Small Depositors (S. 58AA
& 58AAA)
New sections 58AA and 58AAA
have been added by the Companies (Second Amendment) Act, 1999 relating to small
depositors and to make the offence for default in refund or acceptance of
deposits to be cognizable under the Code of Criminal Procedure 1973. These
sections have been inserted to bring out certain measures for good corporate
governance and for protection of investors. Under section 58AA Companies are
required to inform the Company Law Board within 60 days if they fail to make
repayment of deposits on maturity to small deposit holders who have invested in
a financial year a sum not exceeding Rs. 20,000/- in a company. The
Company Law Board on receipt of the said information is required to consider
these defaults reported by companies and make an order within 30 days which the
concerned company is bound to comply with. A company which fails to report or
comply with the order of the Company Law Board will be punishable with
imprisonment of 3 years and will also be liable to fine of Rs. 500/- per
day during which such default continues.
Invitation for acceptance of
deposits from public
S. 58A/58B-Itivitation
for acceptance of' deposits from public-Board Resolution
"RESOLVED that the
company be allowed to invite and accept deposits from the public (including the
employees of the company) up to Rs ………..which will be within the limits
prescribed under Rule 3 of the Companies (Acceptance of Deposits) Rules, 1975,
and that such deposits be accepted pursuant to the terms and conditions, set
out in the draft placed before the Board and for the purposes of identification
initialed by the Chairman.
RESOLVED FURTHER that the
text of the advertisement in English language and in Marathi language inviting
deposits from public be and is hereby approved and authority is hereby accorded
to the issue of such advertisement as required under Rule 4 of the Companies
(Acceptance of Deposits) Rules, 1975, in the name of the Board of Directors of
the Company and the Secretary of the Company be directed to deliver a copy
thereof signed by a majority of those who have been named therein as Directors
of the Company or by their duly authorised agents to the Registrar of
Companies, Maharashtra, for registration on or before the date of its issue, and
publish it in all leading English and Marathi newspapers circulating in the
State of Maharashtra.
RESOLVED FURTHER that the,
'form of application for deposits' either for acceptance or renewal of any
deposit along with all particulars required under Rule 5(2) of the Companies
(Acceptance of Deposits) Rules, 1975, the draft of which is placed before the
meeting and for the purposes of identification initialed by the' Chairman, be
and is hereby approved.
RESOLVED FURTHER that Mr ………..and Mr…………… the Directors of the company, and Mr ………. and Mr ……… General Manager and Secretary of the Company respectively, be and are hereby authorised individually to issue temporary and 'fixed deposit' receipts on behalf of the Company and sign interest warrants/cheques and/or otherwise pay interest to the depositors and sign cheques by way of refund of deposit(s) either for premature repayment or when due in accordance with the terms and conditions approved hereinbefore.
RESOLVED FURTHER that deposits of Rs …. be accepted by the company without invitation in accordance with the provisions of Rule 4A of the Companies (Acceptance of Deposits) Rules, 1975, subject to such terms and conditions as per the draft submitted to this meeting and initialed by the Chairman for the purpose of identification.
RESOLVED FURTHER that the
text of the statement in lieu of advertisement containing all particulars
required under Rule 4A of the Companies (Acceptance of Deposits) Rules, 1975,
produced before this meeting and initialed by the Chairman for the purpose of
identification, be and is hereby approved and the same be signed by all the
Directors named therein or by their duly authorised agents and be delivered to
the Registrar of Companies, Maharashtra, for registration."
PRACTICE NOTE'S
1. Advertisement for
inviting deposit.- Rule 4 of the Companies (Acceptance of Deposits) Rules, 1975, fi-amed
under section 58A of the Companies Act, provides that the text of the
advertisement prescribed under this rule for the invitation of deposit from the
public should be issued on the authority and in the name of the Board of
Directors of the company and should contain a reference to the conditions
subject to which deposits are to be accepted by the company and also the date
on which the Board of Directors approves the text of the advertisement.
2. Validity of
advertisement.- An advertisement issued in accordance with this rule is valid until
the expiry of six months from the end of the financial year in which it is
issued, or until the date on which the balance-sheet is laid before the
company in General Meeting, or where the Annual General Meeting for any year
has not been held, the latest day on which that meeting should have been held
in accordance with the provisions of the Companies Act, 1956. A fresh
advertisement is required to be made, in each succeeding financial year for the
acceptance of deposits during that financial year. It has been clarified by the
Company Law Board that the advertisement in the newspaper for each financial
year shall be applicable only in the case of invitation for deposits and not
for mere acceptance and any intimation to the depositor about the date of
maturity of his deposit and request of renewal of his deposit on that date will
amount to an invitation and, therefore, should be made by a valid ad verti
semen t.44
3. Figures of profits and
dividends for three financial years must relate to three financial years
immediately preceding date of advertisement.- Any advertisement of
deposit issued during the course of the financial year of a company is valid
only up to the end of that financial year and the requirement of mentioning
figures of profits and dividends of the company for three financial years must
relate to the three financial years immediately preceding the date of that
advertisement. 45
4. Advertisement to be in language of vernacular
newspaper.- Any advertisement of deposit, published in the vernacular newspaper,
must be in the languae of that paper, that is, in that vernacular language and
must not be in any other language.
5. Text of advertisement
both in English and in regional language to be approved by Board.- Texts of advertisement,
both in English language and in regional language, must be approved by the
Board of Directors and both the texts must be filed with the Registrar of
Companies before their publication in the two newspapers .
6. Alterations in terms and
conditions and rate of interest to be done by giving full advertisement.- Rule 4 of the Companies
(Acceptance of Deposits) Rules, 1975, as worded is such that no advertisement
can be issued without prior approval of the Board of Directors, of the text
thereof. Any change in the material facts of the contents of the advertisement
should also be amended with the approval of the Board and changed text of
advertisement should be delivered to the Registrar for registration again
before its publication. The Department of Company Affairs has clarified that
any alteration in the terms and conditions of deposits including a change in
the rates of interest must be done by giving a full advertisement in the
prescribed form and not by making only an announcement as to alterations made.
7. Penalty for default.- If any deposit is accepted
or invited in excess of the prescribed limits or in contravention of the
prescribed manner or condition or in contravention of the provisions of sub-section
(2) of section 58A, the company will be punishable with fine of the amount of
deposit accepted in contravention as aforesaid and a fine of Rs. 10/-
lakhs but not less than Rs. 50,000/- in case of contravention relating to
invitation of deposits. Every officer of the company who is in default will be
punishable with imprisonment of 5 years and also liable to fine. [Section
58A(6)].
Issue of advertisement for
acceptance of deposits from public including employees
"RESOLVED that the
advertisement, pursuant to section 58A(2) (b) of the Companies Act, 1956, for
inviting deposits from public including employees be issued and the draft
thereof tabled before the Board and initialed by the Chairman for purposes of
identification be and is hereby approved and the Secretary of the Company be
and is hereby authorised to have it published at least in three newspapers
having circulation throughout the country, after getting it signed by a
majority of directors and after delivering a copy to the Registrar of
Companies, NCT of Delhi and Haryana for registration.
RESOLVED FURTHER that the
form of application and the statement of particulars as per draft thereof
placed before the Board and initialed by the Chairman for purposes of
identification be and are hereby approved.
RESOLVED FURTHER that the
Managing Director and the Secretary of the Company be and are hereby authorised
jointly to sign receipts for deposits received by the company."
PRACTICE NOTES
1. Compliance with Companies
(Acceptance of Deposits) Rules, 1975.- Ensure that the provisions of the Companies
(Acceptance of Deposits) Rules, 1975 as amended to date are scrupulously
complied with.
2. Form of advertisement to
be exactly same as approved by the Board.- The form of advertisement
published should be exactly the same as approved by the Board and should
incorporate therein such modifications or changes as may have been made therein
by the Registrar of Companies.
3. Form of application and statement of particulars to be same as approved
by the Board.- The form of
application and the statement of particulars delivered to the applicant making
deposits should be the same as approved by the Board. No deposit should be
accepted before the advertisement is published or on any other form of
application except the one which has been approved by the Board.
4. Deposits repaid on maturity.- En
sure that the
deposits are repaid on maturity and at no time their percentage exceed the
limit prescribed in that respect under the rules. The advertisement should be
published at the commencement of each financial year of the company and shall
be valid only for that year.
5. Fresh approval of Board required for publication of advertisement in
next financial year.- Fresh approval of the Board will be
necessary when the advertisement is published in the next financial year, as
such an advertisement is valid until the expiry of 6 months from the date of
closure of the financial year in which it is issued [Rule 4(3)].
6. No acceptance of deposit in new financial year on the basis of previous
year advertisement.- No deposit can be accepted in the new financial year on
the basis of the advertisement published at the commencement of the previous
financial year.
7. Resolution under section 292 in addition to section 58A to be passed.-Resolution pursuant to section 292 for
borrowing has to be passed in addition to the resolution under section 58A.
While offering the rate of interest, check up the maximum rate of interest
prescribed in this behalf under the rules.
8. Payment of brokerage.-Brokerage in excess of one per cent of
the deposit for a period up to one year, one and half per cent of the deposits
for a period of more than one year but up to two years, and two per cent of the
deposits for a period exceeding two years is not permissible. The payment of
brokerage should be kept within this limit.
9. Obtaining of approval of Reserve Bank for acceptance of deposits
from persons/companies outside India.-While accepting
deposits from
persons/companies outside India approval of the Reserve Bank of India should be
obtained and also ensure that all RBI instructions issued in that connection be
complied with.
10. Application to Central Government for extension of time.-As soon as it is apprehended that it
may not be possible to repay the deposits on maturity, and an extension of time
would become necessary, make an application to the Central Government pursuant
to section 58A(8) of the Act.
11. Investment of at least 15% of amount of deposits.-Deposit
or invest at
least 15% of the amount collected by way of deposit accepted and maturing
during the year ending on the 31st March, next following by 30th
April of each year:
(a) In a current or other deposit account with any scheduled Bank
free from charges or lien.
(b) In unencumbered securities of Central Government or any State
Government, and
(c) In an unencumbered securities mentioned
in clauses (a) to (d) and (ee) of section 20 of the Indian Trusts Act, 1882.
(d) In unencumbered bonds issued by the
Housing Development Finance Corporation Limited, Bombay, a company incorporated
under the Companies Act, 1956 (1 of 1956), and notified under clause (i) of
section 20 of the Indian Trusts Act, 1882 (2 of 1882).
12. Deposits accepted from directors or shareholders in joint names
exempted- While calculating the limits prescribed for the acceptance of
deposits, do not include amounts of deposits received from Directors by the non-financial
non-banking companies and in the case of non-banking, non-financial
private limited companies, amounts received from shareholders are also excluded
from deposits. On the private company be coming a deemed public company
pursuant to the provisions of section 43A, amounts which become
"deposits" as a consequence thereof may be repaid in accordance with
the term of their acceptance.
13. Advertisement to contain reference to conditions subject to which
deposits accepted by company.-The advertisement must contain a
reference to the conditions subject to which deposits shall be accepted and the
date on which it was approved by the Directors. The advertisement is to be
published in a leading English newspaper in English and in one vernacular
newspaper in vernacular language circulating in the State in which the
registered office of the company is situate.
14. Filing of statement in lieu of advertisement with Registrar.-If the company intends to
accept deposits, without inviting such deposits either by itself or by allowing
or causing any other person to invite deposits on its behalf, deliver to the
Registrar of Companies for registration a statement in lieu of advertisement before accepting any such deposits. This
statement should include all the particulars which are required to be included
in the advertisement and should likewise be signed by the majority of the
Directors of the company.
15. Validity period of advertisement or statement in lieu of advertisement.- The advertisement or the statement in lieu thereof shall be valid up to six
months from the date of the closure of the financial year in which it is issued
or delivered or until the date on which balance-sheet is laid before the
company in General Meeting or where the Annual General Meeting for any year has
not been held, the latest day on which that meeting should have been held in
accordance with the provisions of the Act, whichever is earlier.
16. Filing of Return in Form
10 of the Companies (Acceptance of Deposits) Rules, 1975.-File
a return"
as mentioned in Rule 10 of the Companies (Acceptance of Deposits) Rules, 1975,
on or before 30th June every year with the Registrar of Companies and furnish a
copy of the return simultaneously to the Reserve Bank of India.
17. Offence under the section continuing one.-It
was earlier
held by the Andhra Pradesh High Court that the offence under the section is of
a continuing nature and a fresh period of limitation commences with every
successive day of default,49 but the Madras High Court has held that the degree
of liquidity required by Rules 3A and 11 of the Companies (Acceptance of
Deposits) Rules, 1975 and a company's failure to maintain the requisite
liquidity has been held to be not a continuing offence. The limitation period
of 6 months would apply.50
18. Penalty.- Failure to file a return as
required by Rule 10 of the Companies (Acceptance of Deposits) Rules, 1975,
which is punishable by Rule 11 is a continuing offence and there is no period
of limitation within which proceedings may be taken.
19. Section 58A and Rules not ultra vires legislative power.- Section
58-A and
the Rules framed under it are not ultra
vires the legislative power of the Parliament.
20. Constitutional validity.-The Supreme Court has also held
that section 58A is constitutionally valid. It is not outside the legislative
competence of Parliament to enact such a provision as it falls within the scope
of Entries 43 and 44 of List I of the Seventh Schedule to the Constitution.
21. Employees and ex-employees fall in the category of public.-The employees and ex-employees
are also to be regarded as those falling in the category of 'public' and the
deposits accepted from them would as such attract the provisions of section 58A
and the rules made there under as deposits from other categories of 'public' .
22. Amount received by private company from shareholders not deposit.-Any
amount received
by a private company from its shareholders is not regarded as 'deposit' in
terms of sub-clause (lx) of clause 2(b) of the Deposits Rules.
23. Loans taken by private company.- If
a shareholder-
depositor ceases to be a member the deposit made by him cannot be treated as
exempted deposit.55
24. Loans not termed as deposit.-The
loan taken
by a private company from a firm, all of whose partners are shareholders of the
borrowing company will stand on the same footing as loans taken from the
shareholders themselves. Such loans are not to be regarded as deposits.
25. Determination of limits of deposits.-It is essential to deduct the
amount of un provided depreciation from the aggregate of paid-up capital
and free reserves for deter mining the limits up to which deposits can be
accepted by a company, for purposes of Explanation to Rule 3 of the Companies
(Acceptance of Deposits) Rules, 1975 .
26. Computation of limit for acceptance of deposits.-The limits up to which a company
can accept deposits are to be computed with reference to aggregate of paid-up
capital and free reserves as appearing in the latest audited balance-sheet of the company and any
change arising thereafter is to be disregarded .
27. Amount through issue of bond or debentures not exempt deposit.-Any
amount through issue of bonds or
debentures does not ipso facto become exempt deposit under Rule 2(b)(x).
It would be treated as exempt deposit if later on it is secured by mortgage by
an immoveable property.
28. Term
"interest"-Meaning.- The rules do not specify whether the
interest should be simple or compound. The term 'interest' is a generic term
which may be simple or compound .
29. Renewal amounts to fresh deposit.-Renewal amounts to
receiving fresh deposits within the meaning, of section 58A
30. Matured deposits unclaimed/unpaid treated as deposits.-The matured
deposits which remain unclaimed/unpaid are deposits within the meaning of Rule
2(b) of the Companies (Acceptance of Deposits) Rules, 1975, and are required to
be treated as such for calculating the limits prescribed in Rule 3 thereof.62
31. Transfer of matured deposits.-Matured deposits remaining
unclaimed and unpaid for a period of 7 years with the company should be
transferred to Investor Education and Protection Fund .
32. Provisions governing prospectus including civil and criminal
liabilities for misstatement applicable to advertisement for public deposit.-The
provisions governing the prospectus including those relating to civil and
criminal liabilities for misstatement, penalty for fraudulently inducing
persons to make deposits with any company will
mutates mutandis apply to the advertisement for deposits.
Inviting Deposits from Public and Shareholders
S. 58A- Inviting Deposits from. public and shareholder-Board
Resolution
RESOLVED that pursuant to
the provisions of the Companies (Acceptance of Deposits) Rules, 1975 and
subject to the provisions of Section 58A of the Companies Act, 1956 and subject
to other approvals and sanctions the Board hereby accords its approval to the
Company to borrow money by way of deposits from the shareholders of the company
and the public by making an invitation on the basis of audited accounts for the
year ended on and texts of advertisements in English and Hindi placed on the
Table and initialed by the Chairman for purposes of identification be and are
hereby approved.
RESOLVED FURTHER that the
Managing Director of the Company be and is hereby authorised to file the
advertisement duly signed by the Directors on the Board with the Registrar of
Companies and have the same published in leading English and Hindi Newspapers.
RESOLVED FURTHER that the
Managing Director of the company be and is hereby authorised to appoint brokers
at the places as may be considered necessary on payment of brokerage as
stipulated in the said Rules.
RESOLVED FURTHER that Shri ……… Secretary and Shri ……….. Financial Controller be and are hereby jointly authorised to sign and do all such acts and things as may be deemed necessary in this regard."
PRACTICE NOTES
1. Constitutional validity of section 58A and Deposit Rules.-Section
58A and the Rules
framed under it are not liltra vires the
legislative power of Parliament. (Ahmedabad
Matz lifactu ring and Calico Co. v. Union of India, (1983) 53 Com Cases 904
(1)13)(Guj); Delld Cloth & General
Mills Co. Ltd. v. Union of India, (1983) 54 Comp Cas 674).
2. Quantum of deposit should be as per latest balance-sheet.-The
ceiling on
deposit should be reckoned with reference to the latest available authentic
figures (Malayala Manorania Co. Ltd. v.
Registrar of Companies, Kerala, (1990) 69 Comp Cas 339 (Ker)).
3. Complaint to contain terms and conditions of deposit.-It
would be
necessary for a complainant under section 58A to specify in the complaint or to
furnish afterwards the terms and conditions of the deposits and the dates of
maturity because without such particulars it would be very difficult for CLB to
come to a positive conclusion as to the alleged violation (Kanak Vinod Melita (Mrs.) v. Jyoti Wire Industries Ltd., (1991) 72
Com Cases 366).
4. Exemption to Small Scale Industrial Units.-Companies which are Small Scale
Industrial Units and fulfil the following conditions, namely:
(a) The paid-up
capital of the company does not exceed Rs. 25 lakhs;
(b) The company accepts
deposits from not more than 100 persons;
(c) There is no invitation to public for deposits;
and
(d) The amount of deposits
accepted by the company does not exceed Rs. 20 lakhs or the amount of its paid-up
capital, whichever is less,
are exempted from the provisions of section 58A. '
(e) Investment in plant and machinery is not in excess
of Rs. 1 crore.
5. Failure to rile return punishable by Rule 11 of the Deposit Rules.-Failure
to file a
return as required by Rule 10 of the Companies (Acceptance of Deposits) Rules,
1975 which is punishable by Rule II is a continuing offence and there is no
period of limitation within which proceedings may be taken. (U.P. Paper Corporation Pvt. Ltd. v. Registrar of
Companies, (1987) 61 Com Cases 728 (Cal)).
6. Filing of complaint after expiry of six months barred by limitation.-An
offence
under the Rules is complete on 30th June each year and therefore the filing of
a complaint after the expiry of six months from that date is barred by
limitation (Shree Dharma Sugar Industries
P. Ltd. v. ROC, (1989) 66 Com Cases 337 (Kar)).
7. Delayed application by depositor.-An application filed by a
partner of a firm before the Company Law Board 5 years after the appropriation
of the deposit amount towards the suit amount filed by the company for recovery
of sums due him for seeking direction for repayment was not allowed the remedy
under section 58(9) in the circumstances of the case. Pushpa Singh v. BPL Ltd., (2002) 110 Com Cases 82 (CLB).
8. Companies (Compliance) Rules, 2001.-Companies whose paid-up share
capital is less than Rs. 2 crores but equal to or more than Rs; 10 lakhs must
obtain a Compliance Certificate from a secretary in whole-time practice
every year to be filed with the Registrar of Companies mentioning therein inter alla that the company has complied
with the provisions of section 58A and 58AA read with the Companies (Acceptance
of Deposit) Rules, 1975, as per paragraph 23 of the Form of Compliance
Certificate appended to the Companies (Compliance Certificate) Rules, 2001.
Advertisement for public deposits, acceptance and renewal of
deposits (Another format)
S. 58AI58B-Advertisement for public deposits, acceptance and
renewal of deposits-Board Resolution
"RESOLVED that the
amended texts of advertisement in English and Marathi, incorporating current
information and updated figures as per the drafts submitted to the Board and
initialed by the Chairman for identification, be and are hereby accepted and
approved as texts of further advertisement.
RESOLVED FURTFIER that the amended form of application for deposits either for acceptance or renewal, as per the draft placed be fore this meeting, be and is hereby approved and accepted as the only form of application for deposits henceforth.
RESOLVED FURTHER that the
texts of advertisement, as hereby accepted and approved and duly signed by the
majority of the Directors named therein or by their authorised agents, be
delivered to the Registrar of Companies, Maharashtra, for registration thereof
before the release of the said texts of advertisement for newspapers and/or
otherwise for issue in any other respect.
RESOLVED FURTHER that in supersession of the previous authority conferred on the persons concerned in this regard, Mr ………… and Mr ………… the Directors of the company, and Mr ……….and Mr …… General Manager and Secretary of the company respectively, be and are hereby individually authorised to accept deposits, issue temporary and 'fixed deposit' receipts and sign interest warrants, cheques and/or otherwise pay interest to the depositors and sign cheques by way of refund of deposit(s) either for the premature repayment or when due in accordance with the terms and conditions already approved by the Board.
RESOLVED FURTHER that public
deposits already accepted by the company be renewed as per the requests
received from the existing deposit holders on the same terms and conditions.
RESOLVED FURTHER that the
renewal application forms and statement of particulars pursuant to Rule 5(2) of
the Companies (Acceptance of Deposits) Rules, 1975, be supplied to the deposit
holders."
PRACTICE NOTES
1. Term "Deposit"-Meaning.-Definition of 'deposit' in
Rule 2(l) of the Companies
(Acceptance of Deposits) Rules, 1975, includes
all amounts borrowed by a company, except those borrowings specifically
excluded by that rule. In the Reserve Bank of India Act, the term 'deposit' is
defined to include 'any money received by way of deposit or loan or in any
other form but shall not include amounts r
aised by way of share capital'. The definition has a bearing on the
quantum of deposits a company can accept from the public including its
employees and the shareholders (if not a private company) and such quantum is
limited to twenty-five per cent of the paid-up capital and free
reserves of a company.
An unsecured loan for which
no receipt was given by the company and was repayable at 18% interest per annum
was held to be not a deposit. V. Srinivas
v. Machines and Machine Tools (P.)
Ltd., (2002) 110 Com Cases 55 (CLB).
2. Deposits accepted from directors or shareholders in joint names exempt.-Rule
2 (b) (ix) of the Companies (Acceptance
of Deposits) Rules, 1975, exempts any
amount received by a company from its Directors or shareholders (in the case of
a private company) from the definition of deposit, but any amount received by a
company in the joint names of a Director and a non-Director or in the
joint names of a shareholder and a nonshareholder, will not be so exempted.
Moreover, if a company receives any amount from a firm, then to avail of this
exemption all the partners of that particular firm must be the Directors of the
borrowing Company.
3. Amount received by private company from directors and shareholders
not treated as deposits.-Any amount received by a private company from its
Directors and shareholders will not be treated as deposits accepted by that
private company and, thus, will not be counted in arriving at the limits
specified in the rule. 66
4. Unsecured debentures with option for conversion not covered by
section 58A.Rule
2(b)(x) does not cover unsecured debentures with an option to convert them into
shares of the company and so long this option is attached to these unsecured
debentures, they shall remain outside the restriction of Section 58A .
5. No contravention of Rule 3 when acceptance of deposits by companies
exceeds limit on account of losses.-The limit of deposit to be
accepted by a company is prescribed in Rule 3 of the Companies (Acceptance of
Deposits) Rules, 1975, as a certain percentage of paid-up share capital
and free reserves of a company and with the increase or decrease of the paid-up
share capital and free reserves of a company, its limit of deposits will also
increase or decrease. So, if a company incurs losses and its paid-up
capital and free reserves are reduced, then the deposits already accepted by
the company will exceed the limit but it will not contravene the provisions of
Rule 3 if they were within limits when they were accepted and they are to be
returned on maturity .
6. Determination of limits for deposit.-Explanation to Rule 3(2) of the
Companies (Acceptance of Deposits) Rules, 1975, provides for certain items to
be deducted from the aggregate paid-up share capital and free reserves of
a company for determining the limits of deposits to be accepted and accumulated
loss which is one of such items should include un provided depreciation.
7. Balance in share premium account to be treated as paid-up capital
and not free reserves.-Balance shown in the share premium account
should be treated as part of a company's paid-up share capital and not
its free reserves, as stated in Rule 2(d) of the Companies (Acceptance of
Deposits) Rules, 1975 .
8. No contravention of Rule 3A when repayment of deposits to be made.-Rule
3A of the
Companies (Acceptance of Deposits) Rules, 1975, requires a company to invest or
deposit before the 30th April every year fifteen per cent of the deposits
maturing during the year till March 31 next year but where a company has to
repay deposits in the month of April itself, then it is not required to keep
any deposit mentioned above and this will not be contravention of Rule 3A .
9. Signature of authorised agents of directors on advertisement.-Authorised
agents of
Directors entitled to sign the advertisement for public deposits on behalf of
the Directors may be ordinarily authorised by a letter signed by the concerned
Director and need not be authorised by a power of attorney .
10. No reduction in rate of interest when deposits converted into secured
debentures.-Rule 8 of the Companies (Acceptance of Deposits) Rules,
1975, provides for one per cent reduction of interest in case of premature
repayment of deposits. Where, however, these deposits are converted into
secured debentures of the company, there will be no reduction in the rate of
interest provided such conversion is effected with the consent of the depositor
and conforms to the prevailing guidelines of the Government of India relating
to issue of right debentures .
11. Acceptance of loans by
mortgage of assets under Non-banking Non-financial Companies (Reserve Bank) Directions to be regarded as deposits.-Acceptance
of loans
secured by mortgage of assets of a company under Non-banking Non-financial
Companies (Reserve Bank) Directions, 1966, are to be regarded as deposits and
must be repaid in accordance with the provisions of section 58A(3)(a) of the
Companies Act, 1956 .
12. Power of Central
Government with regard to extension of time and exemption.-Section 58A(8) of the Act provides that the Central
Government may, at its discretion, grant extension of time to any company or
exempt any company from complying with the provisions of this section. The
question, as to whether promoters' contribution is to be regarded as deposits
or not will be decided by the Central Government on the merit of each case and
it will not be straightway exempt.
13. Filing of return by non-banking
non-Financial company.-A non-banking
nonfinancial company accepting public deposits must file a return of deposits
with the Registrar of Companies within 30th June of each year and such return
must contain information till 31st March of that year and must be duly
certified by the Auditor of the company. A copy of this return of deposits must
also be simultaneously furnished to the Chief Officer, Department of Non-Banking
Companies, Reserve Bank of India, Calcutta. This return must be in the form annexed
to the Companies (Acceptance of Deposits) Rules, 1975.
14. Provisions relating to prospectus apply to advertisement for public deposits.- The provisions of section
58B are such that any advertisement made by a company inviting deposits from
public, pursuant to section 58A, is to be treated as a 'Prospectus' and all the
provisions of the sections of the Companies Act applicable to prospectus are
mutates mutandis applicable to
advertisement for inviting deposits from public. The Directors should, therefore,
be careful in seeing that all the formalities as laid down in the Companies
(Acceptance of Deposits) Rules, 1975, as well as the provisions of section 58A
of the Companies Act, are complied with while making any change in the text of
advertisement, terms and conditions of invitation or acceptance of public
deposit, Board approval is duly accorded to authorise such amendment and
arrangement is made to deliver such amended documents to the Registrar of
Companies for the purpose of registration thereof
15. Advertisement for public deposits to correspond to provisions relating
to prospectus.-While clarifying on the applicability of section 58B,
it has been notified by the Central Government that any advertisement for
public deposits must ordinarily correspond to the provisions relating to
prospectus in the Companies Act except where specific provisions to the
contrary have been made in section 58A or in the Companies (Acceptance of
Deposits) Rules, 1975, and in this context the words "so far as may be"
appearing in section 58B are significant
16. Time barred complaint.-A
complaint
filed 6 months after an advertisement was inserted inviting deposits without
approval was quashed. Though it was not clear whether the Department had come
to know of the advertisement that very day, the Department was supposed to have
knowledge from the fact that the company had filed an application for approval
that very day. Additional Registrar of
Companies v. Perfect Benefit Fund Ltd., (1999) 97 Com Cases 731 (Mad).
Acceptance/Renewal of deposit without invitation
S. 58A-Renewal or Acceptance of Deposits without invitation-Board
Resolution
"RESOLVED that the
company renew the existing deposits and accept fresh deposits without inviting
or allowing or causing any person to invite deposits and that Shri ……..
Secretary of the Company be and is hereby authorised to file the statement in
lieu of advertisement with the Registrar of Companies before such acceptance or
renewal."
PRACTICE NOTES
1. Acceptance without invitation.-Section 58A(2) will apply only if
the company invites deposits. If the company does not invite deposits but
accepts or renews uninvited deposits, the requirements of Rule 4A of Companies
(Acceptance of Deposits) Rules, 1975 will have to be complied with.
2. Statement in lieu of advertisement.-A company when accepts
deposit without invitation, it should file with the Registrar of Companies a
statement in lieu of advertisement before accepting deposits. Such statement
should cover all those information and particulars which are required to be
given in the published advertisement under Rule 4(2) of the Companies
(Acceptance of Deposits) Rules, 1975.
Compliance with Companies (Acceptance of Deposits)
Rules, 1975
S. 58A-Compliance regarding maintenance of liquid assets-Board
Resolution
"RESOLVED that in pursuance of Rule 3A of the Companies (Acceptance of Deposits) Rules, 1975, a sum of Rs. 3,00,000 being 15% of the amount of public deposits maturing as on 31-3-2002, be deposited with the ………. Bank ………..Branch for a period of one year.
RESOLVED FURTHER that Mr.
A.B. and Mr. C-D, Directors of the Company be and are hereby jointly
authorised to open a Deposit Account with the …………..Bank ………..Branch for this
purpose."
PRACTICE NOTES
1. Maintenance of liquid assets.-As per Rule 3A, every company
should before the 30th April of each year deposit or invest not less than 15%
of the quantum of deposits maturing during the year ending on the 31st March
next following either in a current or deposit account in a scheduled bank, free
from charge or lien, in unencumbered securities of the Central or State
Government or in unencumbered securities mentioned in clauses (a) to (d) and
(ee) of section 20 of the Indian Trusts Act, 1882, or in unencumbered bonds
issued by the Housing Development Finance Corporation Limited Bombay, a company
incorporated under the Companies Act, 1956 and notified under clause (i) of
section 20 of the Indian Trusts Act, 1882.
2. Constitutional validity of Rules.-The vires of this Rule was
challenged before the Supreme Court, which, however, upheld the constitutional
validity of this Rule.
3. Amount
deposited to be utilized for repayment of deposits.-The amount
deposited or invested in pursuance to this Rule can be utilised only for
repayment of deposits maturing during the year, while continuing to maintain
the 10% margin.
4. Complaint
made by
ROC.-Registrar of Companies is a competent person to file a complaint
even in the matter of non-banking financial companies which failed to
furnish to the ROC the requisite statement with details. Vishwapriya Financial Services and Securities Ltd. v. ROC, (2002) 108 Com
Cases 160 (Mad).
Application for extension of time or exemption from provisions
of section 58A
"RESOLVED that consent
of the Board of Directors be and is hereby given to the company making an
application to the Central Government pursuant to sub-section(8) of
section 58A of the Act requesting for an extension of time for the repayment of
deposits maturing/matured for repayment during the period.
RESOLVED FURTHER that Mr.
XYZ, the Managing Director be and is hereby authorised to sign and verify the
application and take all such steps and to do all such acts or things as may be
necessary for getting an order on the application from the Central
Government."
"RESOLVED FURTHER that
consent of the Board of Directors be and is hereby given to the company making
an application to the Central Government pursuant to sub-section (8) of
section 58A of the Act requesting for exempting the company from complying with
the provisions of Rule/Rules No ……of the Companies (Acceptance of Deposits)
Rules, 1975.
RESOLVED FURTHER that Mr.
XYZ, the Managing Director be and is hereby authorised to sign and verify the
application and take all such steps and to do all such acts or things as may be
necessary for getting an order on the application from the Central
Government."
PRACTICE NOTES
1. Publication of General Notice in newspapers before making
application.-Before applying, publish a general notice in Form No. 2 of the Companies (Application for
Extension of time or Exemption under sub-section (8) of section 58A) Rules 1979 addressed to the members at least
once in English language and once in vernacular language in newspapers of these
two languages having wide circulation in the region in which the registered
office of the company is situate.
2. Application to Central Government for extension of time for repayment
of deposits and documents to be annexed therewith.-Draw up the
application in the form prescribed i.e., Form
No. I to the Companies (Application for Extension of time or Exemption under
sub-section (8) of section 58A) Rules, 1979. The following documents are
to be attached to the application:
(i) Certified true copy of the Articles of
Association of the company.
(ii) Certified true copy of
audited accounts of the company for the last three years.
(iii) Certified true copy of
Director's Report and Auditors' Report for the last three years.
(iv) Certified true copy of
the Board Resolution.
(v) One copy each
of the quarterly, half yearly or other pro forma account of the company
subsequent to the latest audited accounts.
(vi) Cuttings of newspapers
evidencing that the general notice was duly published.
(vii) One copy each of the
advertisement issued in the newspapers pursuant to rule 4 of the Companies
(Acceptance of Deposits) Rules, 1975.
(viii) A crossed Demand
Draft in favour of the Pay & Account Officer, Department of Company
Affairs, New Delhi and payable at, New Delhi, for requisite application fees
prescribed by the Companies (Fees on Applications) Rules, 1999.
(ix) Deliver a copy of the
application along with a copy each of the documents annexed simultaneously to
the Registrar of Companies.
(x) Send to the Stock
Exchange with which the company is enlisted copies of notices published in the
newspapers.
3. Refusal of permission by the Central Government.-Where an application for retaining
matured deposits is rejected by the Central Government on the ground that the
grant of permission would amount to renewal of the deposits in contravention of
the provisions of section 58A and such an application does not lie in respect
of deposits which had matured in view of section 58A(10) the Court held that
the Central Government has passed the order without considering the company's
representation to explain that such retention of matured deposit would not
amount to renewal of deposits in contravention of provisions of section 58A and
that such an administrative order amounted to a flagrant violation of the
principles of natural justice. Carrier
Savings and Investment India Ltd. v. Union of India, (2002) 110 Com Cases
631 (Raj).
4. Repayment Scheme of deposit.-Company failed to repay accepted
deposits to depositors and they made an application under section 58(9) to the
Company Law Board and the company submitted a repayment scheme to the Board
which was approved by it. Global
Infrastructure & Technologies Ltd., Re, (2001) 29 SCL 34 (CLB-Mumbai).
5. Citizen's Charter.-As per the Citizen's Charter of the Department of
Company Affairs the application to the Central Government as mentioned
aforesaid is required to be processed within 15 days. [File No. 5/25/99-CL-V;
Press Note No. 9/99 dated 9-81999].
Moratorium under Sick Industrial Companies
(Special Provisions) Act
S. 58-AM-Moratorium under SICA-Board Resolution
WHEREAS the company was unable to
pay the principal and interest of the fixed deposit holders and the fixed
deposit holders made applications to the Company Law Board under section
58A(9);
AND WHEREAS the company proposed
a scheme of repayment of 75% of the deposits in 2001 and balance in 2002 before
the Company Law Board;
AND WHEREAS the Company Law
Board accepted the proposal of the company subject to the approval of the BIFR
under Sick Industrial Companies (Special Provisions) Act, 1985;
NOW, THEREFORE, IT IS RESOLVED THAT the company make the repayment of the fixed deposit holders whose names appear in theRegister of Deposits on …….of Rs ……by December 31, 2001 being 75% of the total deposit due to the fixed deposit holders as…..on …..and the balance remaining due to the fixed de posit holders on or before 31st December, 2002 to the tune of Rs ..............
RESOLVED FURTHER THAT the
Secretary be and is hereby directed to take necessary steps to ensure due
repayment to the fixed deposit holders as per the aforesaid schedule and file
an affidavit of compliance with the Company Law Board as to the due compliance
of the scheme as approved by the Company Law Board.
PRACTICE NOTES
1. Moratorium to relief undertakings-According to the department's circular
dated 19-2-1990, a moratorium has been granted to relief
undertakings. In terms of this circular, where financial assistance to relief
undertakings have been provided under different Acts promulgated by several
States, the State Governments have notified that in relation to any relief
undertakings and in respect of the period for which the relief undertakings
continues as such any right, privilege, obligation or liability accrued or
incurred before the undertaking was declared a relief undertaking and any
remedy for the enforcement thereof shall be suspended and all proceedings
relating thereto pending before any court, tribunal, officer or authority shall
be stayed including the proceedings under S. 58A(9).
2. Approval of BIFR necessary-If a company is already under
reference to BIFR under the Sick Industrial Companies (Special Provisions) Act,
1985, the Company Law Board has directed the petitioner under section 58A(9) to
approach the BIFR first for necessary approval in order to allow Company Law
Board to continue its proceedings under the said section. [Uniplus India Ltd., Re, (1997) 90 Com Cases 74 (CLB-N.
Delhi)].
Nomination facility given to deposit-holders
S. 58A(II)-Nomination facility given to deposit-holders-Board
Resolution
RESOLVED that henceforth the
application forms for inviting fixed deposit of the company be added with a
specific provision to make a nomination by each and every fixed deposit-holder
in favour of any person of his or their choice;
RESOLVED FURTHER that the
Secretary of the company be directed to take steps to have the forms of fixed
deposit printed accordingly.
PRACTICE NOTES
1. Insertion by the Companies (Amendment) Act, 1999-The Companies (Amendment) Act
1999 has, with effect from 31st October, 1998 added a new sub-section(I
1) to section 58A of the Act to allow a depositor to make a nomination in the
prescribed manner (in terms of the new section 109A) a person to whom his fixed
deposit would vest in the event of his death. In case of transmission of fixed
deposits this provision would help the nominee to have the fixed deposit
endorsed in his name without any difficulty. This provision is in addition to
the existing provisions applicable to all fixed deposits. The said nomination
should be in Form No. 2B.
2. Prescribed manner-Section 109A read with sub-section(I 1) of
section 58A makes a provision for nomination in the prescribed manner. The
Central Government has prescribed as mentioned aforesaid the manner in which
such nomination is to be made by its fixed deposit-holders which can be
done singly or jointly as the case may be. Every company is required to follow
the said manner while making provision for nomination in each and every
application form which are to be distributed to the prospective fixed deposit
holders while inviting any fixed deposits of a company.
Transfer of matured deposit
to the Fund
"RESOLVED that the amount of matured deposits of Rs ……remaining unclaimed and unpaid with company for a period of 7 years from date they became due for payment be and is hereby transferred to the Investor Education and Protection Fund.
RESOLVED FURTHER that the
Secretary of the company be and is authorised to do the needful for effecting
such transfer."
PRACTICE NOTES
1. Investor Education and Protection Fund.-Under clause (c) of sub-section
(2) of section 205C all the matured deposits remaining unclaimed or unpaid with
the company for a period of 7 years from the date the said deposits become due
for payment should be transferred to the Investor Education and Protection
Fund.
2. Fund Rules.-Central Government has framed Investor Education and
Protection Fund (Awareness and Protection of Investors) Rules, 2001 under which
the matured deposits required to be deposited with the said Fund should be
remitted to the concerned branches of Punjab National Bank within 30 days of
such amount becoming due to be credited to the Fund. This should be done by
obtaining three copies of treasury challans from the said bank and filling them
up and tendering the amount along with the said filled up treasury challans and
the bank will return two copies of the challan duly stamped to the company as
token of having received the money.
3. Filing with
ROC.-File with the Registrar of Companies one copy of the challan evidencing
deposit of the amount to the Fund and also a statement in Form No. I given in
the aforesaid Rules of the Fund duly certified by a Chartered Accountant or a
Company Secretary or a Cost Accountant practising in India or by the statutory
auditors of the Company.
Informing CLB about default in payment to small depositors
S. 58AA-Informing Company Law Board about default in payment to
small depositors-Board Resolution
WHEREAS the company has made
default in repayment of deposits and or part thereof or; any interest thereupon
to the following small depositors :
(1) Mr . ...............
(2) Mrs . ...............
(3) Miss . ...............
(4) Mr . ...............
(5) Mr . ...............
AND WHEREAS under clause (b)
of sub-section (2) of section 58AA, the Company is required to intimate
to the Company law Board within 60 days from the date of default;
NOW THEREFORE IT IS RESOLVED
that an intimation be given to the Company Law Board immediately including
particulars in respect of the names, addresses of each of the above-mentioned
small depositor, the principal sum of deposits due to them and interest accrued
thereupon.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to sign and submit the
said intimation to the Company Law Board and take necessary steps in connection
therewith.
PRACTICE NOTES
1. Meaning of small
depositor.- A small depositor means a depositor who has invested in a financial
year a sum not exceeding Rs. 20,000/- in a company. [Section 58AA(I I) Explanation].
2. Prohibited to accept further deposits.-A company should not
accept further deposits from small depositors, unless each small depositor,
whose deposit has matured, had been paid the amount of the deposit and the
interest accrued thereupon. [Section
58AA(4)].
3. Deposits exempted.- Provisions of section 58AA
will not apply to any deposit which has been renewed by the small depositor
voluntarily or whose repayment has become impracticable due to the death of the
small depositor or whose repayment has been stayed by a competent court or
authority. [Section 58AA(4) proviso].
4. Penalty for
default.- Whoever knowingly fails to comply with the provisions of
section 58AA or with any order of the Company Law Board will be punishable with
imprisonment of 3 years and will also be liable to fine of Rs. 5001- for
every day during which such non-compliance continues. [Section 58AA(9)].
Constitution of Committee to decide matters regarding public issue
S. 60-Constitution of Committee to decide matters regarding
public issue Board Resolution
"RESOLVED that a Committee consisting of Shri
................. Shri ……. Shri …… and Shri ……. Directors of the Company be and
is hereby constituted to decide all matters relating to public issue and
allotment of shares in consultation with the Stock Exchanges concerned and SEBI
as also issue of share certificates in accordance with the relevant
rules."
PRACTICE NOTES
1. Delegation of powers and duties to committee, etc.-Where the
articles authorise the directors have power to delegate their authority to a
committee and a company may adopt Regulation 77 of Table A to Schedule 1.
2. Committee meetings.- For transacting business of
the company the committee meetings can be conducted in accordance with
Regulations 78 to 81 of Table A to
Schedule I of the Act or other corresponding provisions of the company's
articles.
3. Quorum of committee
meetings.-Where the Board of directors delgate their powers to a committee without any
provision as to the committee acting by quorum, then all members of the
committee must be present. Re Liverpool
Household Stores Association Ltd., (1890) 59 LJ Ch 616.
4. Committee may consist of one director only.-It may be noted that a
committee may consist of one director only. Re, Fire Proof Doors, (1916) 2 Ch 142.
Report and Statement of Auditors as prescribed in Part 11 and
Part III of Schedule 11 to the Act
"RESOLVED that Report
and statement of Auditors as prescribed in Part I and Part III of Schedule 11
to the Act received from them be and are hereby noted for inclusion in the
prospectus of the proposed public issue."
PRACTICE NOTES
1. Period for which report and statement of auditors should relate.-The
report and
statement of the Auditors prescribed in Part 11 and III of Schedule 11 which
form part of the prospectus shall relate to the accounts finalised for five
financial year immediately preceding the issue of prospectus and ending on a
date three months before the issue of the prospectus.
2. Where business carried on for less than rive years.-In case
the business of a company had been carried on for less than five years Report
of the Auditors shall relate to financial years during the period in which the
business had been carried on and ending on a date three months before the issue
of the prospectus or upto a period not earlier than six months before issue of
the prospectus if the accounts of the latest years are not finalised during the
said period of six months before the issue of the prospectus.
Approval of prospectus
S. 60-Approval of prospectus-Board Resolution
"RESOLVED that the draft prospectus with the annexures thereto as required under section 60 of the Companies Act, 1956, in respect of which acknowledgement card has been issued by SEBI on ….. placed before the Board, duly initialed by the Chairman for the purposes of identification be and is hereby approved and adopted as the prospectus of the company for the proposed public issue of 10,00,000 equity shares of Rs. 15/- each for cash at par.
RESOLVED FURTHER that the
engrossment of the draft prospectus with the annexures thereto as aforesaid be
signed by all the Directors present at the meeting and the same be sent to
other Directors not present at the meeting for their signatures.
RESOLVED FURTHER that the
engrossment of the prospectus with annexures thereto when signed by all the
Directors be filed with the Registrar of Companies, NCT of Delhi and Haryana.
RESOLVED FURTHER that Mr.
LMN be and is hereby authorised to file the prospectus with the annexures
thereto with the Registrar of Companies, NCT of Delhi and Haryana and to make,
sign and initial any corrections/alterations etc. If any, therein as he may deem necessary for the purpose.
RESOLVED FURTHER that the
draft of the power of attorney to be given by the company in favour of Mr. LMN
for the purpose of registering the prospectus and for making any corrections/
alterations etc. therein, placed
before the meeting and duly initialed by the Chairman for purposes of
identification, be and is hereby approved.
RESOLVED FURTHER that the
common seal of the company be affixed to the said power of attorney in the
manner provided by article 65 of the Articles of Association of the company.
RESOLVED FURTHER that the
Secretary of the company be and is hereby authorised to circulate and advertise
such prospectus and send sufficient number of copies of the application
together with the prospectus to the Manager for issue for sending to the
brokers, underwriters, bankers and all others as per the scheme of offer to
public approved by the Board."
PRACTICE NOTES
1. Prospectus
to comply with requirement of sections 55 to 68.-Ensure that the
prospectus complies with the requirements of sections 55 to 68 of the Companies
Act, 1956 relating to prospectus.
2. First issue by new
companies.- A new company will be defined as one which has not completed 12 months
of commercial operations and its audited operative results are not available.
Such a new company can make a public issue of equity shares or any security
convertible at later date into equity share capital provided a financial
institution or a scheduled commercial has appraised the project to the financed
through the proposed offer to the public and not less than 10% of the project
cost is financed by the said appraising bank or institution by way of loan,
equity, participation in the issue of security in the proposed issue or combination
of any of them. They will be permitted to issue capital to public either at par
or at a premium.
3. Filing of draft prospectus with SEBI.-A draft prospectus
containing the disclosures should be filed with Securities and Exchange Board
of India before a public issue is made. Such filing should be made at least 21
days prior to the filing of the prospectus with the Registrar of Companies.
4. No private placement to be solicited from un-related
investors.-No private placement of the promoters' share shall be made by solicitation
of share contribution from un-related investors through any kind of
market intermediaries. The shares of the above companies can be listed on
either the Over the Counter Exchange of India or any other stock exchanges.
5. Issue by existing listed companies.-Companies wishing to enhance their
foreign shareholding upto 51 per cent or more as permissible under the relevant
guidelines of Government/Reserve Bank of India can make issues at the price
determined by the shareholders in special resolution passed under section 81(1-A)
of the Companies Act, 1956. This will also apply to issue of shares to foreign
investors by closely-held companies and also by other companies where
there is no foreign shareholding at present.
6. Underwriting.-Underwriting, though not mandatory, should be only
for issue to the public which will exclude reserved/preferential allotment to
reserved categories.
7. New Financial Instruments.-In regard to new financial instruments, whether issued
by way of rights or otherwise, the disclosure requirements shall be filed with
SEBI. The debt instruments irrespective of their period of maturity will
require credit rating. For issue of debt security of Rs. 100 crores or more two
ratings from two different credit rating agencies should be obtained.
8. Prospectus not to be issued more than 90 days after riling with
Registrar.-No prospectus shall be issued more than 90 days after it had been filed
with the Registrar of Companies concerned.
9. Penalty for default.-If a prospectus is issued
without a copy thereof being delivered under section 60 to the Registrar of
Companies or without the copy so delivered having endorsed thereon or attached
thereto the required consent or documents, the company, and every person who is
knowingly a party to the issue of the prospectus will be punishable with fine
of Rs. 50,000/-.
Approval of prospectus
(Another format)
S. 60-Approval of prospectus-Board Resolution
"RESOLVED that the draft of the prospectus offering Equity shares of Rs. 10/- cash at par of an aggregate value of Rs……. ........... to the public prepared by the company in consultation with the Lead Managers and vetted by SEBI vide their Acknowledgement Card No . be and is hereby approved and that two copies thereof be got duly signed by all the directors of the company named therein and/or by duly constituted attorneys appointed by the directors.
RESOLVED FURTHER that Shri ……. be and is hereby directed to deliver a duly signed copy of the prospectus along with all documents and the memorandum containing salient features to the Registrar of Companies ……… for registration. RESOLVED FURTHER that the Power of Attorney, draft whereof placed on the Table and initialed by Chairman for purposes of identification authorising Company Secretary to make minor corrections, omissions and alterations in the prospectus as may be required by the Registrar of Companies and to obtain certificate of registration of prospectus be and is approved and the same be signed by the Managing Director."
PRACTICE NOTES
1. Approval of Draft Prospectus.-The draft of prospectus is to be
got approved from the Financial Institutions which have sanctioned loan and
have agreed to underwrite the shares.
2. Informal consent to be obtained from Registrar of Companies.-Forward the draft of the prospectus to
the Registrar of Companies concerned and obtain his informal consent in
advance.
3. Furnishing of draft prospectus to the Stock Exchange.-Forward
the draft of
the prospectus to the Stock Exchange concerned and its comments, if any, be
incorporated in the prospectus.
4. Appointment of Merchant Bankers/Lead Managers.-Obtain
approval of the
Board for the appointment of one or more Merchant Bankers/Lead Manager to the
issue in accordance with the norms fixed in SEB1 (DIP) Guidelines, 2000 and
enter into a Memorandum of Understanding with them as per Schedule I of the
said SEBI Guidelines.
5. Filing with SEBI.-After incorporating all the
additions/modifications, if any, suggested on preliminary scrutiny, the Lead Manager
is to forward the draft prospectus to SEBI with Due Diligence Certificate and
other annexures. This should be done at least twenty-one days before the
date on which it is proposed to be delivered to the Registrar.
6. Share application form to accompany abridged prospectus.-The share application form is to
be accompanied by a memorandum containing salient features of the prospectus as
per Form No. 2A and must contain the disclosure specified under section I &
11 of Chapter VI of SEBI (DIP) Guidelines, 2000.
7. Printing two application forms with abridged prospectus.-In order
to save cost the Government has accepted the suggestion and it is now open to
the companies and their Merchant Bankers to print two application forms
accompanying the abridged prospectus being attached to it alongwith perforated
line bearing separate printed numbers. However care should be taken that the
abridged prospectus is printed in such a way that it is easily readable at
least in point 7 size with proper spacing.
8. Undertaking
to accompany prospectus.-The prospectus to be sent to SEBI should accompany:
(1) An undertaking from the Chief Executive that complaints, if
any, received in respect of the proposed issue would be attended expeditiously
and satisfactorily;
(2) An undertaking from the secretary that he will get the shares
listed within the prescribed time period and will also take necessary steps in
time for the purpose;
(3) An undertaking to the effect that the
funds will be made available to the Registrars to the Issue for despatching
refund/allotment letters/certificates by registered post;
(4) An undertaking from the company that
promoters contribution will be brought in full wherever required in advance
before issue opens for public subscription and the balance if any, shall be
brought in pro rata basis before the
calls are made on public;
(5) An undertaking that the certificates of
the securities refund orders to nonresident Indians shall be despatched within
specified time.;
(6) An undertaking that no further issue of
securities shall be made till the securities offered are listed or till the
application moneys are refunded on account of non-listing,
undersubscription, etc.;
(7) Announcement in newspaper about prospectus.-The announcement
shall contain the following information:
(1) Object of issue.
(2) Project cost.
(3) Means of Financing.
(4) Historical background.
(5) Management
structure.
(6) Listing proposal.
(7) Minimum subscription.
(8) Opening, closing, etc.
(9) Details of issue.
(10) Schedule of implementation
of project.
(11) Marketing and Selling
arrangement.
(12) Future projections.
(13) Justification for premium.
(14) Risk factors and management perceptions.
(15) Financial
Institutions/Banks/Underwriters/Brokers.
9. Time for receipt of minimum subscription.-If the company does not receive
the minimum subscription of 90 per cent of the net offer to public including
devolvement amount from underwriters within 60 days of the date of closure of
the issue the company shall refund the entire subscription amount received
without interest. If there is delay in refund of the amount beyond 8 days after
the company becomes liable to pay the amount the company shall pay the amount
with interest prescribed under section 73 of the Companies Act, 1956. This requirement
of receipt of 90% minimum subscription is not mandatory in case of offer for
sale of securities.
Underwriting Contracts
S. 60-Underwriting Contracts-Board Resolution
"RESOLVED that
underwriting contracts entered into between the company and financial
institutions, bankers and brokers who have consented to underwrite …….. equity
shares of Rs. ......................... each to be offered to public at par as per letters exchanged between
the company and them (said letters place/before the meeting and initialed by
the Chairman of the meeting) be and are hereby approved.
FURTHER RESOLVED that the
said financial institutions, bankers and brokers whose names are mentioned
hereunder be and are hereby appointed underwriters to the public issue on
payment of underwriting commission @ ………….. on the nominal value of shares so
underwritten by each of them:
Name of underwriter Nominal value of
shares
to be underwritten
FURTHER RESOLVED that the
draft of the Agreement to be entered into between the company and underwriters
(Placed before the Meeting and initialed by the Chairman) be and is hereby
approved and the Managing Director of the company be and is hereby authorised
to enter into Agreements with the said underwriters."
PRACTICE NOTES
1. Underwriting made optional.-To reduce
the cost of issue it has also been decided that the issuers have the option to
decide whether the issue is to be underwritten or not. However, if the issue is
not underwritten and if the minimum subscription of 90% of the offer to the public is not received on the date of
closure of the issue or if the subscription level falls below 90% after the closure of the issue on
account of cheques having being returned unpaid or withdrawal of applications,
the entire amount received as subscription would have to be refunded in full.
If there is a delay beyond 8 days after the company becomes liable to pay the
amount, the company shall pay interest as per section 73 of the Companies Act, 1956.
The requirement of 90% minimum
subscription will not be mandatory in case of offer for sale of securities.
2. Agreement with
underwriters.-Underwriters are required to enter into a legally binding agreement
with the issuer company in terms of SEBI (Underwriters) Rules, 1993 read with
SEBI (Underwriters) Regulations, 1993. The
Underwriting Agreement should be in the form given in Annexure A to SEBI-RUW
Circular No. (93-94), dated 19-11-1993.
3. Revocation of underwriting agreement.-An underwriting letter
generally authorise the company or persons acting for it, apply in the name of
the underwriter or sub-underwriter for the shares in case they fail to apply when called upon to do so. This letter
is an authority coupled with interest and, therefore, after acceptance by the
promoter is irrevocable. Carmichael's case (1896) 2 Ch 643.
4. Disclosure in Balance-sheet.- All sums paid by way of
commission, brokerage, etc. to the
extent not written off or adjusted, must be shown in the Balance-sheet (vide Schedule VI, under heading
"Miscellaneous expenditure).
5. Payment of commission.- The commission agreed to be
paid should not exceed the rate authorised by the Articles of Association of
the company or 5 per cent of the price at which the shares issued (in case of
debentures 21/4 per cent) whichever
is less.
Appointment of Bankers to the Issue
Ss. 60 and 69-Appointment of Bankers to the Issue-Board
Meeting
"RESOLVED that the
following Banks and their Branches be and hereby appointed as Bankers to the
proposed issue of ......................... Equity Shares of Rs. 10/-
each of the Company and an Agreement, the draft which is placed before the
meeting be entered with each one of them:
(Names of bankers and
addresses of Branches)
RESOLVED FURTHER that separate Current Account of the company be opened with the said banks in the name and style ……… of …….Equity Public Issue" and the said Banks be advised to receive applications from Indian Public along with amount for the Equity shares applied for by way of cheques, demand drafts, pay orders or cash in respect of proposed public issue of Equity shares on and from the opening of subscription list till closure thereof as may be intimated by the company with authority to instruct their collecting branches to receive applications in the aforesaid manner and the said banks and their branches be requested to realise the proceeds of the cheques, demand drafts, pay orders and to credit the same as well as cash received to the said Accounts.
RESOLVED FURTHER that the
said Banks be requested to collect information about the number of applications
and shares applied for as well as the total amount received daily from their
collecting Branches and transmit the said information to the company on the
same day either on telephone or by Telex/Fax.
RESOLVED FURTHER that the said
Banks be requested to act on instructions given on behalf of the company
jointly by any two of the following persons namely Shri ………. and Shri ……………
.................... Shri....................... and Shri .....................
PRACTICE NOTES
1. Nomination of Collection Centres.-In
accordance with
the Listing Agreement the company is required to make arrangement for
collection of applications at various places. In order to comply with the said
requirement and to help the investing public the company has to nominate more
than one bank as bankers to the issue. Bankers to the issue should be appointed
in all the mandatory collection centres.
2. Refund of Excess Money.-The Board by opening separate Bank Account may also
authorise encashment of refund orders for excess amounts received or moneys
with respect to applications not found in order.
3. Stock Invest Instrument.- Necessary authorisation is
to be given to the Registrars to the Issue to make the required endorsement in
the Stock Invest Instrument after allotment.
4. Agreement to be entered.-
An
agreement should be entered with the banker to the issue by the company, such
an agreement should contain apart from other things, the number of centres at
which the application and application monies of an issue of a body corporate
will be collected from the investors, the time within which the statement
regarding the applications and application monies received from the investors
investing in an issue of a body corporate will be forwarded to the registrar to
an issue or the body corporate, as the case may be and that a daily statement
will be sent by the designated controlling branch of the bankers to the issue
to the registrar to an issue indicating the number of applications received on
that date from the investors investing in the issue of a body corporate, and
the amount of application money received.
Appointment of Share brokers, Legal Advisers, Auditors and
Consultants
S. 60-Appointment of Shareholders, Legal Advisers, Auditors and
Consultants-Board Resolution
"RESOLVED that the
undermentioned persons be and are hereby appointed in respect of the proposed public issue of the company:
(a)
Mr . Legal Adviser
(b)
Mls Auditors
(c) M/s Consultant
(d)
M/s Brokers to the issue.
RESOLVED FURTHER that the
consents in writing received from the persons mentioned above conveying their
approval for inclusion of their names
in the prospectus of the proposed
public issue be and is hereby noted."
PRACTICE NOTES
1. Notice of consents received from various persons named in the
prospectus. The
Board of Directors at the time of approving the draft of the prospectus of the
proposed public issue shall have to ensure the receipt of consents from the
various persons named in the prospectus. The consents so received from the
various persons named in the prospectus are to be taken on record by the Board.
Appointments of Registrars to the Proposed Issue
S. 60-Appoint"ients of Registrars to the Proposed Issue-Board
Resolution
"RESOLVED that who are duly registered with the Securities and Exchange Board of India (SEBI) under SEBI (Registrars to an issue and Share Transfer Agents) Regulations, 1993 be and are hereby appointed as Registrars to the proposed issue of ......................... Equity shares of Rs. 10/- each at par of the company.
RESOLVED FURTHER that the
company enters into the Memorandum of understanding with each one of the said
Registrars to the issue as per the drafts placed before the meeting and
intialed by the Chairman for the purpose of identification be and are hereby
approved and the Managing Director of the Company be authorised to sign the
said MOU's on behalf of the company.
RESOLVED FURTHER that the
letters of appointment, draft whereof placed on the table and initialed by
Chairman for the purpose of identification, be and is hereby approved and the
Managing Director of the Company be and is hereby authorised to issue the same
to......................... on
behalf of the company once the MOUs are signed by each one of them.
RESOLVED FURTHER that the
consent in writing received from the said Registrars to the proposed issue
conveying their approval for inclusion of their names in the prospectus of the
proposed public issue be and is hereby noted.
RESOLVED FURTHER that the
said Registrars to the proposed issue be and are hereby authorised to
authenticate endorsements in any of the documents on behalf of the company in
respect of the proposed issue of Equity Shares."
PRACTICE NOTES
1. Responsibility of the Registrars to the Issue.-The Registrars to the Issue must
ensure that the statement of applicants to whom the application money is
payable due to rejection of applications and/or any excess amount paid are
prepared immediately after allotment is made so that the refund is made within
the time specified.
2. Payment of interest on delayed payment.-If the company fails
to refund the money within 8 days of the closing of the subscription list, the
company is liable to pay interest on delayed payments.
3. Liability of company to pay excess money when arises.-The, liability
of the company to pay the money received in excess of the aggregate of the
application money under Section 73(2A) arises on the expiry of ten weeks from
the date of the closure of the subscription lists and interest of 15% per annum
begins to accrue thereon at the end of eight days therefrom. (Raymond Synthetics Ltd. v. Union of India,
(1992) 73 Corn Cases 762 (SQ).
Convening of Extraordinary General Meeting to approve
modifications
"RESOLVED that Extraordinary General Meeting of the Members of the company be convened on ……… at by giving shorter notice than 21 days for approving modifications in the prospectus as suggested by the financial institutions and the Stock Exchange."
PRACTICE NOTES
1. Shareholders giving consent must be furnished with copy of agenda.-In
all cases
where consent is given for holding a general meeting on shorter notice, whether
the consent is given by all the shareholders or 95% or more of them as the case
may require, all the shareholders in the register must be furnished with a copy
of the agenda of the business to be transacted at the meeting, and in the case
of the annual general meeting or any other meeting where the annual accounts
and director's report and auditor's report are to be laid, copies of those
documents must be sent to all the shareholders as required by Section 219. The
obtaining of the consent referred to in sub-section (2) cannot dispense with these requirements.
2. Meeting irregularly held cannot be validated by obtaining ex post
facto consent.-A meeting already irregularly held cannot be validated by obtaining the
consent ex post facto. What is
provided by sub-section (2) being
a concession, cannot be extended beyond its limits.
3. Agreement to agree to shorter notice must relate to specific
resolution.-The word 'consent' means that the members have agreed to
a shorter notice. It has been held that agreement must relate to the specific
resolution or resolutions to be adopted at the meeting and those agreeing must
appreciate that they are giving their consent to a short notice. (Pearce Diff & Co. Ltd., (1960) 1
WLR 10 14).
4. Subsequent consent obtained from shareholders may validate
resolution.-It has been held that where for want of proper or sufficient notice or
other defect in procedure a special resolution is not effective, subsequent
consent obtained from shareholders holding 95% or more of the paid-up
share capital or voting power, as the case may require, will validate the
resolution (In re, Parikh Engineering and
Body Building Co. Ltd., (1975) 45 Corn Cases 157).
5. Public Trustee cannot give consent for shorter notice.-Since the right of a member to
give consent for shorter notice under Section 171(2) of the Act is a right exercisable at a meeting of the
company, that right cannot be exercised by the public trustee (Deptt. Letter No. 8131 (187B)166 SLV, dated
4-7-1965).
Variation of Terms of Contract mentioned in the prospectus
S. 61 -Variation of terms of contract mentioned in the prospectus-Board
Resolution
RESOLVED that pursuant to
section 61 and subject to the approval of the company in general meeting the
terms of contract mentioned in the prospectus be and are hereby varied to the
extent mentioned in the statement placed before the meeting and initialed by
the Chairman for the purpose of identification.
RESOLVED FURTHER that an
Extraordinary General Meeting be convened on ……… at ………to take the approval of, or on authority given by, the
shareholders of the company.
RESOLVED FURTHER that the
Secretary of the company be directed to issue the notice of the said meeting
with the relevant explanatory statement as per the drafts approved by the Board
at this meeting.
PRACTICE NOTES
1. General effect.- There is no prohibition against
variation of the terms of contracts contained in a prospectus. The 'size' of
the issue and its 'objects' as stated in the prospectus are failing within the
mischief of section 61 and therefore they require compliance for variation
thereof. N. Parthasarthy v. CCI, (1991) 72
Com Cases 651 (SC).
2. Change in deployment of issue proceeds.-A change in the scheme of
deployment of the issue proceeds as mentioned in the prospectus is a variation
in the terms of a contract referred to in the prospectus pursuant to section 6 1. Madan Gopal Jajoo v. Un ion of India,
(1996) 85 Com Cases 153 (Del).
3. Shifting of registered office before allotment.-Shifting the registered office of the
company to another place from that stated in the prospectus even before
allotment, when there were only two shareholders who resolved to do so at an
emergent meeting is coming within the scope of section 61 in its spirit though not in its letter. Pal-Peugot Ltd., Re, (1997) 89 Com Cases 808 (Del).
Offer of shares or Debentures to the public for sale
S. 64-Offer of shares or Debentures to the public for sale-Board
Resolution
WHEREAS the company had offered for sale to the public one lac equity shares of Rs. 10/- each on ……… 2002 by a document deemed to be a prospectus issued by the company; AND WHEREAS the company has got good response from the public and all of the one lac equity shares of Rs. 10/- each have been bought by ……… number of people;
NOW, THEREFORE IT IS
RESOLVED that one lac of equity shares of Rs. 10/- each be and is hereby
allotted to buyers as per the statement placed before the Board and initialed
by the Chairman for the purpose of identification.
RESOLVED FURTHER that the
Secretary of the company be directed to issue allotment letters to these buyers
under the common seal of the company and Mr. ABC and Mr. XYZ being directors of
the company be authorised to sign the allotment letters along with the
Secretary of the company before issue.
PRACTICE NOTES
1. Deemed prospectus- By section 64(l) where a
company allots or agrees to allot any securities of the company with a view to
all or any of those securities being offered by the allottees for sale to the
public, the document by which the offer for sale to the public is made is
deemed to be a prospectus; and until the contrary is proved, an allotment or an
agreement to allot shares or debentures is deemed to have been made with a view
to them being offered for sale to public, if
(a) the offer for sale is
made within six months after the allotment or agreement to allot; and
(b) at the date when the
offer for sale is made the company has not received the whole of the
consideration it has agreed to receive for the shares or debentures.
2. Minimum subscription-According to the SEBI (DIP) Guidelines,
2000, the requirement of 90% minimum subscription is not mandatory in case of
offer for sale of Securities.
3. SEBI (DIP) Guidelines, 2000.-The promoters' shareholding
after offer for sale shall not be less than 20% of the post-issue
capital. In an offer for sale, the entire amount payable on each instrument
shall be brought at the time of the application. [Clauses 4.2. 1. and 8.6. 1(vii)].
Newspaper advertisement of prospectus
S. 66-Newspaper advertisement of prospectus-Board
Resolution
"RESOLVED that pursuant
to the provisions of section 66 read with section 2(36), the prospectus issued
by the company be published as a newspaper advertisement without specifying the
contents of the memorandum or the signatures thereto or the number of shares
subscribed for by them.
RESOLVED FURTHER that the
Secretary of the Company shall take necessary steps to ensure that the
advertisement does appear in the Times of India, The Statesman and the Indian Express
in all their editions."
PRACTICE NOTES
1. Form of publication of prospectus.- There
is no form
prescribed by the Act or under the rules of the Act for the advertisement which
is required to be published in the newspaper under section 66 of the Act.
Department of Company Affairs has no doubt devised the form of the
advertisement which is short publication of the full prospectus with a view to
reduce the cost of advertisement and it has advised all company managements and
promoters to adopt that form. (Circular
No. 5(13)ICL-V[162, dated 21-5-62). The advertisement
should also be as per guidelines issued by SEBI from time to time.
2. Time of publication.- The newspaper advertisement of prospectus
should be published after a copy of the full prospectus is delivered to the
concerned Registrar of Companies for registration.
3. Publication in newspaper not mandatory.-Although section 66 of the Act requires a company to
publish a prospectus as a newspaper advertisement but the language of the said
section is just directory and not mandatory. The said advertisement should
specify the contents of the memorandum or the signatories thereto, or the
number of shares prescribed for by them.
4. Provisions to be administered by SEBI.-New section 55A inserted by the
Companies (Second Amendment) 1999 provides that provisions contained in section
66 should be administered by SEBI in case of listed public company and also
public companies which purport to be listed.
Offering shares or debentures to members of a private company
S. 67(3)-Offering shares or debentures to members of a private
company Board Resolution
"RESOLVED that further
issue of shares of Rs. 7.5 crores in the equity share capital of the company
consisting of shares of Rs. 5/- each, be made by offering the shares to
the members of the company in proportion to the shares held by each one of them
and in case any member of the company is not willing to subscribe for the
shares so offered, the Board of Directors of the Company shall be at liberty to
issue the shares so unsubscribed to such other persons as the Board of
Directors may decide, subject to the condition that the Board shall ensure that
the number of members of the Company, excluding past and present employees of
the company, does not exceed fifty;
RESOLVED FURTHER that any
member or members of the company who would have applied for additional number
of shares shall be allotted additional shares on equitable basis while making
offer of unsubscribed shares."
PRACTICE NOTES
1. Private circulation not prospectus.- As
per the
provisions section 67(3) offering of shares to exiting shareholders will not
constitute offerine, shares to the public.
2. Fact relevant.-Where a private company
offers shares to the selective persons it cannot be said to be extending an
invitation to the public and in all cases the determination of the question of
an offer being made to the public depends upon the fact and language of the
notice and the particular circumstances of each case, (Rattall Singh v. Moga Transport Co., (1959) 29 Com Cases 165
(Punj)).
3. Companies (Amendment) Act, 2000 (w.e.L 13-12-2000).-This
Amendment
Act has inserted a proviso to sub-section (3) of section 67 making offer
of securities to 50 persons or more in a financial year to be regarded as public
offer. The said amendment also inserted a new sub-section (3A) allowing
SEBI in consultation with RBI to specify the guidelines in respect of offer or
invitation made to the public by a public financial institution or non-banking
financial companies.
Private Placement
of Shares (S. 67)
Some companies utilise the
services of brokers and other intermediaries for private placement of equity
shares, out of promoters' quota or otherwise, insert advertisements in the
print media and also mass-mail literature/ material/brochures
superscribed by the caption "Confidential/For private circulation
only". In such a case the rights of renunciation are floated in the market
by the companies themselves, charging unofficial premia from the investing public.
Under section 67(3) of the Act, no offer or invitation shall be treated as made
to the public, only if the same can be regarded, in all the circumstances
(a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for Subscription or purchase by persons other than those receiving the offer or invitation; or
(b) otherwise
as being a domestic concern of the persons making and receiving the offer or
invitation.
Provided nothing contained in this
sub-section shall apply In case where the offer or invitation to
subscribe for shares or debentures is made to fifty persons or more.
In the context of the above
provisions of law, such offers cannot be treated as private placement and
provisions relatincy to prospectus under the Companies Act, 1956, are
applicable. The companies concerned, their promoters and their intermediaries
should refrain from making so-called private placement of' shares or
collecting unofficial prerma without recording the san-ic, in the books
of' account of tile company, and such acts are serious contravctitions of the
Companies Act and will invite penal action under the Act by the Government.
Marketing of rights of renunciation by a private company is prohibited under
section 3(l)(iii)(c) of the Act, as it cannot make any Invitation to the public
to subscribe for its shares. [Press Note
No. 7/92/; File No. 17-6-92-CL. V., dated 6-7-1992.]
Appointment of Banker for handling Refunds where Issue oversubscribed
S. 69-0pening of Bank Account for handling the Refunds-Board
Resolution
WHEREAS the Public and
Rights issues of Equity Shares/Debentures have been oversubscribed, and it was
necessary to appoint a banker for handling the refunds;
AND WHEREAS Letter No . ………dated ………from ………offering their services as refund banker was placed before the Board, and the Board considered the matter of appointment of (name and address of the controlling branch) as refund banker;
"NOW THREFORE IT IS RESOLVED that a bank account of the Company in the name and style of ……… EQUITY/DEBENTURE ISSUE- REFUND ACCOUNT" be opened with ……… (Name and address of controlling branch of the bank) and the said bank be and is hereby authorised to honour cheques/drafts/pay orders drawn or signed mechanically on behalf of the Company by Mr ……………… Managing director of the Company.
RESOLVED FURTHER that all
instructions concerning the above account be given, severally by any one of the
following Directors, namely, Mr ………………. and Mr . ……………… OR jointly by any two
of the following officers, narnely, Mr . ……………… Chief Executive
............................. I Financial Controller and Mr ………. Secretary of
the Company."
"RESOLVED FURTHER that refund pay orders exceeding Rs..... (Rupees ………only) be countersigned by any one of the following persons as authorised signatories namely, Mr. ………........................ Chief Executive, Mr ………………. Financial Controller and Mr ………. Secretary of the Company.
RESOLVED FURTHER THAT the
said refund orders be revalidated after the expiry of the validity period by
any two of the following persons as authorised signatories, namely Mr ……….
Chief Executive, Mr ………. Financial Controller and Mr .……… , Secretary of the
Company.
RESOLVED FURTHER THAT the Company do execute the necessary letters of indemnity with respect to payment of refund orders as may be required by the aforesaid bank and the common seal of the Company be affixed to the stamped engrossment of the letter of indemnity in the presence of any two of the following Directors, namely, Mr ………………. Mr ………. and Mr .……… ……… OR any one of the aforementioned Directors and any one of, Mr.............................. Chief Executive, Mr ………. Financial Controller and Mr ……… Secretary of the Company, who shall sign the same in token thereof."
PRACTICE NOTES
1. Despatch of Refund Orders.-The Registrars
to the Issue is entrusted with the exclusive responsibility of despatch of
refund orders, and the issuing company is required to make available in advance
to the Registrars requisite funds for despatch of refund orders. The issuing
company should also ensure that despatch of refund orders of the value of over
Rs. 1500/-is made through Registered Post only. Refund orders should be
by Account Payee Cheque drawn on Refund Bankers. Refund orders should
incorporate the Savings Bank/Current Account Number and the name of the bank
branch in which such account is held by the applicant.
2. Refund made within ten weeks.-In case
of over- subscription of issues refund of excess application money should
be made within ten weeks from the date of the closing of the subscription list
and if such refund is paid after ten weeks from the date of closing of the
subscription list, application money so refunded will be paid along with
fifteen per cent per annum.
3. Same Bank.- Usually the same
Bank or Banks are entrusted the task of handling the application money as well
as the refund.
4. Penalty for default.-If all moneys received from applicants for
shares are not deposited in a scheduled bank till the minimum subscription has
been received by the company and if it is not so received within the prescribed
time and such moneys are not returned to the applicants within the prescribed
time, every promoter, director or other person who is knowingly responsible for
such contravention will be punishable with fine of Rs. 50,0001-.
Return of Share Application Money
S. 69-Return of Share Application Money-Board Resolution
"RESOLVED that in view
of the minimum subscription not having been reached and pursuant to Section
69(5) of the Companies Act, 1956, the share application money received by the
company be refunded to the applicants and the Secretary of the Company be
directed to inform the applicants accordingly."
PRACTICE NOTES
1. Amount of minimum subscription to be mentioned in prospectus.-In
a public
issue, the prospectus will have to specify the minimum subscription. Unless
this figure is received, the company cannot proceed to allot shares. If the
Company does not receive the minimum subscription of 90% of the issued amount
including devolvement of, underwriters within 120 days from the date of opening
of the issue, the company shall forthwith refund the entire subscription amount
received.
2. Share application money to be kept in separate account.-The share application money received
by the company will have to be kept in a separate account until the minimum
subscription is received.
The requirement of section
69 being a condition precedent to listing, a conditional permission that the
company transfer the application money to a separate Bank account was held to
be refusal of permission. Goldline
Financial Services Ltd. v. Hyderabad Stock Exchange, (2001) 30 SCL 3 1.
3. Share application be refunded when minimum subscription not received
within 120 days.-If the minimum subscription is not received within 120 days of issue of the prospectus, the
share application money is to be refunded forthwith to the applicants without
interest.
4. Director liable to pay interest when money not refunded within 130
days.-If the share application money is not refunded within 130 days, the Director of the company becomes liable to pay
interest at 16% per annum. to the applicants, unless they prove that the
default was not due to misconduct or negligence on their part.
Return of Share Application money where minimum subscription not
received
S. 69-Return of money paid on application where minimum
subscription not received-Board Resolution
"RESOLVED that amount
paid on application for shares be and is hereby returned to the applicants
paying the same respectively as the minimum subscription stated in the
prospectus has not been received.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to do all such acts, deeds
and things as may be deemed necessary to give effect to this resolution."
PRACTICE NOTES
1. Requirement as to minimum subscription.-Section 69 prohibits a company from
makina allotments pursuant to a public issue of capital unless the amount
stated in the prospectus as the minimum subscription has been subscribed and
the money payable on application in respect of such shares constituting the
minimum subscription has been received by the company within 120 days.
2. SEBI Guidelines.-SEBI (Disclosure and Investor Protection) Guidelines,
2000 stipulates 90% of the total public issue and rights issue as minimum
subscription. This requirement is modified by SEBI in case of offer for sale of
securities, and also for infrastructure companies.
Allotment
of Shares (Ss. 70-75)
Allotment of a fractional share is not permissible because the share is indivisible.' The allotment of shares as fully paid-up by way of donation to a charitable trust would be invalid.
The allotment of shares by a
company to a person in lieu of a
genuine debt due to him is in perfect compliance of the provisions of section
75(l). The act of handing over cash to the allottee of shares by a company in
payment for the shares allotted to him is not necessary for treating the shares
as having been allotted for cash. What is required is to ensure that the
genuine debt payable by a company is liquidated to the extent of the value of
the shares .3 Where the shares are allotted for consideration other than cash
the original contract to-ether with a copy thereof duly verified by an
affidavit should be sent along with the return of allotment to the Registrar.
An agreement to allot shares
or an allotment of share is not a transfer of property as the company which
allots the shares is not in any sense an owner of the shares which it creates.
The agreement will, therefore, be not liable to stamp duty as a conveyance.
Where a return of allotment is made and it is
otherwise in order, the Registrar cannot inquire into the legal validity of the
matters contained in the return, such as allotment made to minors, etc.
Allotment of shares
Ss. 70-75-Allotment of Shares-Board Resolution
"RESOLVED that 10,000
equity shares of Rs. 10/- each in the capital of the company be and are
hereby allotted to the applicants as per list placed before the meeting and
initialed by the Chairman for the purposes of identification.
RESOLVED FURTHER that the
Secretary of the company be and is hereby authorised to file the return of
allotment pursuant to section 75 of the Companies Act, 1956, with the Registrar
of Companies concerned in the prescribed form.
RESOLVED FURTHER that the
share certificates for the shares allotted as aforesaid be issued to the
allottees under the signatures of Shri LMP, Managing Director, Shri LMN,
Director and Shri RPM, Secretary of the company and the common sea] of the
company be affixed on the share certificates in their presence.
RESOLVED FURTHER that a
committee of Directors comprising of Sarvashri ABC, LPO and SPM to be called
committee for allotment of shares be and is hereby constituted with powers to make
allotment of 5,00,000 equity shares of Rs. 10/- each fully paid-up
at par/or at a premium of Rs .……. in
accordance with the terms and conditions specified below and to take all such
steps and to do all such acts or things as may be necessary in that connection:
(1) Not more than 100 shares be issued to an applicant.
(2) If the applicants exceed the number of
shares available for allotment, allotment shall be made proportionately."
PRACTICE NOTES
1. Filing of prospectus or statement in lieu of prospectus with
Registrar.-Before making allotment ensure that prospectus or statement in lieu thereof has been filed with the
Registrar of Companies concerned at least three days before the date of
allotment. If a company acts in contravention of sub-section (1) and (2)
of section 70, the company and every
director of the company who willfully authorises or permits the contravention
will be punishable with fine of upto Rs. 10,000/-
2. Filing of return with Registrar.-File return of allotment in Form
No. 2 with the Registrar of Companies
concerned within thirty days of the allotment.
3. Allotment to be against cash received.-Allotment is to be made per share
against cash actually received and only shares are to be shown in the return of
allotment.
4. Allotment of fractional shares.-Allotment of a fractional share is not
permissible because the share is indivisible.'
5. Shares not to be allotted by way of gift or bonus.-Shares cannot be allotted by way of
gift or bonus to the shareholders even though there may be an agreement to this
effect between the shareholders and the company. Such an allotment would be ultra vires.
6. Allotment of shares as donation to charitable trust.-Any allotment of shares as fully
paid-up by way of donation to a charitable trust would be invalid.8
7. Allotment in lieu of
genuine debt.-The allotment of shares by a company to a person in lieu of
a genuine debt due to him is in perfect compliance of the provisions of section
75(t). The act pf handing over cash
to the allottee of shares by a company in payment for the shares allotted to
him is not necessary for treating the shares as having been allotted for cash.
What is required is to ensure that the genuine debt payable by a company Is
liquidated to the extent of the value of the shares."
8. Agreement to allot shares not transfer of property.-An agreement to allot shares or
an allotment of share is not a transfer of property as the company which allots
the shares is not in an sense an owner of the shares which it creates. The
agreement will, therefore, be not liable to stamp duty as a conveyance.
9. Filing of original contract with copy duly verified by affidavit with
Registrar-.Where the shares are allotted for consideration other than cash
the original contract together with a copy thereof duly verified by an
affidavit should be sent along with the return of allotment to the
Registrar."
10. Registrar not to enquire into legal validity of return.- Where
a return of
allotment is made and it is otherwise in order, the Registrar cannot inquire
into the legal validity of the matters contained in the return, such as
allotment made to minors, etc. 172
11. Penalty for untrue statement.-Where a statement in lieu of
prospectus delivered to the Realstrar of Companies includes any untrue statement,
any person who authorised the delivery of it for registration will be
punishable with imprisonment for a term of 2 years or with fine of up to Rs.
50,000/- or with both.
Fixation of time and date for opening and closing of subscription list
"RESOLVED that Shri
…….Managing Director of the Company be and is
hereby authorised to fix time and date of opening and closing of
Subscription List of 10,00,000. Equity shares of Rs. 10/ each pursuant to
prospectus issued by the Company on 10th May,2002.
"
PRACTICE NOTES
1. Date mentioned in the prospectus.-The time and date of opening and
closing of subscription list is required to be mentioned in the prospectus as
well as in the newspaper advertisement of the extract of the prospectus.
2. Reckonin of 5th day.-According to section 72(l) of the Act no allotment can be
made until the beginning of the fifth day after that on which the prospectus is
first issued. In reckoning the fifth day any intervening day which is a public
holiday under Negotiable Instrument Act, 1881 should be disregarded.
3. Penalty for default.-Validity of an allotment will not be
affected by any contravention of the provision of section 72 but in the event
of any such contravention, the company and every officer of the company who is
in default will be punishable with fine of upto Rs. 50,000/-.
Opening of subscription list
S. 72-0pening of subscription list-Board Resolution
"RESOLVED that the
application list for subscription of
10,00,000 equity shares of Rs. 10/- each will open on the
commencement of banking hours on the …….
2002, and will close at theclose of the banking hours on ……. the ……. or earlier at the
discretion of the company but not before the close of the banking hours on …….
the
PRACTICE NOTES
1. Public Holiday.-If the day of opening or closing of the subscription
list happens to be a public holiday then such day will be extended to the next
day which is not such a holiday.
2. Information to Stock Exchanges.-Once the day of opening and
closing of subscription list is decided, Stock Exchanges should be informed
about it.
Opening of subscription lists
S. 72-Opening of subscription lists-Board Resolution
"RESOLVED that the
application list for subscription of 10,00,000 equity shares of Rs. 5/-each
be opened on the commencement of banking hours on ……. the ……. 2002, and be
closed at the close of the banking
hours on ……. the ……. 2002, or earlier at
the discretion of the company but not before the close of banking hours on
.............. the 2002"
PRACTICE NOTES
1. In the case of public issue.-Subscription list should be kept open for
at least 3, but not more than 10, working days. The public issue made by an
infrastructure company satisfying the requirements in clause 2.4.1 (iii) of
Chapter 11 of SEBI (DIP) Guidelines, 2000 may be kept open for a maximum period
of 21 working days. The period of operation of subscription list of public
issue should be disclosed in the prospectus.
2. Allotment not to be made until beginning of fifth day or such later
time specired in prospectus.-Pursuant to the provisions of sections 72 and 74 of
the Companies Act, 1956, and subject to the terms of the agreement with the
recognised Stock Exchange with regard to listing of shares, a company offering
shares through a prospectus cannot make allotment until the beginning, of the
fifth day or the eighth day after that on which the prospectus is first so
issued or such later time, if any, as may be specified in the prospectus. Under
the listing agreement with recogmsed Stock Exchange, 'subscription list' for
shares can be kept open for a maximum period of 21 days with a condition that
it should be kept open for at least two days. Letter No. F. 2/SE/74, dated 4-10-1975 issued by the
Department of Economic Affairs.
3. Allotment to non-residents and foreigners and to foreign
companies.-Allotment to non-residents, and
foreigners (whether resident or non-resident) or to companies with 51 per
cent non-resident interest should be made with Reserve Bank's permission
whenever required.
4. Application by underwriters not necessary.-An underwriting agreement has
to be treated not merely as a guarantee but as an application for allotment of
so many shares as Would not be applied by the public, such shares can be
allotted to them. A separate application for allotment is, therefore, not
required. (Pioneer Company v. Kaithal
Cotton & General Ml'//.v Ltd., (1970) 40 Com Cases 562, 564 (P&H)). Under SEBI (DIP) Guidelines, 2000, can
underwriter is required to enter into a memorandum of understanding within the
issuer company.
Opening and closing of subscription list
S. 72-0peiling and closing of subscription list-Board
Resolution
"RESOLVED that pursuant
to the provisions of section 72 of tile Companies Act, 1956 and other
applicable provisions, if any, the
subscription list for issue of ……. shares of Rs . ……. will open at the
commencement of banking hours on ......................... the ……. 2002 and will close at the close of the
banking hours on ……. 2002 or earlier
at the discretion of the Board of Directors but not "earlier than close of
the banking hours on .........................
FURTHER RESOLVED that Sarvashri ……. And ……...................... Directors of the Company be and are hereby authorised severally to close the subscription list at the close of the banking hours on ……. the …….2002 provided the issue is subscribed fully by the said date and to extend the date of subscription list as they may deem fit and proper and to do all such acts and things as may be required in the matter."
PRACTICE' NOTES
1. Opening of subscription list.-If the first issue was by
advertisement, time will be counted from the date of the advertisement. If
there was any other kind of issue, it has to be determined as to whether such
an issue would come, within the words issue generally. If it does so, time will
be reckoned from the date of that issue. If there was also a newspaper
advertisement in addition, time will run from the date of issue of
advertisement.
2. Minimum and maximum duration
of subscription list.-The subscription list for public issue can be kept open
for a minimum period of 3 working days where and for a maximum of 10 working
days.
3. The right issues.-The right issues should be kept open for at
least 30 days and not more than 60 days.
Approval of draft letter of allotment of shares
S. 72- Approval of draft letter of allotment of shares-Board
Resolution
"RESOLVED that the
draft letter of allotment for the issue of 50,00,000 equity shares of Rs. 10/-each,
as placed before the Board and initialed by the Chairman for identification
thereof, be and is hereby approved and that such allotment letter be issued to
the applicants under the signature of the Managing Director and the Secretary
of the Company after affixing Common Seal on then in accordance with the
Articles of Association of the Company."
PRACTICE NOTES
1. Dispensing with letter of allotment.-In a big public issue giving
rise to subscription from all corners of India, there is a growing tendency to
dispense with the letter of allotment which is really an instrument which
intervenes between the application for the Subscription of shares and the issue
of shares certificates evidencing the allotment of shares.
2. Adjustment of application money.-Where any applicant is
allotted lesser number of Equity Shares than applied for, the excess
application money paid will -be adjusted towards the allotment money
payable on the Equity Shares allotted. If there is still any excess left after
the adjustment, as aforesaid, such excess will be refunded to the applicant.
3. Application to Stock Exchange before offering securities to public.-The
companies are, before making an offer of securities for subscription to the
public through a prospectus required to make an application to the stock
exchange.
4. Responsibility of
Registrars- The Registrars to the issue is entrusted with the exclusive
responsibility of matters relating to despatch of allotment advice, letters of
allotment, including providing covering letters, postal journal, payment of
consolidated stamp duty, etc.
5. Issue of Share
Certificate.- Share certificates should be issued within 3 months of the date of the
allotment as per section 113 of the Act.
6. Allotment within 30 days.-Clause 6.5.1.1 of SEBI (DIP) Guidelines requires allotment of all
securities offered to the public to be made within 30 days of the closure of
the public issue. If this is not made then the issuer company is required to
pay interest @ 15% per annum.
Allotment of shares to a single person
S. 72-Allotment of shares to a single person-Board
Resolution
"RESOLVED that 500
equity shares of Rs. 10/-each of the company distinctively numbered from
to inclusively be and are
hereby allotted to Shri …….…….
RESOLVED FURTHER that the
Secretary of the company be and is hereby authorised to file the prescribed
return of allotment with the Registrar of Companies.
RESOLVED FURTHER that share certificate No . ……. for
the shares allotted as aforesaid be issued to Shri under the signatures of Shri
……. Managing Director, Shri ……. Director and Shri ……. Secretary of the
company and the common seal of the company be affixed on the share
certificates in their presence."
PRACTICE NOTES
1. Return of allotment.-Within thirty days of making any allotment of
shares, a return of allotment in Form No. 2 should be filed with the Registrar
of Companies along with requisite fees as prescribed under Schedule X of the
Act.
2. Issue of Share Certificates.-Share Certificates for any
allotment of shares should be issued within three months of such allotment as
per section 113 of the Act. Whenever any issue results in issue of shares in
odd lots, the issuer company shall as far as possible issue certificates in the
denomination of 1-2--5-10-20-50
shares."
Allotment of shares of company in accordance with the scheme of
allotment (Another format)
S. 72- Allotment of shares-Board Resolution
"RESOLVED that
100,00,000 equity shares of Rs. 10/-each be and are hereby allotted to
the several applicants whose names and respective share allotments are given in
Register of Allotment prepared in accordance with the Scheme of allotment by
the company and approved by the Delhi Stock Exchange, submitted to this meeting
and initialed by the Chairman for identification.
RESOLVED FURTHER that
allotment advice and letters of allotment be issued to each allottee,
indicating the number of shares allotted and allotment money @ Rs. 2.50 per
share payable by each of them on or before 31st July, 2002 and that Industrial
Investment Trust Limited, Bombay, Company's Issue House, be and are hereby
authorised to issue the allotment advice and letters on behalf of the Company.
RESOLVED FURTHER that the
Secretary of the company be and is hereby directed to file the Return of
Allotment in Form No. 2 to the Companies (Central Government's) General Rules
and Forms, 1956."
PRACTICE NOTES
1. Duties of Registrars to an Issue.-Registrars to an issue is entrusted
with the activities in respect of following matters:
(i) Collection
of daily figure from bankers to the issue.
(ii) Expediting
despatch of applications, final certificate to the controlling branches.
(iii) Collection of application along with final
certificate and schedule pages from controlling branches of bankers to the
issue.
(iv) Informing
stock exchange/SEBI and providing necessary certificates to lead manager on
closure of issue.
(v) Preparing underwriter statement in the
event of under subscription and seeking extension from stock exchange for
processing
(vi) Scrutiny
of application received from bankers to issue.
(vii) Numbering
of applications and banks schedule and batching them for control purposes.
(viii) Transcribing
information from documents to magnetic media for computer processing
(ix) Reconciliation of number of applications,
securities applied and money received with final certificate received from
bank.
(x) Identify
and reject technical faults and multiple application with reference to
..........
(xi) Preparation
of inverse number.
(xii) Prepare
statement for deciding basis of allotment by the company in consultation with
the stock exchange.
(xiii) Finalising
basis of allotment after approval of the stock exchange.
(xiv) Seeking extension of time from
SEBI/Ministry of Finance (Stock Exchange Division) if allotment cannot be made
within stipulated time.
(xv) Allotment
of shares on the formula devised by stock exchange.
(xvi) Obtaining
certificate from auditors that the allotment has been made as per the basis of
allotment.
(xvii) Preparation of reverse list, list of
allottees and non-allottees as per the basis of allotment approved by
stock exchange.
(xviii) Preparation
of allotment register-cum-return statement, register of members,
index reoister.
(xix) Preparation
of list of brokers to whom brokerage is to be paid.
(xx) Printing covering letters for despatches
share certificates, for refunding application money/stock invest, printing of
allotment letter-cum-refund order.
(xxi) Printing
postal journal for despatching share certificates or allotment letters and
refund orders by registered post.
(xxii) Printing
distribution schedule for submission to stock exchange.
(xxiii) Preparing
share certificates on the computer.
(xxiv) Preparing
register of members and specimen signature cards.
(xxv) Arranging
share certificates in batches for signing by authorised signatories.
(xxvi) Trimming
share certificates and affixing common seal of the company.
(xxvii) Attaching share certificates to covering
letters.
(xxviii) Mailing of documents by registered post.
(xxix) Binding
of application forms, application schedule and computer outputs.
(xxx) Payment of consolidated stamp duty on
allotment letters/share or debenture certificates or procuring and affixing
stamp of appropriate value.
(xxxi) Issuing call notices for allotment money to
allottees.
(xxxii) Issue of duplicate refund order.
(xxxiii) Revalidation of refund orders.
2. Stock
Invest.-In case of stock invest the Registrars to an issue should do the following
(i) Segregation
of stock invest from application and safe custody thereof.
(ii) Preparation
of separate schedule/list of stock invest application.
(iii) Filling of right hand portion of stock
invest in respect of allottees.
(iv) Lodging stock invest with computerised stock invest statement
to collecting banks.
(v) Cancellation of stock invest in case of non-allottees.
(vi) Printing of covering letters and despatching of cancelled
stock invest to nonallottees.
3. Filing of Return of Allotment with Registrar of Companies.-The Return of Allotment is to be filed in Form No. 2 to the Companies
(Central Government's) General Rules and Forms, 1956 by Companies having share
capital and which make allotment of shares.
4. No return of allotment of shares taken by subscribers to Memorandum.-In
the case of
shares taken by the subscribers to the Memorandum of Association, no return of
allotment is to be filed.
5. Shares allotted within one month can be included in one return.-Allotment
of shares
made within the period of one month, can be included in one return.
6. Power of Registrar to extend time.-The Registrar of Companies has
now been empowered to extend the period by thirty days for filing the return on
an application made in that behalf whether before or after the expiry of the
period of thirty days prescribed.
7. Shares not to be allotted in name of firm or trusts.-Shares should
not be allotted in the name of firm or trusts. However shares can be allotted
to individual trustees. In other words, shares can be allotted to individual,
companies and associations which are registered.
8. Where cash not received allotment cannot be shown for cash.-Where cash
has not actually been received in respect of any allotment, such allotment can
not be shown as having been made for cash.
9. Allotment of fully paid shares to minor through natural guardian.-
Shares
can be allotted to a minor through natural guardian provided they are fully
paid-up.
10. No return of allotment in case of forfeited
shares.-No return of allotment is to be filed for
allotment of shares forfeited by the company under the provisions of its
articles for non-payment of calls.
11. Allotment of shares otherwise than in cash.-In
case of shares allotted as fully or partly paid-up otherwise than in
cash contracts duly stamped are to be produced before the Registrar of
Companies and a copy duly verified is to be filed with the Registrar. It is to
be verified by an affidavit on a stamp paper and is to be signed by a
responsible officer of the company stating therein that the copy is a true copy
of the contract.
12. Agreement to allot shares not liable to stamp duty.-To
allot shares is not liable to stamp duty as a conveyance.
13. Form No. 3 to be stamped if contract reduced in writing.-Form No. 3 should be stamped with the same stamp duty as would have been payable if the contract had been reduced to writing. In case the contract is not in writing then Form 3 indicating therein the particulars prescribed is to be filed with the Registrar within thirty days of allotment. The contract is to be dated either earlier to the date of allotment or is to be dated on the date of allotment. A contract which is dated after the date of allotment shall be an invalid contract.
14. Allotment to nominees.-In case where shares
are allotted to the nominee(s) of the parties to the contract in pursuance of
any letter received by the company, copies of such letters are to be filed duly
verified by an affidavit by a responsible officer of the company.
15. Allotment of shares at discount/bonus.-The same form is to be filed when shares are allotted at a discount or
bonus shares are issued. Where shares are allotted at a discount, a copy of the
resolution authorising such issue together with copy of the order of the
Company Law Board sanctioning the issue and where the discount exceeds ten per
cent, the order of the Central Government should also be filed along with the
return.
16. Resolution to be attached with return in case of bonus issue.-In
the case of bonus issue a copy of the resolution is also to be attached
with the return.
17. No allotment of shares unless minimum subscription received.-Section 69 prohibits a company from making allotments pursuant to a public
issue of capital unless the amount stated in the prospectus as the minimum
subscription has been subscribed and the money payable on application in
respect of such shares constituting the minimum subscription has been received
by the company within 120 days.
18. SEBI (DIP) Guidelines, 2000 and minimum subscription.-If
the company does not receive the minimum subscription amount of 90% of the
issued amount on the date of closure of the issue in a non-underwritten
public issue, or if the subscription level falls below 90% after the closure of
issue on account of cheques having being returned unpaid or withdrawal of
applications, the company shall forthwith refund the entire subscription amount
received. In case of underwritten public issues, if a company does not receive
the minimum subscription of 90% of the net offer to public including devolvement
of underwriters within 60 days from the date of closure of the issue, the
company shall forthwith refund the entire subscription amount received. In both
the above cases, if there is delay beyond 8 days after the company becomes
liable to pay the amount, the company shall pay interest as per section 73 of
the Companies Act, 1956. This requirement of minimum subscription of 90% need
not be adhered to in case of offer for sale of securities. The requirement of
90% subscription for issue of capital by an infrastructure company shall not be
mandatory, if disclosures are made in the prospectus regal-ding the
alternate source of funding.
19. Allotment of shares in lieu of genuine debt.-Allotment of shares to a person in lieu
of a genuine debt due to him is in perfect compliance of provisions of
section 75(l). (Letter No. 8/32/(75)/CL-V, dated 13th March, 1978).
20. No allotment of fractional shares.-Fractional shares
cannot be allotted as the shares are indivisible.
21. Allotment of shares by way of donation not valid.-Allotment of fully paid shares by way of donation to a charitable trust is
not valid allotment in law. (Circulat-
No. 8150(77)165-CL-V, dated 10th August, 1965).
NRI-Subscription
to the Memorandum and Articles of
Association of
Indian Companies
In order to facilitate
formation of new companies, the Reserve Bank of India (RBI) has granted general
permission to allow NRIs to subscribe to memorandum and articles of association
of new companies as per Notification No. FEMA 20/2000 RB dated 3-5-2000
given under section 6 read with section 47 of the FEMA Act, 1999.
Under the said notification
the NRI can subscribe to the memorandum of association and articles of
association and take up shares of a company for the purpose of incorporation of
such company in India and the company to issue shares to such non-resident
provided that:
1. The
total face value of the shares to be taken up by NRI in the company does not
exceed Rs. 10,000/-.
2. Such a company has obtained a letter of
intent/industrial licence/certificate of registration from the Government of
India, Ministry of Industry/Director General of Technical Development or any
other Central/State Government authority for undertaking its industrial
activity in India.
3. The memorandum of association of such a
company does not permit the company to take up any agricultural/plantation
activity and/or undertake real estate business, i.e., dealing in land and immovable property for commercial
purposes with a view to making profits or derive income therefrom.
4. Such company files a declaration with
the RBI in such form as may be required not later than ninety days from the
date of its incorporation giving full particulars of the shares acquired by
NRI.
An Indian company availing
of general permission is required to file a declaration with RBI in Form DIN
not later than 90 days from the date of its incorporation, giving full
particulars of the shares acquired by NRI.
The eligibility of
repatriation outside India of the capital invested in the shares purchased in
terms of this notification and any income accrued thereon as also of any
further investments to be made by non-resident in the shares of such
company will be decided by the RBI, while granting permission under section
19(l)(d) of FERA for issue of further shares to NRIs.
Deposits
with Public Limited Companies
NRIs and OCBs can place
funds in fixed deposits of Indian public limited companies including Government
undertakings on repatriation basis provided the deposits are made out of
remittances from abroad or from their NRE/FCNR account in Indian banks. Such
deposits can be accepted by the public limited companies within the limits
prescribed under the Companies (Acceptance of Deposits) Rules, 1975 and subject
to further limits and conditions as may be prescribed by the RBI as per FEMA
(Deposit Regulations) 2000 as amended by Notification No. FEMA 52/RB-2002
dated 1st March, 2002. Such deposits, should be for a period of 3
years and have to be designated in Indian rupees.
The deposits can also be accepted
on non-repatriation basis subject to the limits prescribed in rules and
conditions laid down by RBI. Deposits on non-repatriation basis can be
made from NRO account.
The application for
permission to accept deposits from non-residents with repatriation rights
may be made by the Indian company through its bankers to the concerned office
of Reserve Bank under whose jurisdiction its Head/Registered Office is
situated, giving details of the deposit scheme. It is not necessary for non-resident
depositors to seek separate permission from Reserve Bank in this regard.
Reserve Bank will grant permission to the bank branch nominated by the company
for accepting deposits. While granting permission, Reserve Bank will authorise
the branch to allow remittance of interest and maturity proceeds of deposits or
credit thereof to the depositor's NRE/FCNR account.
In cases where the shares
are acquired in joint names, the first holder is treated as investor for the
purpose of operating the limit of one per cent of paid-up capital of the
company. The second or third holder is eligible to invest in the
shares/debentures of the same company separately up to I per cent of its paid-up
capital in their own respective names as the first holder in joint holdings
provided they are purchased in his sole name or as first holder in the case of
joint holding.
In some cases, NRIs may like
(for reasons of succession, survivorship, etc.) to hold~ shares jointly with
their close relatives resident in India. RBI
will permit such joint holdings with repatriation benefits, provided that
(i) the investment is made by sending
remittances from abroad or out of funds held in the overseas investor's
NRE/FCNR account;
(ii) the
first holder of the shares is an NRI who actually makes the investment out of
his own funds; and
(iii) the
resident holder is closely related to the non-resident investor.
Remittances/repatriation of capital/dividend will be allowed only to the non-resident investor, i.e., the first holder. In the event of the resident joint holder inheriting shares, he/she will not be entitled to repatriation benefits.
Investments without repatriation benefits can be
divided into the following categories:
1. Investments
in units of Unit Trust of India and Government securities,
2. Investments
in proprietary/partnership concerns,
3. Direct
investment in new issues of Indian companies,
4. Investments
in shares/debentures of companies through stock exchange (Portfolio
investment),
5. Investments
in shares of Indian companies by private arrangement,
6. Investment
upto 100% of new issues of Indian companies,
7. Investment
in commercial paper issued by Indian companies.
Investments in proprietary/partnership
concerns
RBI has granted general permission
(i) to NRIs and OCBs to invest on non-repatriation
basis by way of capital contribution in any proprietary or partnership concern
in India engaged in any industrial, commercial or trading activity and such
NRIs and OCBs and Indian concerns to carry on the above mentioned activities in
India;
(ii) to any proprietary or partnership
concern in India to place to the credit of or make payment to or for the credit
of any NRI or OCB any sum invested by such NRI or OCB in that proprietary or
partnership concern or the income accruing to such person by way of profit on
his investments.
The aforesaid general
permission is subject to fulfillment of the following conditions:
(a) the amount invested is received from NRI
or OCB investor either by remittances from abroad through normal banking
channels or by transfer of funds held in investor's NRE/FCNR/NRO account
maintained with banks;
(b) the proprietary or partnership concern
or the NRI or OCB is not engaged in India in any agricultural/plantation
activity or real estate business, i.e., dealing
in land and immovable property with a view to earning profit or earning income
there from;
(c) the amount invested and the income
accruing on such investment is not eligible for repatriation to any place
outside India and is payable only in non-repatriable Indian rupees;
(d) a declaration in form DIN giving the
particulars of the amount invested is to be filed by the proprietary or
partnership concern with the Regional Office of the RBI in whose jurisdiction
the proprietary or partnership concern is situated within a period of ninety
days from the date of receipt of investment.
Direct
investment in new issues of Indian companies
General permission has been
granted to NRIs and OCBs to take up or subscribe to, on non-repatriation
basis, shares or convertible debentures issued, whether by public issue or
private placement, by a company incorporated in India; and to a company
incorporated in India to issue shares/convertible debentures to NRIs/OCBs by
way of new/right/bonus issue and to export share/debentures certificates to
such NRIs/ OCBs.
The general permission is
subject to the following conditions:
(a) the investee company does not carry on
agricultural/plantation activities and/or real estate business (excluding real
estate development i.e., development of property and construction of houses);
(b) the payment from the shares or
convertible debentures issued to such NRIs and OCBs is received by remittances
from abroad through normal banking channels or by transfer of funds held in
investor's NREIFCNR/NRO account maintained with banks authorised to deal in
foreign exchange in India or authorised cooperative/commercial banks in India;
(c) neither the capital invested nor any
income arising therefrom whether by way of capital appreciation or dividend or
otherwise is eligible for repatriation out of India at any time;
(d) all dividend/interest accruals and sale
proceeds of shares/convertible debentures (if sold in future) with permission
of RBI, wherever necessary, will be credited to the investor's NRO rupee
account with a bank authorised to deal in foreign exchange in India;
(e) the necessary approval of SEBI, if required;
(f) the company issuing the shares or
convertible debentures files a declaration, not later than ninety days from the
date of issue, with the Regional Office of the RBI in whose jurisdiction the
proprietary or partnership concern is situated in form DIN together with the
requisite documents. The companies may also obtain the undertaking about non-repatriation
of capital/income from the investors and send a confirmation to that effect to
RBI while filing the declaration in form DIN. Where shares or convertible
debentures are issued to an OCB, a certificate in the form specified (OAC/ OAC
1) issued by an overseas auditor, chartered accountant or certified Public
Accountant, showing the ownership of such OCB should be filed with RBI along
with the declaration.
It will be in order for
companies in India to issue shares (both equity and preference) or convertible
debentures to NRIs/OCBs, on no n- repatriation basis by way of new,
rights or bonus issue without prior permission of RBI, provided the conditions
mentioned in the above paragraph are satisfied.
Dividend/interest due to the
non-resident shareholder on share/convertible debentures may also be
credited by the company concerned to the non-resident investor's NRO
account maintained with a bank in India.
As a result of the general
permissions granted by RBI, authorised dealers and authorised co-operative/commercial
banks may permit withdrawal of funds from NRE/FCNR/NRO accounts for making the
proposed investments. Authorised dealers or authorised co-operative/commercial
banks may also credit the profit or dividend/interest to the non-resident
investor's NRO account without prior approval of RBI.
Proposal for investment in
non-convertible debentures of Indian Companies by NRIs or OCBs on non-repatriation
basis will be considered by Reserve Bank on case to case basis and applications
for that purpose must be made by Indian companies concerned in from ISD.
Investments
in shares/debentures of companies through Stock
Exchange
NRIs are freely permitted to invest in shares and debentures of Indian companies through recoanised stock exchanges in India. From 7th August, 1998, Central Government has allowed NRI/OCB/PIO to invest in unlisted companies under the portfolio investment scheme. However, such investments will have individual investment limits of 101/v of the total paid up equity capital of the company concerned or total paid lip value of each series of convertible debentures both on repatriation and on non-repatriation basis, by all non-resident Indians are subject to on overall ceiling of 24% of the total paid up equity capital of the company or 24% of the total paid-up value of each series of convertible debentures, as the case may be.
The permission is subject to the following
conditions:
(a) A general body resolution is required
for permitting NRIs/OCBs to acquire shares/debentures of a company through
stock exchanges in India under portfolio investment scheme. The limit of 24%
applies to total purchases of equity shares and convertible debentures through
stock exchanges both on repatriation and non-repatriation basis and is
monitored through the link offices in Bombay of the designated banks. No such
limit has been prescribed for preference shares/non-convertible
debentures of Indian companies and Mastershares of UTI which can be purchased
without any limit as to quantum and value of investment.
(b) Payments for such investments may be
made either by remittance from abroad or from the credit balance in the
investor's NRE, FCNR or NRO account.
Investment
in shares of Indian companies by private arrangement.
In terms of paragraph IOC.2
read with IOD.2 of Foreign Exchange
Management Manual (FEMM), NRIs or OCBs may make direct investments in shares of
Indian companies on non-repatriation or on repatriation basis without any
limit issued whether by public issue or private placement or right issue. For
this purpose, NRIs or OCBs have to make an application to RBI in Form NRI or
NRC in case of non-repatriation and Form RPC or RPI in case of
repatriation and submit the same to the office of RBI under whose jurisdiction
the company's head/registered office is situated. Such permission shall also be
deemed to be approval under section 6 read with section 47 of FEMA for
transfer/registration of the shares in the name of the NRI.
Investment
upto 100% of new issue in Indian companies
With a view to providing
further incentives to NRIs and OCBs for making investments in Indian, existing
or new companies engaged/proposing to engage in the following activities are permitted
to issue shares/convertible debentures to NRIs/OCBs on nonrepatriation basis
upto 100 per cent of the new issue:
(i) financing
of housing development;
(ii) real
estate development i.e., development
of property and construction of houses;
(iii) infrastructure
areas such as construction of roads, bridges, etc.;
(iv) development
of township;
(v) development of serviced
plots and construction of built up residential premises; and
(vi) manufacturing of building materials.
Repatriation of original investment
in this case is permitted by RBI only after a lock-inperiod of 3 years
from the date of issue of the equity shares or convertible debentures.
Applications for this purpose should be made to the Central Office of RBI in
form ISD(R).
Investment
in Commercial Paper (CP) issued by Indian companies
NRIs are freely permitted to
invest in commercial paper (CP) issued by Indian companies on non-repatriation
basis on the following terms and conditions:
(i) Payment for such investment is received
only by remittance from abroad or out of funds held in investor's NRE/FCNR/NRO
accounts.
(ii) The maturity proceeds of CP is creditable to the NRO account
of the investor, with a bank in India.
(iii) The Indian company has to submit a
statement in form ICP countersigned by the concerned bank within a period of 10
days of the closing of the subscription lift to the concerned office of
RBI(ECD).
OCBs are not permitted to invest in CPs.
Investments
with repatriation benefits
Investments with repatriation benefits can be
divided into the following categories:
1. Investments in units of Unit Trust of India and Government securities.
2. Portfolio investment in shares and debentures.
3. Investment in Indian companies under 100% scheme.
4. Investments in Indian companies
under 40% scheme.
Investments
in units of Unit Trust of India (UTI) and Government securities
General permission has been
granted to NRIs for purchase of units of Unit Trust of India, securities of
Central/State Government and National Plan/Savings Certificates without any
limit as to the amount of investments on repatriation as well as without
repatriation benefits, if these are purchased out of remittances from abroad
through approved banking channels or, by withdrawals from their NRE/FCNR accounts
with banks in India. Dividend/interest income on such investments and
sale/maturity proceeds of such securities can be remitted outside India or
credited into NRE/FCNR accounts of NRIs in Indian banks if permission is
granted by RBI. If investment is made out of an NRO account, repatriation is
not allowed.
National Savings
Certificates (VII Issue) purchased against foreign exchange are provided with
1% additional interest.
NRIs are also allowed to
invest in bonds issued by public sector undertakings and in mutual funds set up
by public sector financial institutions and banks on repatriation basis,
provided the concerned undertaking, institution or bank has obtained permission
from RBI for investments by NRIs.
Portfolio investment in Shares and Debentures
NRIs and OCBs are allowed to
make portfolio investments in shares (equity and preference) and debentures
(convertible and non-convertible) quoted on stock exchange in
India with full benefits of
repatriation of capital invested and income earned thereon provided the
following conditions are satisfied:
1. The shares or convertible debentures
are purchased through a recognised stock exchange, in India at the rates
prevailing on the floor of the stock exchange.
2. The purchase of equity
shares/preference shares or convertible debentures in any listed/unlisted
Indian company by any single non-resident or investor does not exceed 5%
of the total paid-up equity or preference capital/convertible debentures
of the company or 5% of the total paid-up value of each series of
convertible debentures by it.
3. The overall ceiling for total
investment by NRI is 24% of the total paid-up equity capital of the
company concerned and 24% of the
total paid up value of each series of convertible debentures, as the case may be.
A general body resolution is, however, required for permitting NRIs/OCBs to
acquire shares/debentures of such a company through stock exchanges in India
under portfolio investment scheme upto 24%. The limit of 24% applies to total
purchases of equity shares and convertible debentures through stock exchanges
both on repatriation and non-repatriation basis.
4 Payment for such investment
is made either by fresh remittances from abroad or out of funds held in the
investor's NRE/FCNR account with a bank in India.
If an NRI or OCB has already
acquired shares in a particular company with repatriation benefits under any of
the schemes to the full extent of the permissible limit of 5%, he will not be
eligible to acquire any further shares in that company through stock exchanges
with repatriation benefits. If he desires to acquire further shares, he may do
so on nonrepatriation basis, subject to the overall ceiling of 24%.
Earlier for investment by
NRIs/OCBs in new issue of shares/convertible debentures of Indian Companies
under the 24% scheme with
repatriation benefit an application was required to be made by Indian Companies
in Form ISD to the Central Office of the RBI. With effect from 27th October,
1998 such an application is no longer required to be made to the RBI as it has
granted general permission. Consequently
the Indian Companies seeking NRI/OCB investment under 24% scheme will not hereafter require approval from the RBI and
Indian Companies satisfying the conditions laid-down in the aforesaid
notification may issue shares/convertible debentures to NRIs/OCBs and file a
declaration together with the required documents to the concerned Regional
Office of the RBI within 30 days from the date of issue of shares/convertible
debentures to NRIs/OCBs.
In addition to the aforesaid
declaration Indian companies are also required to furnish to the regional
office of the RBI a report within 30 days from the date of receipt of
remittance containing the following particulars:
(a) Name(s) of the foreign investor(s);
(b) Country of residence or incorporation of the foreign
investor(s)
(c) Amount and date of receipt of remittance and its rupee
equivalent.
(d) Name and address of the authorised dealer in India through
whom the remittance has been received.
(e) In case where the investment has been approved by SIA/FIPB,
the number and date of such approval.
AD (MA Series) Circular No.
2 dated 8-1-1999 issued by the RBI Exchange Control Department.
Portfolio investment by NRIs
in non-convertible debentures of Indian companies and Master shares of
UTI through stock exchanges is allowed with full benefits of repatriation of
capital and income earned thereon without any monetary or quantitative limit on
the investment. It is, however, necessary for them to retain Master shares for
a minimum period of I year from the date of their registration with UTI.
Press Note dated 11th
June, 1998 issued by the Department of Economic Affairs, Foreign Trade and
Investment Division enhanced individual and aggregate portfolio investment by
NRIs/PIOs/OCBs from 1% to 5% and the aggregate limit for all of them, from 5%
to 10% of the paid-up equity capital made through Stock Exchanges under
portfolio investment scheme. These limits were part of the aggregate ceiling of
24% for all FIIs/NRIs/P1Os/OCBs in the paid-up capital of a company which
were allowed to be raised to 30% by Board/general body resolution.
In order to provide a
greater margin of flexibility for NRI/PIO/OCB investment, Press Note dated 22nd
June, 1998 made individual and aggregate ceiling for portfolio investment by
NRIs/P1Os/OCBs exclusive of aggregate portfolio investment ceiling for FIIs.
The NRI/PIO/OCB aggregate portfolio investment ceilin would now on be 10% of
tile paid-up equity capital of a company and FII investment would
continue to be subject to a separate aggregate ceiling of 24% / 30% of the paid-up
equity capital of a company.
By Press Note dated 7th
August, 1998 issued by PIB, Government has permitted NRIs/PIOs/OCBs to invest
in unlisted companies under the portfolio investment scheme in conformity with
the norms and approval procedures applicable to portfolio investment in listed
companies under the scheme. This will be subject to the same individual and
aggregate investment limits applicable to investments in listed companies as
mentioned above.
Investment
in new issues of Indian companies under 40% Scheme
NRIs/OCBs are permitted
under this scheme to make investment on repatriation basis upto 40% in the new
issue of shares both equity and preference or convertible debentures of any new
or existing company raising capital through public issue by prospectus. The
investment could be made only in the companies raising capital for setting up
new industrial or manufacturing units or for the expansion or diversification
of existing industrial or manufacturing activities.
Investment under this scheme
could be made in new or existing companies engaged in the following areas of
activity:
(a) industrial/manufacturing activity
(b) Hospitals (including diagnostic centres)
(c) Hotels with 3, 4 or 5 star rating
(d) Shipping
(e) Development of computer software
(f) Oil exploration services.
In case of a new issue by a
public limited company other than through prospectus, upto 40% of the new
capital issue can be earmarked for NRI subject to a monetary ceiling of Rs. 40
lacs. No monetary ceiling was prescribed for new issues of companies.
Investment under this scheme could be made by fresh remittance of foreign
exchanges from abroad or out of the balance held in the investor's NRE/FCNR
accounts.
Earlier for investment by
NRIs/OCBs in new issue of shares/convertible debentures of Indian Companies
under the 40% scheme with repatriation benefit a application was required to be
made by Indian Companies in Form ISD to the Central Office of the RBI. With effect from 27th October,
1998 such an application is no longer required to be made to the RBI as it has
granted general permission vide its notification dated 3rd October, 1998,
Consequently the Indian Companies seeking NRI/OCB investment under 40% scheme
will not hereafter require approval from the RBI and Indian Companies
satisfying the conditions laid-down in the aforesaid notification may
issue shares/convertible debentures to NRIs/OCBs and file a declaration in Form
ISD together with the required documents to the concerned Regional Office of
the RBI within 30 days from the date of issue of shares/convertible debentures
to NRIs/OCBs.
In addition to the aforesaid
declaration Indian companies are also required to furnish to the regional
office of the RBI a report within 30 days from the date of receipt of
remittance containing the following particulars:
(a) Name(s) of the foreign investor(s);
(b) Country of residence or incorporation of the foreign
investor(s)
(c) Amount and date of receipt of remittance and its rupee
equivalent.
(d) Name and address of the authorised dealer in India through
whom the remittance has been received.
(e) In case where the investment has been approved by SIA/FIPB,
the number and date of such approval.
AD (MA Series) Circular No.
2 dated 8-1-1999 issued by the RBI Exchange Control Department.
Investments
in new issues of companies under 74% Scheme
Under this scheme, NRIs/OCBs
could invest in certain priority industries in India with repatriation benefits
upto 74% in the new issues of shares or convertible debentures of any new or
existing company raising capital from the public through prospectus. Investment
was also allowed in any other industry provided the investor undertook to
export 60% of the output, or, in the case of industries reserved for the small
scale sector, 75% of the Output. The investment under this scheme was also
permitted in the case of a hospital project as also a hotel project with 3, 4
or 5 star category. Investments under this scheme could be made either by fresh
remittance of foreign exchange from abroad or out of the balance held in the
investor's NRE/FCNR accounts.
Investments in new
issues of companies under 100% Scheme investments in high priority industries
With a view to further
liberallsing the policy of for investment by NRIs/OCBs, RBI has permitted
NRIs/OCBs to invest with full repatriation benefits upto 100% of the issue of
equity capital or convertible debentures of a private/public limited company
engaged or proposing to engage in high priority industries without requiring
them to obtain prior approval of Government of India, provided
(i) the contribution towards investment in
equity shares/convertible debentures are received by remittance from abroad or
from the investors' NREIFCNR accounts and covers the foreign exchange
requirement for import of capital goods. The plant and machinery proposed to be
imported must be new and not second hand;
(ii) the outflow on account of
dividend/interest payments is balanced by export earnings over a period of 7
years from the commencement of commercial production i.e., remittance of dividends will have to be covered by the export
realisations of the company from export of items, made in years prior to
payment of dividend or in the year of payment of dividend. This condition has
been subsequently withdrawn for all industries except IS industries engaged in
the consumer goods sector;
(iii) the proposed project is not located
within 25 kms. from the periphery of the standard urban limits of a city having
a population of more than 10 lakhs according to the 1991 census.
The above facility will be
available for new investments and for expansion and diversification of existing
industrial undertakings. Investment by individual NRIs in partnership firms in
India will also be considered.
Investments
in other industries
NRIs/OCBs are permitted to
invest upto 100% equity with full repatriation benefits in the following
(i) All the 35 industries given in Annexure III to Press Note
No. 10 (1992 series) dated 24-6-1992;
(ii) All the industries and items given in the Annexure to Press
Note No.2 (1997 series) dated 17-1-1997;
(iii) All the industries and items given in the
Annexure to Press Note No. 14 (1997 series) dated 8-10-1997 as
updated by Press Note No. 2 (1998 series) dated 136-1998, Press Note No.
15 (1998 series) dated 17-10-1998 and Press Note No. 1 (1999
series) dated 4-1-1999.
Investments in India by NRIs or P10s or OCBs
"RESOLVED that subject
to the approval of the Reserve Bank of India and/or Central Government under
the Foreign Exchange Management Act, 1999 and subject to such other approvals,
permissions and sanctions as may be considered necessary and subject to the
applicable provisions, if any, of the Companies Act, 1956, and subject to such
conditions as may be prescribed by any of the authorities while granting such
approvals/permissions/sanctions, and further subject to the approval of the
company at a General Meeting the Board of Directors of the Company (hereinafter
referred to as "the Board") be and is hereby authorised to allow
Foreign Institutional Investors (FIls), NonResident Indians (NRls), Persons of
Indian origin (PlOs) and Overseas Corporate Bodies predominantly owned by NRIs
(OCBs) to acquire Share s/Debenture s of the Company through direct subscription
or through Stock Exchanges in India under Portfolio Investment Scheme, and/or
in accordance with other permissible modes subject to the following conditions:
(i) the total purchases by NRIs/OCBs both
on repatriation and nonrepatriation basis be within the overall ceiling limit
of:
(a) 24% of the paid-up
Equity Capital of the company;
(b) 24% of the
total paid-up value of each series of convertible debentures of the
company;
(ii) the total purchases by FIIs both on
repatriation and non repatriation basis be within the overall ceiling, limit of
24% of the paid up equity capital of the company to be enhanced up to 30%
subject to passing of a special resolution by the general body or 24% of the
total paid up value of each series of convertible debenture of the company.
(iii) investment made on repatriation basis by
any single Non Resident Investor in the equity/preference shares and
convertible debentures of the company should not exceed 10% of the total paid-up
equity or preference capital of the company or 10% of the total paid-up
value of each series of convertible debentures of the company.
RESOLVED FURTHER that the
Board of Directors of the company be and is hereby authorised to do all such
acts, deeds, matters and things and to execute such documents or writings as
may be necessary, proper or expedient for the purpose of giving effect to this
resolution and for matters connected therewith or incidental or ancillary
thereto."
RESOLVED FURTHER that the
Secretary be directed to convene an Extraordinary General Meeting for this
purpose and issue the notices along with the relevant explanatory statement as
per drafts placed before the meeting and approved.
PRACTICE NOTES
1. General permission by RBI.-For foreign
investment made, by Non-Resident Indians and Other Corporate Bodies
promoted by NRI on non-repatriable basis, RBI has Given general
permission under FEMA.
2. Company's duty to file a return.-For
foreign
Investment made by NRI's, PlOs and OCB's on non-repatriable basis a
return is to be filed with the 1~egional Office of the RBI within ninety days
of such investment.
Investment
by NRI in sick industrial units
In order to further
liberalise the existing facilities and at the same time encourage the NRIs and
OCBs to participate in the revival of sick units, Government has decided to
permit NRI and OCB investment on repatriation basis in existing sick companies
and have accordingly, laid down the following guidelines:
1. Bulk investment by NRIs and OCBs on private placement basis
would be allowed in sick companies.
2. A company will be considered sick only
if a public financial institution or a consortium is already formulating a plan
for its rehabilitation/revival or the company is consistently showing losses
for the last three years and the market price of the shares is below par for
two years and the public financial institutions/banks are satisfied in this
regard.
3. The bulk investment by the NRIs and
OCBs can be either in the form of sale of shares to them from existing
shareholders or by issue of fresh equity capital.
4. Investment on repatriation basis up to
100% of the equity capital of the company can be permitted provided a request
is made by the Indian company and supported by a special resolution from the
shareholders.
5. Repatriation of original capital
brought into India for a sick company will be permitted after a minimum period
of five years. The clearance will be given on a case-by-case
examination and the future payment liabilities would be specially taken into
account while processing these cases.
6. RBI will adopt normal procedures to satisfy itself that
intending NRI or OCB investors are non-residents of Indian origin or
corporate entities which are predominantly owned by NRIs.
Application for permission for issue or transfer of equity shares to NRIs or OCBs should be made by the concerned sick company in form RSU to the Central Office of RBI together with the particulars and documents specified in the said application form.
The general pet-mission by RBI enables FIN to:
1. Sell
and reallse capital gains on investments made through initial corpus remitted
to India.
2. Subscribe/renounce
right offerings of shares.
3. Invest
on all recognised stock exchanges through a designated bank branch.
4. Appoint
a domestic custodian for custody of investments made in India.
5. Open foreign currency denominated
accounts in designated bank. (There can be more than one account in the same
branch of the bank, each designated in different foreign currencies, if it is
so required by FIIs for operational purposes).
6. Open special non-resident rupee
account to which could be credited all receipts from capital inflow, sales
proceeds of shares, dividends and interests.
7. Transfer sums from foreign currency account to rupee account
and vice versa at the market rates of
exchange.
8. Make investments in securities of Indian companies out of
the balances in the rupee account.
9. Transfer repatriable (after tax) proceeds from rupee
account(s) to the foreign currency account(s).
10. Repatriate the capital, capital gains,
dividends, interest income, compensation received towards sale/renouncement of
right offerings of shares, subject to the designated branch of a bank the
custodian being authorised to deduct withholding, tax on capital gains, and to
pay such tax and remitting the nett proceeds at the market rates of exchange.
11. Realster FII's holdings without any further clearance under
FEMA.
No
lock-in-period for investment by FII
There is no lock-in-period for investment by FIL This is in sharp contrast to the guide lines for investment made on repatriation basis. However, the withholding tax of 65% which was since reduced to 30% in the 1993-94 budget on short-term capital gains will act as a strong deterrent to realising of short-term gains by FIIs. Thus, there is an indirect lock-in-period of one year.
Disinvestment will be allowed by FIN only through stock exchanges in India, including the OTC exchange. In exceptional cases, private arrangements for sales may be permitted by SEBI, provided the sale price is not significantly different from stock market quotations, where available.
(i) Income received in respect of securities 10%
(ii) Income by way of long-term capital gains arising 10% from transfer of securities held for more
than 12
months
(iii) Income by way of short term capital gains
arising 30% from transfer of securities not held for 12 months
The rates of income-tax as aforesaid will apply on the gross income without allowing any deduction under sections 29-44C, 57 and Chapter VIA of the Income-tax Act.
The tax will be deducted at source.