Capital Issues/Debentures/SEBL/Listing-Certain special notes on Capital Issues/ Prospectus/Promoters/Underwriters/Share-Debentures/ Pricing/ Lock- in-period/Listed Co/Unlisted Co. etc.

SEBI (Disclosure and Investor Protection) Guidelines, 2000 relates to public issue of capital and has classified companies into the following categories for the purpose:

(A) Public issue by unlisted companies with track record of distributable profits for a specified period and a specified pre issue net worth;

(B) Public issue of unlisted companies not satisfying the above requirements;

(A) and (B) Issue by Unlisted Companies

1. Public issue by unlisted companies.-No unlisted company shall make a public issue of any equity shares or any security convertible at a later date into equity shares unless the company has a track record of distributable profits in terms of section 205 of the Companies Act, 1956 for at least 3 out of immediately preceding 5 years and a pre-issue net-worth of not less than Rs. 1 crore in 3 out of preceding 5 years with the minimum networth to be met during immediately preceding 2 years. An unlisted company which does not satisfy the requirements specified above can make a public issue of equity share capital or any security convertible at later date into equity share capital only through the book building process or if its proposed issue size exceeds 5 times its pre issue net worth as per the last available audited accounts either at the time of filing draft offer document with the Board or at the time of opening of issue provided that 60% of the issue size should be allotted to the qualified Institutional Buyers failing which the full subscription monies should be refunded. None of the above requirements will be applicable in case of a banking company including a Local Area Bank which has received a license from the RBI or a corresponding new bank set up under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980, State Bank of India Act 1955 and State Bank of India (Subsidiary Banks) Act, 1959, an infrastructure Company whose a public financial institution or infrastructure development finance corporation or infrastructure leasing and finance services Ltd., has appraised the project to be financed through the proposed offer to the public and not less than 5% of the project cost is financed by any of the abovementioned institutions jointly or severally irrespective of whether they appraise the project or not by way of loan, equity participation in the issue of security in the proposed issue or combination of any of them.

2. Pricing.- An unlisted company eligible to make a public issue and desirous of getting its securities listed on a recognised stock exchange pursuant to a public issue, may freely price its equity shares or any securities convertible at later date into equity shares.

3. Draft Prospectus.-The draft of the prospectus is to be filed with SEBI for at least 21 days before filing with the Registrar of Companies concerned, along with Due Diligence Certificate and Inter se Allocation of Responsibilities Certificate signed by Lead Managers.

4. Passing of Special Resolution.-When a company decides to issue further capital to any persons after expiry of two years from the date of promotion of the company or after expiry of one year from the date of allotment of shares made for the first time then it is required to pass a Special Resolution under section 81(IA) of the Companies Act, 1956. However, when a Special Resolution has not be passed but the votes cast in favour exceeded the votes cast against the resolution, approval of the Central Government must be obtained.

5. Contribution by promoters.-It should not be less than 20% of the post-issue capital.

6. Outstanding warrants or Financial Instruments.- No unlisted company shall make a public issue, if there are any outstanding financial instruments or any other right which would entitle the existing promoters or shareholders any option to receive equity share capital after the initial public offer.

7. Net offer to the public.-The net offer to the public shall be at least 10% or 25% as the case may be of the post-issue capital except infrastructure companies and companies in information technology sector.

8. Payment by promoters.- It should be ensured that the entire contribution of the promoters including premium is received at least one day before public issue. Where the promoters contribution exceeds Rs. 100 crores the promoters shall be permitted to bring in Rs. 100 crores before opening of the issue to the public and the balance should be brought in by the promoters in advance pro rata before the calls on the public are made.

9. Foreign preferential allotment/reservation.-Foreign allotment and/or reservation for preferential allotment to certain specified categories of persons, can be made in accordance with SEBI (DIP) Guidelines, 2000

10. Minimum subscription by friends, relatives etc.- Minimum subscription by friends, relatives and associates forming part of minimum percentage of promoters' contribution is not to be less than Rs. 25,000/-. Contributions by firms or bodies corporate which are not business associates should not be less than Rs. 1 lakh.

11. Reservations and/or firm allotments-The issuer company is free to make reservations and/or firm allotments to various categories as mentioned in clause 8.3.5 of SEBI (DIP) Guidelines, 2000 for the remaining issue size. The Lead Merchant Banker(s) can be included in the category of persons entitled to firm allotments subject to an aggregate maximum ceiling of 5% of the proposed issue of securities. The aggregate of reservations and firm allotments for employees in an issue shall not exceed 10% of the total proposed issue amount. For shareholders, the reservation shall not exceed 10% of the total proposed issued amount.

12. Lock-in Public issues.-In case of any issue of capital to the public the minimum promoters contribution shall be locked in for a period for 3 years. If the promoters' contribution in the proposed issue exceeds the required minimum contribution such excess contribution shall also be locked-in for a period of I year. The entire pre-issue share capital other than that locked-in as promoters' contribution shall be locked in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later.

13. Underwriting.-The issue should be underwritten at least to the extent of net offer to the public. But underwriting is not mandatory and the issue has the option to decide whether the issue is to be underwritten or not in order to reduce cost of issue.

14. Minimum subscription.-In case the company fails to receive 90% of the issue amount from public including from underwriters within 120 days from the date of opening of issue, the amount received towards subscription is to be refunded. This requirement of 90% minimum subscription is not to be followed in case of securities offered for sale. The requirement of 90% subscription for issue of capital by an infrastructure company shall rot be mandatory, if disclosures are made in the prospectus regarding the alternate source of funding. The lead manager, shall verify and confirm the same as part of their due diligence.

15. Basis of allotment and over subscription.- The company cannot retain any amount of oversubscription. Over- subscription to the extent of 10% of the net public offer can be retained for the purpose of rounding off to the nearer multiple of 100 while finalising the allotment. In a public issue of securities, the Executive Director/Managing Director of the Regional Stock Exchange along with the post issue Lead Merchant Banker and the Registrar of the Issue shall be responsible to ensure that the basis of allotment is finalised in a fair and proper manner in accordance with the guidelines given in clause 7.6. 1.1 of SEBI (DIP) Guidelines, 2000. The said proportionate allotment of securities to the public that has been oversubscribed, shall be subject to the reservation for small individual applicants as described below:

(a) A minimum of 50 per cent of the net offer of securities to the public shall initially be made available for allotment to individual applicants who have applied for allotment equal to or less than 10 marketable lots of shares or debentures or the securities offered, as the case may be.

(b) The balance net offer of securities to the public shall initially be made available for allotment to individual applicants who have applied for allotment of more than 10 marketable lots investors, including corporate bodies/institutions, irrespective of the number of shares or debentures applied for.

(c) The unsubscribed portion of the net offer to any one of the categories specified in (a) or (b) shall/may be made available for allotment to applicants in the other category, if so required.

16. Issue when to be made fully paid-up.-The issue is required to be made fully paid within twelve months. However when the total issue exceeds Rs. 500 crores and is subject to monitoring requirement the issue is not required to be made fully paid-up within twelve months.

17. Partly paid-up shares.-No company shall make a public or rights issue of equity shares or any security convertible at later date into equity shares, unless all the existing partly paid-up shares have been fully paid or forfeited in a manner specified in clause 8.6.2 of SEBI (DIP) Guidelines, 2000.

18. Post-issue Monitoring Reports.- Irrespective of the level of subscription, the post-issue Lead Merchant Banker shall ensure the submission of the post-issue monitoring reports as per formats specified in Schedule VI of SEBI (DIP) Guidelines, 2000.

19. General

(a) Subscription list for public issues should be kept open for at least 3 working days and not more than 10 working days and disclosed in the prospectus.

(b) Rights issues should not be kept open at least 30 days and not more than 60 days.

(c) An unlisted company with a commercial operation of less than 2 years proposing to issue securities to the public resulting in post issue capital of Rs. 3 crores and not exceeding Rs. 5 crores shall be eligible to apply for listing only on stock exchanges where trading of securities is screen based.

(d) An issue shall open within 365 days from the date of issuance of the observation letter to SEBI if any or 365 days from the 22nd day from the date of filing of the draft offer document with SEBI, if no observation letter is issued.

(e) An eligible company shall be free to make public or rights issue of equity shares in any denomination determined by it in accordance with sub-section (4) of section 13 of the Companies Act, 1956 and in compliance with the norms as specified by SEBI in circular No. SMDRP/POLICY/CIR-16/99, dated June 14, 1999 and other norms as may be specified by SEBI from time to time.

1. Free and Differential Pricing.-An existing listed company wishing to raise fresh capital is free to price its issue. It may issue securities to applicants in the firm allotment category at a price different from the price at which the net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which securities are offered to public.

2. Special Resolution-Passing of Special Resolution.-When a company decides to issue further capital to any persons after expiry of two years from the date of promotion of the company or after expiry of one year from the date of allotment of shares made for the first time then it is required to pass a Special Resolution under Section 81(IA) of the Companies Act, 1956. However, when a Special Resolution has not been passed but the votes cast in favour exceeded the votes cast against the resolution, approval of the Central Government must be obtained.

3. Contribution by promoters, directors etc.-The promoters' contribution should be to the extent of 20% of the proposed issue or should ensure post-issue shareholding to the extent of 20% of the post-issue capital. In case of composite issue, the promoters contribution shall at the option of the promoters be either 20% of the proposed public issue or 20% of the post issue capital, Rights issue component of the composite issue shall be excluded while calculating the post issue capital.

4. Promoters Contribution in case of issue of convertible security.-The promoters have an option to bring in their subscription by way of equity or by way of subscription to the convertible security being offered through the proposed issue so that the total promoters contribution shall not be less than the required minimum contribution. In case the conversion price of emerging equity is not pre-determined and the same has not been specified in the offer document (instead a formula for conversion price is indicated) the promoters shall not have the said option and shall contribute by subscribing to the same instrument. In case if any issue of security convertible in stages either of par or premium (conversion price being predetermined) the promoters contribution in terms of equity share capital shall not be at a price lower than the weighted average price of the share capital arising out of conversion.

5. Drawing up of list of promoters showing amount subscribed against each name.-Draw up a list of those described in the prospectus as promoters, directors, friends, relatives and associates showing amount subscribed against each name which should accompany the Chartered Accountants' Certificate certifying that the promoters contribution has been brought in and filed with SEBI before opening of the issue.

6. Minimum contribution of promoters.-Ensure that the minimum subscription by friends, relatives and associates is not less than Rs. 25,000 and by firms or corporate bodies who are not business associates like dealers or distributors is not less than Rs. one lakh. No securities forming part of promoters contribution shall consist of any private placement made by solicitation of subscription from unrelated persons either directly or through any intermediary.

7. Lock-in-period of promoters' contribution.-The minimum promoters' contribution shall not be diluted for a lock-in-period of 3 years which shall start from the date of allotment and the last date of lock-in shall be reckoned as 3 years from the date of commencement ' of commercial production or date of allotment whichever is later. The share certificates to carry endorsement "not transferable for three years from".

In case of participation by promoters in the public issue in excess of the required minimum percentage, it should also be locked in for a period of 3 years as per the lock-in provisions as specified in Guidelines on preferential issue. In case shortfall in the firm category is met by the promoter, such subscription shall be locked in for a period of 3 years.

8. Lock-in-period of shares ineligible for promoters, contribution-Any security issued to promoters or other shareholders out of revaluation of assets or Capitalisation of intangible assets within a period of 3 preceding years from the date of filing of offer documents with SEBI shall be locked-in for a period of 3 years from the date of allotment of the issue or the date of commercial production whichever is later.

9. Pledge and Inter-se transfer of securities.- Locked in securities held by promoters may be lodged only with banks or financial institutions as collateral security for loans granted by such banks or financial institutions, provided the pledge of shares is one of the terms of sanction of loan.

Transfer of locked-in securities amongst promoters as named in the offer document, can be made subject to the lock-in being applicable to the transferees for the remaining period of lock-in.

10. Filing of Draft Prospectus.-The draft of the prospectus is to be filed with SEBI at least 21 days before filing with the Registrar of Companies concerned along with Due Diligence Certificate and inter se Allocation of Responsibilities Certificates signed by Lead Manager.

11. Listing.- The shares must be got listed on any of the Stock Exchanges or on OTCEI.

12. Firm allotments/reservation for preferential allotments.- These should be made only to specified categories of persons in terms of SEBI Guidelines on the subject. The allotments so made are not subject to lock-in-period.

13. Underwriting.-The issue can be underwritten at least to the extent of net offer to the public. Underwriting is not, however, mandatory and can be decided by the issuer to reduce cost of issue.

14. Minimum subscription.-In case the company fails to receive 90% of the issue amount from public including from underwriters within 120 days from the date of opening of issues the amount received towards subscription is to be refunded. This requirement of 90% minimum subscription is not to be followed in case of securities offered for sale. The requirement of 90% subscription for issue of capital by an infrastructure company shall not be mandatory, if disclosures are made in the prospectus regarding the alternate source of funding. The lead manager, shall verify and confirm the same as part of their due diligence.

15. Unreserved offer.- The unreserved offer should not be less than the minimum required for the listing.

16. Reservations for employees.- The aggregate of reservation and firm allotments for the employees of the company or promoting companies does not exceed 10 per cent of the total proposed issue amount.

17. Reservation for NRIs.-The company is to obtain pre-issue approvals, if any, from Reserve Bank for making reservations for NRIs.

18. Preferential allotment.-The company may make preferential allotment to shareholders of promoter companies or group companies subject to the SEBI (DIP) Guidelines, 2000 given in Chapter XIII of it.

19. Opening of issue.-The issue is to be kept open for at least three working days and for a total period not exceeding ten working days. It is to be disclosed in the prospectus. In case of infrastructure companies, the issue may be kept open for a maximum period of 21 working days.

20. Over subscription.- The company cannot retain any amount of over subscription except that an over subscription to the extent of 10% of the net offer to public is permissible for the purpose of rounding off to the nearer multiple of 100 while finalising the allotment. Proportionate allotment of securities in case of over subscription shall be subject to the reservation for small individual applicants as described below:

(b) The balance net offer of securities to the public shall be made available for allotment to individual applicants who have applied for allotment of more than 10 marketable lots of shares or debentures or the securities offered, and other investors including corporate bodies/institutions irrespective of the number of shares, debentures etc. applied for.

(c) The un subscribed portion of the net offer to any one of the categories specified in (a) or (b) shall/may be made available for allotment to applicants in the other category, if so required.

21. When issue to be made fully paid-up.-The issue is to be made fully paid-up within twelve months. However when issue is exceeding Rs. 500 crores, then issue is not to be made fully paid within twelve months.

22. Direct issue through OTCET.- When a issue is made through OTCEI without sponsor taking up any shares then normal guidelines for disclosure shall apply. However when shares are taken up by sponsor he can offer such shares to public at a later date at the price as the sponsor may deem fit. However, promoters shall retain 25% of the total issued capital with lock-in-period of five years from the date of sponsor taking up shares.

23. Monitoring report.-In case of issue exceeding Rs. 500 crores, the issuer company shall make arrangements for the use of proceeds of the issue to be monitored by one of the financial institutions. A copy of the monitoring report as per the format specified in Schedule XIX of SEBI (DIP) Guidelines, 2000 shall be filed with SEBI by the said monitoring agency, on a half yearly basis till the completion of project for the purposes of record.

Further Issue of capital

S. 81(1A)-Further Issue of capital-Board Resolution

"RESOLVED that in terms of section 81(IA) and other applicable provisions, if any, of the Companies Act, 1956 and in accordance with the provisions of Articles of Association of the Company and subject to the consent of the Securities and Exchange Board of India (SEBI) and all other concerned authorities and Departments, if and to the extent necessary, and such other approvals, permissions and sanctions as may be necessary and subject to such conditions and modifications as may be prescribed in granting such approvals, permissions and sanctions which may be agreed to by the Board of Directors of the Company (hereinafter referred to as "The Board" which term shall be deemed to include any committee of the Board), at its sole discretion, the consent of the company be and is hereby accorded to the Board to create, offer and issue to such persons as are set out hereunder, such number of equity shares of the company of the face value of Rs. 10/ each not exceeding in number may be required for subscription for cash at such premium as may be per share as may be fixed and determined by the Board prior to the issue and offer thereof to such category of persons in consultation with SEBI or such other Authorities as may be prescribed or in accordance with such guide lines or other provisions of law as may be prevailing at that time and otherwise earning pari passu except for payment of dividend pro rata from the date of allotment with the equity shares of the Company as then issued and to retain oversubscription if any in respect of such is sue to such extent as may be then permissible, and at such time or times as the Board at its absolute discretion and in the best interest of the company may deem fit:

(i) the public such number of equity shares of Rs. 10/-each as the Board may decide on such terms and conditions as may be decided by the Board in this respect;

(ii) the permanent employees of the company (including any Indian Working Directors) on an equitable basis such number of equity shares of Rs. 10/- each as would not exceed ten per cent of the number of equity shares and with such conditions of non-transferability lock-in-period as may be specified in the prevailing guidelines and with the provisions that any unsubscribed portion from such category shall not lapse but shall at the absolute discretion of the Board be available for allotment by offering the same to Mutual Funds, Banks, financial institutions or Business Associates or any other person as the Board may deem fit and thereafter for meeting any oversubscription in the category referred to in (i) above; and

(iii) the promoters, directors and their relatives and friends, such number of equity shares of Rs. 10/-each with such minimum subscription and with such conditions of non-transferability guidelines lock-in-period as may be specified in the then prevailing guidelines

RESOLVED FURTHER that for the purpose of giving effect to this resolution the Board of Directors of the company be and is hereby authorised to take such steps and to do all such acts, deeds, matters and things and accept any alterations or modification(s) as they may deem fit and proper and give such directions as may be necessary to settle any question or difficulty that may arise in regard to the issue and allotment of the said equity shares including the power to allot the unsubscribed equity shares, if any, in such manner as may appear to the Board of Directors to be most beneficial to the company."

PRACTICE NOTES

1. Offer of further issue of shares to any person.-The further issue of shares may be offered to any person if a Special Resolution to that effect is passed by the company in general meeting or where no such special resolution is passed if the votes cast (whether on a show of hands, or on a poll, as the case may be) in favour of the proposal contained in the resolution moved in that general meeting (including the casting vote, if any, of the Chairman) by members who, being entitled so to do, vote in person, or where proxies are allowed by proxy, exceed the votes, if any, cast against the proposal by members so entitled and voting and the Central Government is satisfied, on an application made by the Board of Directors in this behalf that the proposal is most beneficial to the company.

2. Further capital to be issued is to be within authorised capital.-Ensure that the issue of further capital is within the authorised capital of the company. If not the capital clause of the memorandum must be altered suitably.

3. Letter of offer to be riled with SEBI and Stock Exchange.-Ensure that the letter of offer should have the disclosures as specified in Chapter VI Section III of SEBI (DIP) Guidelines, 2000 and is duly filed with SEBI and Stock Exchange.

4. Issue of share certificate.- En sure that share certificates are issued within time.

5. Counting of one year.- One year specified in the section is to be counted from the date on which the company has allotted any share for the first time. (Letter No. 8/16(1)/ 61-PR, dated the 9th May, 1961.

6. Power to issue shares need not only be used when there is need to raise additional capital.-The power to issue shares need not be used only when there is a need to raise additional capital, although this is its primary purpose. The power can be used to create a sufficient number of shareholders to enable a company to exercise statutory powers or to enable it to comply with statutory requirements. (Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 51 Com Cases 743).

7. Passing of Special Resolution necessary when shares are offered to public.-The requirement of passing a special resolution under sub-section (1A) of section 81 is necessary only when the shares are issued to the public or are placed privately in terms of Section 67(3).

Issue of right shares at par

S. 81- Issue of rights shares at par-Board Resolution

"RESOLVED that 50,00,000 equity shares of Rs. 10/-each in the share capital of the company, be and are hereby issued to the persons who at the date of the offer, i. e 2002, are holders of the equity shares of the company in proportion, as nearly as circumstances admit of three equity shares for every ten equity shares held on the aforesaid date (fraction of a new equity share being disregarded) inter alia on the following terms and conditions:

(i) That the full amount of Rs. 10/-per share shall be payable along with the application for such shares in the prescribed application form of the company.

(ii) The offer for new equity shares now being made shall be limited to those persons who, as on 2002, are holders of equity shares of the company. Such persons are, however, entitled to apply for additional shares out of those shares not taken up by any of the existing shareholdersin the proportion to be decided by the Board of Directors at its discretion having regard to the proportion such equity shareholders have to the paid-up equity capital of the company.

(iii) The offer aforesaid shall include a right exercisable by the persons to renounce the shares now being offered in favour of any other person(s) provided such renunciation is made before the time not being less than fifteen days from the date of the offer.

(iv) Any profit on the sale or disposal of fractional certificate and/or the equity shares not accepted by the offerees will be distributed to the existing shareholders in proportion to their holdings of equity shares.

(v) The share transfer book shall remain closed from ............ 2002 to 2002 (both days inclusive). The last date for the acceptance of offer has been fixed at 2002 , and the date within which the amount for the shares offered shall be payable has been fixed at 2002 .

RESOLVED FURTHER that the draft letter of offer/notice, renunciation and the application form as vetted by SEBI and as tabled and authenticated under the initial of the Chairman of the meeting, be and are hereby approved and the Secretary of the company be instructed to issue the notice of such offer to the holders of shares as on the aforesaid date and to make necessary arrangement in connection therewith."

PRACTICE NOTES

1. Issue of Rights Shares.- Further capital offered by a company should ordinarily be offered to the existing holders of equity shares pro rata. The power of the Board in regard to further issue of shares, however, is limited to making an offer for issue of equity shares which is properly known as 'rights' offered to the existing shareholders only. Further shares may also be offered to any other persons or to the general public if a Special Resolution is passed at a General Meeting of the members of the company. Such an offer may be made to the public in general or to a selected group of people. If such offer is made to a selected group of people, then it cannot be regarded as an offer to the public and, therefore, any document containing such offer will not be a prospectus.

2. Section 81 not applicable to increased capital on account of conversion of debentures or loans into equity.-The provisions of section 81 of the Companies Act in relation to further issue of shares would not apply to convertible loans or debentures, i.e., in relation to the increased subscribed capital caused by the conversion of debentures or loans into shares of the company if two conditions are satisfied, namely, that the terms of the issue of debentures or loans have been approved by the company by a Special Resolution and have also been either approved by the Central Government before such issue or the terms are in conformity with the Public Companies (Terms of Issue of Debentures and of raising of Loans with Option to Convert such Debentures or Loans into Shares) Rules, 1977. If such debentures or loans which are being converted into shares have been issued to or obtained from the Government or any institution specified by the Central Government in this behalf, then Special Resolution need not be passed. Qualification shares issued to one or more persons to enable them to become Directors would not mean as further issue and would not attract the provisions of section 81 of the Companies Act, 1956.

3. Rights Issue not within authorised capital.-If the rights issue is not within the authorised share capital of the company, then the share capital must be increased first.

4. Timing of Rights Issue.-Rights issue must be made after the expiry of two years from the formation of the company or after the expiry of one year from the allotment of shares in the company made for the first time after its formation. If shares of a company are allotted on different dates without closing the subscription list, then the above period of 'one year' will be counted from the date on which the company allots any share for the first time.

5. Guidelines issued by SEBI to be followed.-Ensure to observe Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 while making Rights Issue, if the company is a listed company. Under the present Guidelines, Lead Managers are required to submit to SEBI draft Letter of Offer/Prospectus as given in Section III of Chapter VI of the said Guidelines at least 21 days prior to its filing with regional stock exchange. Such documents are submitted to SEBI whenever Right Issues of more than Rs. 50 lakhs including premium is made by companies. If SEBI does not ask for any clarifications within 21 days from such filing, the Issuer and the Lead Manager can go ahead with the proposed offer. If clarifications are asked for by SEBI on such a document the proposed offer shall not open till the clarifications have been given and the draft document amended suitably. The Lead Manager would be required to give a due diligence certificate as per the existing procedure. A listed company may freely price its rights issue of equity shares and any security convertible into equity shares. The requirements of promoters' contribution will not be applicable in case of rights issue except in case of a composite issue. The lead merchant banker is required to ensure that the letters of offer are despatched to all shareholders at least one weak before the date of opening of the issue. The issuer company may utillsed funds collected against rights issue after satisfying regional stock exchange that minimum 90% subscription has been received.

6. Approval of Reserve Bank.-If the rights shares are to be allotted to non-resident shareholders then permission of Reserve Bank of India must also be obtained wherever required.

7. Non-applicability to allotment of shares remaining unsubscribed from previous issue.-Section 81(l) is not applicable to allotment of any shares which are remaining unsubscribed from a previous issue on which applications were received. This section will also not apply to the sale of forfeited shares where no allotment is necessary.

8. Institutions specified by Central Government.-Institutions specified by the Central Government under section 81(3) proviso (b) are the following:

(i) The Industrial Finance Corporation ot India, established under the Industrial Finance Corporation Act, 1948 (15 of 1948);

(ii) The Life Insurance Corporation of India, established under the Life Insurance Corporation Act, 1956 (31 of 1956);

(iii) The Unit Trust of India, established under the Unit Trust of India Act, 1963 (52 of 1963);

(iv) The Industrial Development Bank of India, established under the Industrial Development Bank of India Act, 1964 (18 of 1964);

(v) The Industrial Credit and Investment Corporation Limited, a company registered under the Companies Act, 1913 (7 of 1913);

(vi) The Industrial Reconstruction Corporation of India Limited, a company registered under the Companies Act, 1956 (1 of 1956);

(vii) The General Insurance Corporation of India, established under the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972);

(viii) The National Insurance Company Limited, formed and registered under the Companies Act, 1956 (1 of 1956);

(ix) The New India Assurance Company Limited, formed and registered under the Companies Act, 1956 (1 of 1956);

(x) The Oriental Fire and General Insurance Company Limited, formed and registered under the Companies Act, 1956 (1 of 1956);

(xi) The United Fire and General Insurance Company Limited, formed and registered under the Companies Act, 1956 (1 of 1956);

(xii) The Shipping Credit and Investment Company of India Ltd;

(xiii) The Tourism Finance Corporation of India Limited;

(xiv) The Risk Capital and Technology Finance Corporation Ltd;

(xv) Technology Development and Information Company of India Ltd.

9. Order of conversion of debentures or loans into equity prospective in effect, Section 81(4) provides that the Central Government may order conversion of debentures or loans issued or obtained from the Government into shares of a company if it thinks it is necessary in the public interest to do so. It has been clarified by the Department of Company Affairs that such an order will only be prospective in effect, so that the holders of converted shares are able to exercise all the rights of a member including voting rights.

Provision of sub-section (4) also applies to a private company although private companies are exempted under section 81(3).

10. Period for which rights Issue to be kept open.-The Rights Issue should be kept open for at least 30 days and not more than sixty days.

11. Record date.- The record date fixed for the purpose of deciding entitlement to rights shares should be communicated to Share Transfer Agent so as to give him sufficient time to effect all transfers, change of address, etc., and update all records.

12. Despatch of letter of offer.-Share Transfer Agent should either despatch the LOO and composite application forms himself well in time or handover all the records to the Registrar to the Rights Issue so as to enable the Registrar to complete the issue in time.

13. Failure to give due proportion of right issue.-Failure on the part of a company to give to the shareholder his proportion of the rights shares does not constitute a consumer wrong and therefore no consumer action lies against it either under Consumer Protection Act or MRTP Act. The action in this case was under S. 12B of the MRTP Act, 1969 for compensation for denial of rights shares. The remedy lies within the framework of the Companies Act and also by way of a civil suit. Harish Sood v. Videocon International Ltd., (1996) 8 SCL 28 (MRTPC).

Issue of rights shares at a premium

S. 81- Issue of rights shares at a premium-Board Resolution

"RESOLVED that 100,00,000 equity shares of Rs. 10/-each in the share capital of the company be and are hereby issued at a premium of Rs. 30/-per share to the persons who at the date of the offer i. e 2002 are holders of the equity shares of the company in the proportion as nearly as circumstances admit of three equity shares now being issued for every ten equity shares held on the afore said date (fraction of a new equity share being disregarded) inter alia on the following terms and conditions:

(i) That the full amount of Rs. 10/-per share together with the premium of Rs. 30/-per share shall be payable along with the application for such shares in the prescribed application form of the company.

ALTERNATIVELY

(i) That a sum of Rs. 20/-per share shall be payable along with the application for such shares in the prescribed application form of the company and the balance of Rs. 20/-per share shall be payable upon allotment of the shares."

Conditions (ii) to (v) as stated in the earlier resolution No. 263.

PRACTICE NOTES

1. Premium Amount.-Premium should be fixed in consultation with the Lead Manager(s). Adequate justification for the amount of premium to be charged should be disclosed in the Letter of Offer in case of a listed company.

2. Time of offering rights shares.-Right shares can be offered by the Board of Directors at any time after the expiry of two years from the formation of a company or at any time after the expiry of one year from the allotment of shares.

3. Rights offer through notice.-Rights offer of shares should be made by notice specifying the number of shares offered and should limit a time not being less than fifteen days from the date of offer within which the offer if not accepted will be deemed to have been declined.

4. Private Companies exempted.-Provisions of section 81 of the Act are not applicable to private companies. Though under sub-section (3), the provisions of the section 81 do not apply to a private company, there is nothing in the Act to prevent such a company from including in its Articles of Association, a provision on the basis of section 81. Such a provision in the Articles will be binding on the company. (Letter No. 8181158-PR, dated the 17th October, 1958). Even though a private company is not needed to offer shares on rights basis in terms of section 81 and the articles also did not provide for the same, since in the Board of Directors meeting in which it was decided to increase the authorised (;apital, it was decided to offer shares on a right basis a written offer should have been made to the petitions. Ms. Pushpa Prabhudas Vora v. Voras Exclusive Tools Private Ltd., [2000] 101 Com Cases 300 (CLB-PB).

Issue of rights shares at a premium

(Another format)

S. 81- Issue of rights shares at a premium-Board Resolution

"RESOLVED THAT equity shares of Rs. 10/-each in the share capital of the company be issued at a premium of Rs ……per share to the holders of equity shares of the company on the record date fixed for this purpose, in the proportion of equity shares for every equity shares held on the record date.

RESOLVED FURTHER that the rights offer of equity shares shall be subject to the following terms and conditions:

1. That an amount of Rs ……per share shall be payable as application money and Rs ……per share as allotment money and the amount paid towards application money and allotment money shall be apportioned towards face value and premium in the ratio of .

2. The persons to whom new equity shares are offered shall be entitled to apply for additional shares and the allotment of additional shares be made in the proportion to be decided by the Board of Directors at its discretion having regard to the number of shares held to the total number of equity shares of the company.

3. The offer of right shall include a right to renounce the shares in favour of any other person(s) provided such renunciation is made before closing of the offer.

4. Any profit on the sale of fractional equity shares not accepted by the offerees will be distributed to the existing shareholders in proportion to their holdings of equity shares.

5. The right issue shall open on and close on and the last date for acceptance of requests for split forms shall be ................

RESOLVED FURTHER that the draft letter of offer and the draft composite application form for the rights issue be and are hereby approved and Mr ……Secretary of the Company be and is hereby authorised to issue the same to the shareholders of the Company as on the record date and take all necessary steps in this regard."

PRACTICE NOTES

1. Time of offering rights shares.-Right shares can be offered by the Board of Directors at any time after the expiry of two years from the formation of a company or at any time after the expiry of one year from the allotment of shares.

2. Rights offer through notice.-Rights offer of shares should be made by notice specifying the number of shares offered and should limit a time not being less than fifteen days from the date of offer within which the offer if not accepted will be deemed to have been declined.

3. SEBI (DIP) Guidelines, 2000 on Advertisement.

(i) All listed companies desirous of making rights issues shall invariably issue an advertisement prominently in not less than 3 newspapers an English National Daily with wide circulation, one Hindi National paper and a Regional language daily circulated at the place where registered office of the company is situated, about the despatch of letters of offer together with composite application forms by registered post giving the date of despatch of letter of offers, date of opening and closing of subscription list, etc. Such advertisement should be issued at least one week before the date of opening of the subscription list. The advertisement may also indicate the centres other than registered office of the company where the shareholders or the persons entitled to rights may obtain duplicate copies of composite application forms in case they do not receive the original within a reasonable time even after opening of the rights issue.

(ii) Where the shareholders have neither received the original composite application forms nor are they in a position to obtain the duplicate forms, they may be given the additional facility of making the applications to subscribe to the rights on a plain paper. For this purpose, the advertisement mentioned at (a) above should also advise the shareholders to make the application as above containing necessary particulars like name, address, ratio of right issue, issue price, number of shares held, ledger folio numbers, number of shares entitled and applied for, additional shares if any, amount to be paid along with application, particulars of cheque, etc., to be drawn in favour of the company Account-Rights issue. Such applications should be directly sent by Registered Post together with the application moneys to the company's designated official at the address given in the advertisement.

(iii) The advertisement may also invite the shareholders attention to the fact that the shareholders making the applications otherwise than on the standard form shall not be entitled to renounce their rights and should not utilise the standard form for any purpose including renunciation even if it is received subsequently; if he violates any of these requirements he shall face the risk of rejection of both the applications.

4. Private Companies exempted.-Provisions of section 81 of the Act are not applicable to private companies.

5. No preferential allotment.-As per SEBI guidelines no preferential allotment can be made along with any right issue. If the issuer company desires to make preferential allotments to the employees or any identified persons they may do so independent of rights issue.

6. Rights Issue over Rs. 50 lakhs.-A listed company shall not make a rights issue, where the aggregate value of the securities, including premium, if any, exceeds Rs. 50 lakhs, unless the letter of offer is filed with SEBI through an eligible merchant bankers, at least 21 days prior to the filing of the letter of offer with regional stock exchange.

Approval of draft letter of offer for right issue

S. 81- Approval of letter of offer for right issue-Board Resolution

WHEREAS the draft Letter of Offer together with the Composite Application Form in respect of the issue of equity shares/debentures of Rs each aggregating Rs crores on rights basis to the equity shareholders of the company was placed before the Board; AND WHEREAS the Board considered the said draft Letter of Offer and Composite Application Form and formed an opinion that they are in order;

"NOW THEREFORE IT IS RESOLVED that the draft letter of offer and draft composite application form for resident and non-resident shareholders for issue of ……Equity shares/ Debentures of Rs ……/- each for cash at par aggregating Rs ……on rights basis to the equity shareholders of the company whose names appear in the Register of Members of the company on (hereinafter referred to as the record date), in the ratio of convertible debentures for every ……equity shares or part thereof held, be and are hereby approved subject to such modifications as may be agreed upon severally by Mr ……Managing Director and Mr ……Secretary of the Company in consultation with the Securities and Exchange Board of India (SEBI), the Lead Managers to the issue and the ......and ……Stock Exchanges.

RESOLVED FURTHER that the subscription list for the rights issue be opened at the commencement of banking hours on and be closed at the close of banking hours on or such extended date as may be decided by the Board of Directors.

RESOLVED FURTHER that the request for split forms be received till the close of business hours on or such extended date as may be decided by the Board and that splits be made in multiples of ……Equity shares/Debentures only.

RESOLVED FURTHER that Mr ……Managing Director and Mr ……Secretary of the Company be and are hereby severally authorised to issue the letter of offer, as approved by the stock exchanges at ................ and and vetted by SEBI along with the composite application form to the shareholders and take all necessary steps in this regard."

PRACTICE NOTES

1. Format of Letters of Offer.- The format of Letter of Offer (LOO) should conform to section III of Chapter VI of SEBI (DIP) Guidelines, 2000.

2. Filing with SEBL-If the issuer is a listed company the Lead Manager concerned should file the draft LOO with SEBI to the Head Office or the Regional Office of SEBI, as the case may be, at least 21 days before the issue is scheduled to open for subscription. Rights Issues up to Rs. 20 crores should be submitted to the Regional Office of SEBI. Filing of LOO with SEBI is not required if the rights issue does not exceed Rs. 50 lakhs including premium.

3. Submission of revised draft.-The revised draft incorporating the modifications and suggestions made by SEBI and duly highlighted, should be submitted to SEBI within 3 weeks of the date of communication of the suggestions and modifications.

4. Letters of offer submitted to SEBI.-Letters of offer should be submitted to SEBI by the Merchant Bankers of the rights issue. Though the letter of offer cannot be considered as a public document as it is not filed with the Registrar of Companies and, therefore, not available for public circulation, it should be accorded equal importance as given to a prospectus.

Issue of Bonus Shares

S. 81- Issue of bonus shares-Board Resolution

"RESOLVED that pursuant to Article of the Articles of Association of the company and subject to the consent of the members in general meeting, and in accordance with the guidelines of the Securities and Exchange Board of India, the Board do hereby recommend that a sum of Rs be capitalised out of general reserve and set free for distribution amongst the equity shareholders by issue of equity shares of Rs. 10/-each credited as fully paid to the equity shareholders in the proportion equity share for every equity shares held by them on the record date to be decided by the Board and that such new shares, as and when issued and fully paid, shall rank pari passu with the existing equity shares.

RESOLVED FURTHER that for the purpose of giving effect to this resolution, an Extraordinary General Meeting of members of the company be convened to consider the proposed capitalisation of profits and issue of bonus shares and that the secretary of the company be and is hereby authorised to issue notice of the said meeting to the shareholders alongwith relevant explanatory statement as per drafts thereof submitted to this meeting and initialed by the Chairman for the purpose of identification."

PRACTICE NOTES .

1. Reserve created out of revaluation assets not to be applied.-As per SEBI (DIP) Guidelines, 2000, listed companies cannot apply reserves created out of revaluation of assets for purpose of issue of bonus shares.

2. Timing of bonus issue.-No bonus issue should be made within 12 months of any rights or public issue made by the company. No. bonus issue should be made which will dilute the value of rights of the holders of debenture, convertible fully or partly.

3. Company to implement bonus issue within six months.-The bonus proposed to be made by any listed company should implement the proposal within six months from the date of passing the Board Resolution and should not change the decision. Such companies should also adhere to other conditions mentioned in Chapter XV of SEBI (DIP) guidelines, 2000 as under :

(a) The Bonus issue is made out of free reserves built out of the genuine profits or share premium collected in cash only;

(b) Reserves created by revaluation of fixed assets are not capitalised;

(d) The bonus issue is not made unless the partly-paid shares, if any existing, are made fully paid-up;

(e) The company

(1) has not defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption thereof and

(2) has sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus, etc;

(f) There should be a provision in the Articles of Association of the company for capitalisation of reserves, etc., and if not, the company shall pass a Resolution at its General Body Meeting making provisions in the Articles of Association for capitalisation;

(g) Consequent to the issue of Bonus share, if the subscribed and paid-up capital exceed the authorised share capital, a Resolution shall be passed by the company at its General Body Meeting for increasing the authorised capital;

(h) No company shall pending conversion of fully convertible debentures (FCDs)/partly convertible debentures (PCDs) issue any shares by way of bonus unless similar benefit is extended to the holders of such FCDs/PCDs through reservation of shares in proportion to such convertible part of FCDs or PCDs. The shares so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the bonus issues were made.

(i) Issue of bonus shares after any public/rights issue is subject to the condition that no bonus issue shall be made which will dilute the value or rights of the holders of debentures, convertible fully or partly.

Issue of Bonus Shares with differential Voting Rights

S. 81 read with section 86(a)(ii)- Issue of bonus shares with differential voting rights-Board Resolution

"RESOLVED that pursuant to Article of the Articles of Association of the company and subject to the consent of the members of the company in general meeting, and in accordance with the Rules, Regulations, or Guidelines made therefor, the Board do hereby recommend that a sum of Rs be capitalised out of the general reserve of the company for distribution amongst the equity shareholders by issue of equity shares with differential voting rights of Rs. 10/- each credited as fully paid to the equity shareholders in the proportion of equity share for every equity shares held by them on the record date to be decided by the Board of Directors and that such new equity shares, as and when issued as fully paid shall have differential voting rights as to dividend voting or otherwise in accordance with such Rules and subject to such conditions as pre scribed by the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001 and as determined by the Board of Directors of the Company.

RESOLVED FURTHER that for the purpose of giving effect to this resolution, an extraordinary general meeting of the members of the company be convened to consider the proposed capitalisation of profits and issue of bonus shares with differential rights and that the secretary of the company be and is hereby authorised to issue the notice of the said meeting to the members with the relevant explanatory statement as per the drafts placed before this meeting and initialed by the chairman for the purpose of identification.

PRACTICE NOTES

1. Authorisation in Articles.-Articles of Association of the company should have provision to issue bonus shares with differential voting rights.

2. Compliance with the Rules-The issue of bonus shares with differential voting rights should comply with the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001.

3. Compliance with financial parameters.-Determining that the quantum of the issue of bonus shares with differential voting rights is made out of free reserves of your company built out of the genuine profit or share premium collected in cash only and the reserves created by revaluation of fixed assets are not utilised for issuing such bonus shares with differential voting rights.

Resolution for issue of cumulative redeemable preference shares

S. 81- Issue of cumulative preference shares-Board Resolution

"RESOLVED that subject to the approval of SEBI and other statutory approvals, if any, 11% cumulative redeemable preference shares of Rs each forming part of the authorised capital of the company and remaining unsubscribed be issued at par and allotted to any person or persons as the Board of Directors deem fit on the following terms and conditions.

(a) The shares shall carry a right to a cumulative preference dividend of 11% per annum in relation to the capital paid-up on them.

(b) The holders of the said shares shall have a right to attend General Meetings of the company and vote on resolutions directly affecting their interest or where the dividends in respect thereof are in arrears for not less than two years on the date of the meeting, on all resolutions at every meeting of the company.

(c) In a winding-up, the holders of the said shares shall be entitled to a preferential right of return of the amount paid-up on the shares together with arrears of cumulative preferential dividend due on the date of winding-up but shall not have any further right or claim over the surplus assets of the company."

PRACTICE NOTES

1. Articles to empower company.- The power to issue cumulative preference shares must be available in the articles of the company otherwise the company will first have to amend the articles by a Special Resolution.

2. Rate of dividend.-The company while passing the resolution has to ensure that the rate of dividend is within the ceiling prescribed from time to time.

3. Issue of preference shares irredeemable or redeemable.-Redeemable preference shares which are redeemable after a period of twenty years from the date of issue cannot be issued (S. 80 (5A)), and issue of irredeemable preference shares totally prohibited.

Resolution for the issue of non-cumulative redeemable preference shares

S. 81- Issue of non-cumulative preference shares-Board Resolution

"RESOLVED that subject to the approval of SEBI and other statutory approvals, if any, 11% non-cumulative redeemable preference shares of Rs each forming part of the authorised capital of the company and remaining unsubscribed be issued at par and allotted to any person or persons, as the Board of Directors deem fit, on the following terms and conditions:

(a) The shares shall carry a right to a preferential dividend of 14% per annum in relation to the capital paid-up on them.

(b) The holders of the said shares shall have a right to attend General Meetings and note the resolutions directly affecting their interest or where the dividends in respect thereof are in arrears for the two financial years immediately preceding the meeting or for any three years during the period of six years ending with the financial year preceding the meeting, on all resolutions at every meeting of the company.

(c) In a winding-up, the holders of the said shares shall be entitled to a preferential right of return of the amount paid-up on the shares, but shall not have any further right or claim over the surplus assets of the company.

PRACTICE NOTES

1. Provision in the Articles.-The articles of association of the company going to issue preference shares should contain provisions to issue such shares.

2. Redemption compulsory.-No company can issue irredeemable preference shares or preference shares redeemable after the expiry of twenty years.

3. Penalty for default.-If a company issues any preference share which is irredeemable or is redeemable after the expiry of 20 years from the date of its issue, the company and every officer of the company who is in default will be punishable with fine of upto Rs. 10,000/-

Resolution for issue of redeemable preference shares

S. 81- Issue of redeemable preference shares-Board Resolution

"RESOLVED that pursuant to articles of the Articles of Association of the company and subject to other statutory provisions, if any, redeemable preference shares of Rs each forming part of the authorised capital of the company and remaining unsubscribed be issued at par and allotted to any person or persons and on such terms as to dividend, preferential payment or return of the amount paid-up thereon and redemption as the Board of Directors may deem fit."

PRACTICE NOTES

1. Articles to empower company.- The power to issue redeemable preference shares must be available in the articles of the company; otherwise the company will first have to amend the articles" by a Special Resolution.

2. Rate of dividend.-The Company while passing the resolution has to ensure that the rate of dividend is within the ceiling prescribed from time to time.

3. Adherence to the Act.- The articles will have to be framed to see if any conditions have been set out therein for the issue of those shares. If so, this resolution will have to be suitably modified to adhere to the Act.

4. Preferential right to claim dividend.-The cumulative preference shareholders have a preferential right to claim arrears of dividend before any dividend is paid to the equity shareholders.

5. Redeemable preference shares to be mentioned in balance sheet.-Schedule VI of the Act requires that any redeemable preference shares are to be specifically mentioned in the balance sheet.

Re-Allotment of shares out of unsubscribed capital

S. 81-Re-allotment of shares on which allotment and/or call money not paid-Board Resolution

"RESOLVED that such shares, out of 100,00,000 equity shares of Rs. 10/-each, allotted to the public against issue made in April/ May, 2002, on which allotment and/or call money is not paid, be sold or reallotted by the Board to such persons including employees and associates of the Company on such terms and conditions and in such manner as they may decide in the best interest of the company without offering such shares to the existing shareholders."

"RESOLVED FURTHER that sanction of the Company in the ensuing Annual General Meeting be obtained in this regard and that Secretary of the Company be and is hereby authorised to take further necessary action in the matter."

PRACTICE NOTES

1. Further allotment out of unsubscribed portion of capital.-Any allotment of unsubscribed portion of issued shares as and when applications are received will not amount to an increase in the subscribed capital of the company by issuing new shares and every allotment of shares within the issued capital is the first allotment so far as those shares are concerned. Section 8 1 (1) of the Act is not applicable to allotment of any shares which are remaining unsubscribed from a previous issue on which application were received (Letter No. 2(27)/56-PR, dated 4th October, 1976).

Allotment of non-convertible debentures

Ss. 81 & 117-Allotment of Non-convertible Debentures-Board Resolution

WHEREAS the Board informed that at its meeting held on the Board of Directors had accorded its approval for raising Rs from the Institutions/bodies corporate by way of Non-Convertible Debentures on private placement basis for meeting the long term working capital requirements of the Company;

AND WHEREAS subsequently, the Company received letters of intent for subscribing to the Non-Convertible Debentures from the following parties:

Name of Institution Amount

(Rs. in lakhs)

Unit Trust of India

Life Insurance Corporation of India

General Insurance Corporation of India

The National Insurance Co. Ltd.

United India Insurance Co. Ltd.

AND WHEREAS the Board further informed that advance subscription has already been obtained from all the above institutions against their commitment to subscribe to the said Debentures;

AND WHEREAS the Board considered the allotment of % Secured Redeemable Non-Convertible Debentures of Rs. 100/ aggregating Rs on private placement basis to the aforementioned parties and formed an opinion that such proposal is in the interest of the company;

"NOW THEREFORE IT IS RESOLVED that a sum of Rs be borrowed from the following institution/ bodies by issue of % Secured Redeemable Non-Convertible Debentures of Rs. 100/-each (hereinafter referred to as the Debentures) on private placement basis as detailed below:

Name of Institution Date of Letter Amount

of Intent (Rs. in lacs)

Unit Trust of India (UTI) ............... ...............

Life Insurance Corporation of India (LIC) ............... ...............

General Insurance Corporation of India (GIC) ............... ...............

The National Insurance Co. Ltd. (NIC) ............... ...............

United India Insurance Co. Ltd. (UII) ............... ...............

(The said subscribers are hereinafter collectively referred to as "institutions".)

RESOLVED FURTHER that the terms of issue of the Debentures allotted to each of the aforementioned institutions be as follows:

(a) Rate of Interest

The Debentures shall carry interest at the rate of ............... % p.a. payable quarterly. The first installment of interest shall be payable for the broken period from the date of allotment/ subscription upto the immediately following 30th September, and subsequently on every 31^st March, 30th June, 30th September and 31^st December. The interest for the last broken period shall be payable together with the last installment of the redemption of the said Debentures.

In the event of any default in the regular payment of interest on the Debentures on the due dates as stated above, compound interest, at quarterly rests at the aforesaid rate will become due and payable over the monies due for the period of default.

(b) Redemption Period

The Debentures shall be redeemed in 3 equal annual instilments at a premium of 5% at the end of 6th, 7th and 8th years from the date of allotment, the premium of 5% of the face value being payable together with the instilment of redemption payable on the expiry of the 7th year from the date of allotment.

(c) Debentures Redemption Reserve

The Company shall create Debenture Redemption Reserve out of its profits before distribution of any dividend and transfer to it suitable amounts in accordance with the Government guidelines issued from time to time and in force during the currency of the debentures.

(d) Security

The Debentures together with interest, cost, and all other monies, expenses, as also fees payable to Debenture Trustees, shall be secured by:

(i) Equitable mortgage by deposit or by extension to cover all the immovable properties of the Company, wherever situated, including plant and machinery, spares, tools and accessories, both present and future, which shall be kept adequately insured on the basis of replacement cost.

(ii) A first charge by way of hypothecation of all movable properties of the Company both present and future (save and except book debts) subject to the prior charges created/to be created in favour of the Company's bankers on its stocks of raw materials, finished and semi-finished goods, consumable stores for securing borrowings for the working capital requirements and excluding equipment purchased/to be purchased under Deferred Payment Credit and Asset Credit Scheme, under Exchange Risk Administration Scheme and out of loans granted/to be granted by financial institutions for purchase of equipment.

(e) Ranking

The above charges shall rank pari passu with the charges created/to be created in favour of financial institutions for existing rupee loans and the Trustees for the holders of the existing Debentures.

(f) All other terms and conditions of the issue shall be as set out in the letters of intent issued by the institutions.

RESOLVED FURTHER that the Company do constitute the Debentures of the aggregate nominal value of Rs lacs for the purpose of the issue and allotment to the aforementioned institutions.

RESOLVED FURTHER that the said Debentures bearing the following Distinctive Nos. be and are hereby allotted to the institutions on private placement basis as under:

Institutions No. of Debentures Distinctive Nos.

UTI

LIC

GIC

NIC

UII

RESOLVED FURTHER that after adjustment of the bridge loan/advance subscription against the said Debentures, the Company do issue the necessary Letters of Allotment to the said institutions signed by any one of the following Directors, namely, Mr ............. Mr .............Mr .............and Mr .............or by any one of the following Officers, namely, Mr Secretary and Mr ............., Financial Controller of the company.

RESOLVED FURTHER that be appointed as the Trustees for the holders of the said Debentures.

RESOLVED FURTHER that the aforesaid debentures be credit rated by Credit Rating Agency of India Limited and for that purpose, Mr ............. Secretary of the Company be directed to make an application to that agency and obtain the credit rating.

RESOLVED FURTHER that Mr , Mr and Mr Directors and Mr Secretary and Mr Financial Controller be and are hereby severally authorised to execute and deliver on behalf of the Company and in favour of the institutions the Letter of Allotment and such deeds, documents, declarations, undertakings and other writings and to do such acts and things as the institutions may require in this regard.

RESOLVED FURTHER that the certified copies of the aforesaid Resolutions be furnished to the institutions and they be requested to act thereon."

PRACTICE NOTES

1. Premium on redemption.-Premium amount on redemption, time of redemption, in stages, if any, shall be pre-determined and stated in the offer document. The interest rate for above debentures will be freely determinable by the issuer.

2. Creation of Debenture Redemption Reserve.-Issue of debenture with maturity of more than 18 months to appoint Debenture Trustee and to create a Debenture Redemption Reserve (DRR). The names of the debenture trustees must be stated in the offer document and DRR will be created. The trust deed shall be executed within six months of the closure of the issue. In case of infrastructure companies creation of DRR is not required.

3. Credit Rating.-In case of issue of all debt instruments for listed companies credit rating is compulsory and redemption amount, period of maturity, yield on redemption shall be indicated in the offer document. For a public/rights issue of debt security of a Company greater than or equal to Rs. 100 crores two ratings from two different credit rating agencies should be obtained.

4. Roll over.- In case, NCDs issued by a listed company, value of which exceeds Rs. 50 lakhs are to be rolled over with or without change in the interest rate, a compulsory option should be given to those debenture holders who want to withdraw and encash from the debenture programme. Roll over shall be done only in cases where debenture holders have sent their positive consent and not on the basis of the non-receipt of their negative reply.

5. Fresh Credit Rating.-Before roll over of any NCDs, fresh credit rating shall be obtained within a period of six months prior to the due date of redemption and communicated to debenture- holders before roll over and fresh trust deed shall be made at the time of such roll over. Fresh security should also be created in respect of such debentures to be rolled over. Fresh security need not be created if the existing trust deed or the security document provide for continuance of the security till redemption of debentures..

6. Filing of letter of option with SEBI.-Letter of option containing disclosures with regard to the credit rating, debenture holder resolution, option for conversion and such other items which SEBI may prescribe from time to time should be filed by listed companies with SEBI through an eligible Merchant Banker in case roll over.

7. Additional Disclosures to be made.-The disclosures relating to raising of debentures will contain redemption amount, period of maturely and yield on redemption of NCDs, the existing and future equity and long-term debt ratio, servicing behaviors on existing debentures, payment of due interest on due dates on term loans and debentures, certificate from a financial institution or bankers about their no objection for a second or pari passu charge being created in favour of the trustees to the proposed debenture issues.

8. Monitoring of progress.-Lead institution/investment institution will monitor the progress in respect of debentures for project finance/modernisation/expansion/ diversification/normal capital expenditure. The lead bank for the company will monitor debentures raised for working capital funds.

9. Certificate from auditors.-Trustees should obtain a certificate from the company's auditors in respect of utilisation of funds during the implementation period of projects. In the case of debentures for working capital, certificate should be obtained at the end of each accounting year.

10. Prohibition.- Debenture issues by companies belonging to the groups for financing replenishing funds or acquiring shareholding in other companies will not be permitted.

11. Documents to be filed.- The companies shall, along with draft offer document, file with SEBI, certificates from their bankers that the assets on which security is to be created are free from any encumbrances and the necessary permissions to mortgage the assets have been obtained or a No Objection Certificate from the financial institutions or banks for a second or pari passu charge in cases where assets are encumbered.

12. Creation of security.- The security should be created within six months from the date of issue of debentures. If for any reasons the companies are not in a position to create security within 12 months from the date of issue of debentures the company shall be liable to pay 2 per cent penal interest to debenture holders. If security is not created even after 18 months a meeting of the debenture holders should be called within 21 days to explain the reasons thereof and the date by which the security would be created.

13. Trustees to debenture holders.-The trustees to the debenture holders will supervise the implementation of the conditions regarding creation of security for the debentures and regarding the debenture redemption reserve.

Issue of Non-Convertible Secured Debentures on private placement

Ss. 81 and 117.-Subscription to the Non-Convertible Debenture Issue on private placement basis-Board Resolution

WHEREAS the Board informed that the Company had approached ................ with a request to subscribe to the proposed Issue of Non Convertible Secured Debentures of the aggregate face value of Rs on private placement basis; AND WHEREAS acceptance of such request will be in the interest of the Company;

"NOW THEREFORE IT IS RESOLVED that the Company do borrow/secure from money by way of subscription to Non-convertible Privately Placed Debentures not exceeding in aggregate Rs on the terms and conditions stipulated by them as set out in their letter dated ..........

(The copies of the said letters were placed before the Board and duly signed by the Chairman/Managing Director for the purpose of identification.)

2. RESOLVED FURTHER that the terms and conditions as contained in the letters above referred be and are hereby approved and accepted.

The Chairman/Managing Director further informed the Board that it would take some time for the Company to comply with necessary formalities for making the issue as also for complying with the terms and conditions stipulated by He informed that the Company had, therefore, requested to grant Advance Subscription against the proposed Issue of the said Debentures to the extent of its commitment.

The Chairman/Managing Director further informed that the said request of the Company was likely to be agreed to by the .................... The advance deposit would be disbursed to the Company on the terms and conditions stipulated in that regard vide Annexure II to the sanction letters as mentioned earlier.

3. RESOLVED FURTHER that the Company do hereby confirm and accept the terms and conditions for the disbursement of the advance subscription as set out in the Annexure 11 to the letter No ........... dated received from

4. RESOLVED FURTHER that the Company do confirm that it will issue the said Debentures on Private Placement basis which have been agreed to be subscribed by ....................

5. RESOLVED FURTHER that the Company do execute separate demand promissory notes each in favour of the and that the common seal of the Company be affixed thereto in the presence of Shri and Shri who shall sign the same in token thereof.

6. RESOLVED FURTHER that Shri And Shri be and are hereby authorised and empowered to negotiate, finalise, approve and accept the terms and conditions stipulated by the and any modifications thereto and execute all such deeds, documents, promissory notes, writings, receipts as may be required by the in connection with the subscription to the said Debentures and the advance subscription, thereto."

PRACTICE NOTES

See under Resolution No. § 273.

Acceptance of letter of intent for Non-Convertible Debentures and availing Advance Subscription against Non-Convertible Debentures

Ss. 81 and 117-Acceptance of letters of intent for Non-convertible Debentures and availing advance subscription against Nonconvertible Debentures-Board Resolution

WHEREAS the Board informed that pursuant to the authority granted by the Board at its meeting held on to issue Non Convertible Debentures of Rs on private placement basis the Company had approached Unit Trust of India (UTI), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) with a request to subscribe to the proposed issue of Secured Redeemable ......% Non-Convertible Debentures (NCDs) of the aggregate face value of Rs on private placement basis;

AND WHEREAS the Company had already received sanction letters from UTI and LIC, agreeing in principle to subscribe to the above Debenture Issue to the extent of Rs …..each;

AND WHEREAS the Board informed that it would take some time for the company to comply with necessary formalities for making the issue as also for complying with the terms and conditions stipulated by LIC, UTI and those which may be stipulated by GIC and its subsidiaries;

AND WHEREAS the Company may, therefore, have to avail advance subscription from the said institutions to the extent of their commitment. LIC and UTI have already conveyed their terms and conditions for advance subscription in their sanction letters and the terms and conditions from GIC and its subsidiaries are awaited;

"NOW THEREFORE IT IS RESOLVED that Company do borrow and secure from LIC, UTI, GIC and its Subsidiaries money by way of subscription to Non-Convertible Privately placed Debentures aggregating Rs............. on the terms and conditions stipulated by LIC by its letter dated and on the terms and conditions that may be stipulated by GIC and its subsidiaries for subscribing to the above Debentures.

RESOLVED FURTHER that that terms and conditions contained in the above referred letters of LIC and UTI be and are hereby approved and accepted.

RESOLVED FURTHER that the Company do hereby confirm and accept the terms and conditions for disbursement of advance subscription as set out in LIC's Sanction Letter and UTI's Sanction Letter and further accept the terms and conditions for advance subscription that may be stipulated by GIC and its subsidiaries.

RESOLVED FURTHER that the Company do confirm that it will issue the said Non-Convertible Debentures on Private Placement basis which have bee ' n agreed to be subscribed by LIC, UTI, GIC and its Subsidiaries.

RESOLVED FURTHER that the Company do execute separate Demand Promissory Notes for the respective amounts in favour of each of LIC, UTI, GIC, any one or more of GIC's subsidiaries for advance subscription and that the Common Seal of the Company be affixed thereto in the presence of any two of the following Directors, namely, Mr............. Managing Director, Mr ............. and .................... I Directors, or any one of the aforementioned Directors and any one of the following officers of the Company, namely, Mr ............. Secretary and Mr ............. I Financial Controller, who shall sign the same in token thereof.

RESOLVED FURTHER that Mr ….Managing Director, Mr …..and Mr ……Directors, Mr…..I ---Secretary and Mr ….Financial Controller of the Company be and are hereby severally authorised and empowered to negotiate, finalise, approve and accept the terms and conditions stipulated by LIC and UTI and those which may be stipulated by GIC and its subsidiaries and any modifications thereto and execute all such deeds, documents, writings and receipts as may be required by them in connection with the subscription to the said debentures and the advance subscription thereto."

PRACTICE NOTES

1. Credit Rating.-For issue of all debt instruments, credit rating is compulsory for listed companies.

2. Auditors' Certificate.- Trustees should obtain a certificate from the issuer company's auditors in respect of utilisation of funds during the implementation period of projects and in case of debentures issued for working capital the said certificate should be obtained at the end of each accounting year.

3. SEBI (DIP) Guidelines, 2000 on preferential allotment.-Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines 2000 on preferential issue are only applicable to issue of equity shares/FCDs/PCDs or any other financial instruments which would be converted into or exchanged with equity shares at a later date by listed companies and not to issue of NCDs of listed company.

Execution of common subscription agreement, Trustee agreement and deed of Hypothecation for Non-Convertible Debentures

Ss. 81 and 117-Execution of common subscription agreement, trustee agreement and deed of hypothecation for non-convertible debentures-Board Resolution

WHEREAS the Board informed that the ............. has been appointed as Trustees for the Non-Convertible Debentures of the nominal value of Rs privately placed by the Company with and (hereinafter referred to as "Debenture holders");

AND WHEREAS it is further informed that it is also necessary that the Company do execute a Common Subscription Agreement in favour of the Debenture holders incorporating the terms and conditions of the said financial assistance;

AND WHEREAS it is further stated that the Debenture holders have agreed to accept a mortgage by extension of deposit of title deeds in favour of the Trustees to secure the said financial assistance and an Agreement between the Company and the Trustees is necessary to detail the rights of the Trustees in the event of default;

AND WHEREAS it is also necessary for the Company to execute in favour of the Trustees an Unattested Memorandum of Hypothecation of movables and later on create an equitable mortgage by extension of deposit of title deeds in favour of the Trustees for the benefit of debenture holders;

AND WHEREAS the Agreement to be executed between the company and the Trustees would be complementary to the Common Subscription Agreement proposed to be executed by the Company in favour of Debenture holders;

"NOW THEREFORE IT IS RESOLVED that the said draft Common Subscription Agreement be and is hereby approved and Mr …….Managing Director, Mr …….Director, Mr …….Secretary of the Company be and are hereby severally authorised to agree to such modifications as may be acceptable to the Debentureholders.

RESOLVED FURTHER that the Common Seal of the Company be affixed to the stamped engrossment(s) of the Common Subscription Agreement in the presence of any two of the following Directors, namely, Managing Director, Mr ............. and Mr Directors OR any one of the aforementioned Directors and any one of the following officers, namely Mr …….I Secretary and Mr …….Financial Controller of the Company who shall sign the same in token thereof.

RESOLVED FURTHER that the Company do execute an agreement with Trustees for the Debenture holders in terms of the draft placed on the table and initialed by the Chairman for the purpose of identification and subject to such modifications as may be agreed to by Debenture holders and/or Debenture Trustees.

RESOLVED FURTHER that the Company do create a first charge by way of hypothecation of all the movable properties present and future (save and except book debts) in favour of Debenture Trustees acting for the benefit of the Debenture holders, the charge to be subject to the charges created/to be created by company in favour of its bankers on the stock of raw materials, semi-finished and finished goods, stores and spares (not relating to Plant and Machinery) including consumable stores, spare parts and book-debts for its working capital requirements.

RESOLVED FURTHER that the Company do execute in favour of the Debenture holders/Debenture Trustees an Unattested Memorandum of Hypothecation in terms of the draft thereof placed on the table and initialed by the Chairman for the purpose of identification and subject to such modifications as may be agreed to by Debenture holders/Debenture Trustees and accepted on behalf of the Company severally by Mr Managing Director, Mr and Mr............. Directors and Mr ............. Secretary of the Company.

RESOLVED FURTHER that the Common Seal of the Company be affixed to the stamped engrossments of the Trustee Agreement (in duplicate) and the Deed of Hypothecation as may be finalised between the Company and the Debenture Trustees in presence of any two of Mr ............. Managing Director, Mr ............. and Mr............. Directors, or any one of the aforementioned Directors and any one of Mr ............. Secretary and Mr ............. Financial Controller of the Company who shall sign the same in token thereof.

RESOLVED FURTHER that Mr ............. Managing Director, Mr ............. and Mr ............. Directors be and are hereby severally authorised to execute and deliver on behalf of the Company and in favour of the Debentureholders/Debenture Trustees such deeds, documents, declarations, undertakings, instruments and other writings as the Debenture Trustees may so require.

RESOLVED FURTHER that copies of the aforesaid resolution certified to be true be furnished to the Debentureholders/Debenture Trustees and they be requested to accept the same and act thereon."

PRACTICE NOTES

1. Passing of ordinary resolution.-If the creation of charge amounts to selling, leasing or disposing of the whole or substantially the whole of the undertaking of the company, then an ordinary resolution should be passed under section 293(l)(a). Another ordinary resolution should be passed under section 293(l)(d) of the Act if by issuing nonconvertible debentures the company borrows money together with moneys already borrowed exceeds the aggregate of the paid-up share capital and free reserve.

2. Filing of the charge.-The charge so created should be filed within thirty days of its creation with the Registrar of Companies in Form Nos. 8 and 13.

Provisions inserted by the Companies (Amendment) Act, 2000.

[Sections 117A, 117B & 117C]

Companies (Amendment) Act, 2000, w.e.f. 13-12-2000 has added three new sections 117A, 117B and 117C to the Companies Act, 1956. Section 117A provides for a prescribed format of a trust deed for securing any issue of debentures and also prescribes the period within which the said trust deed should be executed. The said trust deed after should be kept for inspection by a company to any member or debenture holder who will be also entitled to obtain copies of it on payment of a prescribed sum and in case of default of this requirement, the company and every officer of the company who is in default will be punishable for each offence with fine of upto Rs. 500/- per day.

Section 117B provides for appointment of debenture trustees and duties of debenture trustees. Debenture trustees are to be appointed before the issue of a prospectus or a letter of offer to the public for subscription of its debentures after obtaining consent from to so act. The section also provides for restrictions ' to the appointment of a debenture trustee. This section also gives power to the debenture trustee to file a petition before the Company Law Board if the assets of the company are insufficient or likely to become insufficient to discharge the principal amount as and when it becomes due.

Section I 17C provides for creation of debenture redemption reserve for the redemption of debentures to which adequate amounts are required to be credited out of the company's profits every year. This section also gives power to the debenture holders to file an application with the Company Law Board if the company fails to redeem the debentures on time.

Issue of convertible bonds to overseas investors

S. 81(3)-Issue of convertible bonds to overseas investors-Board Resolution

"RESOLVED that pursuant to the applicable provisions of the Companies Act, 1956 and to such other approvals, permission and sanctions as may be necessary, the Board hereby accords its approval to the issue of convertible bonds of the value of not exceeding US Dollar each such bond of such value as the Board may think necessary in consultation with the Overseas Depository Bank without warrant with option to holders thereof to convert such bonds into equity shares of Rs. 10/-each at the rate of fully paid equity shares for every US Dollar or for such value of the bonds depending upon the exercise of option for conversion on or before the dates as may be specified in said bonds.

RESOLVED FURTHER that Shri …….Director and Shri …….Director be and are hereby authorised to issue the said bonds under their signatures and to fix the common seal of the company thereon in their presence."

PRACTICE NOTES

1. Approvals of authorities.-I. Please ensure to take the following approvals before issue of the Bonds:

(i) Approvals of the Members of the Company by Special Resolution under section 8 1(3) of the Companies Act, 1956.

(ii) Approval of the Department of Economic Affairs, Ministry of Finance and the Reserve Bank of India.

(iii) Approval of Department of Company Affairs.

2. Intimation to Stock Exchange concerned.-The Stock Exchange concerned where the Company's shares are listed be informed about the issue of convertible bonds.

3. Issue of warrants.-The Companies are not permitted to issue warrants alongwith the issue. (Press Note, dated 28-10-1994 issued by Department of Economic Affairs, Ministry of Finance).

Approval of convertible loans

S. 81(3) (b)-App roving of convertible loans-Board Resolution

"RESOLVED that subject to the approval of the Central Government, approval of the Company is given for raising a loan of Rs :"' by the company from M/s. X Ltd. giving the M/s. X Ltd. an option to convert the loans into equity shares of the company at a premium of Rs within 12 years from the receipt of the loan by the Company and on other terms and conditions contained in the draft agreement placed before the meeting and initialed by the Chairman for the purposes of identification."

PRACTICE NOTES

1. Provision, when not applicable.-Under Section 81(3) loans or debentures with option for conversion will not be hit by section 8 1 (1) if the loans or debentures have been approved by the Central Government or are in conformity with the Public Companies (Terms of Issue of Debentures and Raising of Loans with Option to Convert such Debentures or Loan into Shares) Rules, 1977.

2. Special resolution, when required.-In case of such loans or debentures obtained from or issued to specified institution or Central Government approval by special resolution is also needed.

3. Approval under section 372A.-The lending company should take approval under section 372A of the Companies Act, if necessary.

Share certificate format (section 82/84)

A 'share' is a right to a specified amount of the share capital of a company, carrying with it certain rights and liabilities while the company is a going concern and in the winding up. It represents the interest of the holder measured for purposes of liability and dividend by a sum of money5l. The estate of a dead shareholder of a company which also includes the shares in question devolves upon his legal representative and consequently the legal representative of that deceased shareholder acquires the right to approach the competent court for appropriate relief. Arjun Tukaranz Shetgaonkar v. Urmila Vaikanth Desai, (2001) 105 Com Cases 722 (Bom). Shares can be validly pledged by a mere deposit or delivery of the share certificate unaccompanied by a transfer form 52 - A certificate obtained from the company under forged signatures does not bind the company.

Exemption of distinctive number of shares

S. 83 proviso-Exemption of distinctive number of shares-Board Resolution

WHEREAS the company's shares bearing distinctive No ....... to ............. were dematerialised from ……2002;

AND WHEREAS the aforesaid shares of the company are being held by National Securities Depository Limited;

NOW, THEREFORE, IT IS RESOLVED that the aforesaid shares of the company be exempted from having appropriate share numbers in the share capital of the company under section 83 proviso.

PRACTICE NOTES

1. Depositories Act, 1996-The Depositories Act 1996 provided that the shares held with a depository need not have distinctive numbers as that would defeat the purpose of easy tradability of shares in dematerialised form.

2. Record of depository- The depository which is holding the shares on behalf of the beneficial owners may maintain a record giving therein the distinctive number of shares when they are handed over to the depository.

Printing of Share certificates

S. 82/84-Share certificates printing-Board Resolution

"RESOLVED that 5,000 share certificates be given for printing as per the design produced before this meeting and those share certificates be machine numbered in regular order and that the said blocks and forms be kept in the custody of Mr. XYZ, the Secretary of the company, who shall render account thereof to the Board."

RESOLVED FURTHER that two share certificates for 300 equity shares having distinctive numbers ……to (both inclusive) be cancelled and two new share certificates be issued in their place which are surrendered to the company and that the common seal of the company be affixed on these new share certificates in the presence of any two Directors and the Secretary of the company who shall also sign the same."

PRACTICE NOTES

1. Printing of Share Certificates.-Share Transfer Agents of a company is entrusted with the responsibility of printing of new share/debenture certificates in lieu of misplaced, lost, mutilated certificates and of issuing new certificates on consolidation or split.

2. Listed companies to get share certificate format approved by Stock Exchange.-A draft format of the share certificate should be sent to the Exchange for approval if the company is listed on a recognised Stock Exchange.

3. Board approval required.-Board Resolution should be passed before issuing the share certificates.

4. Letter of allotment be exchanged for Share Certificate.-Letter of allotment or fractional coupons should be exchanged for the share certificate. This will not be necessary where share certificates are issued against letters of acceptance or letters of renunciation or in the case of a bonus issue. Again, where a letter of allotment is lost, Board may issue a certificate on reasonable terms of indemnity, expenses etc.

5. Other interest of member.-A part from shares, section 82 also enables members to transfer their any other interest in the company by complying with the requirements of the articles of association of the company. [Saroj Maloo (Smt.) v. Magadh Stock Exchange Assn., (1995) 4 Comp LJ 135 (CLB-Cal)].

6. Particulars prescribed be entered in Register of Members.-Prescribed particulars should be entered in the Register of Members to be kept in the form given as an Appendix to the Companies (Issue of Share Certificates) Rules, 1960.

7. Procedure to be followed where certificates issued in exchange or in replacement of Certificates already issued.-When a share certificate is issued in exchange of or in replacement of that which is already issued and is now sub-divided, consolidated, defaced, torn or old, decrepit, worn out or because the endorsement space is wholly filled up, the following procedure would hold good:

(a) Old certificate should be received back;

(b) A fee not exceeding Rs. 2, as may be decided by the Board, may be charged;

(c) It the company is listed on recognised Stock Exchange, no fee can be charged for sub-division and consolidation of shares certificates into denominations corresponding to the market units of trading or for issue of new certificates in replacement of those which are old, decrepit or worn out or where the cages on the reverse for recording transfers have been fully utilised;

(d) On the face of such new certificate and its counterpart, it should be stated that it is "issued in lieu of Share Certificate No sub-divided replaced on consolidation of shares", as the case may be;

(e) One extra register, viz., "Register of Renewed and Duplicate Certificates" should be opened in which particulars as regards name, number and date of issue of the old certificate etc. should be opened. This should be indicated in the "Remarks column," giving cross reference in both the registers;

(f) The word "cancelled" should be put either by stamp or by punch in bold letters on the old certificates so surrendered. These cancelled certificates may be destroyed after three years of their surrender, but only under a Board Resolution and in the presence of a person duly appointed by the Board in this respect;

(g) The certificates should be issued in the case of listed companies within one month of the date of lodgment for sub-division, consolidation, etc. Otherwise the certificates should be issued within two months.

8. Penalty for default.-If a company with intent to defraud renews a certificate or issues a duplicate thereof, the company will be punishable with fine of Rs. 1,00,000/- and every officer of the company, who is in default will be punishable with imprisonment for term of 6 months or with fine of up to Rs. 1,00,000/- or with both. Where summons were issued to the Vice President of the Company for failure to register certain shares and deliver the share certificates under section 84(2), it was held by the court that such. summons were being served through the Vice President to the company and was not directed to be issued to the Vice President in his personal capacity. Dhirubhai H. Allibani v. Sonia Sethi, (2001) 106 Com Cases 486 (MP).

Share Certificate Format

S. 82/84-Approval of Share Certificate Format-Board Resolution

"RESOLVED that the formats of equity share certificate and preference share certificate as per design placed before the Board, duly initialed by the Chairman for the purposes of identification, be and are hereby approved.

RESOLVED FURTHER that 9000 equity shares certificates and 9000 preference share certificates as per design approved by the Board be got printed and machine numbered in regular order.

RESOLVED FURTHER that the blocks, engravings, facsimiles and hues relating to the printing of share certificates as also the blank unused share certificates be kept in the custody of the Secretary of the company."

PRACTICE NOTES

1. Listed companies to get Share Certificate format approved by Stock Exchange.-Where the shares of a company are enlisted on any recognised Stock Exchange, the draft format of the share certificate should be sent to the Stock Exchange concerned for approval.

2. Compliance with provisions of Companies (Issue of Share Certificates) Rules, 1960.-Ensure that the provisions of the Companies (Issue of Share Certificates) Rules, 1960 are complied with, specially Rule 5 and 8.

3. Printing of Share Certificates.-Share certificates should be got printed only after a Board Resolution has been passed to this effect.

4. Register of Members.- Register of members to be kept as per form given in the Appendix to the Companies (Issue of Share Certificates) Rules, 1960, and particulars prescribed therein should be entered therein.

5. Affixation of Stamp duty on Share Certificate.-Ensure that stamp duty is affixed on the share certificate. Being a State subject, stamp duty varies from State to State.

6. Share Certificates to be issued against original letter of allotment.-Share certificates are issued only in exchange of the original letter of allotment. When a letter of allotment is lost, the Board may issue the share certificate on reasonable terms of indemnity, expenses, etc.

7. Period within which Share Certificates are to be issued.-Ensure that the share certificates are issued within one month of the date of lodgment for sub-division, consolidation etc.

8. Share Certificate represents interest of holder for purpose of liability and dividend.-A 'share' is a right to a specified amount of the share capital of a company, carrying with it certain rights and liabilities, while the company is a going concern and in the winding-up. It represents the interest of the holder measured for purposes of liability and dividend by a sum of money.

9. Pledge of Share Certificate.- Shares can be validly pledged by a mere deposit or delivery of the share certificate unaccompanied by a transfer form.

10. Certificate obtained under forged signatures not to bind Company.-A certificate obtained from the company under forged signatures does not bind the company

Approval and Printing of Share Certificate

Ss. 82/84-Issue and printing of share certificates-Board Resolution

"RESOLVED that Company do issue share certificates in respect of equity shares of Rs. 10/-each bearing distinctive numbers from ........... to ............. under the Common Seal of the company.

RESOLVED FURTHER that the format of the share certificate placed before the Board, duly initialed by the Chairman for purposes of identification, be and is hereby approved and the same be got printed at New Delhi through Company's Issue House."

PRACTICE NOTES

1. Printing of forms.-All blank forms to be used for issue of share certificate shall be printed and the printing shall be done only on the authority of a resolution of the Board. The blank form shall be consecutively machine-numbered and the forms and the blocks, engravings, facsimiles and hues relating to the printing of such form shall be kept in the custody of the secretary or such other person as the Board may appoint for the purpose and the secretary or other person aforesaid shall be responsible for rendering an account of these forms to the Board. See also 'Practice Notes' under Resolution No. 248.

2. Share Certificate to be under Common Seal.-For a certificate to be evidence of title of any member to the shares it must bear the common seal of the company and must specify the shares held by the member. The mode of specifying contemplated is to distinguish the shares by their numbers.

3. Significance of share certificate and its evidentiary value.-Companies are obliged by S. 113 to issue to the allottees and transferees a document known as a certificate of shares, to the effect that they are holding a certain number of shares of the company showing their nominal and paid-up values and distinctive numbers. This certificate is the only documentary evidence of title in the possession of shareholders. [Societe Generale De Paris v. Walker, (1885) 11 AC 20, 29 (HQ].

4. Estoppel as to title.- Certificates are a great convenience to shareholders and persons dealing with them, because they are prima facie evidence of the title to the shares.

Moreover, the company is bound by its statement in the certificate, and if the statement is untrue, whether intentionally or accidentally, any person acting on it can compel the company to make good its statement and pay compensation for any damage caused by reason of any mis-statement.

5. Estoppel as to payment.- Another kind of prinza facie evidence which arises from the share certificate is that the company cannot dispute the amount mentioned on the certificate as already paid-up. [Blooinenthal v. Ford, (1897) AC 156 (HL)]. A company cannot after a gap of long period of time, dispute amount paid on the shares, when share certificates indicating therein that they were fully paid were issued and the company is held to be completely estopped from disputing amount as indicated in share certificates as fully paid. K. Md. Farooq Ahined v. Fotran Cirkit Electronics (P) Ltd. and others, (1997) 2 Comp LJ 234 (CLB-SR).

6. No estoppel by dividend.-A Company is not estopped from denying the purchaser's title by the mere fact that it has treated him as a shareholder by sending him a dividend warrant. Foster v. Tyne Pontoon and Dry Docks Co. and Ren wick (1893) 63 LJ QB 50.

7. Liability of directors.-Where directors issue a certificate of title to shares or stock which do not in fact exist or which the company has no power to issue, they may be held personally liable in damages on an implied warranty of authority to any person who acts on such certificate. Firbanks' Executors' v. Humphreys, (1886) 18 QBD 54.

8. Clean Certificate.- A member is entitled to a clean certificate. It means a certificate which does not contain any derogatory remark to his title. W Key & Soil Ltd. Re (1902) 1 Ch 467.

9. Duplicate Certificate.- The right to obtain duplicate certificate for the original which has been lost or become mutilated is conferred by Sec. 84(4) and same is issued in accordance with Rule 4(3) of the Companies (Issue of Share Certificates) Rules, 1960.

10. Penalty for default.-If a company with intent do defraud renews the certificate or issues duplicate thereof, the company is punishable with fine which may extend to Rs. 1,00,000/- and every officer of the company who is in default is punishable with imprisonment for a term up to six months or with fine up to Rs. 1,00,000/- or with both, under sub-section (4). The offence is compoundable by CL13 under section 621A.

Printing and Issue of Share Certificates

(Another format)

Ss. 82 and 84-Printing and issue of share certificates-Board Resolution

"RESOLVED THAT the specimen share certificate for equity shares as per design placed before the Board and duly initialed by the Chairman for the purpose of identification be and is hereby approved.

RESOLVED FURTHER THAT share certificates as per approved design produced before the meeting be machine numbered in serial order and that the blocks and engravings relating to the printing of share certificates be kept in the safe custody of the Secretary of the Company.

RESOLVED FURTHER THAT the share certificates of the company be issued under the common seal of the Company to be affixed in the presence of Mr …….and Mr …….Directors of the Company and Mr ............. Company Secretary or authorised signatories of the Company and that the said share certificates be signed by the Directors by affixing their signatures thereon by means of any machine, equipment or other mechanical means and that the Directors shall be responsible for the safe custody of such machine, equipment or other materials used for the purpose.

RESOLVED FURTHER THAT the unused certificates be kept in the safe custody of the Secretary of the Company who shall keep account thereof."

PRACTICE NOTES

1. Effect of share certificate.-A share certificate issued under the common seal of the company specifying the shares held by the member is prima facie evidence of the title of the member to such shares.

2. Share Certificate Rules.-The provisions of the Companies (Issue of Share Certificates) Rules, 1960, should be adhered to before issue of any share certificate.

3. Issue of Jumbo Share Certificate.-The companies listed with OTC Exchange of India, a company registered under section 25 of the Act, may issue a Jumbo Share Certificate in favour of custodian and issue counter receipts to every allottee with respect to their holding. [GSR No. 423(E) dated 26-5-1995].

Issue of duplicate share certificates

S. 82/84-Issue of duplicate share certificates-Board Resolution

"WHEREAS the company received a request for three duplicate share certificates for 10 shares each, covering the distinctive numbers from to in lieu of those that are lost, from Mr. MTD, the holder thereof;

AND WHEREAS the said holder, Mr. MTD, has advertised such loss of share certificates bearing two consecutive numbers of in a daily newspaper having all India circulation;

AND WHEREAS the said Mr. MTD has also executed an indemnity bond to the satisfaction of the Board of Directors, providing bank guarantee in support thereof;

NOW THEREFORE IT IS RESOLVED that three duplicate certificates be issued to Mr. MTD bearing consecutive numbers from ........... to ............. in lieu of the original certificate numbers under the common seal of the company to be affixed in the presence of any two Directors and Secretary who shall also sign the same."

PRACTICE NOTES

1. Issue of duplicate Share Certificate.-Rule 4(3) of the Companies (Issue of Share Certificates) Rules, 1960, confers the power to issue duplicate share certificates in lieu of those lost, defaced or destroyed. The fee for such certificate should not exceed Rs. 2 but some companies do not charge anything for such services rendered to a member. To guard against possible risk the Directors usually insist on precautionary measure like bank guarantee.

2. Word "Duplicate" be stamped or punched on Duplicate Certificate.-It is necessary to state on the face of such duplicate certificate and its counterpart the words,

"Duplicate issued in lieu of Share Certificate No The word "DUPLICATE" should be stamped or punched across the face of such a duplicate certificate.

3. Printing of new share certificate.-Share Transfer Agent is to be entrusted with the responsibility of printing of new share certificates in lieu of misplaced, lost or mutilated certificates.

4. Precautions for issuing duplicate certificate.-Once a duplicate certificate is issued, the original certificate becomes extinct. In order to safeguard the original shareholder from any jeopardy, it is necessary under sub-section (2)(a) that there is proof of the fact that the original has been lost or destroyed. It has been held by the Company Law Board that the original cannot be said to have been lost or destroyed as long as the existence of the original is known. Hence, as a matter of precaution public notice of the loss must be given whenever duplicate certificate is sought. This will be more particularly necessary where a substantial number of share certificates is involved. No company should take this precaution lightly. An issue of duplicate certificates was held to be not in accordance with section 84(2) where the precautions prescribed by the sub-section for ascertaining genuineness of loss were not observed. The purpose of the sub-section is to safeguard the share market from fraudulent dealings in duplicates. Tracstar Investments Ltd. v. Gordon Woodroffie Ltd., (1996) 1 Comp LJ 462 (CLB-Mad).

5. Compliance Certificate.-A company whose paid-up share capital is less than Rs. 2 crores but is equal to or more than Rs. 10 lakhs must obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has delivered all the certificates on allotment of shares and on lodgement thereof for transfer/transmission in accordance with the provision of the Act as per paragraph 13(i) of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001 prescribed under section 383A(l) proviso.

Certificate to be issued under Common Seal of Company (S. 84)

Pursuant to the Companies (Issue of Share Certificates) Rules, 1960, every share certificate is required to be issued under the seal of the company, to be affixed in the presence of (i) two Directors or persons acting on behalf of the Directors under a duly registered power of attorney, and (ii) the Secretary or some other person appointed by the Board for the purpose. Where there is a public issue and share certificates in different lots are required to be issued, the aforesaid provision becomes a tiring exercise, either on the part of the Directors or their attorneys or the Secretary of the company and in order to avoid this exercise, the rules provide for signing by means of any machine, equipment or other mechanical means. Rule 6 of the Companies (Issue of Share Certificates) Rules, 1960, read with Regulation 84 of Table 'A' gives the necessary flexibility to the requirement of affixing of common seal on share certificates. The said 'Rules' state that it may be affixed in the presence of two Directors of the company or in the presence of persons acting on behalf of those two Directors under a duly registered power of attorney.

Compulsory Registration of Share Certificates Debenture Certificates, Dividend Warrants and Refund Order under Post Office Rules (S. 84)

Consequent upon relaxation of postal rules in respect of compulsory despatch of refund orders, etc., by registered post, SEBI now requires incorporation of the following clause in the offer document:

"The company shall ensure despatch of refund orders of value of over Rs. 1500/- and share/debenture certificates by registered post only and adequate funds for the purpose will be made available to the Registrars to the Issue".

[Clause 6.5-5. 1 of SEBI (DIP) Guidelines, 2000].

Issue of Duplicate Share Certificate

(Another format)

S. 84-Issue of duplicate share certificate-Board Resolution

WHEREAS the Board of Directors informed that the Company has received requests for issue of duplicate share certificates from several holders in lieu of share certificates lost;

AND WHEREAS the Register of Duplicate and Renewed Share Certificates was placed before the Board;

"NOW THEREFORE IT IS RESOLVED that in consideration of indemnity bond having been received to the satisfaction of the Board and in consideration of the loss of share certificates having been advertised in a newspaper, having all India circulation duplicate share certificates bearing certificate Nos to be issued in lieu of share certificate Nos to reported as lost and the said share certificates be issued under the common seal of the company to be affixed in the presence of the following Directors of the Company, namely and Secretary of the Company, who shall sign the same in token thereof."

PRACTICE NOTES

1. Share Certificate Rules.-As per the provisions of Rule 4(3) of the Companies (Issue of Share Certificates) Rules, 1960, no duplicate share certificate should be issued in lieu of those that are lost or destroyed without the prior consent of the Board or with payment of such fees if any not exceeding Rs. 2/-and on such reasonable terms, if any as to evidence and indemnity and the payment of out of pocket expenses incurred by the company in investigating evidence as the Board think fit.

2. Penalty.- If a company which intends to defraud issues a duplicate certificate, the company is punishable with fine of Rs. 1,00,000/-.

3. Requirement as to Committee of Directors.-One of the effects of the Rules stated in Companies (Issue of Share Certificates) Rules, 1960 is that the decision for issue of a share certificate or duplicate thereof has to be that of the board of directors or a committee of directors consisting of not less than three directors where the directors exceed six in number and not less that two where they do not exceed six. The Company Law Board has held that a company cannot change this requirement of quorum and the decision of a committee when quorum is not present would not be in accordance with the law. Tracstar hwestments Ltd. v. Gordon Woodroffe Ltd., (1996) 1 Comp U 462 (CLB-Mad).

4. Precautions for issuing duplicate certificate.-Once a duplicate certificate is issued, the original certificate becomes extinct. In order to safeguard the original share holder from any jeopardy, it is necessary under sub-section (2)(a) that there is proof of the fact that the original has been lost or destroyed. It has been held by the Company Law Board that the original cannot be said to have been lost or destroyed as long as the existence of the original is known. Hence, as a matter of precaution public notice of the loss must be given whenever duplicate certificate is sought. This will be more particularly necessary where a substantial number of share certificates is involved. No company should take this precaution lightly. An issue of duplicate certificates was held to be not in accordance with section 84(2) where the precautions prescribed by the sub-section for ascertaining genuineness of loss were not observed. The purpose of the sub-section is to safeguard the share market from fraudulent dealings in duplicates. Tracstar Investments Ltd. i,. Gordon Woodroffe Ltd., (1996) 1 Comp LJ 462 (CLB-Mad). In another case where shares of one person were in the custody of another and the company issued duplicate certificates to the original shareholder and subsequently registered their transfer in favour of other, the said issue of duplicate certificates was held to be in violation of Rule 4(3) of the (Issue of Share Certificates) Rules, 1960. Sridewell Leathers (P.) Ltd. v. Shoe Specialists (P.) Ltd., (2001) 44 CLA 264 (CLB).

5. Share Certificate prima facie evidence.-A share certificate is prima facie evidence of title and the name of shareholder is not recorded in the register of members under section 164 that shareholder shall prima facie on the strength of the share certificate be treated to be shareholder of the company. Rajendra Prasad Gupta v. Scientific Instruments Company Ltd. and others, (1999) 1 Comp LJ 121 (CLB-PB).

Board's power to make calls on members in respect of money unpaid on shares

Subject to the provisions of the Articles of Association of the company which usually incorporate the provisions of Regulation 13 of Table 'A' the Board may, from time to time, make calls upon the members in respect of any moneys unpaid on their shares including premium, if any, payable on such shares. Amount of each call should not exceed one-fourth of the nominal value of the shares or be payable within less than one month of the date fixed for the payment of the last preceding call. Regulation 16 of Table 'A' provides that interest at the rate of five per cent per annum or less, as determined by the Board, must be paid on the sum called in respect of a share on which payment is not made on the due date. All calls must be made on a uniform basis on all shares falling under the same class, but shares of the same nominal value on which different amounts are paid-up, cannot be regarded to fall under the same class. (Section 9 1, Explanation).

Cancellation of share certificates

S. 84-Cancellation of share certificates-Board Resolution

WHEREAS under Rule 9(2) of the Companies (Issue of Share Certificates) Rules, 1960 a company is required to deface all certificates of shares surrendered to the company by the word "cancelled".

AND WHEREAS proviso to Rule 9(2) of the said Rules exempts the aforesaid provision under sub-section (2) of section 6 of the Depositories Act 1996 when any share certificate is cancelled in accordance with the sub-regulation 5 of Regulation 54 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996;

NOW, THEREFORE, IT IS RESOLVED that the shares bearing No. .......... to dematerialised and held by the depository be and are hereby cancelled without mentioning the word "cancelled" on the share certificates of these shares.

PRACTICE NOTES

1. Share Certificates Rules-As per Rule 9(2) of the Companies (Issue of Share Certificates) Rules 1960 of the shares surrendered to the company are required to be defaced immedi4tely by the word "cancelled" to be stamped or punched in bold letters on the share certificates so surrendered and thereafter cancelled. These shares are to be preserved till three years and can only be destroyed after the expiry of three years on which they are surrendered under the authority of the resolution of the Board and in the presence of a person duly appointed by the Board in this behalf.

2. Exemption from the requirement of Share Certificates Rules-Proviso to subrule (2) of Rule 9 of the Companies (Issue of Share Certificates) Rules, 1960 exempts a company from this provision when the certificates of security are cancelled under subsection (2) of section 6 of the Depositories Act, 1996 and in accordance with the subregulation (5) of Regulation 54 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 made under section 30 of the Securities and Exchange Board of India Act, 1992.

Destruction of cancelled share certificates

S. 84-Destruction of cancelled share certificates-Board Resolution

WHEREAS the Board has cancelled the surrendered shares bearing No to on 2002;

AND WHEREAS three years have passed from the date of surrender; NOW, THEREFORE, IT IS RESOLVED that the aforesaid shares surrendered and cancelled be and are hereby destroyed in the presence of Mr. XYZ, the Secretary of the company immediately.

PRACTICE NOTES

1. Share Certificates Rules-As per Rule 9(2) of the Companies (Issue of Share Certificates) Rules 1960, share certificates surrendered and thereafter cancelled are required to be preserved till three years and after the expiry of three years from the date on which they are surrendered those share certificates can be destroyed under the authority of Board resolution and in the presence of a person duly appointed by the Board in this behalf.

2. Exemption- Share certificates of companies which are surrendered to the depository on behalf of the beneficial owners to be traded in dematerialised form need not be cancelled and thereafter need not be destroyed after the expiry of three years from the date on which they are surrendered and cancelled as per proviso to sub-rule (2) Rule 9 of the Companies (Issue of Share Certificates) Rules, 1960.

Sealing of Share Certificates

S. 84-Sealing of share certificates-Board Resolution

"RESOLVED that the share certificates of the company be issued under the common seal of the company to be affixed in presence of Mr …….and the two Directors of the company, and Mr …….the secretary of the company, and that the aforesaid Directors may sign a share certificate by affixing their signatures thereon by means of any machine, equipment or other mechanical means (not by means of rubber stamps) and that the Directors shall be responsible for the safe custody of such machine, equipment, or other materials used for the purpose.

RESOLVED FURTHER that Mr …….an employee of the company, be and is hereby appointed as the ' authorised person' in the absence of the Secretary to sign such share certificates."

PRACTICE NOTES

1. Prima facie evidence.- A share certificate issued under the common seal of the company specifying therein the shares held by any member is prima facie evidence of the title of the member to such shares.

2. Share Certificate Rules.-The provisions of the Companies (Issue of Share Certificates) Rules, 1960, should be adhered to before issue of any share certificate.

3. Common Seal with the Registrars to the Issue.-The company should handover to the Registrar to the Issue impression of common seal at the time of clearing the art works of pre-printed share certificates.

Voting on Partly Paid Shares

S. 87(l)(b)-Voting on partly paid shares-Board Resolution

WHEREAS Mr …….has paid Rs …….towards part of the amount of equity shares of Rs. 10/- each of the company;

AND WHEREAS no part of that amount of equity shares has been called up by the company;

NOW THEREFORE IT IS RESOLVED that the said Mr . ................. as a shareholder will not be entitled to any voting rights on such partly paid shares till they are fully paid up on a poll if any being taken on any resolution in any general meeting of the company.

PRACTICE NOTES

1. Provisions of the Act.- Section 87(l)(b) provides that subject to the provisions of section 89 and sub-section (2) of section 92 the voting right of every member of a company on a poll shall be in proportion to his share of the paid-up equity capital of the company. Sub-section (2) of section 90 provides that nothing in sections 85 to 89 shall apply to a private company, unless it is a subsidiary of a public company.

2. Amendment in Articles.-An amendment made in the articles of association of a company conferring full voting rights in respect of partly paid shares is repugnant to the provisions of section 87(l)(b) and is therefore void being in derogative of the provisions of the Act as per section 9.

Formation of private company with only preference shares

S. 90-Formation of private company with only preference shares-Board Resolution

RESOLVED that a private limited company be formed and incorporated with the Registrar of Companies in the name and style of private limited with this company and M/s. ABC Pvt. Ltd. as the only two subscribers each subscribing 500 preference shares of Rs. 100/- each, such preference shares carrying voting rights, and the authorised capital of the new company being Rs. 50 lakhs;

RESOLVED FURTHER that Mr. S. Nathkami, Secretary of the company be and is hereby authorised to sign the memorandum of association of the new company and other related documents and papers for and on behalf of the company and Mr. R. Rajagopalan, Secretary, ABC Ltd. who has already been authorised by ABC Ltd. to sign the memorandum and other documents and papers on its behalf as the Registrar of Companies, West Bengal has already made the name of .................... (P.) Ltd. available for registration;"

PRACTICE NOTES

1. Provisions not applicable.- Provisions of sections 85, 86, 87 and 89 of the Act with regard to two kinds of share capital, new issues of share capital to be only of two kinds, being equity share capital with voting rights or equity share capital with differential voting rights and preference share capital voting rights, prohibition of issue of shares with disproportionate rights and termination of disproportionately excessive voting rights in existing companies do not apply to private company unless it is a subsidiary of a public company.

2. Procedure.- For incorporating a private company with preference shares only having voting rights should be done by first obtaining from the Registrar of Companies availability of the name with which such private company will be incorporated. Memorandum and articles of association of such company should be prepared and stamped before incorporation and then the said memorandum and articles of association should be registered with the Registrar of Companies after filing Form Nos. 1, 18 and 32.

First Call on shares

S. 91-First Call on shares-Board Resolution

"RESOLVED in relation to the issue of 30,00,000 equity shares of Rs. 10/-each on which Rs. 5/- has been paid on application, that the first call at the rate of Rs. 2.50 per share, be and is hereby made and that the said call be payable on or before the 2002 to the company's bankers . ............. Bank, at any of their branches.

RESOLVED FURTHER that the Secretary be instructed to arrange necessary call notice to be served to the members concerned and also to make necessary arrangement with the company's bankers to receive the aforesaid call money and also to send to the company a receipted counterfoil attached to the said notice for the purpose of making necessary accounting in connection therewith.

RESOLVED FURTHER that in case of non-payment of call money on or before the date specified above, interest at the rate of ............... per cent be charged."

PRACTICE NOTES

1. Calls on uniform basis.-Calls on shares should be made on a uniform basis on all shares falling under the same class.

2. Meaning of same class.-Shares of same nominal value on which different amounts have been paid up would be deemed to call under the same class.

3. SEBI (DIP) Guidelines, 2000.-In case of existing listed companies and companies going for listing, where the subscription money is proposed to be received in calls, the calls should be structured in such a manner that the entire subscription money is called within 12 months from the date of allotment. If the issue size is above Rs. 500 crores and is subject to monitoring requirement, it shall not be necessary to call the entire subscription money within 12 months. [Clause 8.6.2]

First Call on Shares

(Another Format)

S. 91-First Call on shares-Board Resolution

"RESOLVED that the first call of Rs per share be made on the holders of the partly paid equity shares of Rs each and that the said call be made payable on or before the or such other extended date as may be decided by the Board to the Company's bankers or at any of their branches, authorised for this purpose and that in the event of non-payment of call money by ........................ interest @ % per annum be charged from such members from the date following the last date fixed for payment of call money to the date of realisation of cheque in terms of the prospectus dated .......... letter of offer dated ........

RESOLVED FURTHER that Secretary of the Company be instructed to issue necessary call notices to be served upon the members and make necessary arrangements with the Company's bankers to receive the call money."

PRACTICE NOTES

1. Uniform Basis.-Calls on shares should be made on a uniform basis on all shares falling under the same class. For the purpose of this section, shares of the same nominal value on which different amount has been paid-up shall not be deemed to fall under the same class. (Section 91 of 1956 Act.)

2. Board Resolution.-The call should be made only by a resolution passed by the Board at a meeting of the Board [Section 292(i)(a)]. The power to make calls cannot be delegated to a committee of directors, managing director or principal officer. The power cannot be exercised by circular resolution. It must be ensured that the meeting of directors is duly convened, the requisite quorum is present and the resolution making the call is duly passed.

3. Bona fide.- The call should be made in the interest of the company and the amount should be used for the benefit of the company. The call must be dated and should specify the amount, time and place of payment.

4. Liability of member.-A member is liable to pay the full nominal value of the shares and the amount unpaid on the shares is a debt due from him to the company.

5. Effect of invalid call.-If a call is not validly made because it is not in conformity with the articles, the shareholder is not bound to pay and he can get an injunction restraining the direction from forfeiting his shares.

6. Notice.- The call should be made by serving notice on the members in accordance with the provisions of section 53. This should be followed up with a public notice in the press. It should be a formal notice and not a mere demand or request for payment.

7. Set off.- The call can be set off against a debt due from the company to the members, though no such set off is allowed during the winding-up of the company. The set off can be allowed against a debt presently due and owed by the company to the shareholder and not against one which will be payable at some future date.

8. Interest on call money and period of limitation.-The articles of a company may provide that if a call is not paid within time, interest will be charged at a certain rate. Regulation 16 of Table A hints at 5% interest giving the liberty to the Board to waive payment of such interest wholly or in part. In the absence of any provision for interest in the articles, after notice to pay on a fixed day has been given, interest may be claimed from the date fixed till the date of payment [Re Overend, Gurney & Co. ex p. Lintott, (1867) LR 4 EQ 1841. For non-payment of calls, after forfeiture, interest in arrear may be recovered.

9. Period of Limitation.-The call amount being a statutory debt the period of limitation is twelve years from the date that the payment is due [The Limitation Act, 1963]. However, the call money be enforced by the liquidator on winding-up.

10. Effect of transfer and forfeiture.-Where shares have been transferred and the property in the shares has passed to the transferee, the transferee becomes liable to pay the call money and will have to indemnify the transferor if the money is recovered from him on the basis of his name being present in the register of members. Where the shares have been forfeited or transferred and the transferor’s name is removed from the register, the transferor would remain liable as a past member in the winding-up of the company for a period of one year under the conditions laid down in section 426.

11. Effect of death of member.-The estate of a deceased member remains liable for payment of calls whether made before or after his death. The recovery can be effected either from the estate or if the estate has been distributed among his successors from them personally out of such distribution [Houldsworth v. Evans, (1868) LR 3 HL 263 at 283].

12. Legal Representatives liable.-Where the legal personal representatives get the shares transferred to their names or request for it, they will become personally liable even if their names are not yet entered in the register of members [Buchan's case, (1879) 4 App Cas 549 (HL)].

Final Call on shares

S. 91 Regn. 13-Final Call on shares-Board Resolution

"RESOLVED that consent of the Board of Directors of the company be and hereby accorded to the company for making a call of Rs. 5/-per share on all the registered shareholders of 90,000 equity shares of Rs. 10/-each and that the said call money be made payable at the Registered Office of the company not later than 10th June, 2002."

PRACTICE NOTES

1. Calls on shares to be in accordance with Act and Articles.-Check the terms of issue of shares. Call has to be made in terms of the provisions of the Companies Act, 1956, and the Articles of Association of the company.'

2. Listed companies to comply with listing requirement.-In case the shares of the company are enlisted on any recognised Stock Exchange, comply with the listing requirement.

3. Resolution to specify amount payable etc.-The resolution should specify the amount payable as also the date, time and place of payment. 59

4. Calls on registered shareholders only.-Calls can be made only on the registered shareholders.

5. Articles regulating calls on shares and forfeiture for default to be strictly complied with.-Unless the Articles of a company regulating calls on shares and forfeiture for default are strictly complied with, the acts of the Directors will not be binding on the members, as they are in the nature of penal provisions.

6. Period of limitation not applicable.-If the company goes into liquidation, that period of limitation does not govern and the Liquidator may enforce the call, though it may be barred as against the company.

Call on shares payable in installments

S. 91/Regn. 13-Calls on shares payable in installments-Board Resolution

"RESOLVED that a call of Rs. 5/-per share be and is hereby made on all the registered shareholders of 90,000 equity shares of Rs. 100/each of the company and the said call money be payable at the Registered Office of the Company in installments as mentioned hereunder:

Rs. 2.50 per equity share on or before ......................... day of April, 2002.

Rs. 2.50 per equity share on or before ......................... day of July, 2002.

PRACTICE NOTES

1. Provision in the Articles.-Articles of Association should provide for accepting calls on shares in instalments.

2. Revocation of installments of calls.-The Board of Directors may at any time revoke or postpone calls on shares and also installments on such calls.

Calls on shares (Final Call)

S. 91/Regn. 13-Calls on shares-Board Resolution

"RESOLVED that the first and final call of Rs. 5/-per share be made upon 95,50,000 equity shares of Rs. 10/-each and that the said call be made payable on or before 31^st July, 2002.

RESOLVED FURTHER that the Indian Overseas Bank, Mumbai with its main offices at Agra, Ahmedabad, Allahabad, Bangalore, Baroda, Calcutta, Chandigarh, Dehradun, Kanpur, Hyderabad, Lucknow, Chennai, Nagpur and New Delhi and State Bank of India with its main offices at Indore and Ghaziabad be and are hereby appointed as bankers for the purpose of collection of allotment and call moneys on the aforesaid shares.

RESOLVED FURTHER that Industrial Investment Trust Limited, Mumbai, Company's Issue House be and are hereby authorised to issue call notices on behalf of the Company.

RESOLVED FURTHER that the aforesaid accounts be and are hereby operated on behalf of the Company by Shri SKM Managing Director of the Company."

PRACTICE NOTES

1. Power of Board to make calls on members in respect of money unpaid on shares.-The Board may make calls upon the members in respect of any moneys unpaid on the shares and not by the conditions of allotment thereof made payable at fixed times.

2. Notice to specify time and place of payment.-At least fourteen days notice specifying the time and place of payment is required to be given to members.

3. Board may revoke or postpone calls on shares.-A call may be revoked or postponed at the discretion of the Board.

4. Strict compliance necessary.-Unless the articles of a company regulating calls on shares and forfeiture for default are strictly complied with, the acts of the directors will not be binding on the members, as they are in the nature of penal provisions. (East & West Insurance Co. Ltd. v. Mrs. Kainala Jayantilal Mehta, AIR 1956 Bom 537).

Interest on unpaid calls

S. 91/Regn. 16-Interest on unpaid calls-Board Resolution

"RESOLVED that the company do charge interest @ 6% per annum on the amount of call of Rs. 5/- per share made by the company and paid after 30th April, 2002."

PRACTICE NOTES

1. Articles to be checked.- Check the provisions of Articles of Association in this regard.

2. Interest on calls payable even after forfeiture.-The liability to pay interest due on calls continues even after forfeiture of the shares, if the articles expressly provide therefor.

3. Payment of calls on shares.-A call may be paid in money's worth otherwise than by cash. It should not be merely colorable or illusory.

4. Provisions in articles or special contract to prevail.-The provisions in the article or in any special contract will prevail

5. Allotment of shares in lieu of genuine debt.-The allotment of shares in lieu of genuine debt towards the allottee is in perfect compliance of the provisions of section 75(l) of the Act.

Payment of call in advance

S. 91/Regn. 18-Payment of call in advance-Board Resolution

"RESOLVED that the consent of the Board of Directors be and is hereby accorded to the company to the payment of interest on calls paid in advance at the rate of 18% per annum, to any registered equity shareholder of the company on the money so paid, interest to be calculated from the date of payment till the date on which final call of Rs. 5/-per share is made."

PRACTICE NOTES

1. Articles to be checked.- Check the provisions in Articles of Association of the company.

2. Payment of interest on calls not illegal.-Payment of interest is not illegal or ultra vire even though it is paid out of capital66.

3. Power to be exercised bona fide in interest of Company.- The power shall be exercise bona fide in the interest of the company and not with a view to benefit any person at the expense of the company

4. Repayment of amounts paid in advance of calls.-Where the company goes into liquidation, if after payment of debts and liabilities any surplus remains, the amounts paid in advance of calls should be repaid before the balance is divided among the shareholders

First and final call

(Another format)

S. 91- Making of first and final call-Board Resolution

"RESOLVED that first and final call of Rs be made on the holders of all partly paid equity share of Rs each making in all Rs per share called up and that the said calls be made payable on or before to the company at the registered office and that the authorised signatory do issue the letter of allotment together with the notice of first and final call to the members and that in the event of non-payment of the call money on or before the said date, interest at the rate of ……% be charged from such members."

PRACTICE NOTES

1. Making of calls only at Board Meeting.- The Board of Directors of the company should make calls on shareholders in respect of money unpaid on their shares only by means of a resolution passed at the meeting of the Board as per section 292(l)(a) of the Act.

2. Time of payment.- No call on shares should exceed one-fourth of the nominal value of the shares or be payable in less than one month from the date fixed for the payment of the last preceding call as per Regulation 13(l) proviso to Schedule I Table A.

Board's power to revoke/postpone calls on shares

By virtue of the Articles of Association of the company or as provided in Regulation 13(3) of Table W, a call made by the company on shares may be revoked or postponed at the discretion of the Board.

Revocation of a call

S. 91- Revocation of a call-Board Resolution

"RESOLVED that the call notice earlier made by the company pursuant to the dated the 2002 be revoked on the ground mentioned in the statement submitted to this meeting, and the Secretary be instructed to notify all the members concerned of such revocation forthwith."

PRACTICE NOTES

1. Provision in the Articles.-The procedure as mentioned in the articles of association should be followed. If the articles are silent on this point and the company is a public company then provisions of Regulation 13(3) of Table A of Schedule I should be followed.

2. Discretion of the Board.-The Board of Directors of the company may at any time at its discretion revoke or postpone a call already made by the company.

Calls on Members when deemed to be made

Pursuant to the Articles of Association of the company or by virtue of Regulation 1.4 of Table 'A' a call shall be deemed to have been made at the time when the resolution of the Board authorising the call was passed and may be required to be paid by installments. The Board can waive any interest to be paid by the shareholders for non-payment of call money on due dates.

Final or when call is deemed to be made

S. 91-Final or when call is deemed to be made-Board Resolution

"RESOLVED that the final call on 60,00,000 equity shares on which Rs. 5/-per share has been paidup, be and is hereby made on all the holders of equity shares thereof at Rs. 5/- per share payable in installments as under:

(i) Rs. 2.50 per share on or before the 2002 ; and

(ii) Rs. 2.50 per share on or before the 2002

RESOLVED FURTHER that the aforesaid amount of call would be receivable from the date hereof at any branch of the Company's bankers, namely Bank, and that the Secretary of the Company be and is hereby authorised to issue the necessary letters in regard to this call to the equity shareholders concerned and make necessary arrangement to collect the call money from the said bankers and that in the case of non-payment of call money on or before the said date, interest at the rate of five per cent per annum be charged from such members."

PRACTICE NOTES

1. Calls made on uniform basis.-All calls should be made on a uniform basis on all shares falling under the same class.

2. Call deemed to be made.-A call would be deemed to have been made at the time when the resolution of the Board of Directors authorising the call is passed and calls may also be required to be made by installments.

Acceptance of call in advance

The power to retain excess amount over the amount of call made on shares is subject to the authority provided in the company's articles. But a member who pays in excess of the amount of call(s) is neither entitled to voting right nor dividend in respect of such excess amount paid in advance. The rate of interest to be paid on such receipt of call in advance must not exceed six per cent per annum unless a higher rate is fixed by the company in General Meeting.

Acceptance of unpaid share capita,71

S. 92-Acceptance of unpaid share capital-Board Resolution

"RESOLVED that pursuant to the provisions of article of the Articles of Association, the Company, do accept from any member call in advance being the whole or part of the amount remaining un paid on any shares held by such member notwithstanding the fact that the amount is in excess of the amount called up, and that he be paid interest at the rate of six per cent per annum on the sum so paid in excess, which is to be calculated from the date of such receipt till the final call on those shares is made."

PRACTICE NOTES

1. Provision in the Articles.-A company can if authorised by its articles of association accept from any member the whole or a part of the amount remaining unpaid on any shares held by him although no part of that amount has been called up.

2. Not entitle to voting rights.-The member making payment of the whole or part of the amount remaining unpaid on all shares, although not called up, will not be entitled to any voting rights in respect of the moneys so paid in cases of a company limited by shares under sub-section (2) of section 92.

Payment of dividend in proportion to amount paid-up

S. 93-Inclusion of provision o payment of dividend in proportion to amount paid-up in the Articles-Board Resolution

"RESOLVED that subject to passing of a special resolution at a general meeting of the company a new Article, namely, Article 88-A be inserted under the heading "Dividends and Reserve" after existing Article 88 occurring under the said heading, namely,

"88-A(l) Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid or credited as paid on the shares in respect whereof, the dividend is paid, but if and so long as nothing is paid upon any of the shares in the company, dividends may be declared and paid according to the amounts of shares."

"(2) No amount paid or credited as paid on a share in advance of calls shall be treated for the purposes of this regulation as paid on the share."

"(3) All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any portion or portions of the period in respect of which the dividend is paid; but if any share is issued on terms providing that it shall rank for dividend as from a particular date such shares shall rank for dividend accordingly."

RESOLVED FURTHER that an Extraordinary General Meeting be convened to pass a special resolution for alteration of articles under section 31 of the Companies Act, 1956.

RESOLVED FURTHER that Secretary of the company be instructed to issue notices with explanatory statement for the aforesaid purpose.

PRACTICE NOTES

1. Payment of proportionate dividend.-Authority in the articles of association of the company is a must for paying dividend in proportion to the amount paid up on each share where a large amount is paid up on some shares than on others. If such authorisation in the articles of association is not there then the articles of association should be suitably amended by passing special resolution to incorporate such provision.

2. Special resolution.-The special resolution passed for amendment of articles of association to provide for proportionate payment of dividend should be filed with the Registrar of Companies within thirty days from the date of passing thereof in Form No. 23.

3. Applicability.-Power to pay dividend. in proportion to amount paid up can be exercised by all limited companies whether public or private and by all guarantee companies having share capital. This can, of course, be done by them only if the articles of association" of those companies authorise them to do so.

Increase of share capital [S. 94(l)(a)]

The powers under this section can be exercised only if authorised by the Articles of Association of the company. It has been held that if the articles do not contain any such authorisation, the articles must first be amended before the power can be exercised , The power should be exercised bona fide in the interest of the company and not for benefiting any group. 73 The ordinary resolution amending the Memorandum of Association and Special Resolution for alteration of the Articles of Association to this effect be passed at the same General Meeting . The consent of meeting of classes of shareholders will not be requisite as the increase of any kind of share capital cannot be said to 'vary' or 'affect' class rights

Increase of authorised Share Capital

S. 94(l)(a)-Increase of authorised share capital-Board Resolution

"RESOLVED that subject to the consent of the shareholders at a General Meeting by means of a Special Resolution, the authorised share capital of the Company be increased from Rs ……divided into equity shares of Rs ……each to Rs ……divided ……into equity shares ranking pari passu with the existing shares in the Company and that in clause of the Memorandum of Association of the Company, for the words and figures "The Share Capital of the Company, is Rs ……divided into equity shares of Rs ……each", the following shall be substituted.

"The share capital of the company is Rs divided into ……equity shares of Rs ……each."

RESOLVED FURTHER that the Articles of Association of the Company be altered by substituting the following new article, in place of the present article …..thereof. The share capital of the company is Rs ……divided into equity shares of Rs ……each.

RESOLVED FURTHER that an Extraordinary General Meeting of the shareholders be convened at the registered office of the Company at on the day of 2002 ……at …… A.M. to consider the proposed increase in the authorised share capital of the Company and the Secretary of the Company be and is hereby authorised to send the necessary notices to the shareholders in terms of the draft notice placed before the Board and duly initialed by the chairman for identification."

PRACTICE NOTES

1. Resolution by Circulation.-This resolution can be passed at a Board Meeting or by circulation.

2. Item to be termed as special business.-This item will be a special business, irrespective of whether an Extraordinary General Meeting being convened for this purpose or whether this is being included in the agenda of an Annual General Meeting. Thereafter an Explanatory Statement, setting out all material facts concerning this item of business and the concern of interest, if any, of the Directors and/ or Manager, should be appended and sent along with the notice of the meeting to the shareholders.

3. Compliance Certificate.-A company whose paid-up share capital is less than Rs. 2 crores but is equal to or more than Rs. 10 lakhs must obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has altered the provisions of the memorandum with respect to share capital of the company during the year under scrutiny and complied with the provisions of Act and has also altered its articles of association after obtaining approval of members in the general meeting held on ……and the amendment to the articles of association have been duly registered with the Registrar of Companies as per paragraphs 29 and 30 of the Form of Compliance Certificate appended tot he Companies (Compliance Certificate) Rules, 2001 prescribed under section 383-A(l) proviso.

Increase of Share Capital

(Another format),

S. 94(l)(a)197-Increase in authorised capital-Board Resolution

"RESOLVED that the company do raise its authorised capital from Rs. 850 lakhs divided into 85,00,000 equity shares of Rs. 10/-each, to Rs. 1000/-Iakhs divided into 100,00,000 equity shares of Rs. 10/-each subject to obtaining the approval of the Company in general meeting as well as financial institutions, i.e., IDBI, IFCI, LIC.

RESOLVED FURTHER that such consequential amendments as may be necessary in the Memorandum & Articles of Association be made subject to obtaining of the approval of the company in General Meeting.

PRACTICE NOTES

1. Power to increase share capital to be exercised in General Meeting.-The section authorises companies to meet their capital requirements by increasing share capital by such amount as may be expedient. This power has to be exercised in general meeting. The increased capital may be expressed in the same currency. Scandinavian Bank Group Plc., (1987) 2 All ER 70.

2. Increase capital may consist of preference capital.-The increased capital may consist of preference shares provided that this is not inconsistent with rights given by the memorandum of association. Andrews v. Gas Meter Co., (1897) 1 Ch 36 1.

3. Notice must specify amount of increase.-The notice convening the meeting to pass the resolution for increase must specify the amount of the proposed increase.

4. Shares issued beyond authorised capital can be ratified by subsequent resolution.-Where shares were issued beyond the authorised amount and a resolution was subsequently passed at a general meeting ratifying the issue, it was held that although the original issue was not in accordance with the article, the ratification was effective and the allottees bound. Sewell's case (1868) 3 Ch App 131; Bhimbhai v. Ishwardas Jugjiwandas, (1893) ILR 18 Bom 1524.

5. Share holders acquiescing in irregular increase cannot challenge later.-Shareholders who have acquiesced in the irregular increase of the share capital cannot later challenge such an increase. Re Athenaeum Life Assurance Society; (185 8) 4 K&J 305.

6. Consent of meetings of classes of shareholders not requisite.-The consent of meeting of classes of shareholders will not be requisite as the increase of any kind of share capital cannot be said to 'vary' or 'affect' class rights [White v. Bristol Aeroplane Co. Ltd., 1953 Ch 65 (CA)].

7. Notice of Increase of share Capital.-Where a company has increased its share capital beyond the authorised share capital it should file with the concerned Registrar of Companies a notice in Form No. 5 of the increase of capital within thirty days after the passing of the resolution authorising the increase. The said notice should include particulars of the classes of shares affected and the conditions if any subject to which the new shares have been or are to be issued. [Section 97(l) & (2)].

8. Penalty for default.-If default is made in complying with section 97, the company and every officer of the company who is in default will be punishable with fine of up to Rs. 500/- for every day during which the default continues. [Section 97(3)] The failure to file Form No. 5 within 30 days of passing of the resolution has been held to be a continuing offence. A subsequent resolution to undo the earlier resolution would not absolve anybody of the duty to file information and requisite fee on the basis of the resolution as first passed. Amison Foods Ltd. v. ROC, (1999) 1 Comp U 115 (Ker).

Consolidation of shares [S. 94(l)(b)]

Consolidation of the equity share capital and the redeemable preference share capital into shares of smaller denomination, i.e., Rs. 10/-each is not covered by clause (b) of subsection (1) of section 94 of the Act. The company has to move the Court under section 391 for sanction of the scheme of arrangement.

Conversion of share into stock [S. 94(t)(c)]

Only fully paid-up shares can be converted into stock; conversion of partly paid-up shares is void

Sub-division of Shares [S. 94(l)(d)]

There must be a provision in the Articles of Association of the company permitting the consolidation of shares; if not pass a Special Resolution amending the Articles of Association of the company suitably so as to insert a specific provision on the lines of section 94(l)(d) of the Act. No approval of the Central Government or Company Law Board or Court is required for sub-division of shares.

Cancellation of shares [S. 94(l)(e)]

The creation of shares concurrently with cancellation of a class of its unissued shares does not amount to increase in the authorised capital so long as the original authorised capital on which the company has paid the prescribed fee is not exceeded. The company is thus not required to pay any further fee. However, returns in Form No. 5 have to be filed with the Registrar of Companies concerned for completion of the record . It is open to a limited company to cancel shares which have not been taken or agreed to be taken by any person but a resolution for such cancellation is required to be passed by the company in General Meeting under section 94(3).

Consolidating share capital

S. 94(l)(b)-Consolidation of share capital-Board Resolution

RESOLVED that subject to the approval of the shareholders in General Meeting shares of Rs. 10/-each in the Company be and are hereby consolidated into shares of Rs. 100/-each by altering the memorandum of association of the company.

RESOLVED FURTHER that an Extraordinary General Meeting be convened for this purpose and that the Secretary of the Company be directed to send the notices with the relevant explanatory statement as per the draft placed before this meeting and initialed by the Chairman for the purpose of identification and approved for issuance.

PRACTICE NOTES

1. Authorisation in Articles.-For consolidating share capital into shares of larger amount than its existing shares, authorisation in the articles of association is necessary and if such authorisation is not present the articles of association should be first altered accordingly.

2. Part of share capital.-Consolidation may be done with regard to the all or any of the company's share capital and is equally applicable to equity and preference share capital.

3. Notice to Registrar of Companies.-Within 30 days of consolidation of share capital, the company should file a notice in Form No. 5f with the concerned Registrar of Companies under section 95 of the Act.

4. Penalty for default.-If default is made in giving notice to the Registrar of Companies in the aforesaid form, the company and every officer of the company who is in default will be punishable with fine of up to Rs. 500/- for every day during which the default continues.

Conversion of shares into stock

S. 94(l) (C )-Conversion of shares into stock-Board Resolution

RESOLVED that subject to the approval of the shareholders in General Meeting fully paid equity shares of Rs. 10/- each of the company be and are hereby converted into units of stock in the company.

RESOLVED FURTHER that an Extraordinary General Meeting be convened on at A.M. at and the notice and its relevant explanatory statement as placed before the meeting and initialed by the Chairman for the purpose of identification and be approved.

RESOLVED FURTHER that the secretary of the company be directed to issue the notice of the said Extraordinary General Meeting and take every steps that is necessary in connection therewith.

PRACTICE NOTES

1. Articles should authorise.- Articles of Association of a company should authorise alteration of the conditions of its Memorandum of Association to convert all or any of its fully paid-up shares into stock.

2. Notice of conversion.- Within 30 days of passing of the resolution for conversion in the general meeting a notice in Form No. 5, should be filed with the Registrar of Companies with regard to conversion of shares into stock.

3. Effect of conversion of shares into stock.-Where a company having a share capital has converted any of its shares into stock and given notice of the conversion to the Registrar of Companies, all the provisions of the Companies Act, 1956 which are applicable to shares only shall cease to apply as to so much of the share capital as is converted into stock. [Section 96]

Resolution re-converting stocks into shares

S. 94(l)(c)-Re-conversion of stock into shares-Board Resolution

"RESOLVED that subject to the approval of the shareholders in General Meeting units of stock in the company, created by the conversion of fully paid-up equity shares of Rs ……each in the capital of the company, be and are hereby re-converted into ............. equity shares of Rs ……each fully paid-up."

PRACTICE NOTES

1. Reconversion of stock into shares.- The re-conversion should be into fully paid shares, but it is not necessary that they must be of the same denomination as the original equity shares.

2. Filing of return with Registrar.- Within thirty days of the re-conversion, the company should file a return in Form 5 with the Registrar. For non-compliance of this requirement, the company and every officer of the company who is in default will be punishable with fine of up to Rs. 500/- for every day during which the default continues.

3. Payment of filing fee to Registrar.-The filing fee will be at the rates specified in Schedule X and may be paid in cash to the Registrar, by treasury challan drawn on specified branches of Punjab National Bank, or by demand draft drawn on the Pay and Accounts Officer of the area concerned and submitted to the Registrar along with the return.

4. Compliance with guidelines of SEBI.- Ensure to comply with the guidelines, if any, of the Securities and Exchange Board of India (SEBI) in this regard.

5. Notice of reconversion to Stock Exchange concerned.- 21 days prior notice should be given of the re-conversion to the Stock Exchange by a listed company. An application will also have to be made for fresh listing of the re-converted shares.

6. Notice to Stockholders for surrender of stock certificates.-The company should issue notice to the stockholders to surrender their stock certificates and on such surrender the company should arrange to issue share certificates to them.

7. Resolution to specify proportion in which shares to be allotted.-Where the shares are of different denomination than what was originally converted, it is preferable that the resolution should specify the proportion in which they are being allotted.

8. Changes in capital clause of Memorandum and Articles/Register of Members.-The necessary changes should be made in the capital clauses of the memorandum and articles and in the Register of Members.

9. Compliance with Companies (Issue of Share Certificates) Rules, 1960-The company should ensure that the provisions of the Companies (Issue of Share Certificates) Rules, 1960, are complied with.

Sub-division of shares

S. 94(l)(d)-Sub-division of shares into shares of smaller amount than is fixed by the Memorandum of Association-Board Resolution

RESOLVED that subject to the approval of the shareholders in General Meeting shares of Rs. 100/-each in the share capital of the company be and are hereby sub-divided into shares of Rs. 10/-each.

RESOLVED FURTHER that an Extraordinary General Meeting be convened for this purpose and that the Secretary of the Company be directed to send notices with the relevant explanatory statement as per the draft placed before this meeting and approved for issuance.

PRACTICE NOTES

1. Authorisation of Articles.-For sub-dividing share capital into shares of smaller amount than is fixed by the Memorandum of Association of the Company, authorisation in the articles of association of the company is necessary.

2. Proportion to remain same.-Sub-division of shares into smaller amount should be made in such a manner that in the sub-division the proportion between the amount paid and the amount, if any unpaid on each reduced share should be the same as it was in the case of the share from which the reduced share is derived.

3. Notice to Registrar of Companies.-Within 30 days of sub-division of shares, the company is required to file a notice in Form No. 5 with the concerned Registrar of Companies under section 95 of the Act. Penalty for non-compliance is fine of up to Rs. 500/- for every day during which the default continues.

Cancellation of shares

S. 94(l)(e)-Cancellation of shares not agreed to be taken-Board Resolution

RESOLVED that subject to the approval of the shareholders in the General Meeting the share capital of the company be deminished from Rs ……divided into shares of Rs. 10/-each to Rs ……divided into shares of Rs. 10/-each by canceling shares of Rs. 10/-each, which have not been taken or agreed to be taken by any person.

PRACTICE NOTES

1. Authorisation in Articles.-For cancellation of shares of a company which have not been taken or agreed to be taken by any person, authorisation in the articles of association of the company is necessary.

2. No reduction of share capital.-As per sub-section (3) of section 94 of the Act, a cancellation of shares will not be deemed to reduction of share capital within the meaning of sections 100 to 104 of the Act.

3. Notice to Registrar of Companies.-Within 30 days of cancellation of shares, the company should file a notice in Form No. 5 with the concerned Registrar of Companies under section 95(l)(b) of the Act. Penalty for non-compliance is fine of up to Rs. 500/- for every day during which the default continues.

Increase of share capital by statutory order

S. 94A- Increase of share capital by statutory order-Board Resolution

"RESOLVED that pursuant to the order of the Central Government dated the 2002, passed under sub-section (4) of section 81, directing that 3,000, 9 per cent debentures of Rs. 1,000/- each of a total face value of Rs. 30,00,000/- be converted into 3,00,000 equity shares of Rs. 10/- each fully paid-up on the capital of the company, the authorised capital of the company, be altered and increased to ............. equity shares of Rs. 10/- each and that the Memorandum and Articles of Association of the company be altered in so far as it contains the capital clause in such documents and that the Secretary be instructed to file notice in the prescribed form within thirty days from the date of such receipt, to the Registrar of Companies, with regard to the in crease of share capital."

PRACTICE NOTES

1. Conversion of debentures/loans into equity shares pursuant to order of Central Government.-The resolution set above is only for recording and for taking follow-up action on the order passed or issued by the Central Government for the conversion of debentures or loan into equity shares in the capital of the company. The provision of this section is of a procedural nature. Hence no formal action through resolution passed at the Board meeting is really necessary. But the record is important.

2. Share capital to stand increased on order made by Central Government.-Section 94A(l) provides that where the debentures or loans of a company are converted into shares under the order of the Central Government under section 81(4) and as a result of such conversion, nominal share capital of the company is increased, then the memorandum of the company automatically stands altered without anyone being required to follow the procedure mentioned in sections 16 and 17 of the Companies Act, 1956.

3. Conditions of Memorandum stand altered and nominal share- capital stand increased on application by financial institution.-By virtue of this extraordinary provision, the Central Government also reserves the power to exercise an option attached to debentures issued or loans raised by the company from any public financial institution, specified in section 4A of the Companies Act, 1956, for conversion of such debentures or loans into shares of the company. On the application made by such public financial institution, the Central Government may direct that the conditions contained in the memorandum of such company shall stand altered and the nominal share capital of such company shall stand increased by an amount equal to the amount of the value of the shares into which such debentures or loans or part thereof has been converted [Section 94A (2)].

4. Central Government required to send copy of order to Registrar of Companies and filing of return by company with Registrar.-Although the memorandum of a company gets automatically altered under this section, nevertheless the Central Government has to send a copy of the order made under section 81(4) read with section 94A(2), to the Registrar and also to the company and on receipt of such order, the company has to file in Form No. 5, within thirty days from the date of the receipt of the order, a notice to the Registrar with regard to the increase of the share capital [Section 94A (3)]. Where an appeal is preferred by the company against the order of the Central Government under section 81(4) the return should be filed, if the appeal is decided against the company, within thirty days of the Court's orders.

5. Company to carry out necessary alterations in all documents.-The company should also make necessary alterations in all copies of documents issued by it to the shareholders and others under section 40 of the Companies Act, 1956.

6. Payment of additional fee on increased authorised capital.-Though the increase of capital is at the instance of the Central Government, it seems that the company will have to pay necessary fees on the increased authorised capital, as prescribed under Schedule X to the Companies Act, 1956.

7. Filing of order of Court confirming order of Central Government with Registrar.-If the Court makes an order confirming the order of the Central Government, then file the return with the Registrar in Form No. 21 within 30 days of the Court's order along with the copy of the Court's order so received.

8. On delayed receipt of Court's order file undertaking along with return.-If more than 30 days are taken to obtain a copy of the Court's order then file the above mentioned return with the Registrar with an undertaking that the copy of the Court's order will be sent as soon as it is obtained from the Court.

9. Filing of return along with Copy of Courts order with Registrar.-If the Court makes an order altering the terms and conditions of the order of the Central Government, then file the return in Form No. 21 with the Registrar within 30 days of the order of the Court along with a copy of the Court's order making such alterations in the terms and conditions of the order of the Central Government.

Increase of Share Capital by way of converting loans into Share Capital

S. 94A-Increase of share capital on converting loans into share capital Board Resolution

"RESOLVED that pursuant to the order conveyed by the Central Government vide its letter dated 15th March, 2002 the loan of Rs. 100 lakhs taken by the company from IFCI be and is hereby converted into 10,00,000 Equity Shares of Rs. 10/- each."

PRACTICE NOTES

1. Effect of order of Central Government.-Where the Central Government has by an order directed that the loan shall be converted into shares in a company, then the condition contained in the memorandum of such company shall, where such order has the effect of increasing the nominal share capital of the company, stand altered and the nominal share capital of such company shall stand increased by an amount equal to the amount of the value of the shares into which such loan has been converted.

2. Notice to the Registrar of Companies.-File the return in Form No. 5 along with the order of the Central Government within thirty days with the Registrar of Companies concerned. Penalty for default of this requirements is fine of up to Rs. 5001- for every day during which the default continues.

3. Alterations to be carried out.-Ensure to carry out the necessary alterations in the Memorandum of Association of the Company and consequential changes in the Articles of Association of the Company.

4. Entry in the Register of Members.-Enter the name of the Financial Institution in the Register of Members and also issue the share certificates for requisite number of shares.

Reserve share capital on re-registration of unlimited company as limited

S. 98-Reserve share capital on re-registration of unlimited company as limited-Board Resolution

"RESOLVED that subject to the approval of the shareholders in a General Meeting while registering the company as a limited company, the nominal amount of the company's share capital be increased from Rs. 70 lakhs to Rs. 100 lakhs by increasing the nominal amount of each share of the company by Rs. 10/-subject to the condition that no part of the increased capital be called up except in the event and for the purposes of the company being wound-up;

RESOLVED FURTHER that the uncalled share capital of Rs. 30 lakhs shall not be called up except in the event of the company being wound-up;

RESOLVED FURTHER that provisions to the aforesaid effect be incorporated in the memorandum and articles of association of the Company.

PRACTICE NOTES

1. Creation of reserve capital.- Creation of reserve capital can be done only on reregistration of an unlimited company as a limited company under section 32(l)(a) of the Act.

2. Changes made.- For re-registration of an unlimited company as a limited company, name, memorandum and articles of association of the company should be suitably changed by passing special resolutions in addition to passing of special resolution as given above.

Reserve Liability of Limited Company

S. 99-Reserve Liability of Limited Company-Board Resolution.

RESOLVED THAT subject to the approval of the shareholders of the company by passing a special resolution ten thousand equity shares of Rs. 10/- each in the share capital of the company which have not been called up, be called up only in the event and for the purposes of the company being wound up.

RESOLVED FURTHER THAT the aforesaid portion of the share capital of the company should not be capable of being called up except in the aforesaid event and for the aforesaid purpose.

RESOLVED FURTHER THAT an Extraordinary General Meeting be convened for the purpose of passing the necessary special resolution and that the Secretary of the company be instructed to send the relevant notices of the said general meeting along with explanatory statement as per the draft placed before this meeting and initialed by the Chairman for the purpose of identification and approved for issuance.

PRACTICE NOTES

1. Irrevocable condition-Once a Limited Company decides to have reserved liability by passing a special resolution under section 99 it is intended to become an irrevocable condition.

2. Applicable only to Limited Company-The provision of section 99 is applicable only to a company limited by shares or by guarantee and having a share capital and not to other types of companies. Reserve liability once created cannot be unreserved but may be cancelled on a reduction of capital. The reserve liability also cannot be dealt with by the Directors of the company in any other way except for the purpose mentioned in section 99 nor can it be turned into ordinary capital without leave of court.

Reduction of capital

S. 100(l)(a)-Reduction of capital by extinguishing the liability shares in share capital not paid-up-Board Resolution

RESOLVED that subject to the approval of the shareholders at a General Meeting of the company and further subject to confirmation, of the High Court at and other appropriate authorities if any required the equity share capital of company be and is hereby reduced from Rs . ……to Rs . ……by reducing the nominal amount of the equity shares from Rs . ……to Rs . ……each and extinguishing the liability in respect of uncalled capital on the equity shares to the extent of Rs . ……per share.

RESOLVED FURTHER that an Extraordinary General Meeting be convened at on at ……A.M. as per the notice and its relevant explanatory statement placed before this meeting as initialed by the Chairman for the purpose of identification to pass the necessary special resolution.

RESOLVED FURTHER that the secretary of the company be directed to issue the said notice with the explanatory statement to all those persons mentioned in sub-section (2) of section 172.

PRACTICE NOTES

1. Authorisation in the Articles-The company desirous of reducing share capital should first have authorisation in its Articles of Association and if such a provision is not present there the Articles should be properly amended first to contain such a provision.

2. Application to the Court.-After passing of the special resolution for reducing share capital an application by way of petition should be made to the High Court of the State in which the registered office of the company is situated under the Companies (Court) Rules, 1959.

3. Filing of Special Resolution.-The special resolution passed for reducing share capital should be filed in Form No. 23 with the concerned Registrar of Companies within 30 days of passing of the special resolution.

Reduction of capital

S. 100(l)(b)-Reduction of capital by cancellation of lost capital and extinguishing uncalled capital-Board Resolution

RESOLVED that subject to the approval of the shareholders in a General Meeting of the company by passing a special resolution and also subject to the confirmation by the High Court at the share capital of the company be and is hereby reduced from Rs . to Rs . by cancellation of paid-up capital which has been lost or is unrepresentative by available assets to the extent of Rs . .............. per share and by extinguishing the liability of the uncalled capital to the extent of Rs . ……per share and by reducing the nominal amount of the equity shares of the company from Rs . ……to Rs . per share.

RESOLVED FURTHER that an Extraordinary General Meeting be convened. on ……at ……at ……P.M. to pass the special resolution for reduction of capital in the aforesaid way as per the draft notice of the said meeting tabled and approved by the Board along with the explanatory statement.

PRACTICE NOTES

See under Resolution 314.

Reduction of capital

S. 100(l)(c)-Reduction of capital by paying off paid-up share capital Board Resolution

"RESOLVED that subject to the consent of the shareholders at an Extraordinary General Meeting, by passing a Special Resolution, and also subject to the confirmation of the High Court at and other appropriate authorities in this regard, the authorised share capital of the company be and is hereby reduced from Rs. 90,00,000/-consisting of 9,00,000/-equity shares of Rs. 10/-each fully paid-up to Rs.7 5,00,000/-cons sting of 15,00,000/-equity shares of Rs. 5/-each fully paid-up and to effect such reduction by returning to the holders of the equity shares, the paid-up value thereon to the extent of Rs. 5/-per share.

RESOLVED FURHTER that an Extraordinary General Meeting of the equity shareholders be convened at the registered office of the company at ……on ……day, the ……day of 2002 at a.m. and the Secretary be and is hereby authorised to send necessary notice to the equity shareholders in terms of the draft notice placed be fore the Board and duly initialed by the Chairman for identification.

RESOLVED FURTHER that the aforesaid proposal be included as an item in the agenda for the ensuing Extraordinary General Meeting of the company, under the head 'Special Business'."

PRACTICE NOTES

1. Authorisation in Articles.-The reduction of capital should be authorised by the articles of association of a company and such a authorisation being a prerequisite to reduction of capital, in the absence of such a provision in the articles, it should be suitably amended to contain the provision before going for such reduction.

2. Convening of Extraordinary General Meeting.-This can be passed by the Board either at a meeting or by circulation. However, it will be preferable for the Board to meet and approve the text of the notice for the General Body Meeting and the Explanatory Statement by passing a board resolution.

3. Application to the Court.-Once the General Meeting approves the reduction of share capital by passing a special resolution, an application by petition as per the Companies (Court) Rules, 1959 should be made to the High Court of the State in which the registered office of the company is situated for an order confirming the reduction.

Lodgment of instrument of transfer of shares (S. 108)

The validity period of share transfer instrument as contained in section 108 has been increased from 2 months to twelve months from the date of its presentation to the prescribed authority. This is only for companies whose shares are dealt in or quoted on a recognised stock exchange.

Variation of rights of shareholders by agreement

S. 106-Agreementfor variation oF rights of a class of shareholders- Board Resolution

WHEREAS an agreement was made on the 29th day of July, 2002 between Mr. T S Z of Mumbai-1, on behalf of all the holders of the issued 10% first redeemable preference shares on the capital of AND Company Limited, a company incorporated in India within the meaning of the Companies Act, 1956, and having its registered office at P.S. Mehta Road, Mumbai-1 (hereinafter called "the Company") of the one part and the Company of the other part;

AND WHEREAS the Board of Directors of the company at a meeting held on the July, 2002 has approved creation of a second series of 20,000, per cent redeemable preference shares and that all option has been extended by the company to the holders of 10 per cent preference shares of the company to have the second series in lieu thereof the resultant increase in the rate of dividend is considered to be a variation of rights of the holders of the 10 per cent preference share holders;

AND WHEREAS Clause X of the Articles of Association of the company states that whenever the capital (by reason of the issue of preference shares or otherwise) is divided into different classes of shares all or any of the rights and privileges attached to each class may subject to the provisions of sections 106 and 107 of the Act be modified, commuted, affected, abrogated, varied or dealt with by agreement between the company and any person purporting to contract on behalf of that class provided such agreement is consented to in writing by the holders of at least three-fourths of the issued shares of that class (first 10 redeemable series) or sanctioned by a Special Resolution passed at a separate General Meeting of the holders of that class;

NOW THEREFORE IT IS RESOLVED that subject to the necessary Special Resolution being duly passed the rights attached to 50,000-10 redeemable cumulative preference shares of Rs. 100/- each shall be altered, varied and modified to the extent that the rate of dividend thereon shall be increased from 10% per annum to 11% per annum.

Practice Notes

1. Provision in the Memorandum or Articles.-Provision with respect to the variation should be contained in the memorandum or articles of association of the company.

2. Prohibition in the terms of issue.-In case there is no provision contained in the memorandum or articles of association of the company, the variation should not be prohibited by the terms of the issue.

Variation of shareholders rights

S. 107-Variation of shareholders rights-dissentient shareholders to apply to court-Board Resolution

"WHEREAS ABC Ltd., passed a special resolution at a meeting of its equity shareholders to vary the rights of the preference shareholders wherein only 15% of the shareholders had been present;

AND WHEREAS the company holding 15% preference shares in ABC LTD had objected to such resolution being passed.

NOW THEREFORE IT IS RESOLVED that a petition be filed before the High Court of Calcutta in whose jurisdiction the registered office of ABC Ltd. is situate, praying for cancellation of the resolution passed by ABC Ltd. varying the rights of preference shareholders;

RESOLVED FURTHER that the Secretary of the company be directed to file this petition within 21 days of the resolution being passed by ABC Ltd. in consultation with any of the senior advocates of the Calcutta High Court."

PRACTICE NOTES

1. Application.-The application to be made to the concerned High Court by dissentient shareholders for canceling any variation of the rights of the holders of the preference shares should be made by way of a petition within twenty-one days after the date on which consent was given or the resolution for variation was passed. It may be made by one or more shareholders on behalf of all the shareholders entitled to make the application if those other shareholders appoint one or more shareholders in writing to do so.

2. Petition to cancel variation of rights.-Where a petition to cancel variation of the rights attaching to any class of shares is made on behalf of the shareholders of that class entitled to apply for cancellation under section 107 of the Act by one or more of them, the letter of authority signed by the shareholders so entitled, authorising the petitioner(s) to present the petition on their behalf shall be annexed to the petition and the names and addresses of all the shareholders and the number of shares held by each of them shall be set out in the schedule to the petition.

3. Contents of the petition.-The petition to be made to the concerned High Court should set out the following particulars:

(a) Registration number of the concerned company and its share capital both authorised and paid up and the different classes of shares into which the share capital of the company is divided and the rights attached to each class of shares;

(b) The provisions of memorandum and articles of association of the company authorising the variation of the rights attached to the various classes of shares, the total number of shares of the class through rights have been varied and the nature of the variation made;

(c) The number of shareholders of the class who gave their consent to the variation or voted in favour of the resolution for variation and the number of shares held by them;

(d) The number of shareholders who did not consent to the variation or who voted against the resolution and the number of shares held by them;

(e) The date(s) on which the consent was given or the resolution was passed;

(f) The reasons for opposing the variation.

4. Court's power.-If the High Court is satisfied after hearing the applicant as well as any other person who applies to the court to be heard and appears to the court to be interested in the application that having regard to all the circumstances of the case, the variation would unfairly prejudice the shareholders of the class presented by the applicant, disallow the variation and if so satisfied, confirm the variation.

5. Final decision.-The decision of the High Court on any such application will be final.

6. Filing.-The company should file a certified copy of the order of the High Court with the concerned Registrar of Companies along with Form No. 21 within thirty days after the service on the company of any such order made alongwith the requisite application fee.

7. Penalty.-Contravention of provisions of sub-section (5) of section 107 of the Act will attract punishment by way of fine of up to rupees five hundred for the company and for every officer of the company who is in default.

8. Compounding of offence.-The fine of rupees five hundred for contravention of provisions of section 107(5) is compoundable by the Regional Director concerned as per section 621-A(l)(b).