to the extent of Rs. 5/- In each and every equity and preference
share of the Company and the nominal value of every equity and preference share
be reduced to Rs. 5/- per share."
PRACTICE NOTES
Same as given under Resolution § 908.
Reduction of capital by
cancellation of preference shares and
issue of debentures
"RESOLVED that subject
to the confirmation of Hon'ble High Court at __________ and subject to approvals
of other appropriate authorities, institutions or bodies, consent be and is
hereby accorded to the reduction of share capital of the Company with effect
from 1st April, 2002 by cancelling the existing __________ cumulative
preference shares of Rs. __________ each fully paid-up aggregating to an
equivalent amount of Rs. __________ and effecting such cancellation by issue
and allotment of 13.5% non-convertible redeemable secured debentures of
Rs. __________ each fully paid. Aggregating to an equivalent amount of Rs.
__________ to the holders of the said preference shares in the manner and on
the terms and conditions herein below:
(i) The said 7.5% (less
income-tax) cumulative preference shares shall stand cancelled on and
from __________
(ii) The company will issue
and allot non- convertible redeemable secured debentures of Rs.
__________ each (at par) fully paid-up to the aggregate value of Rs.
__________ to the persons who shall be the holders of any one or more of the
said 7.5% cumulative preference shares on such date as may be determined by the
Board of Directors in this regard in the ratio of one such debenture of Rs.
__________ for every one such preference share held.
(iii) The debenture will
carry interest at 13.5% per annum payable half-yearly on 30th September
and 31st March every year.
(iv) The debentures will be
secured by a mortgage/charge on the company's movable/immovable properties as
may be decided by the Board of Directors in consultation with the financial
institutions/banks.
(v) The debentures will be
redeemed at par after the expiry of seven years but before the expiry of ten
years from the date of allotment of the debentures by one or more installments
at the option of the company by giving 3 months prior notice.
(vi) The allotment of the
debentures to the extent they relate to the non-resident members of the
company shall also be subject to the approval of the Reserve Bank of India
under the Foreign Exchange Management Act, 1999.
(vii) The trustee/s of the
holders of the said debentures will be appointed by the Board of Directors of
the company.
RESOLVED FURTHER that the
Board of Directors of the Company may assent to any modifications to the terms
and conditions to cancellation of the said preference shares and also to the issue/allotment
of the debentures as of Hon'ble High Court and/or the SEBI may impose.
RESOLVED FURTHER that for
the purpose of giving effect to the above, the Directors be and are hereby
authorised to give such directions as they may think fit and proper, including
directions for settling any questions or difficulties that may arise in regard
to the issue and allotment of debentures and to do all acts, deeds, matters and
things of whatsoever nature as the Directors in their absolute discretion
consider necessary, expedient and proper.
RESOLVED FURTHER that the
consent of the Company be and is hereby accorded in terms of sec. 293(l)(a) of
the Companies Act, 1956, and other applicable provisions, if any, to the
creation by the Board of Directors of the company of such mortgages and charges
in addition to the existing mortgages, charges and hypothecations created by
the company as the Board may direct on the assets of the Company both present
and future for securing the 13.5% non-convertible redeemable debentures
aggregating to Rs. __________ together with interest to be issued by the
company."
PRACTICE NOTES
Same as given under Resolution § 908.
S. 100-Reduction
of capital by cancelling uncalled capital-Special Resolution
"RESOLVED that pursuant
to section 100 of the Companies Act, 1956, and subject to the confirmation of
Court, consent be and is hereby accorded to the reduction of the capital of the
Company from Rs. 1,00,000/- consisting of 10,000 equity shares of Rs. 10/-
each to Rs. 75,000/- consisting of 10,000 equity shares of Rs. 7.50 each
by extinguishing liability in respect of Rs. 2.50 per share by the uncalled
amount thereon.
RESOLVED FURTHER- that
the Board of Directors be and is hereby authorised to take all necessary action
with a view to give effect to this resolution, and be also authorised inter
alia to appoint advocate, file and verify the petition, affirm affidavit,
appear in Courts and to do all acts, deeds and things on behalf of the company
as may be necessary to be done in this connection."
Same as given under Resolution § 908.
Reduction of capital by
repaying a portion of the preference
shares
S. 100-Reduction
of capital by repaying a portion of the preference shares-Special Resolution
"RESOLVED that pursuant to section 100 of the Companies Act, 1956, and subject to confirmation of Court, the share capital of the Company be and is hereby reduced from Rs. 50,00,000/- consisting of 4,00,000 equity shares of Rs. 10/- each and 10,000 preference shares of Rs. 100/- each to Rs. 45,00,000/- consisting of 4,00,000 equity shares of Rs. 10/- each and 5000 preference shares of Rs. 100/- each and to effect such reduction by cancelling 5000 preference shares bearing distinctive Nos __________ to __________ and repaying to the holders of the said preference shares, the sum of Rs. 100/- per share paid-up thereon.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to take all necessary action
with a view to give effect to this resolution, and be also authorised inter
alia to appoint advocate file and verify the petition, affirm affidavit, appear
in Courts and to do all acts, deeds and things on behalf of the company as may
be necessary to be done in this connection."
Same as given under Resolution § 908.
S. 100-Reduction
of capital by re-payment of preference shares-Special Resolution
"RESOLVED that pursuant
to S. 100 of the Companies Act, 1956, and subject to confirmation of Court, the
share capital of the Company be and is hereby reduced from Rs. 50,00,000/- consisting
of 4,00,000 equity shares of Rs. 10/- each and 10,000 preference shares
of Rs. 100/- each to Rs. 40,00,000/- consisting of 4,00,000 equity
shares of Rs. 10/- each and to effect such reduction by cancelling the
existing 10,000 preference shares of Rs. 100/- each and returning to the
holders of the entire 10,000 preference shares, the sum of Rs. 100/- per
share paid-up thereon."
1. Cancellation of
preference shares.-Where preference shares are sought to be cancelled a meeting of
the general body as well as a class meeting will have to be convened and a
Special Resolution in this form will have to be passed at each of such
meetings.
Reduction of capital by
repaying preference shares
(Another Format)
"RESOLVED that pursuant to article __________ of the Articles of Association and subject to the confirmation of Court, the share capital of the Company be and is hereby reduced from Rs. 30,00,000/- consisting of 2,00,000 equity shares of Rs. 10/- each fully paid-up and 10,000, 13.5% cumulative preference shares of Rs. 100/- each, fully paid-up, to Rs. 20,00,000 consisting of 2,00,000 equity shares of Rs.10/- each, by cancelling the existing 10,000, 13.5% cumulative preference shares of Rs. 100/- each and effecting such cancellation by returning to the holders of the entire 10,000, 13.5% cumulative preference shares the sum of Rs. 100/- per share which is paid-up thereon."
1. Special Resolution
required for reduction of capital by repaying preference shares.-In the case of
reduction of capital by repaying preference shares, a meeting of the general
body as well as a class meeting of the preference shareholders should be
convened and held and Special Resolution passed at both such meetings.
2. Filing of Resolutions
with Registrar of companies.-Both the Special Resolutions will have to be filed
with the Registrar of Companies concerned in Form No. 23, along with the
Explanatory Statement on payment of prescribed filing fee, in cash as
prescribed under Schedule X of the Act.
Reduction of capital by
converting irredeemable preference
shares into redeemable
preference shares
"RESOLVED that subject to the confirmation of Court at __________ and subject to approval of other appropriate authorities, financial institutions/banks or bodies as may be required in this regard, consent be and is hereby accorded to the reduction of the share capital of the Company by cancelling the existing __________, 9.5% (less income tax) cumulative preference shares of Rs. __________ each fully paid up, aggregating to Rs. __________ and effecting such cancellation by the creation, issue and allotment of __________, 13.5% (less income-tax) cumulative redeemable preference shares of Rs. __________ each, aggregating to an equivalent amount of Rs. __________ to the holders of the said preference shares in the manner and on the terms and conditions herein below:
1. The said 9.5% (less
income- tax) cumulative preference shares of Rs. __________ each shall
stand cancelled on and from __________
2. The Company will Issue and allot __________, 13.5% (less income tax) cumulative redeemable preference shares of Rs. __________ each, at par, fully paid-up to the persons who shall be the holders of any one or more of the said 9.5% (less income-tax) cumulative preference shares of Rs. __________ each on such date as may be determined by the Board of Directors in this regard, in the ratio of one such cumulative redeemable preference share of Rs. __________ each for every one such cumulative preference share held.
3. The cumulative preference
shareholders will be entitled to a fixed cumulative preferential dividend of
13.5%.
4. The holders of the said
shares shall have a right to attend General Meetings of the Company and to vote
on resolutions directly affecting their interest; and where the dividend in
respect thereof are in arrears for not less than two, preceding the date of the
meeting, on all resolutions at every meeting of the Company.
5. The holders of the said
shares shall be entitled, in a winding up to a preferential right of return of
the amount paid-up on the shares together with arrears of cumulative
preference dividend due on the date of winding up, but shall not have any
further right or claim over the surplus assets of the company.
6. The shares will be
redeemed at par, subject to the provisions of section 80 of the Companies Act,
after the expiry of Eight years but before the expiry of Ten years from the
date of allotment of the shares by one or more installments at the option of
the company by giving three months' notice.
7. The allotment of the
cumulative redeemable preference shares, to the extent relate to non-resident
members of the Company shall also be. subject to the approval of the Reserve
Bank of India under the Foreign Exchange Management Act, 1999.
RESOLVED FURTHER that the
Board of Directors of the Company may assent to any modification to the terms
and conditions of the cancellation of the cumulative preference shares and also
to the issue/allotment of the cumulative redeemable preference shares as the
High Court and/or the SEBI may impose.
RESOLVED FURTHER that for
the purpose of giving effect to the above, the Directors of the Company be and
are hereby authorised to give such directions as they may think fit and proper,
including directions for settling any questions or difficulties that may arise
in regard to the issue and allotment of the cumulative redeemable preference
shares and to do all acts, deeds, matters and things of whatsoever nature as
the Directors in their absolute discretion consider necessary, expedient and
proper."
1. Passing of Special
Resolution both by general body and at class meeting.-This will have to be
passed as a Special Resolution both by the general body and at a class meeting
of the preference shareholders.
2. Conversion of
irredeemable preference shares into redeemable preference shares.-Irredeemable
preference shares cannot be converted into redeemable preference shares except
by going through the process of reduction.
3. Filing of Special
Resolution with Registrar of Companies.-The Special Resolutions
passed, along with the Explanatory Statements thereof and together with Form
No. 23, will have to be filed with the Registrar within thirty days of the
passing of this resolution on payment of prescribed filing fee, in cash as per
Schedule X of the Act. Non-filing will attract penalty by way of fine of up to
Rs. 100/-.
4. On confirmation by court
Preference shareholders be asked to surrender share certificates for issue of
fresh certificates.-After the confirmation by Court, the Board of Directors should
direct the Secretary of the company to send notices to the preference
shareholders to surrender their share certificates. The company can then either
amend the existing share certificates or cancel the same and issue fresh share
certificates.
5. Procedure under section
391/394 to be followed.-The above will involve initiation of steps u/s. 391/394 of the
Act.
Reduction of Capital by
cancelling Preference Shares and
issuing Debentures
"RESOLVED that subject
to the consent of the shareholders at the General Meeting by means of Special
Resolution, the consent of the preference shareholders at the class meeting by
means of Special Resolution, the confirmation of the High Court at __________
and subject to approvals of other appropriate authorities in this regard, the
share capital of the Company be reduced with effect from __________ by cancelling
the existing __________, 19.3% cumulative preference shares of Rs. __________
each fully paid-up aggregating to Rs. __________ and effecting such
cancellation by issue and allotment of such number of 15% non convertible
secured redeemable debentures of Rs. __________ each fully paid up, as are
necessary, provided the number of debentures to be so is sued does not exceed
__________ to such of the preference shareholders, holding shares in multiples
of 10 on __________ (hereinafter called the "Record Date") and
payment in cash at the rate of Rs. __________ for each preference share to
those preference shareholders holding on the Record Date less than 10 shares
and/ or holding more than 10 shares but not in multiples of 10 to the extent
such extra holding is not In multiples of 10, upon surrendering of such
preference shares to the company for cancellation in the manner and on the
terms and conditions stipulated herein below:
(a) The said 9.3% (subject
to deduction of tax) cumulative preference shares stand cancelled on and from
__________
(b) The Company will issue
and allot non- convertible secured redeemable debentures of Rs.
__________ each at par fully paid-up to the persons who shall be holders
of 10 or in multiples of 10 to the extent it is so, of the said 9.3% Cumulative
preference shares on the Record Date in
the ratio of one such debenture of Rs. __________ for every 10 such preference
shares held.
(c) The debentures will
carry interest at 14% per annum payable half-yearly on 30th September and
31st March every year.
(d) The debentures will be
secured by a mortgage/ charge on the company's movable/immovable properties as
may be decided by the Board of Directors in consultation with the financial
institutions/banks.
(e) The debentures will be
non-convertible and redeemable at par after the expiry of 7 years but
before the expiry of 10 years from the date of allotment by one or more
instalments at the option of the company by giving three months' prior notice.
(f) The allotment of
debentures to the extent they relate to nonresidents or foreign nationals
holding preference shares in the Company shall be subject to the approval of
the Reserve Bank of India under the Foreign Exchange Management Act, 1999.
(g) The trustees of the
holders of the debentures will be appointed by the Board of Directors of the
Company."
Same as given under Resolution § 908.
Reduction of capital by
repaying members the excess
amount of capital
"RESOLVED that pursuant
to section 100 of the Companies Act, 1956, and subject to confirmation of the
Court, the authorised capital of the Company be and is hereby reduced from Rs.
3,00,00,000/- consisting of 30,00,000 equity shares of Rs. 10/-
each fully paid-up to Rs. 1,50,00,000/- consisting of 30,00,000
equity shares of Rs. 5/- each fully paid-up the amount by which the
capital is so reduced being in excess of the requirements of the company and
that such reduction be effected by returning to the holders of the entire
30,00,000 equity shareholders amount(s) at the rate of Rs. 5/- per share
so as to bring down the authorised and issued capital of the company to Rs.
1,50,00,000/- consisting of 30,00,000 equity shares of Rs. 5/- each
fully paid.
RESOLVED FURTHER that
suitable alterations be made in the capital clause of the Memorandum of
Association of the Company after the aforesaid reduction becomes operative and
effective."
1. Procedure to be followed
for reduction of share capital.-Procedure to be followed in order to reduce the
share capital of the company is to-
(i) Consult the Articles of
Association to see if they authorise reduction of share capital, and if they do
not to complete proceedings to alter them accordingly.
(ii) Call a Board Meeting
and approve the scheme of reduction and fix up the day, time, place and agenda
for the General Meeting to pass Special Resolution for effecting reduction and
to change the Memorandum of Association subject to confirmation of the Court.
The reduction may be effected in any of the ways specified in section 100 and
these are:
(a)
extinguishing or reducing the liability on any of the shares in respect of
share capital not paid-up;
(b) with or without
extinguishing or reducing liability on any shares, cancelling any paid-up
share capital which is lost, or is unrepresented by available assets;
(c) with or without extinguishing or reducing liability on any shares, paying off any paid-up share capital which is in excess of the wants of the company.
(iii) Issue notices for the
General Meeting with suitable Explanatory Statement.
(iv) Hold the General
Meeting and pass the Special Resolution.
(v) Forward to the Stock
Exchange concerned a copy of the proceedings of this general meeting effecting
the reduction of capital (according to standard listing agreement).
(vi) File the Special
Resolution with Explanatory Statement with the Registrar of Companies in Form
No. 23 within thirty days (Section 192).
(vii) Apply to the Court for
confirmation of the reduction by way of a petition in Form No. 18 of the
Companies (Court) Rules; such petition must be accompanied by Judge's summons
for directions in Form No. 19 of the said Rule. The said petition must be
verified by an affidavit in Form No. 3 of the said Rules.
(viii) See that the petition
is accompanied by the following documents;
(a) A true copy
of the Memorandum and the Articles of Association of the company;
(b) A true copy of the
notice calling the meeting;
(c) A true copy
of the Special Resolution authorising the reduction of capital;
(d) A true copy
of the latest balance-sheet and profit and loss account.
(e) The minutes
of the meeting at which the Special Resolution was passed.
(ix) Make an advertisement
of the petition not less than fourteen days before the date fixed for hearing
in one issue of the Official Gazette of the State or the Union Territory
concerned and in one issue each of a daily newspaper in English language and a
daily newspaper in the regional language circulating in the concerned State or
the Union Territory if the Judge so directs on receiving the petition. This is
usually the case when the Judge is satisfied that the reduction does not
involve either diminution of liability in respect of unpaid share capital or
payment to any shareholder of any paid-up share capital.
2. Procedure to be followed
when reduction involves either diminution of liability in respect of unpaid
share capital or payment to shareholders of any paid-up capital.-If, according to the Judge,
the reduction involves either diminution of liability in respect of unpaid
share capital or payment to any shareholder of any paid-up share capital,
then, the further procedure to follow is to-
(a) File a list of creditors
in Form No. 21 of the Companies (Court) Rules, 1959 with the Court, within the
time allowed by the Judge .
(b) See that the said list
is verified by an affidavit in Form No. 22 of the said Rules which is to be
made by a Director or Secretary or any other principal officer of the concerned
company.
(c) Keep copies of the list
of creditors in the registered office of the company and also at the office of
the Advocate of the company and allow any person to inspect and take extracts
from it at any time during the ordinary hours of business on payment of the sum
of one rupee.
(d) Give notice to every
creditor named in the list in Form No. 23 of the Companies (Court) Rules within
seven days after the filing of the list of creditors. Send such notices by pre-paid
registered post for acknowledgment to the last known address to each creditors.
(e) Advertise the notice of
the presentation of the petition and of the list of creditors in Form No. 24 of
the Companies (Court) Rules, 1959 within seven days after the filing of the
said list.
(f) File an affidavit
proving the despatch and publication of the notices mentioned in (d) and (e)
above in Form No. 25 of the Companies (Court) Rules, 1959.
(g) File a statement signed
and verified by the Advocate of the company stating the result of the notices
mentioned in (d) and (e) above, accompanied by an affidavit in Form no. 26 of
the Companies (Court) Rules, 1959 within the time fixed by the Judge.
(h) If the company contends
that a person is not entitled to be entered in the list of creditors or if the
company is unwilling to set apart and appropriate the full amount of any debt
or claim of any creditor, then give a notice to that or those creditor or creditors
in Form No. 27 of the Companies (Court) Rules, 1959 not less than four clear
days before the date fixed by the Judge.
(i) Get a certificate
prepared by the Advocate of the company stating the result of the settlement of
the list of credit6rs and file it.
(j) Advertise notice of the
date fixed for the hearing of the petition in Form No. 29 of the Companies
(Court) Rules, 1959 within such time and in such newspaper or newspapers as the
Judge may direct.
3. Steps to be taken on
confirmation of reduction by court.-The Court, being satisfied on all accounts,
will pass an order confirming the reduction and may direct the company to use
the words 'and reduced' in its name and/or to publish in newspapers the reasons
etc., for reduction in terms of section 102. In compliance of the orders of the
Court, the following further steps are required to be taken:
(i) Delivering a certified
copy of the Court order and the minute approved by the Court in Form No. 31 of
the Companies (Court) Rules, 1959 to the Registrar of Companies and producing
before him the original copy of the order on which the Registrar will register
the copy of the order and the minute (Section 103(t)). He will also certify the
same under his own hand (Section 103(4)). The reduction will be effective on
such registration (Section 103(2)).
(ii) Publishing the notice
of registration in such manner as the Court directs in Form No. 32 of the
Companies (Court) Rules, 1959 (Section 103(3)).
(iii) Altering the
Memorandum and the Articles of Association and other papers and documents
accordingly.
(iv) Taking other steps such
as making endorsement on the share certificates or refunding of the capital or
any other thing as per the scheme of reduction.
(v) Sending to the exchange
with which the company is enlisted, three copies of all notices, circulars,
etc., issued or advertised by the company in connection with the reduction.
Variation of rights of shareholders (S. 106)
A variation which merely
affects the enjoyment of a right without modifying the right itself does not
come within this section. In re, Hindustan General Electric Corporation, (1959)
29 Comp Cases 144. A cancellation of preference shares by repayment of the
capital paid upon those shares and in accordance with the rights attached to those
shares does not involve a variation of the rights of any other shareholders of
the company. Re, Saltdean Estate Co. Ltd., (1968) 3 All ER 829 (CH D). The sub-division
of any shares which has the effect of diminishing the voting power of other
shares cannot be said to effect the right attached to any shares. Greenhalgh v.
Arderne Cinema Ltd., (1946) 1 All ER 512 (CA). Where a variation of right is
part of a scheme of arrangement with the intervention of the Court under
section 391, section 106 does not apply. In Re Hindustan General Electric
Corporation, (1959) 29 Comp Cases 144. The articles provided that class rights
should be altered by means of a Special resolution of the class of shareholders
concerned. It was held that an attempt to alter the class rights without
compliance with the requirement of the articles was not valid. Sitarama Reddy
v. Bellary Spinning & Weaving Co. Ltd., (1984) 56 Comp Cases 281.
Variation of rights of
shareholders
"RESOLVED that the
consent be and is hereby accorded to the increase in the rate of dividend of
the existing 7 3/4 per cent redeemable cumulative preference shares of Rs. 100/-
each from existing 7 3/4 per cent per annum to 11 per cent per annum free of
Company's income tax but subject to deduction of tax at source pursuant to
section 194 of the Income-tax Act, 1961"
1. Provision in the
Articles.-Provision with respect to the variation should be contained in the
memorandum or articles of association of the company.
2. Prohibition in the terms
of issue.-In case there is no provision contained in the memorandum or articles
of association of the company, the variation should not be prohibited by the
terms of the issue.
3. Postal Ballot. -Listed Companies are
required to pass the special resolution for variation in the rights attached to
a class of shares or debentures or other securities as specified under section
106 through postal ballot as per Rule 40) of the Companies (Passing of the
Resolutions by Postal Ballot) Rules, 2001.
Variation of rights of
shareholders
(Another Format)
"RESOLVED that consent
of the preference shareholders of the Company be and is hereby given to the
alteration of article 5 of the Articles of Association of the Company by
substituting the words "the cumulative preference shares shall confer the
right to a fixed preferential dividend at the rate of 12% per annum" with
the words "the cumulative preference shares shall confer the rights to a
fixed preferential dividend @ 10% per annum free of income- tax payable
by the Company but subject to deduction of tax under the Income-tax Act,
1961 or any statutory modification or re-enactment thereof'.
RESOLVED FURTHER that
approval be and is hereby given to the variation as aforesaid to the rights
attached to the cumulative preference shares in the capital of the
company."
OR
"RESOLVED that the
Articles of Association of the Company be and are hereby amended by inserting
the following as a new Article numbered "5A" after Article 5 with the
caption "Modification of rights".
"5A. Modification of
rights:
Rights and privileges
attached to the preference shares be varied, modified, commuted, affected,
abrogated, subject to the provisions of section 106 of the Companies Act, 1956,
provided that consent in writing by the holders of at least 3/4th of the issued
shares of that class is obtained or the variation, cumulation, modification,
abrogation is sanctioned by a resolution passed at a Special General Meeting of
the preference shareholders in accordance with section 106(l)(b) of the Act.
The provisions as applicable to the General Meeting of the company shall
mutatis mutandis apply to every such meeting, provided that the quorum thereof
shall be five members, holding or representing by proxies, 1/3rd of the nominal
amount of the issued share of the class."
1. Calling of separate
meeting of preference shareholders.-Call a separate meeting of the preference
shareholders whose rights are proposed to be varied. This will not be necessary
if 3/4th of shareholders of this class give in writing their consent to the
variation of the rights attached to their shares.
2. Variation pursuant to
scheme sanctioned by Court.-In case the variation is pursuant to a scheme of
arrangement sanctioned by the Court under section 391, recourse to section 106
will not be required.
3. Right of dissenting
shareholders to apply to High Court.-Section 107 of the Act gives a right to the
holders of not less than 10% of the issued share of that class who did not
consent to or vote in favour of the resolution for the variation, apply to the
High Court to have the variation cancelled and if such an application is moved
before the High Court, the variation shall not have any effect unless and until
it is confirmed by the High Court. This application is to be made within 21
days after the date on which the consent to the variation was given or the
resolution was passed as the case may be. Therefore wait for twenty-one
days to see whether any petition has been filed in the High Court seeking
cancellation of the resolution/variation. If no petition pursuant to section
107 of the Act is filed or if the variation is confirmed by the High Court,
file with the Registrar of Companies within thirty days a copy of the order of
the High Court along with Form No. 5 containing the Special Resolution passed
at the meeting of the preference shareholders.
4. Filing of Special Resolution
with Registrar of Companies.-File Form No. 23 in the case of Special Resolution
with the Registrar of Companies within thirty days, with requisite filing fee
in cash as prescribed under Schedule X of the Act.
5. Variation affecting
enjoyment of right without modifying right not covered.-A variation which merely
affects the enjoyment of a right without modifying the right itself does not
come within the section. In re, Hindustan General Electric Corporation, (1959)
29 Comp Cases 144.
6. Cancellation of preferred
shares by repayment of capital paid not a variation of rights of other.-A cancellation of preferred
shares by repayment of the capital paid upon those shares and in accordance
with the rights attached to those shares does not involve a variation of the
rights of any other shareholders of the company. Re, Saltdean Estate Co. Ltd.,
(1968) 3 All ER 829 (Ch D).
7. Sub-division of
shares having effect of diminishing voting power of other shares not a
variation of right.-The sub-division of any shares which has the effect of
diminishing the voting power of other shares cannot be said to effect the right
attached to any shares. Greenhalgh v. Arderne Cinema Ltd., (1946) 1 All ER 512
(CA).
8. Section not applicable to
variation of right forming part of scheme of arrangement.-Where a variation of right
is part of a scheme of arrangement with the intervention of the Court under
section 391, Section 106 does not apply. In Re Hindustan General Electric
Corporation, (1959) 29 Comp Cases 144.
9. Alteration of class
rights without compliance of articles not valid.-The articles provided
that class rights should be altered by means of Special Resolution of the class
of shareholders concerned. It was held that an attempt to alter the class
rights without compliance with this requirement of the articles was not valid.
Sitarama Reddy v. Bellay Spinning & Weaving Co. Ltd., (1984) 56 Comp Cases
281.
Variation of rights of
shareholders
(Another Format)
"RESOLVED that subject
to the approval of appropriate authorities, consent be and is hereby accorded
to the Board of Directors of the Company authorising it to vary the terms of
the issue of the existing __________ No__________% redeemable cumulative
preference Shares of Rs. __________ each
as follows:
RESOLVED FURTHER that
notwithstanding the provisions contained in article __________ of the Articles
of Association of the Company, the Company shall have the liberty to redeem,
if the Board of Directors of the Company deem it fit and so recommend, the said
redeemable cumulative preference shares at any time in whole or any part or
parts thereof earlier than the period of __________ years from __________ as
mentioned in the said article, so however, that such redemption together with a
sum equal to the arrears of the fixed cumulative preference dividend thereon
whether earned, declared or not upon the date of such redemption, shall be
subject to the same terms and conditions as specified in the said article.
RESOLVED FURTHER that the
Board of Directors of the Company may assent to any modifications to the terms
and conditions of the redemption of preference shares as the SEBI or other
appropriate authorities may impose.
RESOLVED FURTHER that for the
purpose of giving effect to the above, the Board of Directors of the Company be
and are hereby authorised to give such directions as they may think fit and
proper, including directions for settling any questions or difficulties that
may arise in regard to varying the terms of the issue and redemption of the
existing preference shares wholly or in part at different periods."
1. Articles to empower
company.-The terms of issue can be varied if the company is authorised to do so
by its articles; otherwise, a Special Resolution will first have to be passed
amending the articles empowering the company to vary the terms of issue.
2. Variation not to be
prohibited by terms of issue.-The letter of offer of the shares, or if there is no
such letter, the resolution of the general body authorising the Board to issue
the shares, should be perused to see whether the proposed variation in any way
infringes the terms of any of them. It is only where such variation is not
prohibited by the terms of the issue that the above resolution can be passed.
3. Guidelines of SEBI to be
followed.-Ensure to follow guidelines issued by the Securities and Exchange Board
of India in this regard.
4. Variation not to the
detriment of shareholders.-In this case, since the variation is not to the
detriment of the shareholders, it is sufficient that an ordinary resolution of
the class is passed. Where the variation is to be detriment of the shareholders
of the class, the variation can only be with the consent in writing of the
holders of not less than three fourths of the issued shares of that class or
with the sanction of a Special Resolution passed at a separate meeting of the
holders of the issued shares of the class.
Alteration in the memorandum
and the articles consequent
upon the change in the rate
of preference dividend
"RESOLVED that the
Memorandum of Association of the Company be altered in the following manner:
"The figure
7 3/4 in lines 2 and 4 of clause 5 be deleted and the figure 11 be substituted
there for."
RESOLVED FURTHER that the
Articles of Association of the Company be altered in the following manner:
"The figure
7 3/4 in lines 2 and 4 of clause 4 be deleted and the figure 11 be substituted
there for."
1. Variation of class
rights.-In
the above case, the series of redeemable cumulative preference shares carrying
7 3/4 per cent dividend per annum has become redeemable and an increase of
dividend to 11 per cent per annum. to such redeemable cumulative preference
shares of Rs. 100/- each has been approved by the members of the company
at a General Meeting. Pursuant to the provisions of section 106 of the
Companies Act, 1956, and articles of the company the rights attached to the
shares of any class may be varied with the consent in writing of the holders of
not less than three- fourths of the issued shares of that class or with
the sanction of a Special Resolution passed at a separate meeting of the
holders of the issued shares of the class. The Special Resolution above is to
comply with the provisions of section 106 of the Act, as the replacement of
redeemable preference shares carrying 73/4 per cent dividend by preference
shares carrying eleven per cent dividend per annum may be deemed to be a
modification, commutation, abrogation or variation of rights and privileges
attached to the shares. Articles usually provide that in order to deal with
variation, as mentioned above, it should be performed by agreement between the
company and any person purporting to contract on behalf of that class provided
such agreement is consented in writing by holders of at least three-fourths
of the issued shares etc.
2. Agreement with company
agreeing to variation of rights of preference shareholders.-In compliance with the
provisions of section 106 of the Companies Act, 1956, and as corroborated under
the Articles of Association of the company a particular preference shareholder
of the class may be selected to enter into a contract on behalf of the 7 3/4
per cent preference shareholders of the company (to enter into an agreement
with the company agreeing to the variation of the rights of the preference
shareholders as aforesaid). The agreement will not become operative unless-
(a) It is ratified by the
required majority of the holders of preference shares; and
(b) necessary Special
Resolution is passed in the manner set out in the notice.
3. Forwarding of agreement
entered between company and particular shareholder to preference shareholders.-A copy of the said agreement
to be entered into between the company and the particular preference
shareholder is to be sent to the holders of the preference shares to get their
consent to the same.
Issue of Share Warrants
"RESOLVED that subject
to the approval of the Central Government, consent of the shareholders of the
Company be and is hereby accorded to the issue of share warrants by the Board
of Directors to the registered shareholders of the Company on their
surrendering the share certificates, as per draft of the form submitted to the
meeting and duly initialled by the Chairman for identification.
RESOLVED FURTHER that the
Board of Directors of the, Company be and is hereby authorised to make
necessary application to the Central Government and to do all such acts and
things as may be necessary in this regard."
1. Articles to empower
company to issue share warrant to bearer.-The issue of share warrant
to bearer must be authorised by the Articles of Association of the company. If
not, amend the articles and incorporate therein the provisions of section 114.
For amendment of Articles of Association.
2. Central Government's
previous approval required for issuance of share warrant to bearer.-Previous approval of
the Central Government is required for issue of share warrant to bearer in lieu
of share certificates.
3. Warrant entitles bearer
to share specified therein.-The warrant would entitle the bearer thereof to the
shares specified therein and the shares may be transferred by delivery of the
warrant.
4. Shares be fully paid-up.-The shares must be fully
paid-up.
5. Share warrant to be
issued under Common Seal.-The share warrants should be issued under the common
seal of the company stating therein that the bearer of warrant is entitled to
the shares as also payment of future dividend on the share specified therein.
6. Striking out of Register
of Members names of members.-On the issue of share warrant, the company would
strike out of its Register of Members the name of the members and shall enter
the fact of issue of the warrant, a statement of the shares specified therein
distinguishing each share by its number and the date of the issue of the warrant.
CIT Bombay v. Juliet M. Fatch, (1979) 49 Comp Cases 112 (DB-Bom).
7. Holder of share warrant
entitled to credit tax deducted at source.-The holder of a share warrant is
entitled to credit as regards tax deducted at source in the same way as a shareholder
is entitled."
Variation of the rights of
debenture-holders
"RESOLVED that the
rights of the holders of 10% debenture stocks of ABC Company Limited created
and secured by a deed of trust dated 15th July 2001 be and is hereby modified
along with the provisions of the said Trust Deed in the following manner:
(a) by
decreasing the rate of interest from 13% to 10% with effect from 1-1-2002;
and
(b) by extending
the date of maturity from 15th July, 2002 to 15th July, 2005.
RESOLVED FURTHER that any
stock holder who has voted against the resolution or who was not present at the
meeting either in person or by proxy and has expressed his dissent in writing
before the commencement of the meeting shall be paid in cash on 1st January,
2002 the whole amount of debenture stock held by him plus interest accrued
thereon up to 31st December, 2001 calculated @ 10% per annum.
RESOLVED FURTHER that the
trustees of the deed of trust be and are authorised to execute a supplemental
deed of trust, for carrying out the modifications as aforesaid in the deed of
trust, the draft of which has been submitted to this meeting and has been
initialled by the Chairman for the purposes of identification."
PRACTICE NOTES
1. Guidelines of SEBI to be
followed.-Ensure
to follow the guidelines issued by the Securities and Exchange Board of India
in this regard.
2. Obtain prior approval of
financial institution before calling meeting for modification of rights.-If a large stock is held by
the financial institutions like IDBI or LIC, it would be expedient to obtain
their prior approval before calling the meeting for such modification of
rights.
3. Trust deed to empower
variation of rights.-Ensure that the deed of trust securing the debenture stock empowers the
stock holders to vary the conditions. if not, first amend the deed of trust and
then have the resolution for variation of rights adopted by the stock holders.
4. Power of modification of
rights of debenture holders in trust deed identical with power to alter
articles.-The power to modify the rights attached to debenture stock by the deed
of trust is identical to the power given by the Companies Act, 1956, to members
of the company to alter its Articles of Association under section 31 of the
Act.
5. Filing of return with
Registrar of Companies.-A return in Form No. 8 along with Form No. 13 are to
be filed with the Registrar of Companies concerned within thirty days of the
passing of the resolution, after payment of requisite filing fee in cash.
Conversion of bearer
debentures into registered debenture and
increase in the rate of
interest
"RESOLVED that this
meeting of the debenture holders secured by the 'deed of trust dated 15h July,
1993, as modified by supplemental trust deeds dated 17th August, 1998 and 15th
September, 2001, hereby approves that the following modifications as to the
rights of the holders of the said debentures and in the said deed of trust be
made:
(i) the debentures will be
converted into registered debentures; and
(ii) the time for payment of
the debentures shall be extended by two years and they shall not be paid on
15th July 2002;
(iii) the rate of interest
on the principle amount secured by these debentures shall be 13% per annum with
effect from 1st June, 2002;
(iv) the trustees are
authorised to execute a supplemental deed of trust for carrying out the
aforesaid modification as per draft tabled at the meeting, duly initialled by
the Chairman for purposes of identification."
1. When debentures held by
financial institution obtain prior approval before convening meeting of
debenture holders.-If the debentures are held by the financial institutions like
Bank, etc., obtain their prior approval before convening a meeting of the
debenture- holders.
2. Variation not to be made
for conferring voting rights.-No variation can be made to confer voting rights on
debenture holders.
3. Debenture holders meeting
to be held only.-The meeting to be held is of the debenture-holders only and it
should be ensured that as many of them attend the meeting as possible.
4. Absentees' consent to be
obtained in writing.-Obtain consent of the absentees in writing before the meeting, if
possible.
5. Filing of return with
Registrar of Companies.-Return in Form No. 8 along with Form No. 13 be filed
with the Registrar of Companies concerned within thirty days.
Alteration in Debenture
trust deed
WHEREAS a trust deed for securing the issue of 10,000 debentures of Rs. 100/- each prepared in such form as prescribed and the said trust deed executed with in the prescribed period;
AND WHEREAS IT WAS RESOLVED
that the aforesaid trust deed be open to inspection to any member or debenture
holder of the company during the working hours from 10.30 A.M. to 1.30 P.M. who
will be entitled to obtain copies of the said trust deed on payment of such sum
as may be prescribed;
AND WHEREAS one of the
trustees of the said Trust Deed desired to have the time for inspection of the
said Trust Deed to be extended further for two hours on the working days of the
company;
NOW THEREFORE IT IS RESOLVED
that the working hours for 'inspection of the said Trust Deed be and is hereby
extended for further two hours from 2 P.M. to 4 P.M. on each working day with
other conditions remaining the same.
RESOLVED FURTHER that the
Board of Directors of the company be and is hereby authorised to carry out the
said alteration in the said Trust Deed.
1. Companies (Amendment) Act,
2000-This
new section has been introduced by the Companies (Amendment) Act, 2000, with
effect from 13th December, 2000 so as to cover unlisted companies to follow
certain provisions as above to secure the interest of debenture holders.
2. Penalty.-Contravention of the
provisions of section 117A(2) of making a copy of the trust deed for inspection
or of giving a copy of the trust deed to any member or debenture holder will
make the company and every officer of the company who is in default punishable for
each offence with fine of up to Rs. 500/- for every day during which the
offence continues.
Change in Appointment of
debenture trustees
WHEREAS the following had given their consent to act as debenture trustees and were appointed as debenture trustees of the company for the proposed issued of 10,000 debentures of Rs. 100/- each at a fee of Rs. __________
(1) ____________________
(2) ____________________
AND WHEREAS one of them namely Mr. ____________________ desired to with draw his consent and wanted his name to be removed from the Trust Deed as one of the Trustees of the aforesaid issue of debentures;
AND WHEREAS the functions of
the said debenture trustee was to protect the interest of holders of debentures
including the creation of securities within the stipulated time and to redress
the grievances of holders of debentures effectively.
AND WHEREAS the said
debenture trustee expressed his unwillingness to be able to create securities
within the stipulated time;
NOW THEREFORE IT IS RESOLVED that Mr. ____________________ name be and is hereby removed from the debenture trust deed as a debenture trustee with effect from __________ 2002.
RESOLVED FURTHER that the Board
of Directors of the company be authorised to and is hereby necessary steps to
implement this resolution and take every action in connection therewith and
incidental and ancillary thereto.
1. Companies (Amendment)
Act, 2000.-This new section has been introduced by the Companies (Amendment) Act,
2000, with effect from 13th December, 2000 so as to make it compulsory even for
unlisted companies to appoint debenture trustees for the issue of debentures.
2. Who can be appointed as a
debenture trustee.-Proviso to sub-section (1) of section 117B provides that to be
appointed as a debenture trustee he should not beneficially hold shares in the
company where he is being appointed. He should not also be beneficially
entitled to moneys which are to be paid by the company to the debenture
trustee. Further, he should not have entered into any guarantee in respect of
principal debts secured by the debentures or interest thereon.
3. Steps which can be taken
by a debenture trustee.-Sub- section (3) of section 117B provides that
a debenture trustee may take steps as he may deem fit to ensure that the assets
of the company issuing debentures and each of the guarantors are sufficient to
discharge the principal amount at all times and that the company does not
commit any breach of covenants and provisions of the trust deed. The debenture
trustee appointed by the company may take steps to satisfy himself that the
prospectus or the letter of offer does not contain any matter which is
inconsistent with the terms of debentures or with the trust deed. Further the
debenture trustee so appointed by the company may take such reasonable, steps
to remedy any breach of the covenants of the trust deed or the terms of issue
of debentures and to call a meeting of holders of debentures as and when such
meeting is required to be held.
4. Petition before the
Company Law Board.-Sub- section (4) of section 117B provides that where at
any time the debenture trustee comes to a conclusion that the assets of the
company are insufficient or are likely to become insufficient to discharge the
principal amount as and when it becomes due, the debenture trustee may file a
petition before the Company Law Board along with a fee of Rs. 1000/- and
the Company Law Board may, after hearing the company and any other person
interested in the matter, by an order, impose such restrictions on the
incurring of any further liabilities as the Company Law Board thinks necessary
in the interest of holders of the debentures.
Creation of security and debenture
redemption reserve
"RESOLVED that a
debenture redemption reserve be and is hereby created for the redemption of
10,000 debentures of Rs. 100/- each of par issued by the company to which
adequate amounts should be credited from out of the company's profits every
year until such debentures are redeemed.
RESOLVED FURTHER that the
amounts credited to the aforesaid debenture redemption reserve be not be utilised
by the company except for the purpose aforesaid.
RESOLVED FURTHER that the
interest be paid on, and redemption be made of the aforesaid debentures in
accordance with the terms and conditions of its issue.
1. Companies (Amendment) Act,
2000.-This
new section has been introduced by the Companies (Amendment) Act, 2000, with
effect from 13th December, 2000.
2. Application to the
Company Law Board.-Sub- section (4) of section 117C provides that where a company
falls to redeem the debentures on the date of maturity, the Company Law Board
may, on the application along with a fee of Rs. 50/- of any or all the
holders of debentures shall, after hearing the parties concerned, direct, by
order, the company to redeem the debentures forthwith by the payment of
principal and interest due thereon.
3. Penalty.-Sub- section (5) of
section 117C provides that if default is made in complying with the order of
the Company Law Board under sub-section (4) of section 117C, then every
officer of the company who is in default will be punishable with imprisonment
of 3 years and will also liable to a fine of up to Rs. 500/- for every
day during which such default continues.
Extension of date of
redemption of debentures
"RESOLVED that this General Meeting of the holders of 9,000 eleven and a half per cent secured debentures (hereinafter called 'the said debentures') of WADHWA & COMPANY LIMITED (hereinafter called 'the company') constituted and secured by a trust deed (hereinafter called 'the trust deed') dated the __________, 2002 __________ and made between the company of the one part and Mr. XYZ and Mr. PQR as trustees of the other part be and is hereby given assent and sanction to:
(a) the date of redemption
of the said debentures being postponed from the __________, 2002 __________ to
__________, 2005 __________ (i. e., by __________ years with liberty to the
company to purchase at any time in the market at or under par (exclusive of
accrued interest but inclusive of costs of purchases) all or any of the said
debentures for the time being outstanding by giving not less than six calendar
months' notice in writing of such intention to the registered holders of the
said debentures or their legal/personal representatives provided that any
debenture- holder present at the meeting or if he has not attended the
meeting has, in writing, before the due date of the redemption, expressed his
wish to have his holding of debentures repaid before the __________, 2002 he
shall be paid in cash on or before that date.
(b) the rate of interest
payable on the said debentures being increased from eleven and a half per cent
to twelve and a half per cent per annum from the __________, 2003 next
year)."
1. Class meeting, how to be
held.-Class
meeting of debenture holders should be called and held in the manner provided
in Annexure C to the Companies (Central Government's) General Rules and Forms,
1956.
2. Filing of modification of
charge.-Modification
of charge should be filed in Form No. 8 and also in Form No. 13 within 30 days
of passing of the resolution with the Registrar of Companies along with
requisite filing fee as prescribed under Schedule X of the Act.
Appointment of a Receiver
for a sale of security
"RESOLVED that Mr. X be
and is hereby appointed as Receiver to take possession and sell the specifically
mortgaged premises comprised in the First Schedule to the debenture trust deed.
RESOLVED FURTHER that the
Receiver be and is hereby authorised to do all further acts, deeds and things
as he may deem necessary for giving effect to this resolution."
1. Power for appointment of
Receiver to be spelt out in Trust deed.-The power to appoint a
Receiver should be spelt out in the trust deed before a resolution to this
effect can be passed.
2. Convening of class
meeting of debenture holders by trustees.-In the event of default on the part of
the company in complying with the terms of the trust deed or in the conditions
of issue of the debentures, the trustees can convene a class meeting of the
debenture-holders for exercising this power.
Modification of charge relating to debenture (S. 135)
'Modification' will include
any variation of any of the terms. Official Liquidator v. Bharatpur Princesses
Trust, (1971) 41 Comp Cases 978 (Mad). The assignment of the rights by the
charge-holder in favour of a third person is also to be regarded as
'modification'. 19 In terms of section 125(l) the particulars of modification
of charge are required to be filed with the Registrar of Companies within
thirty days. The particulars can, however, be filed within 30 days next
following on payment of additional fee and subject to the satisfaction of the
Registrar.
Modification of charge
created under a trust deed
"RESOLVED that this
meeting of the holders of the secured debentures-
(i) approves, sanctions and
assents to such modifications or arrangements in respect of the rights of the
holders of the said secured debentures and such further modifications of the
trust deed as are involved in giving or necessary to give effect to the
provisions of the supplemental deed hereinafter, mentioned; and
(ii) authorises Mr. XYZ and
Mr. PQR being the trustees for the time being of the trust deed (hereinafter
called 'the trustees') to concur in and execute a deed supplemental to the
trust deed in terms of the draft which has been produced at the meeting and for
the purposes of identification signed by the Chairman thereof with such
modifications (if any, as may be approved by the trustees and the majority of
the debenture- holders)."
1. Class meeting, how to be
held.-Class
meeting of debenture holders should be called and held in the manner provided
in Annexure C to the Companies (Central Government's) General Rules and Forms,
1956.
2. Filing of modification of
charge.-Modification
of charge should be filed in Form No. 8 and also in Form No. 13 within 30 days
of passing of the resolution with the Registrar of Companies along with
requisite filing fee as prescribed under Schedule X of the Act.
3. Penalty.-Section 142 provides
that if default is made in filing with the Registrar of Companies the aforesaid
forms then the company and every officer of the company or other person who is
in default shall be punishable with fine of upto Rs. 5,000/- for every
day during which the default continues.
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 Comparties mentioning therein inter
alia that the company has duly filed the forms and returns as stated in
Annexure B to this Certificate with the Registrar of Companies within the time
prescribed under the Act and the Rules made thereunder as per paragraph 2 of
the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Modification of charge created under a trust deed
Where principal trust deed
securing the issue of debentures contained a condition that the debenture-holders
would have first charge on the machineries and plants belonging to the company,
present or future and at a later date, the company considers it necessary to
secure a term loan from a financial institution on security inter alia, by
creating first charge in favour of such financial institution on the new
machineries and equipment bought or to be bought, then, in that case, to the
extent the new machineries and equipments have to be subjected to the second
charge in favour of the debenture-holders already holding the first
charge, modification of the principal deed of trust will be necessary. In order
to enable the company to create a first charge or mortgage on the assets
(machineries and equipments) as acquired or to be acquired (hereinafter called
'the new unit') in favour of 'financial institution' in priority to the
mortgage or charge already created by the principal deed, a modification is
necessary to give effect to create first charge only in favour of the financial
institution in the manner covered by the aforesaid resolution. Hence, the
company had to convene, in accordance with the provisions contained in the principal
deed, a meeting of the holders of the secured debentures and pass at such
meeting, the aforesaid resolution.
(Another Format)
"RESOLVED that consent
be and is hereby accorded to the issue by the company of 'B' series debentures
ranking pari passu in all respects with the 'A' series debentures."
RESOLVED FURTHER that the
trustees be and are hereby authorised to make such modifications in the trust
deed as may be necessary to create a charge in favour of the holders of the 'B'
series debentures ranking pari passu with the holders of the 'A' series debentures
over the properties presently charged in favour of the holders of the said 'A'
series debentures."
Same as given under Resolution § 933.
Power to re-issue
redeemed debentures
"RESOLVED that pursuant
to the provisions of sub-section (1)(b) of section 121 and subject to any
other applicable provisions the Company hereby accords its consent to the re-issue
of 10,000 8 3/4 per cent debentures of Rs. 1,000 each aggregating an amount of
rupees sixty lakhs which debentures, though redeemed, shall be deemed not to
have been cancelled by the Company but kept alive subject to such terms and
conditions as may be imposed by SEBI, if any, and agreed upon by the Board of
Directors of the Company.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to enter into such supplementary
trust deed as it thinks proper and convenient and to do everything which it may
think expedient for the implementation of the aforesaid resolution in regard to
reissue of the above series of debentures."
1. Provision of Articles
checked.-The provisions of articles of association of the company should be
checked to find out whether there is any provision therein which is contrary to
the re-issue of the redeemed debenture or there is any provision in the
conditions of issue of the debentures which is contrary to such re-issue.
2. Mode of re-issue.-The company has power to re-issue
the debentures either by reissuing the same debentures or by issuing other
debentures in their place.
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 re-issued redeemed debentures during the
financial year and compiled with the provisions of the Act as per paragraph 19
of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Re-issue of redeemed debentures
A company may redeem
debentures and keep them alive or pledge them as security against any loan or
commitment, but unless the company has by passing a resolution to that effect
or by some other act, made its intention manifest that the debentures shall not
be cancelled, the company shall have and deemed always to have had the right to
keep the debentures alive for the purposes of re-issue; and in exercising
such a right, the company shall have, and shall be deemed always to have had
power to re-issue the debentures either by re-issuing the same
debentures or by issuing other debentures in that place. Upon such re-issue
the person entitled to the debentures shall have, and shall be deemed always to
have had the same rights and priorities as if these had never been redeemed.
Re-issue of debentures or issue of another debenture in its
place to be treated new issue for stamp duty purposes
The re-issue of series of debentures or issue of another debenture in its place under the powers conferred by section 121 of the Companies Act, 1956, is treated as the issue of new debentures for the purposes of stamp duty, but would not be so treated for the purposes of any provision limiting the amount or number of debentures to be issued.
Re-issue of redeemed
debentures
(Another Format)
"RESOLVED that, the
Board of Directors of the Company be and is hereby authorised to re-issue
after redemption 10% debentures of the value of Rs. 5 crores (distinctive Nos.
from __________ to __________) falling due for payment on 31st December, 2002,
on such terms and conditions as the Board of Directors may think fit and
proper.
RESOLVED FURTHER that the
Board of Directors of the company be and is hereby authorised to execute such
supplemental deed of trust as it may think proper and to do all such things and
to perform all such acts which may be necessary or which they may think
expedient for implementing the above resolution."
1. Convening of Board
Meeting.-Call
a meeting of the Board and pass the above resolution recommending it to the
shareholders for being passed by them as an ordinary Resolution. Fix up time,
date, place and agenda for a General Meeting.
2. Notice of General
Meeting.-Give 21 days clear notice of the General Meeting to the shareholders.
3. Particulars of redeemed
debentures to be shown in balance-sheet.-Indicate in the balance-sheet
of the company particulars of the redeemed debentures liable to be re-issued.
4. Company not empowered to
re-issue debentures on different terms nor debentures be redeemed and re-issued
with different redemption date.-Section 121 does not empower the company to re-issue
debentures on different terms nor can debentures be redeemed and re-issued
with a different redemption date.
5. Payment of stamp duty on
re-issue of debentures.-Fresh stamp duty will have to be paid on reissue of
debentures.
6. Filing of Returns with
Registrar of Companies.-File the return with the Registrar of Companies
concerned in Form No. 17 and in Form No. 13 in triplicate on payment of the
prescribed filing fee within thirty days. In case a Special Resolution has been
passed File Form No. 23 along with the Explanatory Statement with the Registrar
of Companies concerned within thirty days of the passing of the Special
Resolution. Non-filing will attract penalty by way of fine of upto Rs.
100/-.
Creation of charge
"RESOLVED that consent
of the Company be and is hereby given to the Board of Directors to secure the
amount of rupees one crore with interest at 10% per annum obtained by the
company from the State Bank of India by creating a charge on the company's
immovable property, plant and machinery, cars, vehicles, furnitures and
fittings and floating charge on the whole of the undertaking and the assets of
the company in favour of the State Bank of India."
OR
"RESOLVED that the
Directors of the Company be and are hereby authorised to secure the financial
limit of Rs. 50 lakhs granted by the Punjab National Bank by issuing debentures
carrying 11% interest of the value of Rs. 50,00,000/- and the said
debentures be secured by creating a specific change on the raw-materials,
finished goods and plant and machinery of the Company."
1. Articles to contain
provisions for creation of charge.-A charge can be created only if there is a
provision in the Articles of Association of the company empowering the
Directors to create such a charge. If there is no such provision, first carry
out necessary alterations in the articles for the purpose.
2. Resolution of
Board/General Meeting.-Normally the charge is created by resolution of the
Board. However, if the articles provide for a resolution of the General
Meeting, the same may be passed.
3. Restriction on Board's
power.-Since
section 293 puts restrictions on the powers of the Board and under clause (d)
of sub-section (1) 6f section 293, there is a restriction to take loan
which exceeds the aggregate of the paid up capital of the company and its free
reserves and further clause (a) ibid restricts selling, leasing or otherwise
the whole or substantially the whole of the undertaking of the company. Hence,
it would be advisable to pass a resolution at the General Meeting of the
company empowering the Board of Directors to create charge against the
properties of the company. The maximum amount of the loan should also be
specified in the resolution. Having done this, an Ordinary Resolution of the
Board will be sufficient for creating the charge.
4. Filing of charge with
Registrar of Companies.-The return in Form No. 8 and Form No. 13 should be
filed with the Registrar of Companies in triplicate together with the
instrument creating the charge by paying fee prescribed under Schedule X of the
Act, within thirty days from the date of creation of the charge. The Registrar
of Companies is, however, authorised to accept the return within thirty days
thereafter on payment of additional fee not exceeding ten times the usual fee
If the company satisfies the Registrar that it has sufficient cause in not
filing the return in Form No. 8 within the prescribed time.
5. Penalty.-Same as given item 3 of
Practice Notes of Resolution § 933.
6. Compliance Certificate.-Same as given at item 4 of
Practice Notes of Resolution § 933.
7. Petition to Company Law
Board.-If
there has been any delay/omission/misstatement in filing particulars of charge
created/modified or issue of debentures of a series or intimation of
satisfaction of charge to the Registrar, then file a petition before the Company
Law Board as in Form No. 1 of Annexure II to the Company Law Board Regulations,
1991 along with a fee of Rs. 200/- and accompanied by following documents
(1) Certified true copy of
the agreement creating, modifying the charge, as the case may be.
(2) Certified true copy of
the resolution envisaged by section 292(l)(b) or (c) and Section 293 (1)(a), as
may be applicable.
(3) Affidavit verifying the
petition.
(4) Bank Draft evidencing
payment of application fee.
(5) Memorandum of appearance
with copy of Board Resolution or the executed Vakalatnama, as the case may be.
8. Reckoning of thirty days
period.-The
thirty days have to be calculated from the date when the instrument of charge
is executed though it may be stipulated to take effect on a later date on
the happening of a later event. Dublin City Distillery v. Doherty, 1914 AC 823.
9. On non-
registration of debentures company to issue new series.-Where for any reason
any debentures which have been issued are omitted to be registered, the company
may cancel them and issue a new series and register the latter within thirty
days. Re, Renshaw & Co., 1908 WN 210.
10. For creation of mortgage
or charge on uncalled capital authority must exist in Memorandum/Articles.-Un less there is an express
power given in the memorandum or articles, there cannot be a mortgage or charge
of unpaid capital. Bank of South Auistralia v. Abrahams, (1875) LR 6 PC 265.
11. Uncalled capital not
property of company.-Capital uncalled is in no sense property of the company. It is more in
the nature of a power than property and for such a power to be charged, there
must be express authority. Re, Johnson v. Russina Spratts Patent Ltd., (1898) 2
Ch 149.
12. Charge on book debts
etc.-A
charge on book debts and other debts even if called a first specific charge
does not cover the balance in a bank account as this in commercial practice is
not a book debts. Re, Brightlife Ltd., 1986 BCLC 418.
13. Assignment of book debt.-An assignment of a book debt
also comes within the section if it is intended to be security for a debt.
Ladenburg & Co. v. Goodwin, (1912) 3 KB 275.
14. Charge on entire assets
does not include books, registers etc.-A charge on the entire assets of a company
does not include the books, registers and papers which are required by the
statute to be kept at company's registered office and pertain to company's
management as distinct from the title deeds which relate to the ownership of
assets. Re, Clyne Tine Plate Co., (1882) 47 LT 439.
15. Copy of deed creating
charge is instrument.-Filing of a copy of the instrument of charge is not
nearly a formality but a definite legal requirement and non-filing would
create certain legal impediments. The copy of the instrument duly verified as
per the statutory dictate, evidencing or creating the charge has a character of
an instrument and is there for liable to pay the difference of stamp duty as
called upon by the superintendent of stamps to do so. Antifriction Bearings
Corporation Ltd. v. State of Maharashtra, (2000) 102 Com Cases 127 (Bom).
Modification of charge
relating to debenture
"RESOLVED that the
consent of the trustees of debenture stock be and is hereby given to the
execution of the supplemental trust deed as per draft placed before the
meeting, duly initialled by the Chairman, for modification of the existing
charge in favour of Punjab National Bank created on 1st May, 2002 so as to
extend the scope of the charge to cover the finished goods and raw material of
the company in addition to the properties already covered by the original
charge.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to file the modification
of charge with the Registrar of Companies concerned."
1. Board Resolution.-The resolution of the Board
of Directors will be sufficient for the purpose.
2. Obtain approval of
financial institutions.-Prior approval of the financial institutions, e.g.,
LIC, IDBI, etc. be obtained before the meeting as it would expedite matters.
3. Modification includes
variation.-Modification will include any variation of any of the terms. Official
Liquidator v. Bharatpur Princesses Trust, (1971) 41 Comp Cases 978 (Mad).
4. Assignment of rights by charge-holder in
favour of third person regarded as modification.-The assignment of the rights
by the charge-holder in favour of a third person is also to be regarded
as ‘modification’.
Removal of registered office
outside local limits
"RESOLVED that the registered office of the Company situated at No. __________, Nagpur-440 012, be shifted to __________ (outside the local limit of Nagpur city) with effect from the __________, 2002"
1. Removal of registered
office within local limits.-Removal of the registered office from one place to
another within the same city, town or village, that is, within the local
limits, does not require any Special Resolution, though notice of such change
should be given to the Registrar.
2. Formalities required for
shifting registered office outside local limits but within same State.-In case the registered
office is proposed to be shifted outside the local limits but within the same
state, it is necessary to-
(i) Call a Board Meeting to
decide about a change and to fix up the day, time, place and agenda for a
General Meeting to pass Special Resolution for the same [Proviso to Section
146(2)(a)].
(ii) Issue notices for the
General Meeting proposing the Special Resolution with suitable Explanatory
Statement.
(iii) Send a copy of the
notice to the concerned Stock Exchange, if the company is listed.
(iv) Hold the General
Meeting and pass the Special Resolution (Section 146).
(v) File with the exchange
concerned six copies of such amendments made in the memorandum as soon as the
company adopts it in the General Meeting. One of the copies must be a certified
copy (according to Standard Listing Agreement).
(vi) File the Special
Resolution with the Registrar within thirty days in Form No. 23 with
Explanatory Statement (Section 192).
(vii) File the notice of
change with the Registrar in Form No. 18 within thirty days [Section 146(2)].
3. Postal Ballot.-Listed companies are
required to pass the special resolution for change in place of registered
office outside local limits of any city, town or village as specified in sub-section
(2) of section 146, through postal ballot as per Rule 4(e) of the Companies
(Passing of the Resolutions by Postal Ballot) Rules, 2001.
Commencement of new business
1. Without amendment in the
Object Clause
"RESOLVED that the
consent of the Company be and is hereby accorded to the commencement of the
business by the Company as given in sub-clause (30) of Clause III of the
Memorandum of Association namely "To carry on the business of general
manufacturers and to manufacture, buy, sell and deal in apparatus, machinery,
materials and articles of all kinds."
RESOLVED FURTHER that the
consent of the Company be and is hereby accorded to the Board of Directors to
commence the above business, pursuant to the provisions of sub-section
(2A) of section 149 of the Act."
11. By amendment in the
Object Clause
"RESOLVED that pursuant
to section 17 of the Companies Act, 1956 and subject to the confirmation by the
Company Law Board, clause III of the Memorandum of Association be and is hereby
altered by insertion of sub-clause (5A) after sub-clause (5) as
under:-
"(5A) To carry on the businesses of iron masters,
steel makers, and steel converters, iron founders and manufacture of and
dealers in ores, metals, chemicals and other preparations, processes and
articles"."
1. Commencement of new
business.-The company can commence any new business pursuant to sub-section
(2A) of section 149 whether it has issued a prospectus or not.
2. Private Company exempted.-This section does not apply
to a private company.
3. New business must be
included in object clause.-The new business to be undertaken must have been
included in the object clause of the company.
4. Convening of Board
Meeting.-Call a Board Meeting and pass the above resolution(s) recommending them
to the shareholders for being passed by them as a Special Resolution. Fix time,
date, place and agenda for a General Meeting.
5. Notice of General
Meeting.-Give 21 days' clear notice of the General Meeting to all the shareholders
of the company.
6. Central Government
approval required when resolution passed by simple majority.-When resolution is passed
simple single majority, obtain approval of the Central Government pursuant to
sub-section (2B) of section 149.
7. Filing of duly verified
declaration in Form No. 20A on non-judicial stamp paper and Form No. 23
with Registrar.-A declaration by a Director or Secretary of the company where the
company has not got a Secretary or a Secretary in whole-time practice is
to be filed with the Registrar of Companies concerned in Form No. 20A that the
provisions of sub-section (2B) has been complied with along with the
filing fee. Also file return in Form No. 23 in respect of the Special
Resolution along with Explanatory Statement with the Registrar of Companies
concerned by paying the prescribed filing fee.
8. Procedure"
prescribed to follow.-If the object clause is to be amended follow the
procedure prescribed there for.
9. Postal Ballot.-Listed companies are
required to pass the special resolution for commencement of business by
alteration of the object clause of memorandum of association through postal
ballot as per Rule 4(a) of the Companies (Passing of the Resolutions by Postal
Ballot) Rules, 2001.
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 the provisions of the memorandum of
association with respect to the objects of the company during the year under
scrutiny and complied with the provisions of the Act as per paragraph 27 of the
Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Commencement of new business
by an existing company
"RESOLVED that approval
be and is hereby given, pursuant to the provisions of section 149(2A) of the
Companies Act, 1956, to the commencement by the Company of a new business,
provided in clause __________ of the Object Clause III of the Memorandum of
Association of the Company before, namely, that of buying, selling and
otherwise dealing in all kinds of oils, petroleum oil, lubricants and also
liquid and solid hydrocarbons and all products thereof."
1. Sub-section (2A)
applicable to existing companies.-The provisions of the subsection (2A) are applicable
to a company which was in existence immediately before the commencement of the
Companies (Amendment) Act, 1956, and to the extent any of the objects stated in
memorandum had not been implemented before but are to be implemented or
commenced for the first time after the commencement of the Companies
(Amendment) Act, 1965. The company can do so only if it-
(i) has approved of the
commencement of any such business by Special Resolution passed in that behalf
in General Meeting; and
(ii) there has been filed
with the Registrar a duly verified declaration by one of the Directors or the
Secretary or where the company has not appointed a Secretary, a Secretary in
whole-time practice in the prescribed form.
2. Filing of duly verified
declaration on non-judicial paper in Form No. 20A with Registrar.-The form prescribed is Form
No. 20A. The declaration should be made on non-judicial stamp paper of
appropriate value depending upon the requirement under the applicable Stamp Act
of the State in which the registered office of the company is situate. A
certified copy of the Special Resolution and the Explanatory Statement should
also be filed with the declaration in Form No. 23. It should be filed with the
Registrar of Companies either before commencement of new business or within
thirty days of the passing of the Special Resolution in this behalf:
3. Transaction of sale,
purchase etc., amount to commencement of business. -Commencement of business
would include transaction of sale, purchase etc. Kishangarh Electric Supply Co.
Ltd. v. State of Rajasthan, AIR 1960 Raj' 49.
Commencement of any New
Business
"RESOLVED that pursuant
to the provisions of Section 149(2A) and other applicable provisions of the
Companies Act, 1956 approval of the shareholders be and is hereby accorded to
the Company for commencement of business as specified in clauses (a) to (b) of
the object clause of the Memorandum of Association of the Company."
1. Board Meeting.-Hold a Board Meeting and get
the proposal approved. Also fix, date, time and venue for holding the General
Meeting.
2. General Meeting.-Hold a General Meeting and
pass a special resolution approving the commencement of the new Business by the
Company.
3. Approval of Central
Government.-In case the resolution is passed by a Simple majority, then make an
application to the Central Government for its approval [Section 149(2B)].
4. Filing.-File the Special Resolution
along with Form No. 23 of the Companies (Central Government's) General Rules
and Forms, 1956 within thirty days of the passing thereof with the Registrar of
Companies concerned. Non-filing will attract penalty by way of fine of
upto Rs. 100/- Also file Form No. 20A of the Companies (Central
Government's) General Rules and Forms, 1956 duly signed by one director and
Secretary of the Company with the Registrar of Companies concerned.
5. Intimation to Stock
Exchange.-Send intimation to Stock Exchange concerned on which the share of the
company are listed.
6. New business not germane to existing business.-The explanation to this
subsection provides that a company shall be deemed to commence any business
only if it commences (i) a new business and (ii) this new business, is not
'germane' to the existing business.
7. Commencement of any
business.-"Commence any business" does not mean merely the business for
which the company was started, but any transaction including sale, purchase
etc. Kishangarh Electric Supply Co. Ltd. v. United State of Rajasthan, AIR 1960
Raj' 49.
8. Company not bound by
contract.-The effect of the Section is to make the company not bound by any
contract or transaction until and unless the company is entitled to commence
business and on the commencement of business, without any further act on the
part of the company to make it free to be bound in respect of all transactions
from the date of incorporation [Re, Otto Electrical Manufacturing Co. (1905)
Ltd., Jekins Claim, (1906) 2 Ch 390].
9. Private companies
exempted.-The section does not apply to any private company, even if it is
subsidiary of a public company.
10. Government companies
exempted.-Section 149(2A) does not apply to a wholly owned Government Company.
[Notification: GSR 577(E), dated 16th July, 1985].
Commencement of any new
Business
(Another Format)
"RESOLVED that the consent of the shareholders of the Company be and is hereby given, as provided under Section 149(2A) and other applicable provisions, if any, of the Companies Act, 1956, for the commencement of business included as "other objects for which the company is established" at serial numbers 4, 10 and 17 in paragraph III of the Memorandum of Association of the Company."
1. Private company exempted.-This section does not apply
to a private company, even if it is a subsidiary of a public company.
2. Resolution to be passed
before commencing new business.-It has to be noted that resolution has to be passed
before the company commences any new business.
3. New business-meaning
thereof.-Company shall be deemed to commence any business only if it commences
(i) a new business, and (ii) this new business is not 'germane' to the existing
business. "Commence any business" does not mean merely the business
for which the company was started, but any transaction including sale, purchase,
etc. (Kishangarh Electric Supply Co. Ltd. v. United State of Rajasthan, AIR
1960 Raj 49).
4. Filing of Forms.-File Form No. 23 with the
Register of Companies within thirty days of the passing of the resolution. Also
file duly verified declaration in Form No. 20A on a non-judicial stamp
paper of requisite value before commencement of any new business.
5. Penalty.-If a company commences any
business in contravention of sub-section (2-A) every person who is
responsible for the contravention is without prejudice to any other liability,
punishable with fine which may extend to five thousand" rupees for every
day during which the contravention continues. The offence is compoundable under
section 621 A.
Place of keeping and
inspection of registers
"RESOLVED that,
pursuant to section 163 of the Companies Act, 1956, the Company hereby approves
that the register of members, indices, returns and copies of certificates and
documents, instead of being kept at the registered office of the Company at
__________, Nagpur 440 012, be kept at the Company's branch office at
__________, Nagpur 440 012, where the necessary registers, indexes, returns as
mentioned above shall remain open from __________, 2002, for inspection during
business hours of the Company from 9.30 a.m. to 4.30 p.m. except
Saturdays."
1. Keeping of register etc.
at a place other than registered office when Special Resolution passed with
special notice to Registrar.-The registers and returns may be kept at a place
other than the registered office if a Special Resolution with previous notice
to the Registrar approves the change of place. The changed place can only be
within geographical limits of the city, town or village where the registered
office is situated.
2. Filing of Special
Resolution with Registrar in Form 23.-A certified copy of the Special Resolution so
passed should be filed within thirty days of its passing in Form No. 23 with
the Registrar of Companies (along with the certified copy of Explanatory
Statements and the requisite filing fee). Non-filing will attract penalty
by way of fine of upto Rs. 100/-.
3. Penalty.-If any inspection or making
of any extract required under section 163 is refused the company, and every
officer of the company who is in default will be punishable in respect of each
offence with fine of upto Rs. 500/- for every day during which the
refusal or default continues.
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 kept and maintained all registers as 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 as per paragraph 1 of the
Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Keeping of register of
debenture-holders at a place other than
the registered office
S. 163(l)-Keeping of Register of debenture -holder
at a place other than the registered office-Special Resolution
"RESOLVED that consent
of the Company be and is hereby accorded to the Board of Directors of the
Company for keeping the Register of debenture-holders together with the,
Index of Debenture holders and copies of all returns prepared Linder sections
159 and 160 of the Companies Act, 1956, as also the copies of certificates and
documents required to be annexed thereto Linder sections 160 and 161 of the
Companies Act, 1956, at the Chairman's office at 15, Kirti Nagar, New Delhi-
110 015 instead of at the registered office of the Company at Okhla Industrial
Estate, New Delhi.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby directed to intimate the Registrar of
Companies, NCT of Delhi and Haryana in this regard."
1. New place of keeping
registers etc. to be within local limits.-The new place where the
registers etc. are kept should be within the city, town or village where the
registered office of the company is situate.
2. Convening of Board
Meeting.-Call a Board Meeting 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.
3. 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(1) of the Companies Act, 1956.
4. Filing of Special
Resolution in Form No. 23 with Registrar.-Advance copy of the proposed
resolution should be given to the Registrar of Companies concerned. Also file
the Special Resolution in Form No. 23 with the Registrar of Companies concerned
together with Explanatory Statement within thirty days of the passing of the
resolution by paying the prescribed fee. Non-filing will attract penalty
by way of fine of up to Rs. 100/-.
5. Special Resolution to be
passed before removal of registers etc.-The Special Resolution must
be passed before removing the register of members etc. to a place other than
the registered office.
Adoption of Statutory Report
"RESOLVED that the
Statutory Report of the Company laid before the members be and is hereby
approved and adopted."
1. Form of Statutory Report.-The Statutory Report should
be in Form No. 22, and is to be circulated to the members of the company not
less than 21 days before the date of the statutory Meeting.
2. Default, has cured.-Default in complying with
this requirement can be cured if agreed to by all the members entitled to
attend and vote at the meeting.
3. Certification of
Statutory Report.-The Statutory Report should be certified as correct by not less than 2
Directors, one of whom should be the Managing Director, if there is one.
4. Approval of the Board.-Once the Statutory Report is
prepared, the Board normally meets, approves the text of the report, authorises
its certification and convene the statutory meeting.
5. Auditor's Certificate.-After the report is so
certified, the company's Auditor will have to further certify that cash has
been received by the Company in respect of shares allotted and that the
receipts and payments are correct.
6. Filing with Registrar of
Companies.-The Board should register with the Registrar of Companies a copy of the
Statutory Report, immediately after sending the same to the members of the
company.
7. Matters to be discussed
at the Statutory Meeting.-The members can discuss at the meeting any matter arising out
of the Statutory Report but cannot move a resolution of which due notice has
not been given.
8. Penalty.-If default is made in
complying with the provisions of section 165, every director or other officer
of the company who is in default will be punishable with fine of upto Rs.
5,000/-.
9. Private companies
exempted.-Provisions of section 165 do not apply to private companies.
10. Secretarial Standard.-Paragraph 2.1 of Secretarial
Standard 2 provides that every public company having a share capital and every
public company limited by guarantee and having a share capital should, after
one month but not later than 6 months from the date on which it is entitled to
commence business, hold a meeting called the statutory meeting.
Quorum at the General
Meetings
"RESOLVED that article 55 of the Articles of Association of the Company be and is hereby deleted and substituted by the following:
"No business at the General Meeting shall be transacted unless a quorum of ten persons present in person is there when the meeting proceeds to transact the business."
1. Private company may fix
quorum of General Meeting.-Any quorum can be fixed by a private company which
Is not a subsidiary of a public company.
2. Larger quorum may be
provided by public companies in its articles.-The articles of a public
company or a Subsidiary there of can provide for a large quorum in its
articles.
3. Procedure outlined for
amendment of Articles to be followed.-Follow procedure for amendment of Articles of
Association of the company by following the procedure contained in Practice
Notes under earlier Resolution.
4. Meeting nullity when
requisite quorum not present.-Ensure that the requisite quorum at the meeting is
present; otherwise the meeting will be a nullity.
5. Proceedings invalid if no
quorum present.-If no quorum Is present, then there is no meeting and the proceedings
are invalid. Re, Romford Canal Co., (1883) 24 Ch D 85.
6. Quorum must be present at
beginning of meeting.-The quorum required is the quorum to be present at
the time of beginning to consider the business; and it need not be present
throughout or at the time of taking, the vote on any resolution. Re, Hartly
Baird Ltd., (1954) 3 All ER 695 (Ch D).
7. Meeting nullity when
quorum fixed for meeting not present.-Where at the time of transacting business,
the number of members is less than the quorum fixed for the meeting the
business cannot be transacted; it will be a nullity. Re, London Flats Ltd.,
(1969) 2 All E R 744 (Ch D).
8. Irregularity as to quorum
not to affect third party interest without notice.-If there be any irregularity
as to quorum, third parties without notice will not be affected. Country of
Gloucester Bank v. Rudry Merthyr Steam & House Coal Colliery Co., (1895) 1
Ch 629.
9. Representative of the
President and Governors in meetings of companies to be considered for purpose
of quorum as members personally present.-The representative of a body
corporate appointed under section 187 or the representative of the President or
a Governor of a State under section 187A is a member personally present for
purposes of counting a quorum. Re, Kalantan Coconut Estates Ltd., 1920 WN 274.
10. When a single individual
represents two or more-Corporate bodies each of bodies corporate to be
treated as personally present through that individual.-If two or more corporate
bodies who are members of a company are represented by a single individual,
each of the bodies corporate will be treated as personally present through that
individual representing it. If, for instance, he represents three corporate
bodies, his presence will be counted as three members being present in person
for purpose of quorum. Macleod (Neil) & Sons Ltd., Petitioners, 1967
Scottish Law Times 46.
11. Secretarial Standard.-Paragraph 3 of Secretarial
Standard 2 provides that quorum should be present through the meeting.
Adjournment of General
Meeting for lack of quorum
"RESOLVED that Annual
(Extraordinary) General Meeting of the
Company held at __________
on __________ at __________ be
(time) (date) (place)
adjourned to 10-30
a.m. on __________ at __________ due to
(date) (place)
want of quorum".
1. Absence of Quorum.-Under Section 174(4) if the
quorum is not present within half an hour from the time appointed for holding
the meeting, the meeting shall stand adjourned to the same day next week at the
same place and time unless the Board fixes another date, time and place.
S. 175-Election of Chairman of General Meeting-Ordinary
Resolution
"RESOLVED that Shri X,
a shareholder be and is hereby appointed as Chairman of this meeting."
1. Provision in Articles.-The Articles of most
companies provide that the Chairman of the Board is to be the Chairman of the
General Meetings. In default of such a provision, the members personally
present shall elect one of themselves as Chairman on a show of hands. [Section
175(l)].
2. Secretarial Standard.-Paragraph 5.1.1 and 5.1.2 of
Secretarial Standard 2 provide that where the articles of association so
provide, the Chairman of the Board should take the chair and conduct the
Meeting. if there is no Chairman or if he is not present within fifteen minutes
after the time appointed for holding the Meeting, or if he is unable to act as
Chairman of the Meeting, the Directors present should elect one of themselves
to be the Chairman of the Meeting. If the Directors are unable to do so or if
no director is willing to take the chair, the members present shall elect one
of themselves to be the Chairman of the Meeting. In the absence of any express
provision contained in the Articles, the Members personally present at the
Meeting shall elect one of themselves to be the Chairman of the Meeting. The
Chairman should ensure that the Meeting is duly constituted in accordance with
the Act and the Articles or any other applicable laws, before it proceeds to
transact business. The Chairman should then conduct the Meeting in a fair and
impartial manner and ensure that only such business as has been set out in the
Notice is transacted.
Appointment of scrutineers
to scrutinise the votes on poll
"RESOLVED that Shri XYZ
and Shri ABC be and are hereby appointed to scrutinise the votes given on poll
on Resolution No. 5 and to report thereon."
1. When poll demanded for
more than one resolution each resolution to be put to poll separately.-When at a General Meeting
poll is demanded in respect of more than one resolution, each such resolution
must be put to the poll separately. Blair Open Hearth Furnance Co. Ltd. v.
Reigart, (1913) 108 Law Times 665.
2. Power of Chairman to
remove scrutineer and fill in vacancy.-The Chairman of the meeting has the power to
remove a scrutineer at any time before the result of the poll is declared and
fill in the vacancy in the office of scrutineer.
3. Of two scrutineers one is
to be member present at meeting.-Of the two scrutineers appointed one shall always be
a member present at the meeting provided that such a member is willing to be so
appointed.
4. Secretarial Standard.-Paragraph 8.4 of Secretarial
Standard 2 provides that the Chairman should appoint two scrutineers to ensure
that the scrutiny of the votes cast on a poll is done fairly, accurately and
properly. At least one of the two scrutineers should be a member who is present
at the meeting and is not an officer or employee of the company.
Amendment to a resolution
S. 189-Amendment to a resolution-Ordinary
Resolution
“RESOLVED that resolution No. __________ in the notice convening the meeting be and is hereby amended as follows:-
“________________________________________”.”
1. Amendment not to affect
pith and substance of original resolution.-The general rule is that
amendments should not affect the pith and substance of the original resolution.
2. Special Resolution cannot
be passed otherwise than on terms explained in notice.-Special Resolutions cannot
be passed otherwise than on the terms or wording in which they were expressed
or explained in the notice convening the meeting.
3. Special Resolution not to
be amended to make therein anything onerous.-Special Resolutions cannot
be amended to make something in the resolution more onerous.
4. Three-fourth
majority required for amending Special Resolution.-Amendments to a Special
Resolution will also have to be passed by a 1/4th majority.
5. Secretarial Standard.-Paragraph 11 of Secretarial
Standard 2 provide that modification to any resolution which do not change the
purpose of the resolution materially may be proposed, seconded and adopted by
the requisite majority at the meeting and thereafter the amended resolution
should be duly proposed, seconded and put to the vote.
Amendment to a motion
(Another Format)
"RESOLVED that the motion before the meeting for approval of the Sales Budget be amended by deleting the words and figures Rs. __________ and substituting there for the words and figures Rs. __________ per annum."
1. Resolution amending
motion.-The
earlier resolution deals with the amendment of a resolution already passed;
this resolution deals with an amendment to a motion before it is made into a
resolution.
2. Voting.-If the resolution amending
the motion is carried, the motion as amended will be put to vote. If the
amendment is not carried the original motion will be put to vote.
Resolution unanimously
agreed to by all shareholders
WHEREAS all the shareholders
present in this meeting have agreed to the induction of 2/3rds of its Board of
Directors at the instance and behest of XYZ Ltd.;
AND WHEREAS XYZ Ltd. will
become the holding company of this Company on such Directors being appointed on
the Board of this Company;
AND WHEREAS such induction
of the majority of the Directors at the instance and behest of XYZ Ltd. will
make this Company a subsidiary of the said XYZ Ltd.;
NOW THEREFORE IT IS RESOLVED
that all the shareholders of the Company who are present at this meeting do
hereby agree to induct 2/3rds of the Board of Directors of the Company at the
instance and behest of XYZ Ltd.
RESOLVED FURTHER that the
aforesaid resolution alongwith explanatory statement be filed with the
Registrar of Companies as per the requirements of sub-section (1) of
section 192 of the Companies Act, 1956.
1. Filing of certain
resolution.-A copy of the resolution passed by the share- holders of the
company with a copy of the statement of material facts annexed to the said
resolution which is agreed to by all the members of the company should be filed
with the concerned Registrar of Companies within thirty days from the date of
passing of the resolution in Form No. 23 alongwith requisite fees as per
Schedule X to the Act.
2. Penalty.-For non-compliance of
the requirements of section 192 of the Act, the company and every officer of
the company who is in default will be punishable with fine which may extend to
rupees two hundred for every day during which the default continues.
3. Compounding offence.-If the fine is not more than
rupees fifty thousand for contravention of provisions of section 192(6) the
application for compounding of offence will lie before the concerned Regional
Director under section 621 -A(l)(b) and if the fine is more than rupees
fifty thousand then the application will lie before the concerned Regional
Single Member Bench of the Company Law Board under section 621 - A(l)(a).
Remuneration in excess of
the limit mentioned in Schedule XIII
Part II Section II
"RESOLVED that pursuant
to section 198 and section 269 of the Companies Act and Subject to the sanction
of the Central Government, if necessary, Mr. A.B. the Managing Director of the
Company shall be paid a remuneration of Rs. __________ as minimum remuneration
in case of absence or inadequacy of profit."
1. Payment of minimum
remuneration in the event of loss or inadequacy of profits.-In the event of loss or
inadequacy of profits, approval of the Central Government is not required for
payment of remuneration if:
(a) the appointment had been
made in accordance with the terms and conditions specified in Schedule XIII,
Part II, Section II.
2. Previous approval of the
Central Government.-The section requires previous approval of the Central Government for
payment of minimum remuneration in the event the company has not earned profits
or its profits are inadequate unless, of course, Schedule XIII is followed. The
profits can only be known at the end of the financial year after accounts are
audited. The company may seek previous approval of the Central Government,
without waiting for the financial year to end, otherwise payment made to the
managerial personnel will not be in accordance with the law.
3. Private companies
exempted.-The section does not apply to a private company, which is not a
subsidiary of a public company.
4. Government companies
exempted.-This section does not apply to a Government company.
5. Ceiling limit of
Remuneration.-The ceiling limit of remuneration given in Schedule XIII Part II
Section II is to be calculated on the following scale:-
(A) not exceeding ceiling limit
of Rs. 24,00,000 per annum Rs. 200,000/- per month calculated on the
following scale.
Where the effective capital is |
Monthly remuneration payable shall not exceed Rs. |
(1) Less than Rs. 1 Crore
|
75,000/- |
(2) Rs. 1 crore or more but less than
Rs. 5 crore
|
1,00,000/- |
(3) Rs. 5 crores or more but less than
Rs. 25 crores
|
1,25,000/- |
(4) Rs. 25 crores or more but less than
Rs. 100 crores
|
1,50,000/- |
(5) Rs. 100 crores or more
|
2,00,000/- |
Provided that the ceiling limits specified under
this sub-paragraph shall apply, if
(i) payment of remuneration
is approved by a resolution passed by the Remuneration Committee.
(ii) the company has not
made any default in repayment of any of its debts (including public deposits)
or debentures or interest payable thereon for a continuous period of thirty
days in the preceding financial year before the date of appointment of such
managerial person.
(B) not exceeding the ceiling
limit of Rs. 48,00,000 per annum or Rs. 4,00,000 per month calculated on the
following scale:-
Where the effective capital of Company is |
Monthly remuneration payable shall not exceed (Rupees) |
(i) less than rupees 1 crore
|
1,50,000/- |
(ii) rupees 1 crore or more but less
than rupees 5 crores
|
2,00,000/- |
(iii) rupees 5 crores or more but less
than rupees 25 crores
|
2,50,000/- |
(iv) rupees 25 crores or more but less
than rupees 50 crores
|
3,00,000/- |
(v) rupees 50 crores or more but less
than rupees 100 crores
|
3,50,000/- |
(vi) rupees 100 crores or more
|
4,00,000/- |
Provided that the ceiling
limits specified under this sub-paragraph shall apply, if-
(i) payment of
remuneration is approved by a resolution passed by the Remuneration Committee;
(ii) the company has not
'made any default in repayment of any of its debts (including public deposits)
or debentures or interest payable thereon for a continuous period of thirty
days in the preceding financial year before the date of appointment of such
managerial person;
(iii) a special resolution
has been passed at the general meeting of the company for payment of
remuneration for a period not exceeding three years;
(iv) a statement
along with a notice calling the general meeting referred to in clause
(iii) is given to the
shareholders containing the following information, namely-
I. General Information:
(1) Nature of industry
(2) Date or expected date of
commencement of commercial production
(3) In case of new
companies, expected date of commencement of activities as per project approved
by financial institutions appearing in the prospectus
(4) Financial performance
based on given indicators
(5) Export performance and
net foreign exchange collaborations
(6) Foreign investments or
collaborators, if any.
II. Information about the
appointee:
(1) Background details
(2) Past remuneration
(3) Recognition or awards
(4) Job profile and his
suitability
(5) Remuneration proposed
(6) Comparative remuneration
profile with respect to industry, size of the company, profile of the position
and person (in case of expatriates the relevant details would be w.r.t. the
country of his origin)
(7) Pecuniary relationship
directly or indirectly with the company, or relationship with the managerial
personnel, if any.
III. Other information:
(1) Reasons of loss or
inadequate profits
(2) Steps taken or proposed
to be taken for improvement
(3) Expected increase in
productivity and profits in measurable terms.
IV. Disclosures:
(1) The shareholders of the
company shall be informed of the remuneration package of the managerial person.
(2) The following disclosures
shall be mentioned in the Board of Director's report under the heading
"Corporate Governance", if any, attached to the annual report:
(i) All elements of
remuneration package such as salary, benefits, bonuses, stock options, pension
etc. of all the directors;
(ii) Details of fixed
component and performance linked incentives along with the performance
criteria;
(iii) Service contracts,
notice period, severance fees;
(iv) Stock option details,
if any, and whether the same has been issued at a discount as well as the
period over which accrued and over which exercisable.
(C) exceeding the ceiling limit
of Rs. 48,00,000 per annum or Rs. 4,00,000 per month calculated on the
following scale:-
Where the effective capital of Company is |
Monthly remunerationpayable exceeds (Rupees) |
(i) less than rupees 1 crore
|
1,50,000/
|
(i) rupees 1 crore or more but less than
rupees 5 crores
|
2,00,000/
|
(iii) rupees 5 crores or more but less
than rupees 25 crores
|
2,50,000/
|
(iv) rupees 25 crores or more but less than
rupees 50 crores
|
3,00,000/-
|
(v) rupees 50 crores or more but less
than rupees 100 crores
|
3,50,000/-
|
(vi) rupees 100 crores or more
|
4,00,000/-:
|
Provided that the ceiling limits specified under
this sub-paragraph shall apply, if-
(i) payment of remuneration is approved by a
resolution passed by the Remuneration Committee;
(ii) the company has not made any default in
repayment of any of its debts (including public deposits) or debentures or
interet payable thereon for a continuous period of thirty days in the preceding
financial year before the date of appointment of such managerial person;
(iii) a special resolution
has been passed at the general meeting of the company for payment of
remuneration for a period not exceeding three years;
(iv) a statement along with
a notice calling the general meeting referred to in clause 010 is given to the
shareholders containing the following information, namely
(D) not exceeding Rs.
2,40,00,000 per annum or Rs. 20,00,000 per month in respect of companies in
Special Economic Zones as notified by Department of Commerce from time to time:
Provided that these
companies have not raised any money by public issue of shares or debentures in
India:
Provided further that such
companies have not made any default in India in repayment of any of its debts
(including public deposits or debentures or interest payable thereon for a
continuous period of thirty days in any financial year."
I. General Information:
(1) Nature of industry
(2) Date or expected date of
commencement of commercial production
(3) In case of new
companies, expected date of commencement of activities as per project approved
by financial institutions appearing in the prospectus
(4) Financial performance
based on given indicators
(5) Export performance and net
foreign exchange collaborations
(6) Foreign investments or
collaborators, if any.
II. Information about the
appointee:
(1) Background details
(2) Past remuneration
(3) Recognition or awards
(4) Job profile and his
suitability
(5) Remuneration proposed
(6) Comparative remuneration
profile with respect to industry, size of the company, profile of the position
and person (in case of expatriates the relevant details would be w.r.t. the
country of his origin)
(7) Pecuniary relationship
directly or indirectly with the company, or relationship with the managerial
personnel, if any.
III. Other information:
(1) Reasons of loss or
inadequate profits
(2) Steps taken or proposed
to be taken for improvement
(3) Expected increase in
productivity and profits in measurable terms.
IV. Disclosures:
(1) The shareholders of the company shall be informed of the remuneration package of the managerial person
(2) The following
disclosures shall be mentioned in the Board of director's report under the
heading "Corporate Governance", if any, attached to the annual report
(i) All elements of remuneration package such as salary, benefits, bonuses, stock options, pension etc. of all the directors;
(ii) Details of fixed
component and performance linked incentives along, with the performance
criteria;
(iii) Service
contracts, notice period, severance fees;
(iv) Stock option details,
if any, and whether the same has been issued at a discount as well as the
period over which accrued and over which exercisable.
Provided further that the
conditions specified in sub-paragraph (C) shall apply in the case the
effective capital of the company is negative.
Provided also that the prior
approval of the Central Government is obtained for payment of remuneration on
the above scale.
(b) after Explanation III,
the following Explanations shall be inserted, namely,
"Explanation IV. -For
the purposes of this section, "Remuneration Committee" means that a
committee which consists of at least three non-executive independent
directors including nominee director or nominee directors, if any,
Explanation V. -For
the purposes of this clause, the Remuneration Committee while approving the
remuneration under this section, shall,
(a) take into account,
financial position of the company, trend in the industry, appointee's
qualification, experience, past performance, past remuneration etc.
(b) be in a position to
bring about objectivity in determining tile remuneration package while striking
a balance between the interest of the company and the shareholders.
Explanation VI. -For the purposes of' Paragraph 1, "negative effective capital" means the effective capital which is calculated:
(a) in accordance with the
provisions contained in Explanation 1 of this Part;
(b) less than zero".
[Issued by Ministry of Law
Justice and Company Affairs, Department of Company Affairs].