SPECIMEN FORMATS OF GENERAL MEETING RESOLUTIONS

 

Conversion of private into public company

 

S. 13/21-Conversion of private into public company-Special Resolution

 

"RESOLVED that the Articles of Association of the Company be and is hereby altered in the following manner, namely

 

(a)        delete article 4 including marginal notes thereon and substitute there for the following new article:

Capital of the company  4. The capital of the company is Rs. 5,00,00,000 divided into etc. etc

(b)        delete article 6 including marginal notes thereon.

 

PRACTICE NOTES

 

1. Convening of Board Meeting.-Call a Board Meeting and pass the above resolution for deletion of articles which are required to be included in the articles of a private company and recommend it to the shareholders for adoption by them at a General Meeting.

 

2. Fixing date, time etc. for convening general meeting.-Fix up the date, time, place and agenda for convening a General Meeting in the aforesaid board meeting.

 

3. Notice of general meeting.- Give 21 days' clear notice for the General Meeting proposing the Special Resolutions with suitable Explanatory Statement.

 

4. Private company on conversion not required to obtain Certificate of commencement of business.-When a private company is converted into a public company it is not required to obtain the certificate of commencement of business.

 

5. Filing of prospectus or statement in lieu of prospectus.-File either the prospectus in the form as prescribed under Schedule 11 or a statement in lieu of prospectus in the form as prescribed under Schedule TV within thirty days of passing of the above Special Resolution in the manner as stated in section 44.

 

6. Filing of Special Resolution.-File the Special Resolution passed and the Explanatory Statement in Form No. 23 with the Registrar within thirty days of its passing (Section 192).

 

7. Penalty.-Penalty for non-filing of statement in lieu of prospectus as aforesaid is fine of upto Rs. 50,0001- and penalty for non-filing of special resolution as aforesaid is fine of upto Rs. 200/- for every day during which the default continues for the company and every officer of the company who is in default.

 

8. Application to Registrar for fresh Certificate of Incorporation.-Apply to the Registrar for the issue of a fresh certificate of incorporation in the changed name, viz., the existing name with the word 'private' deleted. On issue of such fresh certificate, the change of name of the converted company shall be final and complete (Section 23). As per the Citizen's Charter of the Department of Company Affairs Schedule 111, Serial No. 3 the said approval should be given within 15 working day [Press Note No. 9199, dated 98-1999].

 

9. Change in name effective on issue of fresh Certificate of Incorporation-It is to be noted that although the company becomes a public company as soon as the Special Resolution to change the articles to make it a public company is passed the change in its name becomes effective only on the issue of the fresh certificate of incorporation by the Registrar in the changed name.

 

10. Compliance Certificate.- Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has altered its articles of association after obtaining approval of members in the general meeting held on a particular date and the amendments to the articles of association have been duly registered with the Registrar of Companies as per paragraph 30 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Alteration of Memorandum (S. 16)

 

The alterations of matters other than conditions in the memorandum may be affected in the same manner as alterations of articles or in a manner provided by the Act. Only those provisions required by section 13 or any other provision of the Act to be stated in the memorandum and not any other matters which may be additionally stated therem are to be deemed to be the conditions. Where, for instance, the right to a dividend in respect of any class of shareholdets is inserted in the Memorandum of Association of company, limiting the dividend to a certain percentage, it cannot be regarded as a condition but may be altered by a Special Resolution. Re, Rainpuria Cotton Mills Ltd., (1959) 29 Corn Cases 82 : AIR 1959 Cal 253. A statement in the memorandum as to the terms, conditions and remuneration of any managerial personnel does not become a part of the memorandum and it can be altered without any external sanction. Chandulal and Co. Ltd. v. Natwarlal C. Blialakia, (1957) 27 Corn Cases 277 (Born-DB). Though for instance alteration of limited liability of Directors into unlimited liability is an alteration of a condition contained in the memorandum, section 323 provides for such alteration by Special Resolution and no confirmation by Court is necessary therefor.

 

 

Alteration of Memorandum of Association (Capital Clause)

 

S. 16/94-Alteration of capital clause of the Memorandum-Special Resolution

 

"RESOLVED that clause 5 of the Memorandum of Association of the Company including the marginal notes thereto be deleted and the following new clause 5 be substituted therefore:

 

Capital of the company 5. The share capital of the company is Rs. 10,50,00,000 divided into 100,00,000 equity shares of Rs. 10/­ each and 50,000 /- per cent redeem­able cumulative shares of Rs. 100/­ each."

PRACTICE NOTES

 

1. Alteration of capital clause.- Alteration of capital clause can be done by passing a Special Resolution. With the increase in the authorised capital of the company the company will have to pay the fees for the increase in the nominal share capital of the company, that is, the difference between the fees payable on the increased share capital on the date of filing the notice for registration of company and the fees payable on existing authorised capital, at the rates prevailing on the date of filing calculated in accordance with Schedule X to the Companies Act, 1956.

 

2. Procedure to be followed for increasing authorised share capital.-For increasing the authorised share capital of the company

 

(i)         Articles of Association should be gone through to see whether they authorise increase of the share capital (Section 94). If it does not so authorise, articles should be altered. Follow the procedure for alteration of articles as given in practice notes under Resolution No. 217-B. Alternatively this could be achieved by passing the resolution as a Special Resolution, which resolution will have the force of amending the articles.

(ii)        A Board Meeting should be called to decide about the increase and to fix up the date, time, place and agenda for a General Meeting to pass an ordinary resolution (or special one, if so required by the articles) for the same (Section 94(2)).

(iii)       Immediately after Board Meeting, the concerned Stock Exchange should be intimated by letter or by telegram, the short particulars of the increase of capital.

(iv)       Notices for the General Meeting should be issued with suitable Explanatory Statement.

(v)        The General Meeting should be held to pass the resolution.

(vi)       A copy of the proceedings of the General Meeting should be forwarded to the concerned Stock Exchange.

(vii)      If the resolution passed is a Special Resolution, the same should be filed with Explanatory Statement with the Registrar of Companies concerned in Form No. 23f within thirty days of the passing of the resolution.

(viii)      Notice of increase should be filed with the Registrar in Form No. 5-1- within thirty days where after the Registrar will make necessary changes in the Memorandum and Articles of Association of the company (Section 97).

(ix)       While film,- the above notice, the registration fees for the increased authorised capital has to be paid. The amount payable will be the fees as mentioned in the above practice note.

(x)        Necessary changes should be made in every copy of the Memorandum and the Articles of Association and in all other papers and documents.

 

3. Compliance Certificate.-Com pan les having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has altered the provisions of the memorandum with respect to share capital of the company during the year under scrutiny and complied with the provisions of the Act as per paragraph 29 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

 

Alteration of Memorandum of Association (Capital Clause)

(Another format)

 

Ss. 16/94-Alteration of capital clause of the Memorandum-Special Resolution

 

"RESOLVED that the existing clause V of the Memorandum of Association of the Company be and is hereby substituted by the following:

 

V. The authorised capital of the company is Rs. 50,00,000/- divided into 4,00,000 equity shares of Rs. 10/- each and 10,000 redeemable preference shares of Rs. 100/- each with power to increase, divide, sub-divide into various classes of shares and attach thereto such preferential/deferred, special rights/privileges/conditions as may be determined by the company in accordance with its regulations."

 

Or

 

RESOLVED that clause V of the Memorandum of Association of the Company be and is hereby amended as follows:

 

"the words and figures 'Rs. 30,00,000 divided into 3,00,000 equity shares of Rs. 10/- each' occurring thereon be substituted by the words and figures 'Rs. 70,00,000 divided into 7,00,000 equity shares of Rs. 10/- each.

 

PRACTICE NOTES

 

1. Convening of Board Meeting for calling General Meeting.-Call a Board Meeting to resolve the increase/ division/sub-division etc. of the share capital of the company and pass the above resolution for recommending it to the shareholders to be passed as a Special Resolution at the Annual General Meeting,-/Extraordinary General Meeting as the case may be. Fix up the date, time, place and agenda for a General Meeting.

 

2. Notice of Meeting.- Give 21 days' clear notice for calling the Annual General Meeting/Extraordinary General Meeting and annex to the notice of the meeting the Explanatory Statement pursuant to section 173(l) of the Companies Act, 1956.

 

3. Consequential amendments in capital clause of Articles.-Carry out consequential amendment in the Capital Clause of the Articles of Association of the company.

 

4. Intimation to Stock Exchange.-If the company's shares are registered with any recognised Stock Exchange, send an intimation to the Stock Exchange concerned regarding the increase of capital.

 

5. Filing of Form No. 23 along with Explanatory Statement with Registrar.-File the Special Resolution in Form No. 23 with Explanatory Statement with the Registrar of Companies concerned on payment of requisite film,,,, fee within thirty days of the passing of the resolution.

 

6. Filing of notice of increase and payment of fee on increased authorised capital.-Notice of increase should also be filed with the Registrar of Companies concerned in Form No. 5 along with amended copies of the Memorandum and Articles of Association on payment of requisite filing fee within thirty days. The registration fee for the increased authorised capital will also have to be paid to the Registrar of Companies concerned as per Schedule X to the Companies Act, 1956.

 

If default is made in complying with the aforesaid requirement under section 97, the company and every officer of the company who is in default will be punishable with fine ofRs. 500/- for everyday during which the default continues.

 

7. Carry out alteration in every copy of Memorandum and Articles.-After the alteration in the memorandum is registered by the Registrar of Companies, ensure that the alteration is carried out in every copy of the Memorandum and Articles of Association in stock and any copy of the Memorandum or Articles issued thereafter should be the amended copy thereof.

 

8. Limiting dividend to certain percentage not a condition but be altered by Special Resolution.-Where the right to a dividend in respect of any class of shareholders is inserted in the Memorandum of Association of a company, limiting the dividend to a certain percentage, it cannot be regarded as a condition but may be altered by a Special Resolution. in Re, Rampuria Cotton Mills Ltd., (1959) 29 Comp Cases 85 : AIR 1959 Cal 253.

 

9. Amendment of Articles when capital clause mentioned therein.-If the authorised capital is mentioned in the Articles of Association, then the articles also will have to be amended by a Special Resolution.

 

 

Alteration of Memorandum by classifying unclassified shares

 

S. 16/94-Alteration of Capital Clause by classification of unclassified shares-Special Resolution

 

"RESOLVED that 8,00,000 unclassified shares of Rs. 10/- each, forming part of the authorised capital of the Company be and are hereby classified as 8,00,000 equity shares of Rs. 10/- each with differential voting rights."

 

"RESOLVED FURTHER that the Memorandum of Association of the Company be and is hereby amended by substituting the following for the existing clause V thereof:

 

Clause V-The authorised capital of the company is Rs. 5,00,00,000/ consisting of 50,00,000/ - equity shares of Rs. 10/- each".

 

"RESOLVED FURTHER that Articles 3 of the Article of Association of the Company be amended by substituting the following for the existing Article:

 

The share capital of the company is Rs. 5,00,00,000/- consisting of 50,00,000 equity shares of Rs. 10/- each."

 

PRACTICE NOTES

 

1. Passing of Resolution.- Where it is not necessary to amend the articles and it is merely the Memorandum of Association which requires amendment, this can be passed as an Ordinary Resolution.

 

2. Filing of special resolution in Form 23 along with Explanatory Statement. -Where it is passed as a Special Resolution, a certified copy of the resolution along with the Explanatory Statement will have to be filed in Form No. 23 with the Registrar of Companies within 30 days of the passing of the resolution together with the requisite filing fees specified in Schedule X to the Act.

 

3. Annexing of Resolution to every copy of Articles unless incorporated in Articles.-Where the articles have been registered, a copy of the resolution unless it is incorporated in the articles should be annexed to every copy of the articles issued after the date of the resolution.

 

Alteration of the Object Clause (S. 17)

 

The alteration of the object clause must be only in relation to objects, or of some provision pertaining to the manner in which the company may carry out its objects. Re, Scientific Poultry Breeders' Association, 1933 Ch 227 : (1933) 3 Comp Cases 89. Where the directors and members are willing to undertake new business, there are no objecting creditors and the company is financially sound, the Court should permit alterations. Orissa Cement Ltd. v, Registrar of Companies, Orissa, 1975 Tax LR 1330 (Orissa). The additional business must not be destructive of or inconsistent with its existing business. Re, Parent Tyre Co., (1923) 2 Ch 222: Re, Bolsom Bros., (1928) Ltd., 1935 Ch 413. The

 

Company Law Board will not sanction an alteration for carrying on a new and totally independent business if ]It cannot be conveniently or advantageously combined with any of' the existing business. Re, Bharat Mining Corporation Ltd., (1967) 1 Comp LJ 119 : (1967) 37 Comp Cases 430 (Cal). There is no power to confirm an alteration which does not fall within seven sub-clauses of sub-section (1) of' section 17 of the Act. Indian Iron and Steel Co. Ltd., (1957) 27 Comp Cases 361 (Cal).

 

The time taken in drawing up of' the order and in obtaining a certified copy thereof is excluded.

 

 

Alteration of Memorandum of Association (Object clause)

 

S. 17-Alteration of Objects Clause of Memorandum of Association-Special Resolution

 

"RESOLVED that pursuant to section 17 of the Companies Act, 1956 the Memorandum of Association of the Company be altered in the manner following namely:

 

(i)         In clause III(a) of the Memorandum of Association the following words shall be added after the word .........

(ii)        Existing clause III(b) be deleted and substituted with the fol­lowing new clause (    ).

            (iii) In clause III(c) the words beginning with       and ending with ...............         be deleted."

 

PRACTICE NOTES

 

1. Change of objects".-Change of objects should be made for the purpose of one of the matters mentioned in clauses (a) to (g) of section 17(1) of the Act.

 

2. Filing of Special Resolution, File the special resolution along with Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X,- of tile Act.

 

3. Postal Ballot.-If the company is a listed company, alteration of object clause must be made by passing the special resolution through postal ballot as per Rule 4(a) of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001.

 

4. Compliance Certificate.-Com pan les having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with tile Registrar of Companies mentioning therein inter alia that the company has altered the provisions of the memorandum with respect to the objects of the company during the year under scrutiny and compiled with provisions of the Act as per paragraph 27 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

 

Alteration of the Object Clause

 

S. 17-Alteration of the object clause-Special Resolution

 

RESOLVED that Objects Clause III of the Memorandum of Association of the company be altered by insertion of the undermentioned sub-clauses after sub-clause (5) as sub-clauses (5A) and (513):

 

(5A)     To carry on the business of manufacturing of enamel wares, electric shades and hospital appliances and other items.

 

(513)    To manufacture plant and machinery, tools and equipments required for the manufacturing of the above referred items."

 

PRACTICE NOTES

 

1. Board Meeting.- Hold a Board Meeting and approve the alterations proposed to be made in the object clause. Fix up the day, time and agenda for a General Meeting for passing a special resolution in this regard.

 

2. General Meeting.- At the General Meeting pass a special resolution approving the alteration by three fourths majority. Listed companies should pass the said resolution through postal ballot.

 

3. Filing of Special Resolution.- File the special resolution along with Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X of the Act.

 

 

Amendments of Objects Clause and commencement of new business (composite resolution)

 

S. 17-Amendment of Objects Clause and commencement of new business­ Special Resolution

 

"RESOLVED that under section 17 of the Companies Act, 1956, the Objects Clause III(A) of Memorandum of Association of the Company be altered by deletion of the present clause number 3 of the main objects of the Company and by replacement thereof by the following clause as new clause number 3.

 

RESOLVED FURTHER that approval pursuant to section 149 (2A) of the Companies Act, 1956, be and is hereby accorded to the Company for commencing and carrying on the business of in terms of clauses of the Memorandum of Association of the Company specified in the foregoing Special Resolution."

 

PRACTICE NOTES

 

See under Resolution No. 787.

 

Alteration of the Objects Clause

(Another Format)

 

S. 17-Alteration of the Objects Clause-Special Resolution

 

"RESOLVED that pursuant to the provisions of section 17 of the Companies Act, 1956, the Objects Clause of the Memorandum of Association of the Company be altered by adding the following new clause 3(b) after the existing clause 3(a) thereof:

 

"3(b)     To carry on the business of purchase, sale, manufacture and otherwise deal in all kinds of oil, petroleum oil and lubricants and also liquid and solid hydrocarbon and all products thereof."

 

PRACTICE NOTES

 

See under Resolution No. 787.

 

Change of Registered Office from one State to another (S. 17)

 

A company cannot, however, alter its Memorandum of Association so as to change its Registered Office from one country to another nor has the Company Law Board ally Jurisdiction to sanction such alteration. Kriemens Oil Mills Pvt. Ltd. v. Registrar of Companies, (1958) 2 MLJ 141 : AIR 1958 Mad 450. Where the Registered Office is changed from one State to another, the State has no right to object on the ground of loss of possible future revenue, though it may do so as a creditor in respect of arrears of revenue due to it. The shifting of the Registered Office purely a domestic matter for the shareholders of the company. Mac-kinnon Mackenzie & Co. Private Ltd., (1967) 37 Comp Cases 5 16 (Cal). A change of Registered Office sought on the ground of less tax burden in the other State is not a good ground. Orient Paper Mills Ltd. v. State, (1958) 28 Comp Cases 523 (Orissa).

 

Alteration regarding change of registered office from one state to another to bring about a synergy in operation and management allowed by the Company Law Board imposing conditions to safeguard the interest of creditors. Re : Seaways Maritime (P) Ltd., (2001) 1 Comp LJ 141 (EB).

 

A resolution to shift the registered office of a company from one state to another was sanctioned by the Comp(any Law Board subject to the condition that the interest of employees working at the registered office should not be adversely affected. EEC (India) Software Centre Ltd. Re, (2001) 32 SCL 298 (CLB).

 

The decision to shift rests with the shareholders and the company is the best as to the location of its registered office. The grounds for shifting could not be rebutted by the State Government and it cannot interfere. Usha Deltron Ltd., Re, (2000) CLC 2216 (CLB).

 

A change of' registered office from one State to another should be either or more of the grounds provided under section 17(l)(a) to (g).

 

The time taken in drawing up of the order and obtaining a certified copy thereof is excluded."

 

Change of Registered Office from one State to another

 

S. 17-Change of Registered office from one State to another-Special Resolution

 

"RESOLVED that subject to the confirmation of the Company Law Board, the Registered Office of the Company be shifted from the National Capital Territory of Delhi to the State of Haryana and Clause II of the Memorandum of Association of the company be altered by substituting the words 'National Capital Territory of Delhi' by the words 'State of Haryana'."

 

PRACTICE NOTES

 

1. Board Meeting.- Hold a Board Meeting and approve the transfer of registered office to another State. Fix up the day, time and agenda for a General Meeting for passing Special Resolution in this regard subject to the confirmation of the Company Law Board.

 

2. General Meeting.-At the General Meeting pass a special resolution approving the transfer of registered office to another State subject to the confirmation of the Company Law Board.

 

3. Filing of Special Resolution.- File the special resolution along with Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee. Penalty for not filing this resolution within time is fine of Rs. 200/- per day.

 

4. Publication of General Notice.-Not less than one month before the filing of the petition, publish a general notice at least once in the District in the daily newspaper published in English and in the principle language of the District in which the registered office of the company is situated and circulating in that State clearly indicating therein the substance of the petition and stating that any person whose interest is likely to be affected by the proposed transfer of registered office may intimate to the Bench Officer within twenty-one days of the date of the publication of the notice, the nature of interest and the grounds of opposition.

 

5. Service of individual notice.-Serve by certificate of posting individual notices on each debenture holder and creditor of the company, unless otherwise required by the Bench to be sent by registered post setting out clearly that in case anybody's interest is likely to be affected by the proposed transfer of registered office, he may intimate to the Bench Officer within twenty-one days of the date of receipt of notice his objections duly supported by an affidavit to the Bench Officer and forward a copy thereof to the petitioner company at its registered office.

 

6. Service of notice on Chief Secretary/Administrator/Lt. Governor.-Serve a notice together with a copy of the petition on the Chief Secretary to the Government of the State in which the registered office of the company is situated or to the Administrator/Lt. Governor of the Union Territory where the registered office is situated in a Union Territory. (Regn. 36(2)).

 

7. Petition to Company Law Board.-The petition is required to be submitted by the company to the concerned Bench of the Company Law Board under the Company Law Board Regulations, 1991.

 

8. Documents to be attached to the petition.-The petition should accompany the following documents

 

1.         Certified true copy of the memorandum and articles of association.

2.         Certified true copy of the notice calling for the meeting with Explanatory Statement.

3.         Certified true copy of the Special Resolution sanctioning the alteration by the members of the company.

4.         Certified true copy of the minutes of the meeting at which the Special Resolution was passed.

5.         Affidavit verifying the petition.

6.         Bank draft evidencing payment of application fee of Rs. 1,000/-.

7.         Memorandum of appearance with copy of the Board Resolution or the executed Vakalatnama, as the case may be.

8.         Certified true copy of the latest audited balance- sheet with the profit and loss account of the company with auditor's report and directors' report.

9.         Affidavit proving despatch and service of notice together with newspaper cuttings.

10.        Affidavit verifying list of creditors as per regulation 36(7).

11.        Acknowledgement receipts from the Registrar of Companies/Regional Director and/or from the Chief Secretary of the State Government/Administrator, where applicable. (See regulation 14(3))

 

9. Proof of despatch.-File an affidavit along with the petition proving the despatch, publication and service of notices.

 

10. Information about the number of creditors and total amount due to them. The petition should contain information relating to the number of creditors and the total amount due to them up to the latest practicable date preceding the date of filing of the petition which shall not precede the date of filing of the petition by more than two months. The list of creditors and debenture holders shall also be filed along with the petition.

 

11. Verification of the list.-The Secretary of the company and not less than two directors, one of whom shall be a managing director, where there is one, are required to file an affidavit along with the petition to the effect that they have made a full enquiry into the affairs of the company and having done so, have formed the opinion that the list is correct, that the estimated value as given in the list of the debts or claims payable on a contingency or not ascertained are proper estimates of the values of such debts and claims included in the list are borne out by the books and records of the company and that there is no other debts or claims against the company to their knowledge.

 

12. List to be kept for inspection.-An authenticated copy of the list of creditors and debenture holders showing their names, addresses and the amount due to each of them should be kept for inspection at the registered office of the company during the ordinary hours of business so that the person desirous of inspecting the same may inspect and take extracts from the same on payment of rupees ten to the company.

 

13. Transfer of registered office outside India.-Where a company wants to transfer its registered office from a State in India to outside India, such a change does not come within the purview of the section. (Kriemens Oil Mills Private Ltd. v. Registrar of Companies, AIR 1958 Mad 450).

 

14. State has no right to object on ground of loss of revenue.-Where the registered office of the company is transferred from one State to another, the State has no right to object on the ground of loss of possible future revenue though it may do so as a creditor in respect of arrears of revenue due to it. The shifting of the registered office is purely a domestic matter for the shareholders of the company. (Mackinnon Mackenzie & Co. Private Ltd., (1967) 37 Comp Cases 516 (Cal).

 

15. Interest of company ipso facto interest of shareholders.-If the transfer of registered office is in the interest of the company, it is ipso facto also in the interest of the shareholders. (Rank Film Distributors of India Ltd. v. The Registrar of Companies, West Bengal, AIR 1969 Cal 32).

 

16. Loss of revenue not relevant consideration.-The consideration that by transfer of the registered office the economy and revenue of the State will suffer, appears to be unreal or at the most speculative and is therefore not a relevant consideration. In any event, the loss of revenue in one State will be accompanied by increase in revenue in the other. In the administration of justice, the interests of a particular State ought not to be thought of in a sectional manner and what has to be considered is the interest of the country as a whole. In re: Orisa Chemicals & Distilleries Private Ltd., AIR 1961 Orissa and Orient Paper Mills Ltd. v. State, AIR 1957 Orissa 232 dissented from. (Rank Film Distributors of India Ltd. v. The Registrar of Companies, West Bengal, AIR 1969 Cal 32).

 

17. CLB not to adjudicate claims and counter claims.-In a proceeding under section 17 before the Company Law Board for confirmation of shifting of registered office from one State to another a dispute relating to payment of dues to a creditor cannot be adjudicated even though the creditor is another group company of the petitioner because both of them are two different entities. Deutsche Babcock Power Systems Ltd., In re, (1999) 97 Com Cases 341 (CLB-SR).

 

18. Action to be taken on receipt of order of the Company Law Board confirming the alteration

 

(1) Filing.-File a certified copy of the order with the Registrar of Companies concerned along with Form No. 21  Also file a certified copy of the same together with a printed copy of the Memorandum of Association, as altered, within three months from the date of the order with the Registrar of Companies of each of the State after paying the requisite filing fee. The Registrars of Companies of both the States will register the same and certify under their respective hands the registration thereof within one month. (Section 18(1)).

 

(2) Time taken for obtaining copies to be excluded.-Please note that as per the provisions contained in section 640A the time taken for obtaining a copy of the order will be excluded in computing the period of time for filing it with the Registrar. (Saroja Mills Ltd. v. Registrar of Companies, (1964) 34 Comp Cases 336).

 

(3) Filing of Form 18.-File the notice of change with the Registrar of Companies of the new State in Form No. 18 within thirty days from the date when the change becomes effective, after paying the requisite filing fee.

 

(4) Alteration to be noted.-Make necessary changes in every copy of the Memorandum of Association, letter heads, vouchers, registers, office papers, records, books, documents, signboards, common seal etc.

 

(5) Notification of change in newspapers.-Notify the change of registered office in the newspapers.

 

(6) Information to stock exchange.-If the shares of the company are listed with any recognised stock exchange then notify the change of Registered office to the concerned stock exchange.

 

(7) Appeal.-An appeal will lie to the High Court under section 10F, against the order of the Company Law Board passed under this section.

 

19. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has obtained necessary approval of the Company Law Board for altering the provisions of the memorandum of association with respect to situation of the company's registered office from one State to another during the year under scrutiny after complying with the provision of the Act as per paragraphs 17 and 26 of the Form of Compliance Certificate appended to the Companies (Compliance, Certificate) Rules, 2001.

 

20. Postal Ballot.-Listed companies must pass the special resolution though postal ballot as per Rule 4(e) of the Companies (Passing of Resolution by Postal Ballot) Rules, 2001.

 

Change of Registered Office from one State to another

(Another Format)

 

S. 17-Change of Registered Office-Special Resolution

 

"RESOLVED that, subject to the sanction of the Company Law Board, the Memorandum of Association of the Company be altered by incorporating the words 'State of Maharashtra' in substitution of and while deleting the words 'State of Karnataka' in Clause II.

 

RESOLVED FURTHER that on obtaining the confirmation from the Company Law Board, the Registered Office of the Company be transferred from the State of Karnataka to any place in the State of Maharashtra."

 

PRACTICE NOTES

 

Same under Resolution No. 791.

 

Change of Registered office within a State (S. 17A)

 

Any company desirous of changing the place of its registered office from one place to an other within a State must also obtain confirmation from the Regional Director to do so, if such change amounts to changing the registered office from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of Companies within the same State.

 

# 440. Extension of time for registration of alteration of Memorandum of Association (Ss. 18 & 19)

 

While calculating the time of three months prescribed in sub-section (1) of section 18 of the Act for filing the certified copy of the Company Law Board order made under sec­tion 17(5) of the Act, the time spent in obtaining the certified copy of the order is to be excluded. Shri Amba Motor Agencies (P) Ltd. v. Registrar of Companies, (1978) 48 Comp Cases 89 (Delhi). If the certified copy of the order is not filed within the period of three months or within the period extended by the Company Law Board, such alterations and the order of the Company Law Board and all proceedings connected therewith shall become void and inoperative. However, in such a contingency an application can be made within one month for the revival of the order before the Company Law Board and the Board on sufficient cause being shown may revive the order. Shiv Parkash Janakraj & Co. (P) Ltd. v. Registrar of Companies, (1963) 2 Comp LJ 228 (Punjab). The Company Law Board can extend time only so long as the order is alive i.e. before it becomes void and inoperative. Janardhana Mills Ltd. v. Registrar of Companies, (1964) 2 Comp LJ 34 : (1964) 34 Comp Cases 333 (Mad).

 

Change of name by a company (S. 21)

 

No approval of the Central Government is required where the change in the name of a company is the addition or deletion of the word 'Private' consequent on the conversion of a public company into a private company or of -a private company Into a public company in accordance with the provisions of the Act.7 The name proposed should not be identical with or too nearly resembles the name of an existing company.8 The change of name does not affect the entity of the company or its continuity as the same entity. Pioneer Protective Glass Fibre (P) Ltd. v. Fibre Glass Pilkington Ltd., (1995) 3 Comp LJ 309. The proceedings commenced by the company in its former name can be continued under its new name. Solvex Oils and Fertilizers v. Bhandari Cross-Fields (P) Ltd., (1978) 48 Comp Cases 260 (P&H).

 

Change of name

 

S. 21-Change of name by a company-Special Resolution

 

"RESOLVED that pursuant to section 21 of the Companies Act, 1956, and subject to the approval of the Central Government the name of the Company be changed from M/s. Rushabh Management & Infosys.

 

PRACTICE NOTES

 

1. Application for availability of name.-For change of name, the company concerned is to make an application first to the Registrar of Companies for the availability of the name in Form No. IA. A fee of Rs. 5001- is charged for the same. The fee can be paid by cash or by means of a demand draft or a treasury challan. As per the Citizen's Charter of the Department of Company Affairs, Schedule 111, Serial No. 1, the said approval should be given by the Registrar of Companies within 3 working days. [Press Note No. 9199, dated 9-8-1999].

 

2. Call Board Meeting for- fixing day, time, place and agenda for convening general meeting.-On confirmation from the Registrar that the new name is available for adoption, the day, time, place and agenda in the Board Meeting is fixed for convening a General Meeting for. passing a Special Resolution to change the name, subject, of course, to the approval of the Central Government.

 

3. Issue of notice of General Meeting.-Notice proposing the Special Resolution with, suitable Explanatory Statement should be issued.

 

4. Listed company to send notice to Stock Exchange concerned.-If the company is enlisted with a recognised Stock Exchange, a copy of the notice issued to the shareholders should be sent to the exchange concerned.

 

5. Hold General Meeting for passing Special Resolution.-Thereafter, the General Meeting should be held to pass the Special Resolution.

 

6. Filing with Registrar.-The Special Resolution with Explanatory Statement in Form No. 23 should be filed with the Registrar.

 

7. File six copies of the amended Memorandum of Association, one of the copies to be certified, with Stock Exchange concerned.-With the Stock Exchange, there should be filed six copies of the amendments made in the Memorandum of Association as soon as they are adopted by the company in the General Meeting. One of the copies must be certified copy.

 

8. Application to Registrar for approval of change of name.-Apply to the Registrar of Companies (delegated by the Central Government) concerned for approving the change in name under section 21. As per the Citizen's Charter of the Department of Company Affairs, Schedule 111, Serial No. 3, the said approval should be given within 15 working days. [Press Note No. 9199, dated 9-8-19991. Application for change of name by the company may be made in proforma to be obtained from the Registrar of Companies concerned. The following details and papers should be given in and/or enclosed with the application:

 

(a)        A detailed reasons for the change of name;

(b)        an up-to-date copy of the Memorandum and the Articles of Association;

(c)        a certified true copy each of the balance- sheet and the profit and loss account for the last two financial years;

(d)        a certified true copy of the communication received from the Registrar in token of his having recorded the Special Resolution in terms of Section 192 of the Act, (in case the said acknowledgment has not yet been received, the receipt, granted by him at the time of filing the Special Resolution should be sent);

(e)        where the change is due to alteration in the objects of the company as set out in its Memorandum of Association, the information whether a certified copy of the order of the Company Law Board Linder section 17 has been filed with the Registrar or not and whether the requisite certificate of registration has been obtained from him under section 18 of the Act or not;

(f)        a certified true copy of the Special Resolution;

(g)        total number of members;

 

(i)         on the register as on the date of passing of the resolution,

(ii)        who voted against the resolution with the grounds of their objection,

(iii)       who voted in favour of the resolution,

(iv)       who expressed no opinion;

 

(h)        whether absentee members communicated any objection to the passing of the resolution;

 

(i)         date of incorporation of the company with the registration number;

 

(i)         certified true copies of the Director's Reports on the annual accounts Of the company, for two financial years.

(k)        the evidence of payment of fee into the Punjab National Bank. The amount of fee to be paid will be determined on the basis of the table provided in the Companies (Fees on Application) Rules, 1999.

 

9. Forward old Certificate of Incorporation for issue of fresh Certificate of Incorporation.-On receiving the approval, an application should be made to the Registrar along with the old certificate of incorporation for a fresh certificate of incorporation. On the issue of such certificate by the Registrar, the change in name will be effective (Section 23).

 

10. Carry out necessary changes in every copy of Memorandum, Articles, office papers, etc.-Necessary changes should be carried out in every copy of the Memorandum and the Articles of Association, office papers, records, books, documents, sign boards, common seal, etc., etc.

 

It. Central Government approval not required for either addition or deletion of word "Private".-If the change in name amounts to either addition thereto or deletion there from of the word "private" as a result of conversion of a public company into a private company or vice versa then Central Government's approval is not required under section 21 proviso but for converting a public company into a private company Central Government's approval under section 3 1 (1) proviso is necessary.

 

12. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has altered the provisions of the memorandum of association with respect to name of the company during the year under scrutiny and complied with the provisions of the Act, as per paragraph 28 of the Form of Compliance Certificate as appended to the Companies (Compliance Certificate) Rules, 2001.

 

Change of name

(Another Format)

 

S. 21-Change of name by a company-Special Resolution

 

"RESOLVED that subject to the approval of the Central Government pursuant to section 21 of the Companies Act, 1956, the name of the Company be and is hereby changed from 'ABC Company Limited' to 'ABC (INDIA) Company Limited'.

 

RESOLVED FURTHER that the name 'ABC Company Limited' wherever it occurs in the Memorandum and Articles of Association of the Company be substituted by the new name 'ABC (INDIA) Company Limited'."

 

PRACTICE NOTES

 

Same under Resolution No. 793.

 

Rectification of name of company (S. 22)

 

Section 22 provides for compulsory change of name and the word "or otherwise" mentioned therein should be construed ejusdem generis with the preceding word "inadvertence". Kalpana Polytec India Ltd. v. UOI, (2001) 106 Com Cases 558 (Cal-DB).

 

The change of name does not bring into existence a new company. The company remains the same entity as it was before. Only the name changes. A new certificate of incorporation has no doubt to be issued but that does not incorporate a new company. Shree Choudhary Cold Storage, (1972) v. Ruby General Insurance Co. Ltd., AIR 1982 Cal 124. The rights and liabilities are not at all affected by change of name. Economic Investment Corpn. v. CIT, (W13), AIR 1970 Cal. 389. A decree can be executed in the new name or in the old name of the company. Abdul Quyum (FS) v. Manindra Law & Building Corporation Ltd., (1995) 25 Comp Cases 143.

 

 

Change of name

(Another Format)

 

S. 21 -Change of name by a company-Special Resolution

 

"RESOLVED that subject to the approval of the Central Government under section 21 of the Companies Act, 1956 the name of the Company be changed form A B C Limited to X Y Z Limited and that the name of the Company shall be X Y Z Limited with effect from the date of issue of certificate of incorporation by the Registrar of Companies in that behalf, and accordingly the name A B C Limited wherever it occurs in the Memorandum and Articles of Asso­ciation of the Company be substituted by the name X Y Z Limited."

 

PRACTICE NOTES

 

1. Special resolution and Central Government approval required for change of name.-Section 21 of the Companies Act lays down that a company may, by special resolution and with the approval of the Central Government signified in writing, change its name.

 

2. Change of name does not affect entity of company.-The change of name does not affect the entity of the company or its continuity as the same entity. It remains for all practical purposes the same entity with the same rights, privileges and liabilities as before. (Pioneer Protective Glass Fibre (P) Ltd. v. Fibre Glass Pilkington Ltd., (1985) 3 Comp U 309).

 

3. Listing companies to notify stock exchange.-Where the company's shares are listed on any stock exchange, the change of name must be notified to the Stock Exchange concerned.

 

4. Proceedings commenced in old name can be continued in new name.-Proceeding commenced by the company in its former name can be continued under its new name. Solvex Oils and Fertilizers v. Bhandari Cross-Fields (P) Ltd., (1978) 48 Com Cases 260 (P&H).

 

5. Registrar of Companies to be approached for issue of fresh certificate of incorporation.-On receipt of approval from the Registrar of Companies apply to him for a fresh certificate of incorporation and obtain the same.

 

6. Necessary changes to be carried out in every copy of Memorandum and Articles and other books.-Make necessary changes in every copy of the Memorandum and Articles, books, records, documents, registers, letter-heads and sign boards of the company.

 

7. Previous approval of Central Government not required.-Section 21 of the Act does not prescribe previous approval of the Central Government so far as change of name under the section is concerned (Bihavi Mills Ltd., (1985) 58 Comp Cas 6 (Guj)).

 

Rectification of name of company

 

S. 22(l)(a)-Change in name-Ordinary Resolution

 

"RESOLVED that, as approved by the Central Government vide letter No ……..dated the ……..2002 ……..the existing name of the Company 'ABC & Company Limited' be changed to Rushabh Management & Infosys. Limited'."

 

PRACTICE NOTES

 

1. Rectification of name.-If, through inadvertence or otherwise, a company, on its first registration or on its registration by a new name, is registered by a name which according to the Central Government, resembles the name of some other company, the former company may be required, by ordinary resolution and with the previous approval of the Central Government signified in writing, to change its name.

 

2. No approval required when change of name is addition or deletion of word "Private".-No approval is required where the only change in the name of the company is the addition thereto, or as the case may be, the deletion there from, the word 'private' consequent on the conversion in accordance with the provisions of the Companies Act, 1956, of a public company into a private company or of a private company into a public company (S. 21).

 

3. No appeal made after 5 years.-The Central Government will not consider any application made to it by a registered proprietor of a trade mark after 5 years of coming to notice of registration of a company.

 

4. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has altered the provisions of the memorandum of association with respect to name of the company during the year under scrutiny and complied with the provisions of the Act, as per paragraph 28 of the Form of Compliance Certificate as appended to the Companies (Compliance Certificate) Rules, 2001.

 

Rectification of name on direction of the Central Government

 

S. 22(l)(b)-Rectification of name of company on the direction of the Central Government-Ordinary Resolution

 

"RESOLVED that as per directions of the Central Government pursuant to the provisions of section 22 of the Companies Act, 1956, the name of the Company be changed from 'SAS Co. Limited' to 'NAM (India) Co. Ltd."'

 

PRACTICE NOTES

 

1. Rectification of name.-If, through inadvertence, or otherwise a company, on its first registration or on its registration by a new name is registered by a name, which in the opinion of the Central Government, is identical with or too nearly resembles the name of other company, the former company may by passing an ordinary resolution and with the previous approval of the Central Government change its name.

 

2. Application to Registrar for availability of name.-Make an application" to the Registrar of Companies concerned for availability in Form No. 1 -A. A fee of Rs. 5001is to be paid to the Registrar of Companies for the same, in cash.

 

3. Convening Board Meeting for calling general meeting.-On receipt of confirmation from the Registrar of Companies concerned, that the new name is available, call a Board Meeting and pass the above resolution recommending them to the shareholders to be passed as an ordinary resolution at the Annual General Meeting/Extraordinary General Meeting as the case may be. Fix up the date, time, place and agenda for a General Meeting.

 

4. Notice of General Meeting.-Give 21 days' clear notice for calling the Annual General Meeting/Extraordinary General Meeting and annex thereto the Explanatory Statement pursuant to section 173(l) of the Companies Act, 1956.

 

5. Application to Regional Director for approval of change in name.-Make an application" to the Regional Director (Delegated by the Central Government) for approval of change in name. A fee as per the Companies (Fees on Applications) Rules, 1999 is to be paid for the same, by way of either demand draft or treasury challan. As per citizen's charter of the Department of Company Affairs, Schedule 11, Serial No. I the said approval should be given by the Regional Director within 30 days. [Press Note No. 9199, dated 9-8-1999].

 

6. Forward old Certificate of Incorporation for issue of fresh Certificate of Incorporation-On receipt of the approval, forward to the Registrar of Companies concerned old certificate of incorporation for the issue of fresh certificate of incorporation. On issue of fresh certificate of incorporation by the Registrar of Companies, the change in name will become effective.

 

7. Carry out necessary changes in every copy of Memorandum, Articles, office papers, etc.-Carry out the necessary changes in the Memorandum and Articles of Association, letter heads, common seal, documents, records, sign boards, etc.

 

8. Rights and liabilities not affected.-The rights and liabilities are not at all affected by change of name. Economic Investment Corporation Ltd. v. CIT (WB), AIR 1970 Cal 389.

 

9. Entity of Company not affected.-The change of name does not bring into existence a new company. The company remains the same entity as it was before. Only the name changes. A new certificate of incorporation has no doubt to be issued but that does not incorporate a new company. Shree Choudhary Cold Storage (1972) v. Ruby General Insurance Co. Ltd., AIR 1982 Cal 124.

 

10. Decree can be executed either in old or new name.-Decree can be executed in the new name or in the old name of the company. Abdul Qayum (F.S.) v. Manindra Land and Building Corporation Ltd., (1955) 25 Comp Cases 143.

 

11. Penalty.-If a company makes default in complying with any direction given under section 22(l)(b), the company, and every officer who is in default will be punishable with fine of upto Rs. 1,000/- for every day during which the default continues.

 

Resolution of an Association registered under Section 25 of the Act, deleting the word ‘LIMITED' from its name

 

Section 25-Resolution deleting the word 'LIMITED' from the name of a Company-Special Resolution

 

"RESOLVED that pursuant to the licence dated granted by the Regional Director, Mumbai the name of the Company be and is hereby changed from X and Co. Ltd. to X and Co. and consequently the name of X and Co. Ltd., wherever it occurs in the Memorandum and Articles of Association of the Company be substituted by the name X and Co."

 

PRACTICE NOTES

 

1. Amendment of objects.-A Company registered under the Act can amend its objects so as to bring it in accordance with the objects set out in section 25 of the Act.

 

2. Alteration of object clause with approval.-A body licensed under this section cannot alter any provision of its memorandum in respect of its objects, except with the previous approval of the Central Government (Delegated to Regional Directors). If the alteration comes within any of the clauses of sub-section (1) of section 17, the provisions of that section must also be complied with, inter alia, by passing a special resolution.

 

3. Application to Regional Director for registration of company as section 25 company and deletion of word "Limited".-After the confirmation of the amendment, the company should apply to the Regional Director (Delegated by the Central Government) for permission to be registered as a section 25 company and for deletion of the word 'Limited' from its name.

 

4. Grant of licence.-The Regional Director may then grant a licence in the form prescribed in Annexure-IV of the Companies Regulations 1956 permitting the company to delete the word 'Limited' from its name. As per the citizen's charter of the Department of Company Affairs, Schedule 11, Serial No. 2, licence should be granted by the Regional Director within 30 days. [Press Note No. 9199, dated 9-8-1999].

 

5. Passing of Special Resolution.-A Special Resolution for the purpose will then have to be passed.

 

6. Filing of Special Resolution along with Explanatory Statement in Form 23 with Registrar.-Within 30 days of the passing of the above resolution, a certified copy of the special resolution along with the Explanatory Statement in Form 23 has to be filed with the Registrar along with requisite fees as per Schedule X.

 

7. Payment of filing fee.-The filing fee for making the application to the concerned Regional Director will be Rs. 5001- as per the Companies (Fees on Applications) Rules, 1999.

 

8. Issue of fresh Certificate of Incorporation by Registrar.-The Registrar will then enter the new name on the Register and issue a fresh certificate of incorporation.

 

9. Delegation of powers to Regional Directors.-The powers of the Central Government under this section have been delegated to the Regional Directors.

 

10. Charitable companies licensed under this section and other laws.-The ("rant of  a licence under this section is not conclusive of the fact that a company is registered for a charitable purpose,withm the meaning of s. 2(15) of the  Income-tax Act. It is only a rele­vant consideration. (Hyderabad Race Club, Hyderabad v. CIT, API, Hyderabad, (1985)153 ITR 521 (AP) (FB)).

 

11. Minimum paid-up capital.-A company registered under section 25 before or after the commencement of the Companies (Amendment) Act, 2000 is not required to have minimum paid up capital of Rs. 1 lakh or Rs. 5 lakhs as the case may be under subsection (6) of section 3.

 

Alteration of Articles of Association

 

S. 31-Alteration of Articles of Association-Special Resolution

 

"RESOLVED that subject to the approval of the shareholders pursuant to section 31 of the Companies Act, 1956, and other applicable provisions, if any, the Articles of Association of the Company be altered in the manner following:

 

Article 6 of the Articles of Association be deleted and in its place the following new article shall be substituted:

 

6. The Directors shall have power from time to time at their discretion to borrow, raise or secure the payment of any sum or sums of money for the purposes of the company."

 

In Article 8 of the Articles of Association, the words "thirty days" be substituted for the words "two months".

 

After Article 9 of the Articles of Association a new Article 9A be inserted:

 

9A. The company in General Meeting may, from time to time, increase the capital by the creation of new shares of such amount as may be deemed expedient."

 

"RESOLVED FURTHER that approval of the Company be and is hereby given to the deletion of the existing Article 21 with all its marginal notes and substitution thereof by the following new articles with marginal notes:

 

            21 "No fee on                            No fee shall be charged for regis­tration of transfer, grant of probate, grant of

registration of transfer, probate,  letters of administration, certificate of death of marriage, Power of Attorney or similar other instruments."

21 A. "Form of transfer             An instrument of transfer of any share shall be in writing and in the form prescribed by and under section 108 of the Act, or as near thereto as circumstances will admit."

PRACTICE NOTES

 

1. Convene Board Meeting for calling General Meeting.-Convene a Board Meeting for recommending the above resolution to the shareholders to be passed as a Special Resolution. Fix up the date, time, place and agenda for a General Meeting.

 

2. Notice of General Meeting.- Give 21 days' clear notice for calling the Annual General Meet] ng/Extraordinary General Meeting as the case may be and annex thereto the Explanatory Statement pursuant to section 173(l) of the Companies Act, 1956.

 

3. Listed company to forward notice of meeting to Stock Exchange.-In case the company's shares are enlisted on a recognised Stock Exchange, a copy of the notice calling the Annual General Meeting/Extraordinary General Meeting should be sent to the Stock Exchange concerned.

 

4. Filing of Special Resolution in Form No. 23 together with Explanatory statement with Registrar.-The Special Resolution in Form No. 23 together with Explanatory Statement be filed with the Registrar of Companies concerned on payment of prescribed fee within thirty days of the passing of the resolution.

 

5. Forward six copies of amended articles one copy duly certified to Stock Exchange.-Forward to the Stock Exchange concerned six copies of the amendment made, one copy duly certified, soon after its adoption by the company in General Meeting.

 

6. Obtain approval of Registrar of Companies where alteration has the effect of converting public company into Private Company.-Approval of the Central Government, that is, the Registrar of Companies be obtained where the alteration has the effect of converting a public company into a private company. As per the citizen's charter of the Department of Company Affairs, Schedule 11, Serial No. 3, the approval should be given by the Registrar of Companies within 15 working days. [Press Note No. 9199, dated 9-8-1999]

 

7. Delegation of powers to Registrar of Companies.-The powers of the Central Government under this section have been delegated to the Registrar of Companies.

 

8. Filing of Resolution and approval of Registrar.-In the case of conversion of public company into private company, two filings of the resolution with the Registrar are required, first, a copy of the special resolution altering the Articles for converting the public company into a private company will have to be filed as required by, and within the time provided in section 192. Then after obtaining approval of the Central Government, another filing as required by sub-section (2A) of section 31 has to be made within one month of the date of receipt of the order of approval.

 

9. Bonafide for benefit of Company as a whole.-The power of alteration of the article must be exercised bonafide for the benefit of the company as a whole. Shuttle worth v. Cox Brox. & Co., (18 27) 2 KB 2.

 

10. Alteration not to be inconsistent with provisions of Act.-Also ensure that the alteration in the Articles of Association is not inconsistent with the provisions of the Act. (S. 9) or is against public policy. For instance no alteration which provides for expulsion of a member will be registered.'

 

11. Increase in members' liability.- Likewise any change which tends to increase the liability of any member already on the register of members of the company to contribute to share capital or otherwise will be ultra vires of the Act.

 

12. Rectification of mistake in Articles.-A mistake whether clerical or otherwise in any of the articles of the company be rectified by alteration of the articles by passing a Special Resolution pursuant to section 31 of the Act. Scott i,. Scott (Frank f ) (London) Ltd., 1940 Ch 794.

 

13. Alteration in Articles not to be inconsistent with Memorandum.-One of the limitations envisaged by section 31 of the Act upon the power of alteration is that there should be nothing in the altered articles which is inconsistent with the memorandum. British and American Trustee and Finance Corporation v. Couper, (1894) AC 399 at 417 and Andrews v. Gas Meter Co., (1897) 1 Ch 361 (CA).

 

14. Passing of Special Resolution inconsistent with Article not enough.-The mere passing of a Special Resolution inconsistent with an existing article, is not enough unless it expressly alters the articles concerned. 10

 

15. Retrospective alteration.- Articles may be so altered as to have retrospective operation. Allen v. Gold Reefs of West Africa, (1900) 1 Ch 656, Sidebotton v. Kershaw Leese & Co. Ltd., (1920) 1 Ch 154.

 

16. Notice of Meeting for alteration of articles to disclose full facts.-Notice of meeting for alteration of articles should disclose full facts and be accompanied by a copy of the proposed amendments. Bimal Singh Kothari v. Muir Mills Co. Ltd., (1952) 22 Comp Cases 248: 56 CWN 36 1: AIR 1952 Cal 645.

 

17. Articles can never be replaced.- A company can never replace its articles. It is only the regulations contained therein which may be changed.

 

18. Compliance Certificate.- Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has altered I ts articles of association~ after obtaining approval of members in the general meeting held on a specified date and the, amendments to the articles of association have been duly registered with the Register of Companies as per paragraph 30 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

 

Alteration in authorised capital in Articles of Association

 

S. 31-Alteration in authorised capital in Articles-Special Resolution

 

"RESOLVED that pursuant to Section 31 of the Companies Act, 1956, the Articles of Association of the Company be altered by substituting the following Article for Article 3:

 

Art. 3. The authorised Share Capital of the company is Rs. 1000,00,000/- (Rupees Ten Crores) divided into 80,00,000 (Eighty Lacs) Equity Shares of Rs. 10/- (Rupees Ten) each 20,00,000 (Twenty Lacs) equity shares with differential voting rights of Rs. 10/- (Rupees Ten) each."

 

PRACTICE NOTES

 

1. Company cannot escape its contractual obligations by amending articles.-By effecting alterations in the articles a company cannot defeat or escape from its contractual obligations. (Southern Foundries 1926) Ltd. v. Shirlaw, (1940) 10 Com Cases 255 (HL)).

 

2. Company cannot alter Articles to carry on illegal scheme.-Articles cannot be altered, if the alteration is repugnant to, or inconsistent with, any statute or general law or if it is such as to defeat the provisions of any law. The articles cannot be altered to enable the company to carry on an illegal scheme (lottery business). (Pioneer Mutual Benefit Society v. Asst. Registrar, (1933) 3 Com Cases 37 (Mad)).

 

3. Power to alter Article a Statutory power.-The power to alter articles is a statutory power and a company cannot contract itself out of the power, and provide that any of its articles are to remain unaltered. Any restriction on the exercise of the power except to the extent provided in the Act or any other law will be invalid. (Bushell V. Faith, (1969) 1 All ER 1002 (CA)).

 

4. Power of alteration not to be exercised in a manner that would constitute fraud on minority.-The power of alteration cannot be exercised in a manner that would constitute a fraud on the minority. An alteration in the articles whereby the majority may require any member to sell his shares to any other members is liable to be struck down if the compulsion is not for the benefit of the company as a whole. (Clemens v. Clemens Bros. Ltd., (1976) 2 All ER 268; Brown v. British Abrasive Wheel Co., (1919) 1 Ch 290).

 

5. Power to alter cannot be used to violate any statutory provision of law.-The power to alter cannot be used to violate any statutory provision or principle of law, e.g., to take away a shareholder's right to present a winding up petition. (Rama- krishna Industries (P) Ltd. v. P.R. Ramakrishnan, (1988) 64 Com Cases 425 (Mad)).

 

6. Table A to be excluded in clear language.-If Table A is to be excluded it must be done in clear language. Where articles are not registered, sub-section (2) of this section will apply. Prayan Prasad v. Gaya Bank & Traders Association Ltd., (1931) 1 Com Cases 85.

 

7. Regulations will apply where articles do not exclude regulations in Table A.Even if articles are registered to the extent to which they do not exclude or modify the regulations in Table A, those regulations will also be applicable. (Seth Mohanlal v. Grain Chambers Ltd., (1968) 38 Com Cases 543).

 

8. Articles binding on members and between members inter se.-The Articles of the company are binding on members and between members inter se. (Link Industries Ltd., (1957) 27 Cornp Cas 468 (Mad); Ramakrishna Industries (P) Ltd. v. V.P.R. Ramakrishnan, (1988) 64 Comp Cas 425 (Mad)).

 

9. Articles imposing additional restriction on transferability of shares.-The Private agreement whereunder there was a restriction that a living member could transfer his shareholding only to a member of his own branch of the family imposed additional restrictions on the transferability of shares contrary to the provisions of the Articles and was therefore not binding on the company (V.B. Rangaraj v. V.B. Gopalakrishnan, (1992) 73 Comp Cas 20 1).

 

10. Equity shares with differential voting rights.- Companies (Amendment) Act, 2000 has substituted section 86 relating to new issue of share capital to be only of two kinds to include equity share capital with differential rights as to dividend, voting or otherwise in accordance with such rules and subject to such conditions as prescribed by the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001.

 

Alteration of Articles for Conversion of a Deemed Public Company into Private

 

Ss. 31(1)143A(2A)-Alteration of Articles of Association for Conversion of public into private company and vice versa-Special Resolution

 

"RESOLVED that pursuant to the alteration in the Articles of Association of the Company vide Special Resolution passed at the Annual General Meeting/Extraordinary General Meeting held on ................... and as a consequence thereof the Company having become a private company from a public company, an application be made to the Registrar of Companies for addition of the word "Private" before the word "Limited" in the name of the company."

 

RESOLVED FURTHER that the Company having ceased to be a Public Company within the meaning of sub-sections (1)/(1A)/ (1B)/(1C) of section 43A of the Companies Act, 1956, an application be made to the Central Government seeking their approval to the conversion of the Company into a private company.

 

RESOLVED FURTHER that the Managing Director/Secretary of the company be and is hereby authorised to make an application to the Central Govt. and to take such other steps as may be necessary for the implementation of the resolution."

 

PRACTICE NOTES

 

1. Application to Registrar of Companies for conversion of Public company into Private.- Powers of the Central Govt. under section 3](1) has been delegated to the Registrar of Companies. Therefore an application in Form IB is to be made to the Registrar of Companies giving therein as to how the company is no longer a public company and has become a private company. As per the citizen's Charter of the Department of Company Affairs, Schedule III, Serial No. 3, the approval should be given within 15 working days. [Press Note No. 9/99, dated 9-8- 1999].

 

2. Annex to application a copy of Balance-sheet and profit and loss account.-Annex to the application a copy of the balance-sheet and profit and loss account for the preceding three years and the Board's resolution.

 

3. Payment of application fee.-A demand draft or a treasury challan evidencing the payment of the requisite fee as prescribed under the Companies (Fees on Application) Rules, 1999, is also to be attached with the application.

 

4. Filing of Special Resolution in Form 23 along with Explanatory Statement with Registrar.-File the Special Resolution in Form No. 23 together with Explanatory Statement with the Registrar of Companies concerned on payment of prescribed fee within thirty days of the passing of the resolution.

 

5. Conversion of Public company into private only when company closely held.- Conversion of a public company into a private company will be allowed only if the applicant company is closely held one having no public interest involved in it.

 

6. Consent of unsecured creditors required.-To protect the interests of' unsecured creditors consent to conversion of every creditor to whom the company owes substantial amounts is require .

 

7. Certificate of incorporation to be changed within 4 weeks by ROC.-Where a public company becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000 w.e.f. 13-12-2000, it should inform the Registrar of Companies who will substitute the word 'private company' for the word, public company and will also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association within 4 weeks from the date of the application made by the company.

 

8. Postal Ballot.-Listed companies are required to pass the special resolution for alteration of articles of association in relation to insertion of provisions defining public through postal ballot as per clause (b) of Rule 4 of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001.

 

Alteration of Articles for conversion of Public Company into Private Company

 

S. 31-Alteration of Articles o Association for Conversion of Public Company into Private Company-Special Resolution

 

"RESOLVED that subject to the sanction of the Central Government, the Company be and is hereby converted into private limited company and consequently the word 'Private' be added to the name of the company, wherever the same appears in the Memorandum and Articles of Association of the company.

 

RESOLVED FURTHER that the Articles of Association of the Company be amended to make provisions for the following:

 

1. The number of members of the company (excluding the persons who are in the employment of the company and of persons who, having been formerly in the employment of the company are while in such employment and have continued after the determination of such employment to be members of the company) shall not exceed fifty.

 

2. No share shall be transferred to a person who is not a member of the company, so long as any member is willing to purchase the same at a fair value.

 

3. The company shall not invite the public to subscribe for its shares and debentures.

 

4. The company shall be prohibited from issuing share warrants to bearer.

 

5. The company shall not invite or accept deposits from persons other than its members, directors or their relations.

 

RESOLVED FURTHER that the Secretary of the Company be and is hereby authorised to take further steps for giving effect to this resolution."

 

PRACTICE NOTES

 

1. Filling of Special Resolution with Registrar in Form No. 23 along with Explanatory Statement.-Within 30 days of passing of this resolution, the company will have to register the same, along with the Explanatory Statement by filing Form 23 with the Registrar of Companies together with the requisite fee, in cash as per Schedule X. (As amended by S. 0. 419(E), dated 2 7-4-2000, w. e.f. 1-5-2000)

 

2. Approval of Central Government required when alteration of articles has effect of converting public company into private.-No alteration to the articles, which has the effect of converting a public company into a private limited company can be done without the approval of the Central Government (Delegated to Registrars of Companies).

 

3. Application to Registrar of Companies .-Within 3 months of the passing of this resolution an application in Form No. 1B, is to be made to the Registrar of Companies. With the application enclose the following:

 

(a) A certified true copy of the present Memorandum and Articles of Association.

(b) Certified true copy of latest profit and loss account and balance-sheet,

(c) A certified true copy of the minutes of the meeting approving the conversion.

(d) A statement regarding the existing capital structure of the company.

(e) The number of members at the time of passing of the resolution.

(f) The reasons for the conversion.

(g) Evidence of payment of fee in accordance with the Companies (Fees on Application) Rules, 1999'.

 

4. Guiding criterion for considering application.-In considering applications for conversion, the guiding criterion is whether a proposal would be in the best interest of the company itself and that there is a large measure of agreement among the shareholders to the proposed conversion. In particular, an attempt is made to ascertain if the proposal is prompted merely by a desire to overcome the restrictions imposed by some of the provisions of the Companies Act, which apply only to public companies e.g., sections 295, 372 etc., or if the conversion is generally needed for carrying on the business of the company more efficiently. A company having more than 25 shareholders is advised to obtain the written consent of all the shareholders who had not voted for the conversion before Government's approval is considered. To protect the interests of unsecured creditors, the Department has also been insisting on companies obtaining the consent to conversion of every creditor to whom the company owes substantial amounts. 14

 

5. Filing of printed copy of Articles with Registrar.-Within one month of receipt of (Government's sanction) a printed copy of the articles as altered should be filed with the Registrar of Companies along with the order of the Central Government. The Registrar will then effect necessary changes in the Memorandum and Articles of Association already filed with him as also the certificate of incorporation of the company. All copies of the Memorandum and Articles of Association of the company issued after the date should carry the amendments.

 

6. Automatic application of provisions.-Sub-clause (d) of clause (III) of sub-section (1) of section 3 was added by the Companies (Amendment) Act 2000 with effect from 13th December 2000 providing that all private companies should by articles of association prohibit any invitation or acceptance of deposits from persons other than its members, directors or their relatives. A private which has failed to amend its articles to incorporate the aforesaid provision cannot be treated as a public company and the provisions of the Act will automatically govern all private companies. G. Venkitapathy v. Prakathi Spinners (P) Ltd., (2002) 49 CLA 97 (CLB).

 

Alteration of Articles (S. 31)

 

A company may alter its articles of the Articles of Association by passing a Special Resolution. The power of alteration of the articles must be exercised bona fide for the benefit of the company as a whole. Shuttleworth v. Cox Bros. & Co., (1827) 2 KB 2. Ensure that the alteration in the Articles of Association is not inconsistent with the provisions of the Act, or is not against public policy. For instance no alteration which provides for expulsion of a member will be registered." Likewise any change which tends to increase the liability of any member already on the register of members of the company to contribute to share capital or otherwise will be ultra vires the Act. A mistake whether clerical or otherwise in any of the articles of the company be rectified by alteration of the articles by passing a Special Resolution pursuant to section 31 of the Act. Scott v. Scott (Frankf) London Ltd., 1940 Ch 794. One of the limitations envisaged by section 31 of the Act upon the power of alteration is that there should be nothing in the altered articles which is inconsistent with the memorandum. British and American Trustee and Finance Corporation v. Couper, (1894) AC 399 at 417 and Andrews v. Gas Meter Co., (1897) 1 Ch 361 (CA).

 

The mere passing of a Special -Resolution inconsistent with an existing article, is not enough unless it expressly alters the articles concerned. 16 Notice of meeting for alteration of articles should disclose full facts and be accompanied by a copy of the proposed amendments. Bimal Singh Kothari v. Muir Mills Co. Ltd., (1952) 22 Comp Cases 248: 56 CWN 361: AIR 1952 Cal 645. Articles may be so altered as to have retrospective operation. Allen v. Gold Reefs of West Africa, (1900) 1 Ch 656; Sidebotton v. Kershaw Leese Co. Ltd., (1920) 1 Ch 154.

 

An alteration of articles of association for providing therein that the shares of an expelled member would be compulsorily transferred even against his wishes and without his signature was held to be valid exercise of the power of alteration. Gothami Solvent Oils Ltd. v. Mallina Bharathi, (2001) 105 Com Cases 7 10 (A.P.).

 

A company can never replace its articles. It is only the regulations contained therein which may be changed. 17

 

Alteration of Articles to Adopt new set of Articles

 

S. 31-Alteration of Articles o Association for Adoption of new set of Articles-Special Resolution

 

"RESOLVED that, the new Articles of Association of the Company, a copy of which is placed before the meeting, duly initialled by the Chairman, be and are hereby approved and adopted as the Articles of Association of the Company in substitution of the existing articles.

 

RESOLVED FURTHER that the Secretary of the Company is hereby authorised to take all steps for giving effect to the resolution."

 

PRACTICE NOTES

 

1. Conversion of public company into private.-No alteration of articles of association can be made without the approval of the Central Government where such alteration amounts to conversion of a public company into private.

 

2. Alteration valid.-Any alteration of articles of association by special resolution will be as valid as if originally contained in the articles and will be subject to alteration by special resolution.

 

3. Filing of Special Resolution.-File the special resolution along with Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X of the Act, in cash.

 

Alteration of Articles to adopt new set of Articles

(Another Format)

 

S. 31-Alteration of Articles o Association for Adoption of' new set of Articles-Special Resolution

 

"RESOLVED that all the Articles No. I to contained in the Articles of Association of the Company be and are hereby deleted and are substituted by the Articles contained in the printed document placed before the meeting duly initialled by the Chairman of the meeting for identification."

 

PRACTICE NOTES

 

Same under Resolution No. 803.

 

Replacement of Articles

 

S. 31-Alteration of Articles by way of Replacement of Articles-Special Resolution

 

"RESOLVED that the regulations contained in the draft Articles of Association submitted co this meeting, duly initialled by the Chairman for the purpose of identification, be and are hereby approved and adopted as the Articles of Association of the Company in substitution for, and to the exclusion of all the existing Articles thereof.

 

RESOLVED FURTHER that the Secretary of the Company be and is hereby authorised to take all necessary steps for giving effect to the resolution."

 

PRACTICE NOTES

 

1. Adoption of new set of regulation.-A company can never replace its articles, it is only the regulations contained therein which may be changed. Accordingly the concerned company can adopt an entirely new set of regulations in place of those now contained in its existing articles by passing a special resolution to that effect in accordance with the provisions of section 31 of the Companies Act, 1956. The new set of regulations proposed to be adopted should form a part of the special resolution and the explanatory statement to be annexed to the notice of the general meeting under section 173(2) of the Act should set out all material facts concerning the pro- posed alterations in the existing articles. (Circular Letter No. 8/32(31)/63-PR, dated 23-10-1963).

 

2. Alteration against memorandum.-One of the limitations envisaged by Section 31 upon the power of alteration is that there should be nothing in the altered articles which is inconsistent with the memorandum. (British and American Trustee and Finance Corporation v. Couper, (1894) AC 399).

 

3. Alteration of articles by consent.-When all the shareholders interested in a company entered into an agreement which modified the articles of association but was not drafted as a resolution nor passed at a general meeting, the articles could nevertheless be deemed to be effectively modified. This is on the basic principle of company law that all the shareholders of company acting together can do anything intra vires the company. Section 31(l) does not undermine that principle but merely lays down the procedure whereby some only of the shareholders can validly alter the articles. (Cane v. Jones, (198 1) 1 All ER 533 (Ch D).

 

4. Notice of meeting for alteration of articles.-Notice of meeting for alteration of articles should disclose full facts and be accompanied by a copy of the proposed amendments. (Bimal Singh Kothari v. Muir Mills Co. Ltd., (1952) 22 Com Cases 248).

 

5. Amendment to be within scope of notice.-The amendment must be within the scope of the notice and should not commit the meeting to anything beyond the business proposed in the resolution of which notice had been sent to the members.

 

Alteration of Articles-To Refuse Splitting of shares

 

S. 31. -Alteration of Articles authorising Board to refuse splitting of shares in certain cases-Special Resolution

 

"RESOLVED that after Article No. 19, the following new article may be inserted as Article 19A."

 

"19A-The Board may refuse an application for sub-division or consolidation of the number in denomination of less than 100 equity shares or less than 10 preference shares as the case may except when such sub-division or consolidation is required to be made in compliance with any law or an order or decree of a competent Court."

 

PRACTICE NOTES

 

1. Alteration of Articles empowering Board to refuse too much splitting.-In order to avoid application for sub-division of share certificates, it may be appropriate to alter the Articles of Association of the company to empower the Board refusing too much splitting up of the shares.

 

2. Obtaining of approval for transfer of shares.- Ensure that transfer of shares is not subject to the approval of the Central Government or any other authority under any other law. If so, their approval should be obtained before transferring the shares.

 

3. Proper instrument of transfer-Meaning of.-Proper instrument of transfer means an instrument of transfer which complies with all the formalities required by the Act including stamp duty to be affixed thereon. Re: Paradise Motor Co. Ltd., (1968) 2 All ER 625: (1968) 2 Comp LJ 216.

 

4. Registering unstamped instrument not lawful.-A company registering an instrument of transfer which is not duly stamped, it will be doing an act which is unlawful Re: Jagodish Mills Ltd., 56 Bom LR 525.

 

5. Transfer by operation of law.-Transmission by operation of law is not a transfer. Indian Chemical Products Ltd. v State of Orissa, (1966) 2 Comp LJ 63.

 

6. Transfer of shares by or in favour of NRIs.-Before any transfer of shares by or in favour of non-residents is considered, it is necessary to see whether it contravenes any provision of the Foreign Exchange Management Act, 1999".

 

7. Company be restrained by injunction from transferring shares for non- compliance with requirement of section.-A company may be restrained by injunction from effecting a transfer where the requirements of this section are not complied with. Somani (KK) v. Somani (D.K.), (1984) 2 Comp LJ 363.

 

8. Transfer not effective until transfer registered in company's register.-A transfer effective between transferor and the transferee is not effective as against the company and any person without notice of the transfer until the transfer is registered in the company's register. Life Insurance Corporation of India v. Escorts Ltd., (1986) 59 Comp Cases 548 at 618.

 

9. Only bona fide shareholder can apply for registration of transfer.-In all cases only a bona fide holder will have the right to fill in his name or the name of a person for whom he is acting under an authority and apply for registration of the transfer. Colonial Bank v. Hepworth, (1887) 35 Ch D 36.

 

10. Transfer relates back to date of execution.-A transfer when accepted relates back to the date of execution of the instrument. Killick Nixon Ltd. v. Dhanraj Mills Pvt. Ltd., (1983) 54 Comp Cases 432 (Bom-DB).

 

11. Director under no obligation to register unstamped instrument of transfer.-If an instrument of transfer does not bear the stamp before or at the time of execution, the Directors are under no obligation to register the transfer. Killick Nixon Ltd. v. Dhanraj . Mills Pvt. Ltd., (1983) 54 Comp Cases 432 (Bom-DB).

 

12. Registration invalid when transfer application not accompanied with share certificates.-Without production of the share certificate along with the application for transfer, the transfer cannot be registered and if registered, the registration will be void. Philipose (E.J.) v. Vanchinad Rubber Produce Co. Ltd., (1953) 23 Comp Cases 536.

 

13. Transfer be effected in the names of heirs of deceased as joint shareholders. -Where the heirs of a deceased Joint shareholder had obtained a succession certificate and the surviving joint shareholder had disclaimed interest in the shares, the company ought not to refuse registration of the shares in the names of the heirs of the deceased joint shareholder. Mrs. Kamala V. Pai v. Messrs. Esso Standard Refuining Company of India Ltd. (Hindustan Petroleum Corporation Limited, Appeal No. I of 1977 order dated 23rd February, 1977 of the Company Law Board. In the case of listed companies ensure compliance with the requirement of the Securities Contracts (Regulation) Act, 1956, in case it is proposed to refuse registration of any transfer.

 

14. Government companies exempted.-This section does not apply to Government companies with respect to shares held by nominees of Government

 

Alteration of Articles by Addition

 

S. 31-Alteration of Articles of Association by way of Addition of Articles Special Resolution

 

"RESOLVED that the Articles of Association of the Company be al­tered by adding following proviso at the end of article  ……..of the Articles of Association of the Company:

 

Provided that the preference shareholders have voting power at a General Meeting like any other member holding equity shares ............     in the event the dividend on such preference shares are in arrears  ……..etc            

 

PRACTICE NOTES

 

1. Section 192 requires filing of Special Resolution in Form No. 23 along with Explanatory Statement with Registrar.-Following the provisions of section 192 of the Act, a copy of every resolution (together with a copy of statement of material facts annexed under section 173 to the notice of the meeting in which such resolution has been passed) must be filed with the Registrar within thirty days after passing with the text of the resolution duly certified. Where a company has registered with the Registrar, Articles of Association, a copy of every resolution altering' the article must be embodied in or annexed to every copy of the articles issued after passing of the resolution altering the articles.

 

Alteration of Articles by Substitution

 

S. 31-Alteration o Articles of Association by way of Substitution of Articles-Special Resolution

 

"RESOLVED that the Articles of Association of the Company be altered in the following manner, that is to say, the word 'five' appearing in the fourth line of the existing article    of the Articles of Association of the Company be deleted and substituted by the word ‘nine'."

 

PRACTICE NOTES

 

1. Substitution of articles for increasing number of directors.-Under the existing articles of the company, the company could have a maximum of five Directors on the Board of the company. By virtue of the above alteration, the company would be in a position to appoint nine Directors. The maximum number of Directors a company is permitted to have is limited to twelve and less but the prescribed minimum' number must be retained by the company in order to make the company function. Pursuant to the proviso to section 259 of the Act, a company can increase permissible number of Directors in the articles up to twelve but any resolution seeking to increase permissible maximum number of Directors above twelve will have no effect unless approved by the Central Government and shall become void if and in so far as, it is disapproved by the Central Government. Government Directors appointed under section 408 and nominee Directors of certain financial institutions governed by special statutes which dispense with the requirements of these provisions of the Companies Act, 1956, will not be taken into account while counting the number of Directors.

 

2. Private company exempted.-The section does not apply to private companies.

 

3. Form of application to Central Government.-For approval of the Central Government of any increase in number of Directors application is required to be made in Form No. 24.

 

4. Requirements to be fulfilled for making application to Central Government. Where an application is made to the Central Government

 

(a)        A general notice has to be given to all the members indicating the nature of the application to be made to the Central Government. The notice should be published at least once in a newspaper of the principal language of the district in which the registered office of the company is situate and circulating in that district and at least once in English language in an English newspaper circulating in that district (Section 640B).

(b)        A copy of the application along with all the documents should be sent to the Registrar (Rule 20A).

(c)        Three copies of the general notice published in the newspapers should be forwarded to the Stock Exchange if the company is listed on it. This is according to the Standard Listing Agreement.

(d)        With the application in Form No. 24, the following should be attached:

 

(i)         Certified true copies of each of the present Memorandum and Articles of Association and of those which were in force on 21st July, 1951, or, if the company came into existence later on, then on the date of its registration;

(ii)        A certified true copy of the resolution passed and the full proceedings of the General Meeting with full details about votings in a separate sheet;

(iii)       A treasury challan showing the fees having been deposited as per the Companies (Fees on Application) Rules, 1999;

(iv)       Copies of the notices together with a certificate by the company as to the due publication thereof.

 

5. Appointment of Directors to be effective on receipt of approval.-The appointment of the Director made in the General Meeting will be effective only on receipt of the approval of the Central Government.

 

Alteration of Articles by substitution

(Another Format)

 

S. 31-Alteration of Articles o Association by way of substitution-Special Resolution

 

"RESOLVED that the Articles of Association of the Company be altered in the following manner, that is to say, 'Rs. 100/- (Rupees one hundred)' appearing in the 2nd line of the article    of the Arti­cles of Association of the company be substituted by the words and figures 'Rs. 5,0001- (Rupees five thousand)'."

 

PRACTICE NOTES

 

1. Articles to provide fee payable to directors for attending Board or Committee Meeting.-The articles of the company should provide for the fees payable to a Director for attending meetings of the Board of Directors or any committee thereof.

 

2. Sitting fee not to exceed beyond prescribed limit without approval of Central Government.-The Companies Act, 1956, (not even Table 'A' Schedule 1) does not fix any minimum amount of fees to be paid to a Director (not Whole-time or Managing Director) which should be fixed by the articles of the company. Restrictions, however, have been imposed on the company under proviso to section 3 10 of the Act, read with Rule 10B of the Companies (Central Government's) General Rules and Forms, 1956, so that, without the approval of the Central Government, any provision in or any amendment of the Articles of Association which purports to increase, or which has the effect of increasing the amount of the remuneration only by way of a fee for each meeting of the Board or a committee meeting attended by any such Director beyond those prescribed under the aforesaid rules. The prescribed limit of sitting fee at present is Rs. 50001- per meeting.

 

Adoption of Table A

 

S. 31-Adoption of Regulations contained in Table A'-Special Resolution

 

"RESOLVED that the regulation contained in Table 'A' of Schedule I of the Companies Act, 1956, shall apply to the Company in so far as they are not inconsistent with or repugnant to any of the regulations contained in. the printed copy of the Articles of Association of the Company, submitted to the meeting and initialled by the Chairman hereof, for the purpose of identification."

 

PRACTICE NOTES

 

1. Table 'A' of Schedule I not to apply to companies covered by Chapter IX unless adopted by Special Resolution.-Part IX of the Companies Act, 1956, deals with companies or associations of person or any other combination thereof which came into existence on the 1st May, 1882, under any statute, charter or any other Act of the Parliament of the United Kingdom or letters patent in force or under any other Indian or foreign law and these companies may be registered (with the exception of the companies registered under the Indian Companies Act, 1913), under the Companies Act, 1956, as a company limited by share (Section 565). Section 578(3)(a) provides that Table 'A' 'of Schedule I shall not apply to these companies unless and except in so far as it is adopted by Special Resolution.

 

2. Table 'A' of the Indian Companies Act, 1913 continues to apply to existing companies unless words "Table A of" the Companies Act, 1956 substituted therefor by Special Resolution.-Pursuant to the provisions of section 657, Table 'A' adopted by the companies in accordance to the one annexed to the earlier Acts (mentioned in Part IX) will continue to be operative and as respects companies registered prior to 1st April, 1956, Table 'A' of the Indian Companies Act, 1913, will continue to apply unless Table 'A' of the Companies Act, 1956, is made applicable and the words "Table 'A' of the Companies Act, 1956" is made applicable in substitution for Table 'A' of the Indian Companies Act, 1913, by suitable amendment to the Articles of Association and new Table 'A' is adopted by passing a Special Resolution.

 

3. Companies generally exclude Table 'A' and adopt it with suitable modification.-Present tendency is to exclude the exact provision of the Table 'A' and apply the regulations contained therein by suitably modifying them either by passing a Special Resolution or by inserting a clause in the Articles of Association reading, say as: save as reproduced herein the regulations contained in Table 'A' of Schedule I to the Act (Companies Act, 1956) shall not apply to the company.'

 

Other amendments in Articles

 

S. 31-Other amendments in the Articles of Association-Special Resolution

                       

"RESOLVED that a new article numbered as 25A be inserted immediately after article 25 of the Articles of Association of the Company."

 

Deletion (full)

 

"RESOLVED that the articles    to         governing regu­lations in connection with powers and privileges of the managing agents of the Company be deleted, these being rendered redundant."

 

Deletion (part)

 

"RESOLVED that the Articles of Association of the Company be altered in the following manner by deleting the words 'managing agents' from any and every clause of the articles wherever they occur."

 

Substitution

 

"RESOLVED that the Articles of Association of the Company be altered in the following manner by deleting the existing article 29 with all marginal notes there for and substitution of the following new article 29 (with the marginal notes there for)."

 

Composite amendment

 

"RESOLVED that the articles    of the Articles of Association of the Company be altered in the following manner:

 

(a)        by insertion of a new article numbered 29A immediately after article 29, reading as follows:

 

"29A. That notwithstanding any provision to the contrary contained in the articles and pursuant to section 255 of the Companies Act, 1956, all Directors including the Managing Director or the Whole-time Director shall retire by rotation at every Annual General Meeting-"

 

(b)        by deletion of article 93 substituting therefor a new article 93 with marginal notes reading as 'What is deemed to be net profit', as follows:

 

"93. Subject to the provisions of the Companies Act, the declaration of the Board as to the amount of the net profits of the company shall be conclusive."

 

(c)        by deletion of the words and figures 'Rs. 100/- (Rupees one hundred) in line 5 of article 77 and substitution therefor of the words and figures 'Rs. 250/- (Rupees two hundred fifty)'."

 

PRACTICE NOTES

 

1. Person whose period of office liable to determination by retirement of directors by rotation.-As regards item (a) above, unless the articles provide for the retirement of all Directors at every Annual General Meeting, not less than two- thirds of the total number of Directors of a public company shall be persons whose period of office is liable to determination by retirement of Directors by rotation. There are companies which are managed by professional managers who are either Managing and/or Whole-time Directors. In such cases, as far as the Whole-time Directors who retire by rotation and reappointed in the same meeting as Directors are concerned the services of such Directors remain continuous.

 

2. Articles not to be amended to provide for expulsion of member.-Articles of Association should not be amended in such a way as to provide for expulsion of a member from the company. Such an amendment is opposed to the fundamental principles of company jurisprudence and ultra vires the company. (Circular No. 32/ 75, dated 1- 11- 1975).

Conversion of public company into private

 

S. 31-Change of public into private company-Special Resolution

 

"RESOLVED that the approval of the Central     Government having been obtained vide letter dated the ............... 2002, the Company be converted into a Private Ltd. Company."

 

PRACTICE NOTES

 

1. Private Company becoming a public company and reconversion thereof into Private Company.-By virtue of operation of section 43A, a private company may become a public company and in the similar way in the absence of those factors such public company, by virtue of section 43A may again be a private company.

 

2. Procedure" for converting deemed public company into Private Company:- For converting a deemed public company again into a private company, it is necessary to:

 

(i)         make an application to the Registrar of Companies concerned on a plain paper explaining the change in circumstances which no longer obtain so as to make the company a deemed public company.

(ii)        Following documents should be furnished along with the application:

 

(a)        a copy of the balance-sheet and profit and loss account of the company for the last three years;

(b)        a copy of the Board's resolution;

(c)        a treasury challan evidencing the payment of the requisite fee as prescribed under the Companies (Fees on Application) Rules, 1999.

 

(iii)       On receipt of or before applying for the approval (if the approval is conditional in the former case) call a Board Meeting to fix the date, time, place and agenda of the General Meeting to pass a Special Resolution converting the deemed public company into a private company (if section 31 applies) or for converting the private company into a public company by deleting the articles which constitute a private company (S. 43).

(iv)       Issue notices with suitable Explanatory Statement and hold the General Meeting.

(v)        Register the Special Resolution, within thirty days of its passing, with the Registrar in Form No. 23.

(vi)       After the approval is obtained, request the Registrar to issue a fresh certificate of incorporation, and on such issue, the deemed public company again becomes a private company or the private company becomes public company.

(vii)      If the company is enlisted on any recognised Stock Exchange, then forward to it, three copies of the notices and a copy of the proceedings of the General Meeting.

 

Reconversion

 

Where the shareholding of a body corporate in a deemed public company falls below 25% of the paid-up share capital of that company and its average annual turnover falls below the prescribed sum (presently Rs. ten crores w.e.f. 18-9-1990), the company can convert itself again into a private company by complying with the provisions of subsection (4). (Letter No. 32/21/75-CL-III dated 20-10-1975.)

 

Reconversion of S. 43-.4, Company into Private Company

 

After a private company becomes a deemed public company by virtue of operation of Section 43-A, it can be reconverted into private company only with the prior approval of the Central Government.

 

Delegation of powers under sub-section (4) of section 43-A

 

The powers of the Central Government under sub-section (4) have been delegated to the Registrar of Companies.

 

Penalty for default

 

A private company which becomes a pubic company under this section is enjoined by sub-section (2) to inform the Registrar of this fact. If a company makes default in complying with this provision, the company and every officer of the company who is in default is punishable with fine which 'may extend to five hundred rupees for every day during which the default continues. The offence is compoundable under section 621A.

 

813

Re conversion of a deemed public company into a private company

 

Ss. 31/43A –Re conversion of a deemed public company into a private company-Special Resolution

 

"RESOLVED that subject to the sanction of the Central Government the Company be and is hereby re-converted into a Private Limited Company, consequent on the annual average turnover for the last three years having been less than rupees ten crores.

 

RESOLVED FURTHER that the Secretary of the Company be and is hereby authorised to take all further steps for giving effect to this resolution."

 

PRACTICE NOTES

 

1. Application to the concerned Registrar of Companies.-Application to the Central Government in Form No. I-B should be made to the concerned Registrar of Companies along with requisite application fee as prescribed under the Companies (Fees and Application) Rules, 1999.

 

 

Conversion of private company into public company

 

Ss. 31 and 44-Conversion of private company into public company-Special Resolution

 

"RESOLVED that subject to the provisions of sections 31 and 44 of the Companies Act, 1956 and other applicable provisions, if any, the Company be and is hereby converted into a public company and that the Directors be and are hereby authorised to take all such steps as may be necessary or proper for effectuating such conversion.

 

RESOLVED FURTHER that consequent to the above, the word "Private" be and is hereby deleted from the name of the Company wherever occurring in the Memorandum and Articles of Association of the company and the name of the company shall henceforth be X Y Z Limited."

 

PRACTICE NOTES

 

1. Conditions of conversion of private into public company and vice versa.-The name of a company is a condition contained in the memorandum within the meaning of section 13. If a private company is converted into a public company it involves a change of name, and the change can be effected only in the manner pro-vided by section 21. So, where a private company wants to convert itself into a public company, a special resolution will be necessary.

 

Further, the following requirements also should be noted.

 

(1)        Alteration of articles so as to delete the restrictive clauses mentioned in section 3(l)(iii).

(2)        If the number of members is less than seven, it must be raised at least to seven (Vide sections 12(l) and 45).

(3)        If the number of directors is less than three it must be raised to not less than three (section 252).

 

2. Section 44 applicable to a private company.-If a private company becomes a deemed public company under section 43A, and then excludes the provisions in its articles relating to the matters specified in section 3(l)(Iii) apparently section 44 will not be attracted at all, since in terms of section 44 it only applies to a private company.

 

3. Legal personality of a company not effected.-No change in the legal personality of a company is brought about by conversion to a public company nor does the company cease to exist bringing into existence may new company. (Hindusthan Lever Ltd. v. B.S. Factory, AIR 1964 Mys 173).

 

4. Conversion of public into private company.-There is no express provision except the reference in the proviso to section 13 (1) and (2-A) for converting a public company into a private company. Such conversion will require; (1) a spec I al resolution authorising the conversion and altering the Articles so as to contain the matters specified in section 3(l)(iii); (2) changing the name of the company by special resolution as required by section 21 read with section 13(l)(a) and filing the same with the Registrar as required by section 23; (3) obtaining the approval of the Central Government as required by section 3 1 (1) proviso; and (4) after obtaining the approval of the Central Government, a printed copy of the articles as altered should again be filed with the Registrar within one month of the receipt of the approval as required by section 31(2-A). Power of Central Government under section 31 is delegated to the Registrars of Companies.

 

5. Section does not prevent conversion of public company into private by alteration of articles.-This section does not prevent conversion of public company into a private company by alteration of its articles. (Radiant Chemical Co. Ltd. In re, (1943) 13 Com Cases 186).

 

 

Alteration of Articles to authorise a Company to Buy-Back its shares

 

S. 31/77A-A Iteration of Articles to authorise a Company to Buy-back its shares-Special Resolution

 

RESOLVED that pursuant to section 31 read with section 77A(2)(a) of the Companies Act, 1956 articles of association of the company be and is hereby altered by way of addition of the following new Article 4A after the existing Article 4:

 

"4A - Pursuant to section 77A of the Act the company may purchase its own shares or other specified securities from out of its free reserves or out of its securities premium account or out of the proceeds of an earlier issue other than fresh issue of shares made specifically for buyback purposes by passing a special resolution in the general meeting of the company subject to the provisions of sub-section (2) of section 77A and section 77B of the Act."

 

PRACTICE NOTES

 

1. Buy-back of shares up to 25 per cent.-The Companies (Amendment) Act 1999 with retrospective effect from 31st October, 1998 has allowed companies to buy-back its own shares up to 25 per cent of its total paid up capital and free reserves. These shares should be purchased only if it is authorised by its articles of association and for alteration of articles of association of a company under section 31 of the Companies Act, 1956, a special resolution is required to be passed.

 

2. Filing of Special Resolution.-File the special resolution along with an Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X of the Act, in cash.

 

3. Procedure.-After passing of the special resolution the buy-back process should be completed within twelve months. The companies going for buy-back of shares should not make any further issue of the same kind of shares including allotment of further shares under clause (a) sub-section 81 or other specified securities within the period of twenty four months from the date they complete the process of buy-back of securities except by way of bonus issue, conversion of warrants/preference shares/debentures or stock option schemes or sweat equity. It is also obligatory on the part of companies buying back their shares to extinguish and physically destroy the securities within seven days from the day of buy-back the shares to bought back. Companies which have defaulted in repayment of deposits, redemption of debentures/preference shares and re-payment to financial institutions will not be allowed to buy-back their shares. In case of listed companies opting for buy-back of shares they should also comply with guidelines prescribed by Securities and Exchange Board of India for this purpose on 14th November, 1998 and unlisted companies should comply with provisions of the Private Limited Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999.

 

4. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2tCrores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has bought back shares during the financial year ending on a certain date after complying with the provisions of the Act as per paragraph 20 of the Form of Compliance Certificate appended to the Companies (Compliance) Certificate Rules, 2001.

 

5. Postal Ballot.-Listed companies are required to pass the special resolution for buyback of own shares through postal ballot as per clause (c) of Rule 4 of the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001.

 

 

Alteration of Articles for issue of sweat equity shares

 

S. 31/79A-Alteration of Articles for issue of sweat equity shares-Special Resolution

 

RESOLVED that pursuant to section 31 read with section 79A of the Companies Act, 1956, the articles of association of the company be altered by addition of the following new article 15 A after the existing article 15:

 

"15A - The company may exercise the powers of issuing sweat equity shares conferred by section 79A of the Act of a class of shares already issued subject to the following conditions

 

(a)        the issue of sweat equity shares is authorised by a special resolution passed by the company in the general meeting;

(b)        the resolution specifies the number of shares, their value and the class or classes of directors or employees to whom such equity shares are to be issued;

(c)        not less than one year has at the date of the issue elapsed since the date on which the company was entitled to commence business;

(d)        the sweat equity shares are issued in accordance with the regulations made by the Securities and Exchange Board of India in this behalf."

 

PRACTICE NOTES

 

1. Companies (Amendment) Act, 1999.-With retrospective effect from 31st October, 1998 the Companies (Amendment) Act, 1999 has inserted a new section 79A in the Companies Act, 1956 to allow companies to issue sweat equity shares subject to passing of a special resolution in a general meeting. The alteration of articles is necessary in order to give effect to this new provision made in the Act.

 

2. Filing of Special Resolution.-File the special resolution along with an Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X of the Act, in cash.

 

3. SEBI Regulations.- Listed Companies should be issued Sweat Equity shares in accordance with SEBI (Issue of Sweat Equity) Regulations, 2002 issued vide Not. S.O. 103 1 (E), dt. 24-9-2002.

 

 

Alteration of Articles to provide nomination facility to all shareholders/debenture holders/fixed deposit holders.

 

S. 31/58A, 109A & 109B-Alteration of Articles to provide nomination facility to all shareholders/debenture holders/fixed deposit holders-Special Resolution

 

RESOLVED that pursuant to section 109A and section 109B read with section 58A and further pursuant to section 31 of the Companies Act, 1956 articles of association of the company be altered by addition of the following Article 50A after the existing Article 50:_

 

"50A - Every holder of shares or debentures or fixed deposits of the company will have freedom to nominate at any time a person to whom his share s/debentures/deposits shall vest in the event of his death. Where the shares/debentures/deposits are held by more than one person jointly, the joint holders may together make such nomination. The nomination should be made in the prescribed manner and the nominee shall, on the death of the shareholder or holder of debentures of the company or, as the case may be, on the death of the joint holders become entitled to all the rights in the shares or debentures of the company or, as the case may be, all the joint holders in relation to such shares in or debentures of the company to the exclusion of all other persons unless the nomination varied or cancelled in the prescribed manner. Where nominee is the minor it shall be lawful for the holder of the shares or holder of debentures to make the nomination to appoint in the prescribed manner any person to become entitled to shares in or debentures of the company in the event of his death during the minority.' Any person who becomes nominee as aforesaid upon the production of such evidence as may be required by the Board of Directors of the company, elect either to be registered himself as holder of the shares or debentures or to make such transfer of the shares or debentures as the deceased shareholder or debenture holder could have made. The Board of Directors of the company shall in either case have the same right to decline or suspend registration as it would have had, if the deceased shareholder or debenture holder had transferred the shares or debentures before his death."

 

PRACTICE NOTES

 

1. Companies (Amendment) Act, 1999.- With effect from 31st October, 1998, the Companies (Amendment) Act, 1999 has inserted two new sections 109A and 109B and has also inserted sub-section (11) in section 58A of the Companies Act, 1956 to provide for nomination facility by every shareholder, debenture holder and fixed deposit holder of a company. The nomination is to be made in the manner to be prescribed by the Central government in order to allow a company to make such a provision alteration of articles of association of a company by addition of a new article is necessary so that a company can adopt the said article easily.

 

2. Filing of Special Resolution.- File the special resolution along with an Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X of the Act, in cash.

 

Registration of unlimited company as a limited company

 

S. 32-Registration of an unlimited company as a limited company-Special Resolution

 

"RESOLVED that the Company be and is hereby registered as X AND CO. LTD., a company limited by shares, under the provisions of the Companies Act, 1956, with an authorised capital of Rs ................. divided into equity shares of Rs . ……..each."

 

PRACTICE NOTES

 

1. Special Resolution for addition of word 'Limited' for registration of unlimited company as a limited company.-This will have to be passed as a Special Resolution, since the addition of the word 'Limited' to the name entails a change of name, necessitating compliance with section 21 of the Act.

 

2. Procedure for incorporation of company to be complied with.-After passing this resolution, the company will have to adopt the same procedure as for incorporation of a company and will have to file the requisite documents with the Registrar of Companies concerned.

 

Variation of contract mentioned in prospectus

 

S. 61-Variation of contract mentioned in prospectus-Ordinary Resolution

 

"RESOLVED that consent of the Company be and is hereby given to the increase in the rate of underwriting commission payable to the Industrial Development Bank of India from one and a half per cent to two per cent on the issue of shares by the Company pursuant to the prospectus dated 22nd July, 2002.

 

RESOLVED FURTHER that the draft of supplemental agreement to be executed between the Industrial Development Bank of India and the Company, duly initialled by the Chairman of the meeting, be and is hereby approved.

 

RESOLVED FURTHER that the Managing Director of the Company be and is hereby authorised to execute the supplemental agreement on behalf of the Company with the Industrial Development Bank of India."

 

PRACTICE NOTES

 

1. Board to approve alteration subject to ratification by members.-The Board of Directors may approve the alteration subject to the same being ratified by the members of the company in General Meeting.

 

2. Variation of terms of contract.-The terms of the contract referred to in the prospectus or statement in lieu of prospectus may be varied only subject to the approval of the members of the company in a General Meeting.

 

Variation of terms of contract mentioned in prospectus

(Another Format)

 

S. 61-Variation in terms of contract mentioned in the prospectus-Ordinary Resolution

 

"RESOLVED that the Board of Directors of the Company be and is hereby authorised to increase the rate of underwriting commission payable to M/s. CPR & Company Private Ltd., the main underwriter to the issue of 3,00,00,000 equity shares through prospectus to the public, from one and a half per cent, as has been agreed to by the Company in the said prospectus, to two per cent and that the draft supplemental agreement between the company and the said M/s. CPR & Company Private Ltd. in connection therewith be and is hereby approved.

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to execute the aforesaid supplemental agreement in pursuance of the authority hereby given by this meeting."

 

PRACTICE NOTES

 

1. Convening of Board Meeting for recommending resolution to shareholders :- Call a Board Meeting and pass the above resolutions recommending them to the shareholders for being passed by them as an ordinary resolution at the General Meeting.

 

2. Fixing up date, time, place and agenda of General Meeting.-Fix up the date, time, place and agenda for convening a General Meeting.

 

3. Notice of General Meeting.-Give 21 days' clear notice for the General Meeting with suitable Explanatory Statement regarding the proposed variation to be made in terms of any contract mentioned in the prospectus or statement in lieu of prospectus.

 

4. Intimation to Registrar and riling of resolution along with Explanatory Statement.-Intimate the Registrar of Companies concerned and forward to him a copy of the resolution passed along with Explanatory Statement immediately after the holding of the General Meeting.

 

5. Listed company to forward copy of resolution to Stock Exchange concerned.:- If the shares of the company are enlisted on a recognised Stock Exchange, forward it also, a copy of the resolution.

 

6. Variation in terms of contract to be done on authority given by company in General Meeting.-A company is not authorised to vary the terms of a contract referred to in the prospectus or statement in lieu of prospectus except with the approval of or except on the authority given by the company in General Meeting. The variation should be in consultation with the lead manager(s) and should be intimated to SEBI.

 

 

Power of company to purchase its own securities from the existing shareholders.

 

S. 77 A-Power of company to purchase its own securities from the existing shareholders-Special Resolution

 

RESOLVED that pursuant to section 77A of the Companies Act, 1956 read with article    of the Articles of Association of the Com­pany  ……..equity shares of the Company be and are hereby pur­chased from the existing equity shareholders of the company on a proportionate basis at the price of Rs  ……..per share out of the com­pany's free reserves.

 

RESOLVED FURTHER that the aforesaid buying back of the equity shares of the company be made in accordance with the SEBI (Buy Back of Securities) Regulations, 1998.

 

RESOLVED FURTHER that the directors of the company be authorised to carry out the aforesaid buying back of securities and to take every step that may be necessary in connection therewith or ancillary or incidental thereto.

 

PRACTICE NOTES

 

1. Pre-requisites of buy-back.-The buy-back of securities under section 77A should be authorised by the Articles of Association of the company and should not exceed 25% of the total paid-up capital and free reserves of the company. The buy-back of equity shares in any financial year should not exceed 25% of a company's total paid-up equity capital in that financial year. The ratio of debt owed by the company at the time of buying back of securities should not be more than twice the capital and its free reserves after such buy-back. The Central Government may prescribe a higher ratio of the debt than that specified above for a class or classes of companies. The securities which are to be bought back should all be fully paid-up.

 

2. SEBI Regulation 1998.-SEBI has framed SEBI (Buy-Back of Securities) Regulations, 1998 on 14th November, 1998 by which it has provided for conditions of buy back through tender offer from the existing shareholders of a company on a proportionate basis, from open market through book building process or stock exchange or from odd-lot holders. A company should not buy back its share from any person through negotiated deals, whether on or off the stock exchange or through spot transactions or through any private arrangement. No person or no insider should deal in securities of the company on the basis of unpublished information relating to buy-back of shares of the company.

 

3. Filing of the Special Resolution.-File the special resolution along with an Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X of the Act, in cash. A copy of the special resolution passed at the general meeting should also be filed with the SEBI as well as with all the stock exchanges where shares of the company are listed within seven days from the date of passing of the resolution.

 

4. Explanatory Statement to be annexed to the notice of the Special Resolution. :- Section 77A sub-section (3) read with regulation 5 sub-regulation (1) and regulation 7 requires that the Explanatory Statement to be annexed to the notice for the general meeting should contain disclosures as specified in Schedule I to the said regulations. It should also contain the following disclosures, namely:

 

(a) The price at which the buy-back of shares will be made.

(b) If the promoters intends to offer their shares within the quantum of shares proposed to be tendered and the details of their transactions and their holdings for the last six months prior to the passing of the special resolution for buy-back including information of number of shares acquired, the price and date of acquisition.

 

5. Public announcement.-The company which has passed a special resolution for buy-back of shares must make a public announcement prior to buy-back of shares in at least one English national daily, one Hindi national daily and regional language daily, all with wide circulation at the place where the registered office of the company is situated and the said public announcement should contain all the material information as specified in Schedule II to the SEBI (Buy-Back of Securities) Regulations, 1998. The public announcement should specify a date which will be the specified date for the purpose of determining the names of the shareholders to whom the letter of offer shall be sent. The said specified date should not be earlier than thirty days and not later than forty two days from the date of the public announcement.

 

6. Filing of offer documents.-The company, within seven working days of the public announcement, as mentioned above, must file with the SEBI a draft letter of offer containing disclosures as specified in Schedule III to the SEBI (Buy-Back of Securities) Regulations, 1998 through a merchant banker who is not associated with the company.

 

The said draft letter of offer should be accompanied with fees as specified in Schedule IV to the SEBI (Buy-Back of Securities) Regulations, 1998 as under:

 

Size of the buy-back offer                                                                               Proposed fee (Rs.)

Up to 5 crores                                                                                                   25,000

More than 5 crores & up to 10 crores                                                                 50,000

More than 10 crores & up to 50 crores                                                               75,000

More than 50 crores & up to 100 crores                                                             1,00,000

More than 100 crores & up to 500 crores                                                            2,00,000

More than 500 crores                                                                                        5,00,000

 

The said fees should be paid by a Demand Draft in favour of 'Securities and Exchange Board of India' payable at Mumbai. The letter of offer should be despatched to the existing shareholders not earlier than twenty-one days from its submission to the SEBI. In case the SEBI specifies modifications, if any, in the draft letter of offer within twenty one days from the date of submission of the draft letter of offer, the company in consultation with the merchant banker, should carry out such modifications before the letter of offer is despatched to the shareholders. The company should also file along with a draft letter of offer, a declaration of solvency in the prescribed form and in the manner prescribed in section 77A(6) of the Companies Act, 1956.

 

7. Offer procedure.-Pursuant to Regulation 9 of the SEBI (Buy-Back of Securities) Regulations, 1998, the offer for buy-back must be kept open to the members for a period of not less than fifteen days and not exceeding thirty days. The date of the opening of the offer should not be earlier than seven days or later than thirty days after the specified date. The letter of offer should be sent to the shareholders so as to reach them before the opening of the offer. In case the number of shares offered by the shareholders is more than the total number of shares to be bought back by the company, the acceptances per shareholder should be equal to the acceptances tendered by the shareholders divided by the total acceptances received and multiplied by the total number of shares to be bought back. The company should complete the verifications of the offers received from the shareholders within fifteen days from the closure of the offer and the shares lodged should be deemed to be accepted unless a communication of rejection is made within fifteen days from the closure of the offer.

 

8. Escrow account.-Pursuant to sub-regulation (1) of regulation 10 of the SEBI (Buy-Back of Securities) Regulations, 1998, a company which is proposing to buy-back its shares should as and by way of security for performance of its obligations under the said regulations deposit in escrow account on or before the opening of the offer such sun as specified in sub-regulation (2) of the said regulation. Sub-regulation (2) specifies that if the consideration payable does not exceed Rs. 100 crores, 25% of the consideration should be payable to the escrow account. If the consideration payable exceeds Rs. 100 crores, 25% upto Rs. 100 crores and 10% thereafter should be payable to the escrow ac. count. Sub regulation (3) of the said regulation provides that the escrow account should consist of cash deposited with a scheduled commercial bank or consist of bank guarantee in favour of-the merchant banker, or should consist of deposit of acceptable securities with appropriate margin with the merchant banker or should consist of any combination of the aforesaid three ways. Where the escrow account consists of deposit with a scheduled commercial bank, the company should while opening the account, empower the merchant banker to instruct the bank to issue a banker's cheque or Demand Draft for the amount lying to the credit of the escrow account. Where the escrow account consists of bank guarantee, such bank guarantee should be in favour of the merchant banker an( should be valid until thirty days after the closure of the offer. Where the escrow account consists of securities, the company should empower the merchant banker to realise the value of such escrow account by sale or otherwise and if there is any deficit on realisation of the value of the securities, the merchant banker should be liable to make good any such deficit. In case the escrow account consists of bank guarantee or approved securities, these should not be returned by the merchant banker till completion of all obligations of buy-back of shares under the said regulations. Where the escrow account consists of bank guarantee or deposit of approved securities, the company should also deposit with the bank in cash a sum of at least 1% of the total consideration payable as and by way of security for fulfillment of the obligations under the said regulations by the company. On payment of consideration to all the shareholders who have accepted the offer and after completion of all formalities of buy-back, the amounts, guarantee and securities in the escrow, if any, should be released to the company. The SEBI in the interest of the shareholders may in case of non-fulfillment of obligations under the said regulations by the company forfeit the escrow account either in full or in part. The amount forfeited, as above, may be distributed pro-rata amongst the shareholders who accepted the offer and balance, if any, should be utilised for investor protection.

 

9. Payment to shareholders.-Regulation II of the SEBI (Buy-Back of Securities) Regulations, 1998 provides that the company should immediately after the date of the closure of the offer, open a special account with a banker to an issue registered with the SEBI and deposit therein such sum as would, together with the amount lying in the escrow account make up the entire sum due and payable as consideration for buy back and for this purpose may transfer the funds from the escrow account. The company should within seven days after the expiry of fifteen days from the closure of the offer make payment of consideration to those shareholders whose offer has been accepted or returned the share certificates to the shareholders.

 

10. Extinguishments of certificate.-Pursu ant to sub-section (7) of section 77A read with regulation 12 of the SEBI (Buy-Back of Securities) Regulations, 1998, the company should extinguish and physically destroy the share certificates so bought back in the presence of a Registrar or the Merchant Banker and the Statutory Auditor within seven days from the date of acceptance of the shares. The shares offered for buy-back, if already demateriallsed should be extinguished and destroyed in the manner specified under the SEBI (Depositories and Participants) Regulations, 1996 and the bye-laws framed there under. The company should furnish a certificate to the SEBI within seven days of extinguishment and destruction of the certificates duly verified by the Registrar and whenever there is no Registrar through the Merchant Banker, two whole-time directors including the Managing Director and the Statutory Auditor of the company certifying the compliance of physical destruction and extinguishment of the share certificates. The particulars of the share certificates extinguished and destroyed should also be furnished to the stock exchanges where the shares of the company are listed within seven days of extinguishment and destruction of the certificates. The company should also maintain a record of share certificates which have been cancelled and destroyed as prescribed in sub section (9) of section 77A of the Companies Act, 1956.

 

11. Further issue of securities prohibited.-Where a company completes a buy back of its securities under section 77A of the Act, it should not make further issue of securities within the period of six months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.

 

12. Completion of Buy-back procedure and filing.-Every buy-back procedure should be completed within twenty four months from the passing of a special resolution under sub-section (2) clause (b) of section 77A of the Act. A company should after the completion of the buy back under the said section file with the Registrar of Companies concerned and also with SEBI return in Form No. 4C relating to the buy back within thirty days of such completion unlisted public companies and private companies need not file the return with SEBI.

 

13. Penalty.-If a company makes default in complying with the provisions of section 77A or any rules made there under, the company or any officer of the company who is in default is punishable with imprisonment for a term which may extend to two years or with a fine which may extend to Rs. 50,000/- or with both. SEBI may also suo-motu or upon information received by it, cause an investigation to be made in respect of the conduct and affairs of any person associated with the process of, buy-back, by appointing an officer of the SEBI under sub-regulation (1) of regulation 22 of the SEBI (Buy-Back of Securities) Regulations, 1998. The investigating officer appointed by the SEBI, on completion of the investigation will submit a report to the said board and on receipt of the said report, the SEBI may initiate such action as may be empowered to do so in the interest of investors and securities market. The SEBI may also give such directions as it may deem fit including the following:

 

(a)        directing the person concerned not to further deal in the securities in any particular manner;

(b)        prohibiting the person concerned from cancelling any of the securities bought back in violation of the Companies Act;

(c)        directing the person concerned to sell or divest the shares acquired in violation of the provisions of these regulations or any other law or regulations;

(d)        taking action against the intermediaries registered with Board in accordance with the regulations applicable to it;

(e)        prohibiting the persons concerned, its director, partners, members, employees and associates of such person, from accessing the securities market;

(f)        disgorgement of any ill-gotten gains or profit or avoidance of loss;

(g)        restraining the company from making a further offer for buy back.

 

In case any person is guilty of insider trading or market manipulation the person concerned will be dealt with by the SEBI in accordance with the provisions of SEBI (Insider Trading) Regulations, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 1995.

 

14. Rules framed by the Department.-The Department of Company Affairs has framed the Private Limited Company and Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999, with effect from 6th July, 1999". Private companies and unlisted public companies should follow these Rules.

 

15. Postal Ballot .-Listed companies are required to pass the special resolution for buy-back of securities through postal ballot as per Rule 4(c) of the Companies (Passing of Resolution by Postal Ballot) Rules, 2001.

 

16. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 f Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has kept and maintained all registers stated in Annexure A to this certificate as per the provisions and the Rules made there under and all entries therein have been duly recorded and it has also duly filled the forms and returns as stated in Annexure B to this certificate with the Registrar of Companies or any other authorities within the time prescribed under the Act and the Rules made there under as per paragraphs I and 2 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Power of company to purchase its own securities from odd lot holders

 

S. 77A-Power of company to purchase its own securities from odd lot holders-Special Resolution

 

RESOLVED that pursuant to section 77A of the Companies Act, 1956 read with article  ……..of the Articles of Association of the Com­pany  ……..equity shares of the company be and are hereby purchased from odd lot holders of the shares of the company at a price of Rs  ……..per share out of the company's premium account.

 

RESOLVED FURTHER that the aforesaid buying back of the equity shares of the company be made in accordance with the SEBI (Buy Back of Securities) Regulations, 1998.

 

RESOLVED FURTHER that the directors of the company be authorised to carry out the aforesaid buying back of securities and to take every step that may be necessary in connection therewith or ancillary or incidental thereto.

 

PRACTICE NOTES

 

Same as given under Resolution 821.

 

Power of company to purchase its own securities from open market

 

S. 77A-Power of company to purchase its own securities from open market-Special Resolution

 

RESOLVED that pursuant to section 77A of the Companies Act, 1956 read with article    of the Articles of Association of the Com­pany       equity shares of the company be and are hereby pur­chased from the open market through stock exchange/book building process at a maximum price of Rs   per share out of the com­pany's free reserves.

 

RESOLVED FURTHER that the aforesaid buying back of the equity shares of the company be made in accordance with the SEBI (Buy Back of Securities) Regulations, 1998.

 

RESOLVED FURTHER that the directors of the company be authorised to carry out the aforesaid buying back of securities and to take every step that may be necessary in connection therewith or ancillary -or incidental thereto.

 

PRACTICE NOTES

 

1, 2, 3 and 4 same as given under Resolution 821.

 

5. Buy-Back through stock exchange.-Where the company is buying back its own shares from the open market through stock exchange it should follow the following:

 

(a) the special resolution referred to in regulation 5 shall specify the maximum price at which the buy-back shall be made;

 

(b) the buy-back of the shares shall not be made from the promoters or persons in control of the company;

 

(c) the company shall appoint a merchant banker and make a public announcement as referred to in regulation 8;

 

(d) the public announcement shall be made at least seven days pri or to the commencement of buy-back;

 

(e) a copy of the public announcement shall be filed with the Board within two days of such announcement alongwith the fees as specified in Schedule IV;

 

(f) the public announcement shall also contain disclosures regarding details of the brokers and stock exchanges through which the buy-back of shares would be made;

 

(g) the buy-back shall be made only on stock exchanges with electronic trading facility;

 

(h) the buy-back of shares shall be made only through the order matching machanism except 'all or none' order matching system;

 

(i) the company and the merchant banker shall give the information to the stock exchange on a daily basis regarding the shares purchased for buy-back and the same shall be published in a national daily;

 

(j) the identity of the company as a purchaser shall appear on, the electronic screen when the order is placed.

 

6. Extinguishment of certificate.-Pursuant to sub section (7) of section 77A read with regulation 12 of the SEBI (Buy-Back of Securities) Regulations, 1998, the company should extinguish and physically destroy the share certificates so bought back in the presence of a Registrar or the Merchant Banker and the Statutory Auditor within seven days from the date of acceptance of the shares. The shares offered for buy-back, if already dematerialised should be extinguished and destroyed in the manner specified under the SEBI (Depositories and Participants) Regulations, 1996 and the bye-laws framed there under. The company should furnish a certificate to the SEBI within seven days of extinguishment and destruction of the certificates duly verified by the Registrar and whenever there is no Registrar through the Merchant Banker, two whole-time directors including the Managing Director and the Statutory Auditor of the company certifying the compliance of physical destruction and extinguishment of the share certificates. The particulars of the share certificates extinguished and destroyed should also be furnished to the stock exchanges where the shares of the company are listed within seven days of extinguishment and destruction of the certificates. The company should also maintain a record of share certificates which have been cancelled and destroyed as prescribed in sub-section (9) of section 77A of the Companies Act, 1956. The company buying back its own shares from open market through stock exchange should complete the verification of acceptances within fifteen days of pay out.

 

7. Further issue of securities prohibited.-See practice note II as given in Resolution No. 821.

 

8. Completion of Buy-back procedure and filing.-See practice note 12 as given in Resolution No. 821.

 

9. Penalty.- See Practice Note 13 as given in Resolution No. 821.

 

10. Buy-Back through book building.-Where a company buys back its shares from the open market through the book building process it should comply with the following:

 

(a)        The special resolution passed for buy-back of shares must specify the maximum price at which the buy-back is to be made.

(b)        The company must appoint a merchant banker and make a public announcement as per the details given in Practice Notes No'. 5 above.

(c)        The public announcement, as mentioned above, should be made at least seven days prior to the commencement of buy-back.

(d)        The company should also open an escrow account as per details given in Practice Notes No. 8 under Regulation § 821 subject to the following two conditions:

 

(i)         The deposit in the escrow account shall be made before the date of the public announcement.

(ii)        The amount to be deposited in the escrow account shall be determined with reference to the maximum price as specified in public announcement.

 

(e)        A copy of the public announcement should be filed with the SEBI within two days of such announcement alongwith fees as specified in Schedule IV of the SEBI (Buy-Back of Securities) Regulations, 1998 details of which are given in Practice Notes No. 6 under Resolution No. 821.

(f)        The public announcement should contain the detailed methodology of the book building process, the manner of acceptance, the format of acceptance to be sent by the shareholders pursuant to the public announcement and the details of bidding centres.

(g)        The book building process should be made through an electronically linked transparent facility.

(h)        The minimum number of bidding centres should be thirty and there should be at least one electronically linked computer terminal at all the bidding centres.

(i)         The offer for buy-back should be kept open to the shareholders for a period of not less than fifteen days and not exceeding thirty days.

(j)         The price of the buy-back of shares should be decided and determined by the merchant bankers in consultation with the company on the basis of the acceptances received.

(k)        The final buy-back price which will be determined should be the highest price accepted and such price must be paid to all holders whose shares have been accepted for buy-back.

 

11. Payment to shareholders.-Same as Practice Notes No. 9 given under Resolution No. 821.

 

Reduction of share premium

 

S. 78-Reduction of share premium account-Special Resolution

 

"RESOLVED that pursuant to section 78 of the Companies Act, 1956, and subject to confirmation of Court, consent of the company be and is hereby accorded to the reduction of Share Premium Account from Rs  ……..to Rs . ……..and to effect such reduction by paying a sum of Rs . ……..per share to the equity shareholders of the

            Company."

 

PRACTICE NOTES

 

1. Authority must exist in Articles.-The Articles of Association of the company will first have to be verified to see whether this power is contained therein; otherwise, the articles will first have to be amended'.

 

2. Procedure for reduction of capital to be followed for reduction of Share Premium Account.-The procedure for reduction of capital will have to be followed in case of reduction of the Share Premium Account as well. Unless this procedure is followed, it is not permissible for a company to distribute Share Premium Account as dividend to the shareholders.

 

3. Procedure need not be followed when amount utilized for purposes specified in sub-section (2) of section 78.-The procedure for reduction need not, however, be gone through when the company proposes to apply the Share Premium Account:

 

(a)        in paying up un issued shares of the company to be issued to the members as fully paid bonus shares,

(b)        in writing off the preliminary expenses of the company,

(c)        in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company,

(d)        in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

 

4. File Special Resolution in Form No. 23 along with Explanatory Statement with Registrar.-The Special Resolution, together with the Explanatory Statement, will have to be registered with the Registrar of Companies in Form No. 23 by filing it within 30 days of the passing thereof along with the requisite filing fee as per schedule X.

 

5. Writ petition.-A writ petition filed inter alia to stop a company from utilising the premium amount for any purpose other than that stated in section 78(3) and to refuse approval to the rights issue with a premium was dismissed by the court as it could not in its writ Jurisdiction issue such type of general directions to respective bodies of the government who were regulating the sale and purchase of shares of public limited companies. Murlidhar Sodani v. SEBI, (2001) 105 Com Cases 815 (MP).

 

Issue of shares at discount

 

S. 79-Application to the Company Law Board for Issue of shares at discount-Ordinary Resolution

 

"RESOLVED that consent of the company be and is hereby given to the issue of 50,000 equity shares of the Company of the nominal value of Rs. 10/- in the capital of the Company at a discount of Rs. 2/- per share i.e., 20%.

 

RESOLVED FURTHER that pursuant to sub-section (2) of section 79 of the Companies Act, 1956, an application be made to the Company Law Board seeking their approval to the issue of shares at discount."

 

PRACTICE NOTES

 

1. Authority must exist in Articles.-Ensure that the Articles of Association of the company provide for the issue of shares at discount. If not, first amend the Articles of Association.

 

2. Shares to be issued should be of class already issued.-Shares proposed to be issued at discount should be of a class which has already been issued and not of a class being issued for the first time.

 

3. Convening of General Meeting for getting resolution passed by shareholders.:- After passing the resolution by the Board, a General Meeting of the company be convened for getting the above resolution passed by the shareholders. Fix up date, time, place and agenda for a General Meeting.

 

4. Resolution to be treated as special business.-Even though the resolution shall be an ordinary resolution to be passed by a simple majority, it will be a special business and a statement pursuant to section 73(l) of the Act will be necessary.

 

5. Petition before Company Law Board.-The petition for seeking the sanction of the Company Law Board under sub-section (2) has to be made in Form No. 1 of Annexure II to the Company Law Board Regulations, 1991, with an application fee of Rs. 1000/-    and accompanies by the following documents:

 

(1) Certified true copy of Memorandum and Articles of Association.

 

(2) Certified true copy of notice calling the meeting with explanatory statement and the resolution sanctioning issue.

 

(3) Certified true copy of minutes of the meeting at which the resolution was passed.

 

(4) Certified true copies of last 3 years' audited balance-sheets and profit and loss account, auditor's reports and directors' reports.

 

(5) Affidavit verifying the petition.

 

(6) Bank draft evidencing payment of fee.

 

(7) Memorandum of appearance with copy of the Board resolution or the executed Vakalatnama, as the case may be.

 

6. Filing of certified copy of order of Company Law Board with Registrar.-After the Company Law Board, has approved the issue of shares at a discount, file a certified copy of the order with the Registrar of Companies within one month from the order. Only on such filing the order shall become effective.

 

7. Prospectus.-Every prospectus relating to issue of shares at a discount by a company shall contain particulars of the discount allowed and the extent to which it has not been written off at the date of the issue of the prospectus.

 

8. Shares at discount to be issued after complying with required formalities.-After completion of above formalities, shares can be issued at a discount as per the resolution of shareholders.

 

9. Justification to be given in petition for allowing discount of more than ten per cent.-In case the rate of discount is more than 10% show in the petition the circumstances under which it is Justified.

 

10. Shares to be issued within two months after issue sanctioned by Company Law Board or within extended time.-Ensure that shares are issued within two months after the date the issue is sanctioned by the Company Law Board or within such extended time the Company Law Board may allow.

 

11. Reissue of partly paid forfeited shares.-Where partly paid shares are forfeited for non-payment of further call, if they are reallotted not as partly paid shares but as fully paid shares the reallotment will amount to a allotment at a discount and will therefore be invalid. Biochemical and Synthetic Products Ltd. v. Registrar of Companies, (1962) 32 Comp Cases 654: AIR 1962 AP 459.

 

12. Discount issue in violation of section.-Where shares are issued at a discount contrary to the provisions of the section, not only the Directors authorising the unauthorised issue but the allottees, if they have been entered in the register of members and have accepted the allotment will be liable to the company for the full amount of the shares.

 

13. Section not applicable to debentures to be issued.-The section does not apply to debentures which may be issued at a discount. Debentures do not form part of the capital of the company.

 

14. Penalty for failure to make disclosure in prospectus.-For failure to make the disclosure in the prospectus the company and every officer of the company, who is in default, is liable for punishment with fine up to five hundred rupees. The offence is compoundable by the Regional Director under Section 62 IA.

 

15. Penalty for default.-No penalty has been specifically provided in the section for the violation of its provisions, except in regard to sub-section (4) for non- disclosure of prescribed information in the prospectus. Accordingly, the company and every officer of the company, who is in default, shall be punishable under section 629A for issue of shares without sanction of the Company Law Board. The offence, however, is compoundable under section 621A.

 

16. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares at a discount during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate as appended to the Companies (Compliance Certificate) Rules, 2001.

 

 

Issue of share at a discount

(Another Format)

 

S. 79-Application to the Company Law Board for Issue of shares at discount-Ordinary Resolution

 

RESOLVED that, subject to the approval of the Company Law Board, the consent of the Company be and is hereby given to the issue of 70,000 equity shares of the company of the nominal value of Rs. 10/in the capital of the company at a discount not exceeding Rs. 1/- per share i.e., 10%.

 

PRACTICE NOTES

 

1. Approval of the Company Law Board.- Prior approval of the Company Law Board should be obtained before issuing shares at a discount as per section 79(2) (1) of the Act. The application for approval should be made in Form No. I of the Company Law Board Regulations, 199 1.

 

2. Particulars of discount in the prospectus.-Every prospectus relating to the issue of shares at a discount should contain particulars of the discount allowed on such issue of shares.

 

Issue of shares at a discount

(Another Format)

 

S. 79-Issue of shares at a discount-Ordinary Resolution

 

"RESOLVED that pursuant to the provisions of section 79 of the Companies Act, 1956, and subject to the sanction of the Company Law Board to such issue, that the Board of Directors be and is hereby authorised to issue 30,00,000 equity shares of Rs. 10/- each in the capital of the company at a discount of Re. I per share (ten per cent)."

 

PRACTICE NOTES

 

1. Shares to be issued to be of class already issued.- The shares involved in the issue at a discount should be of a class already issued. By virtue of sub-section (2) of section 79 a mere resolution by the company I n the General Meeting is not enough for purpose of obtaining sanction of the Company Law Board to the issue of shares at a discount. The Company Law Board, at its sole judgment, will fix the amount of discount that will be applicable to the issues of such shares and the said Board is not bound to sanction any issue if the maximum rate of discount specified in the resolution exceed ten per cent. It is also the absolute discretion of the Company Law Board to sanction issue of any class of shares if the percentage of discount on the nominal value of shares exceeds ten per cent depending absolutely on the merit and special circumstances of each case.

 

2. Requirements for issue of shares at a discount.-A company cannot issue shares at a discount before not less than one year has, at the date of the issue, elapsed since the date on which the company was entitled to commence business. Any of the aforesaid stipulations regarding percentage of discount will, however, not apply if the issue of shares at a discount is sanctioned by the Company Law Board or is as a result of any proceedings relating to such sanction which is pending before the Company Law Board.

 

3. Formalities required to be complied with for issue of shares at discount.-For the issue of shares at a discount, it is necessary to

 

(i)         Hold a Board Meeting to decide the number of shares to be issued at a discount, the rate of discount and to fix up the date, time, place and agenda of the General Meeting.

(ii)        Issue notices and hold the General Meeting and pass the resolution giving authority to issue shares at a discount subject to the approval of the Company Law Board and to see that the resolution specifies the maximum rate of discount at which shares are to be issued.

(iii)       Forward promptly to the Stock Exchange, if the company is listed, three copies of the notice and a copy of the proceedings of the General Meeting.

(iv)       Make an application to the concerned Bench Officer of the Company Law Board in the form of a petition in Form No. 1  in Annexure II to the Company Law Board Regulations, 1991.

(v)        Send the petition along with the following documents:

 

(a)        Certified true copy of the Memorandum and the Articles of Association of the company;

(b)        Certified true copy of the notice calling for the General Meeting and resolution sanctioning issue along with the explanatory statement;

(c)        Certified true copy of the minutes of the meeting at which the resolution was passed;

(d)        Certified true copy of each of the last three years' audited balance sheets, profit and loss accounts, Auditors' report and the Directors' reports;

(e)        Bank draft evidencing payment of application fee of Rs. 1000/

(f)        Affidavit verifying the petition;

(g)        Memorandum of appearance Form No. 5 in Annexure II to the Regulations with a copy of the Board Resolution, or where the petition is filed by an advocate, duly executed Vakalatnama.

(vi)       Send a copy of the petition along with the other documents to the Registrar of Companies.

(vii)      Deliver on receipt of the copy of the order of the Company Law Board, a certified copy of the order to the Registrar for registration within one month from the date of the order (time taken in supplying a copy of the order by the Company Law Board will be excluded in computing the period of one month).

(viii)      Issue the prospectus, if a prospectus is to be issued on receipt of the order of the Company Law Board.

(ix)       See that the prospectus contains particulars of the discount allowed on the issue of shares or of so much of that discount as has not been written off at the date of the issue of the prospectus.

(x)        Deliver a copy of the prospectus, if issued, to the Registrar of Companies for registration (Section 60) or if no prospectus is issued, to deliver a statement in lieu of prospectus at least three days before the allotment of shares (Section 70(l).)

(xi)       Make an application for listing with the Stock Exchange, if listing is desired.

 

4. Filing of return with Registrar.-File return with the Registrar of Companies in Form No. 2 within thirty days of the date of allotment (pursuant to section 75(l)(c)(ii)), after allotment of shares at a discount along with requisite fees as per Schedule X.

Issue of shares at a discount

(Another Format)

 

S. 79-Application to the Company Law Board for Issue of Shares at a Discount-Ordinary Resolution

 

"RESOLVED that pursuant to the provisions of section 79 of the Companies Act, 1956, and subject to the approval of the Company Law Board, approval of the shareholders be and is hereby accorded to the Board of Directors of the Company to issue 5,50,000 equity shares of Rs. 10/- each at a discount not exceeding Rs. 2/- per share."

 

PRACTICE NOTES

 

1. Discount-Meaning.-At a discount means at a price less than the nominal value.

 

2. Obtaining of approval of Company Law Board.-For issue of shares at a discount, approval of the Company Law Board has to be obtained.

 

3. Shares issued at discount to be of class already issued.-The shares issued at a discount should be of a class already issued.

 

4. Reissue of forfeited shares.-Where partly paid shares are forfeited for nonpayment of further call, if they are reallotted not as partly paid shares but as fully paid shares, the reallotment will amount to allotment at a discount and will, therefore, be invalid. Biochemical and Synthetic Products Ltd. v. Registrar of Companies, (1962) Com Cases 654 : AIR 1962 AP 459.

 

5. Section not applicable to debentures.-This section does not apply to debentures which may be issued at a discount. Debentures do not form part of the company's capital.

 

6. Discount issues in violation of section.-Where shares are issued at a discount contrary to the provisions of the section, not only the Directors authorising the unauthorised issue but the allottees, if they have been entered in the register of members and have, accepted the allotment will be liable to the company for the full amount of the shares.

 

Issue of Sweat Equity Shares at a discount

 

S. 79A-Issue of Sweat Equity Shares at a discount-Special Resolution

 

RESOLVED that pursuant to article  ……..of the Articles of Asso­ciation of the company and also pursuant to section 79A of the Com­panies Act, 1956 . sweat equity shares at Rs  ……..per share be and are hereby issued at a discount of 10% to the employees of the company who are working as  ……..in the Thane Factory of the company.

 

RESOLVED further that the Board of Directors of the company be and is hereby authorised to take each and every action in order to implement the aforesaid resolution and/or anything that is related to it or ancillary or incidental to it.

 

PRACTICE NOTES

 

Same as given under Resolution 816

 

Issue of Sweat Equity Shares for consideration other than cash

 

S. 79A-Issue of Sweat Equity Shares for consideration other than cash Special Resolution

 

RESOLVED that pursuant to article  ……..of the Articles of Asso­ciation of the company and also pursuant to section 79A of the Com­panies Act, 1956 . ……..sweat equity shares at Rs  ……..per share be and are hereby issued for consideration other than cash to the employees of the company who are working as  ……..in the Thane Factory of the company.

 

RESOLVED further that the Board of Directors of the company be and is hereby authorised to take each and every action in order to implement the aforesaid resolution and/or anything that is related to it or acillary or incidental to it.

 

PRACTICE NOTES

 

Same as Practice Notes No. 1 and 2 under Resolution 816 and,

 

3. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has sweat equity shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate as appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of redeemable preference shares on Rights

 

S. 80-Issue of redeemable preference shares on rights basis-Special Resolution

 

"RESOLVED that the consent of the Company be and is hereby given to the issue of 80,000 cumulative redeemable preference Shares of Rs. 100/each to be issued for cash at par and that these shares be offered to the existing holders of equity shares in the proportion of one preference share for every ten equity shares held by them on 1st January, 2002.

 

RESOLVED FURTHER that notice of this offer be given to all equity shareholders whose names appear on the Register of Members of the Company as on 1- 1-2002, giving them an option to apply for the allotment of shares to which they are entitled along with payment of the value thereof and providing for a time limit within which the offer if not accepted shall be deemed to have been declined.

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to allot such preference shares as may be surplus or offers whereof have been declined by the equity shareholders in such manner as they deem fit and proper.

 

RESOLVED FURTHER that the 80,000 redeemable preference shares of Rs. 100/- each now being issued shall carry a dividend of 9% per annum and the same shall accrue to the holders of these shares from the date of allotment to them.

 

RESOLVED FURTHER that the shares may be redeemed by the company at any time after the expiry of twenty years from the date of issue.

 

PRACTICE NOTES

 

1. Articles must empower company.- Check up whether the articles of the company provide for the issue of redeemable preference shares. If not, carry out necessary alterations in the Articles of Association" for providing such a provision first pursuant to section 3 1.

 

2. Convening Board Meeting for calling Annual General Meeting.- Call a Board Meeting and pass the above resolution recommending them to the shareholders for being passed by them as a Special Resolution. Fix up date, time, place and agenda for a General Meeting to all the shareholders of the company.

 

3. Notice of General Meeting.- Give 21 days' clear notice of the General Meeting.

 

4. Filing of Resolution with Explanatory Statement with Registrar.-File the resolution in Form No. 23 along with the Explanatory Statement with the Registrar of Companies concerned within thirty days of the passing of the resolution by paying the prescribed filing fee.

 

5. Right to renounce shares in favour of other person.-Unless the articles provide that the offer to apply for the issue of new shares given to holders of equity shares shall not include a right to renounce the said shares in favour of any other persons, while offering the shares, also specify that they have also a right to renounce the shares offered to them in favour of any other person and a notice shall contain specifically a statement to this effect.

 

6. Ordinary Resolution in case shares offered to existing equity shareholders.-If the shares are being offered strictly in accordance with the provisions of section 81(l) of the Act, that is, an offer is being made to the holders of equity shares to apply for the new issue in proportion to their existing equity shareholding, an ordinary resolution of the company shall suffice. A Special Resolution has been recommended as an abundant caution so as to take care of the situation in which some shares may have to be allotted. Otherwise than in strict proportion to the existing shareholdings of equity shareholders.

 

7. Issue of irredeemable preference shares to be redeemable after expiry of more than twenty years not permissible.-Issue of irredeemable preference shares or shares which are redeemable after the expiry of the period of more than twenty years is not permissible.

 

8. Issue of preference capital to be within authorised capital.-Please ensure that the preference capital now being issued is within the authorised capital of the company. If not, take steps to increase the authorised capital.

 

9. No right to demand redemption before expiry of period fixed.-Preference shareholders cannot demand redemption of the shares earlier than after the expiry of the period of redemption provided in the issue.

 

10. Conversion of preference shares into redeemable preference shares.-If any issued preference shares are to be converted into redeemable preference shares, the proper course is to effect a reduction of capital to be followed by a subsequent increase. St. James Court Estates Ltd., (1944) Ch 6.

 

11. Credit Rating.- Credit rating should be obtained from any of the Credit Rating agencies and disclosed in the draft letter of offer to be submitted for vetting by SEBI.

 

12. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued redeemable preference shares on rights basis during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificates as appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of Redeemable Preference Shares on Rights

(Another Format)

 

S. 80-Issue of redeemable preference shares on Right basis-Special Resolution

 

"RESOLVED that pursuant to the provisions contained in section 80 of the Companies Act, 1956, the Board of Directors of the Company be and hereby authorised to issue redeemable Cumulative Preference Shares of Rs. 100/- each to the existing equity shareholders of the Company in proportion of  ……..preference shares for  ……..equity shares whose names appear on the Register of Members as on  ……..2002.

 

RESOLVED FURTHER that notwithstanding anything contained in Section 81(1A) of the Companies Act, 1956, the Directors of the Company be and are hereby authorised to offer the preference shares not taken up by the existing equity shareholders to other person(s) on such terms and conditions or in such manner as the Directors think fit and proper.

 

RESOLVED FURTHER that the said Cumulative Preference Shares shall carry a fixed dividend of  ……..per cent per annum on the amount of capital paid up thereon.

 

RESOLVED FURTHER that the Company shall be entitled to redeem the said Cumulative Preference Shares out of the profits immediately on the commencement of tenth year from the date of issue."

 

PRACTICE NOTES

 

1. Articles to empower company.- The Articles will have to be perused to see whether the power to issue redeemable preference shares is contained therein; otherwise the articles will first have to be amended.

 

2. Preference shares redeemable after twenty" years prohibited.-Issue of any preference share which is irredeemable or is redeemable after the expiry of a period of twenty" years from date of issue is prohibited.

 

3. Conditions of redemption.-The redemption can be effected only on the following conditions:

 

(i)         Redemption of such shares must be effected on such terms and in such manner as laid down in the Articles of Association of the company;

(ii)        Such shares can be redeemed out of the profits or out of proceeds of a fresh issue of shares made for this purpose;

(iii)       Such shares must be fully paid-up;

(iv)       Premium, if any, payable on redemption of such shares should be provided from out of the profits or out of company's share premium account; and

(v)        An amount equal to redemption amount must be transferred to 'capital redemption reserve account' where the redemption is effected out of profits otherwise available for distribution as dividend.

 

Issue of redeemable preference shares to public

 

S. 80-Issue of redeemable preference shares to public-Special Resolution

 

"RESOLVED that, pursuant to the provisions of section 80(l) of the Companies Act, 1956, the Board of Directors of the Company be and is hereby authorised to offer for public subscription, under a prospectus (and subject to such modifications or suggestions as the Securities and Exchange Board of India may make), a draft of which has been produced at this meeting and authenticated by the Chairman hereof, second series of 1,00,000 eleven per cent redeemable cumulative preference shares of Rs. 100/- each containing the following terms and conditions, namely that out of 1,00,000 eleven per cent cumulative preference shares, 25,000 shares be offered to the registered holders as at 19  ……..at par payable at the rate of Rs. 25/- on applica­tion and Rs. 25/- on allotment, and that 25,000 of such shares be of­fered to     Development Corporation in terms of agreement with  the aforesaid as fully paid-up at par and the balance 50,000 eleven percent cumulative redeemable preference shares not taken up by any of the aforesaid, be offered for public subscription at par payable at the rate of Rs. 25/- on application and Rs. 25/- on allotment and the Board will make calls on the said second preference shares remaining partly paid within the terms of the prospectus under which the aforesaid sec­ond cumulative redeemable preference shares are being issued.

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to arrange for underwriting by any financial institution of any other body or person for the whole or any part of the issue of the said preference shares subject to the provisions of section 76 of the Companies Act, 1956.

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to take all or any of the step s necessary for the implementation of the directives in this regard."

 

PRACTICE NOTES

 

1. Article must empower company.-The Articles of Association of the company must authorise the issue of redeemable preference shares. In the event of subsequent issue, the right of preference shareholders holding the first series is that at least a portion of such new series are to be offered to them.

 

2. Convening Board Meeting for calling Annual General Meeting.-Call a Board Meeting and pass the above resolutions recommending them to the shareholders for being passed by them as an ordinary resolution (Special Resolution if the articles so require) at a General Meeting.

 

3. Redeemable preference shares carrying participating or conversion rights not exempted.-If the issue of redeemable preference shares carry participating or conversion rights, then there is no exemption.

 

4. Notice of General Meeting.-Fix up date, time, place and agenda for convening a General Meeting. Give 21 days' clear notice for the General Meeting with suitable Explanatory Statement.

 

5. Issue of redeemable preference shares and conditions governing exemption.:- Redeemable preference shares may be issued stipulating a date on which they would be redeemed, or in the alternative they may be made redeemable at the option of the company. The period of redemption, however, cannot exceed twenty years from the date of issue of such shares by virtue of provisions of sub-section (5A).

 

The redemption can be effected only on the following conditions:

 

(i)         Redemption of such shares must be effected on such terms and in such manner as laid down in the Articles of Association of the company;

(ii)        Such shares can be redeemed out of the profits or out of proceeds of a fresh issue of shares made for this purpose;

(iii)       Such shares must be fully paid-up;

(iv)       Premium, if any, payable on redemption of such shares should be provided from out of the profits or out of company's share premium account; and

(v)        An amount equal to redemption amount must be transferred to capital redemption reserve account, where the redemption is effected out of profits, otherwise available for distribution as dividend.

 

6. Fees and stamp duty.-No fee is payable, for the issue of shares to redeem the preference shares is not an increase in capital. Further if the old shares are redeemed within one month of the issue of new shares, no stamp duty would be payable.

 

7. Utilisation of capital redemption reserve account.-The amount credited to capital redemption reserve account, on redemption of the redeemable preference shares, can be applied by the company by way of issue of Bonus shares, which should, however, be fully paid-up.

 

8. Issue of preference shares irredeemable or redeemable after expiry of twenty years period prohibited.-No company limited by shares shall issue any preference shares which are' irredeemable or are redeemable after the expiry of a period of twenty years from the date of issue.

 

9. Filing of Special Resolution with Registrar.-If the resolution passed is a Special Resolution file the same with the Registrar of Companies concerned in Form No. 23 within thirty days of its passing.

 

10. Shares already issued cannot be converted into redeemable preference shares.-Other shares already issued cannot be converted into redeemable preference shares even by means of a scheme of arrangement. If any issued preference shares are to be converted into redeemable preference shares, the proper course, is to effect a reduction of capital to be followed by subsequent increase. St. James Court Estates Ltd., In re: 1944 Ch. 6.

 

11. Redeemable preference shares to be specified in Balance-sheet.-Pursuant to the provisions of Schedule VI to the Companies Act, 1956, the preference shares, if they are 'redeemable' preference shares, must be specified as such in the balance-sheet of the company.

 

Issue of redeemable Preference Shares to Public

(Another Format)

 

S. 80-Issue of redeemable preference shares to public-Special Resolution

 

"RESOLVED that, pursuant to the provisions of section 80(l) of the Companies Act, 1956, the Board of Directors of the Company be and is hereby authorised to offer, 3,00,000,11 per cent second redeemable cumulative preference shares of Rs. 100/- each to the public at par under a prospectus subject, inter alia, to the following terms and conditions namely,

 

(a)        that no such shares when due for redemption shall be redeemed except out of profits of the company which would otherwise be available for dividend, that is, out of general reserve created by ploughing back of distributable profits; or

(b)        that such redemption may be made out of the proceeds of a fresh issue of shares made for the purpose of redemption; or

(c)        that no such share shall be redeemed unless they are fully paid up at the time of redemption; or

            (d)        that the redemption shall be made as on 2000, and such redemption shall be at par; or

(e)        that the other terms and conditions as to redemption shall be gov­erned by the provisions of articles             and       of the Articles of Association of the company."

 

PRACTICE NOTES

 

1. Special Resolution required in absence of specific provisions in Articles.-A company may issue redeemable preference shares under a Special Resolution in the absence of a specific provision in the Articles of Association of the company.

 

2. Redemption of redeemable preference shares either out of profits or out of capital especially raised.-Pursuant to section 80 of the Companies Act, 1956, redemption of redeemable preference shares at maturity may be made either out of the profits of the company or out of capital especially raised for the purpose and not from the sale proceeds of other property of the company.

 

3. Penalty for default.-For non- compliance -with the provisions of this section, the company, and its every officer who is in default, is punishable with the fine which may extend to ten thousand rupees. The offence is compoundable by the Regional Director under section 621A. The section does not provide as to what remedy the shareholders will have, in case the company fails or is unable to redeem any preference shares which 1~ has issued as redeemable by a certain date. In most of the cases, the terms of issue of redeemable preference shares contain an option for redemption of the preference shares after the fixed date and in most of the cases the company takes its own time under thf shelter of the option reserved for the company.

 

Redemption of Preference Shares

 

S. 80-Redemption of Preference Share's-Ordinary Resolution

 

"RESOLVED that 14% cumulative redeemable preference shares numbering 50,000 of Rs. 100/- each issued on 1-6-1992 having become redeemable on 1-6-2002 be redeemed by the issue of fresh 50,00,000 equity shares of Rs. 10/- each.

or

 

RESOLVED that 50,000 redeemable preference shares of Rs. 100/each carrying interest at 14% per annum issued on 1-6-1992 having become redeemable on 1-1-2002 be and are hereby redeemed and redemption amount payable on these shares be paid out of the available profits of the company.

 

RESOLVED FURTHER that the Capital. Redemption Reserve Account of the value of Rs. 50,00,000/- be created pursuant to section 80(l)(d) of the Act."

 

PRACTICE NOTES

 

1. Mode of redeeming redeemable preference shares.-There are only two ways to redeem the redeemable preference shares i.e.

 

(i)         by issue of fresh capital; or

(ii)        Out of the profits of the company which would have otherwise become available for payment of dividend.

 

In either case, first ensure that there is a provision in the Articles of Association of the company and if not, make necessary alterations.

 

2. Convening Board Meeting for calling General Meeting.-Call a Board Meeting and pass the above resolutions recommending them to the shareholders for being passed by them as an ordinary resolution. Fix up date, time, place and agenda for a General Meeting.

 

3. Notice of General Meeting.- Give 21 days' clear notice of the General Meeting to all the shareholders of the company.

 

4. Shares to be redeemed must be fully paid.-Only fully paid-up shares can be redeemed.

 

5. Shares redeemed out of profit will not tantamount to reduction of capital.:- When shares are redeemed out of the profits of the company, it will not amount to reduction of the authorised share capital of the company because the Capital Redemption Reserve Account of a sum equal to the nominal value of the shares redeemed will be simultaneously opened and the provisions of the Act relating to reduction of capital shall apply to this account. If the shares are redeemed by way of issue of fresh equity shares, there will not be any increase in the net authorised capital of the company. However, if all the authorised equity capital stands already issued, necessary steps to increase the share capital will have to be taken.

 

6. Compliance Certificate.- Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has redeemed preference shares during the year after complying with the provisions of the Act as per paragraph 21 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Reduction of Capital-Redemption Reserve Account

 

S. 80-Reduction of Capital-Reduction Reserve Account-Special Resolution

 

"RESOLVED that pursuant to section 80 of the Companies Act, 1956, and subject to confirmation of Court, consent of the Company be and is hereby accorded to the cancellation of the Capital Redemption Reserve Account of the company and to effect such cancellation by treating the sum of Rs            now standing -to the credit of the Capital Redemption Reserve Account, as the profits of the Company."

 

PRACTICE NOTES

 

1. Articles must empower company.-The articles will have to be perused to see whether this power is contained therein, otherwise the articles will first have to be amended.

 

2. Procedure for reduction of capital to be followed for reduction on cancellation of Capital Redemption Reserve Account.-For the reduction on cancellation of the Capital Redemption Reserve Account, the procedure for reduction of capital provided in Ss. 100-105 will have to be followed save where it is used in paying up un-issued shares of the company to be issued to the member as fully paid bonus shares.

 

3. Filing of Resolution along with Explanatory Statement with Registrar.-The resolution and Explanatory Statement will have to be registered with the Registrar of Companies by filing Form No. 23 along with the requisite filing fee, in cash as per Schedule X.

 

Redemption of redeemable preference shares otherwise than out of new issue

 

S. 80-Redemption of redeemable preference shares otherwise than out of new issue-Ordinary Resolution

 

"RESOLVED that the Board of Director of the Company be and is hereby authorised to serve notice to the members holdings 7 ¾ per cent cumulative preference shares of Rs. 100/­each fully paid-up still remained outstanding, to be redeemed to ………… 2002, and that the Board of Directors be authorised to redeem the 73/4 per cent re­deemable preference shares still outstanding on the books out of ac­cumulated profits of the company.

 

RESOLVED FURTHER that in terms of the issue the redemption shall be at par and no premium is to be paid on redemption and that an amount equivalent to Rs. 10,00,000 representing the amount of shares involved in redemption hereof be transferred to a reserve fund, to be called 'the capital redemption reserve account'."

 

PRACTICE NOTES

 

1. Conditions governing redemption of redeemable preference shares. -Pursuant to the provisions of section 80 of the Companies Act, 1956, redemption of redeemable preference shares can be made on the following conditions:

 

(i)         it should not be made except out of profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purpose of redemption;

(ii)        no such shares shall be redeemed unless they are fully paid;

(iii)       the premium, if any, payable on redemption shall have been provided for out of the profits of the company or out of the company's shares premium account, before the shares are redeemed;

(iv)       where any such shares are redeemed out of the profits of the company, the amount of such redeemed shares being the nominal amount of shares redeemed shall be transferred to reserve fund to be called 'the capital redemption reserve account', and the provisions of this Act relating to the reduction of the share capital of the company shall apply, except as provided in this section, as if the capital redemption reserve account was the paid-up-share capital of the company;

(v)        redemption of preference shares may be effected on such terms and in such manner as may be provided by the articles of the company.

 

Transfer to Capital Redemption Reserve

 

S. 80-Transfer from General Reserve to Capital Redemption Reserve for redemption ofpreference shares-Ordinary Resolution

 

"RESOLVED that a sum of Rs being the nominal value of redeemed preference share capital of the Company be and is hereby transferred from the General Reserves of the Company to the Capital Redemption Reserve Account of the Company."

 

PRACTICE NOTES

 

1. Transfer to Capital Redemption Reserve a sum equal to amount of shares redeemed.-Where any shares are redeemed by a company otherwise than from the proceeds of a fresh issue, a sum equal to the nominal amount of the shares redeemed should be transferred to the Capital Redemption Reserve Account from profits which would otherwise be available for distribution as dividend.

 

2. Procedure for reduction of capital to be followed for reduction of Capital Redemption Reserve Account.-For any reduction of the Capital Redemption Re-serve Account, the procedure for reduction of capital will have to be followed, except where it is used to pay up bonus shares to be issued to the members of the company.

 

Transfer of profits for redemption of shares

 

S. 80-Transfer of profits for redemption of shares-Ordinary Resolution

 

"RESOLVED that a sum of Rs. 30 lakhs being the nominal value of 3,00,000 13% redeemable preference shares of Rs. 10/- each be and is hereby transferred, out of the profits for the year ended 31-3-2002 which would otherwise have been available for dividend, to the Capital Redemption Reserve Account of the Company."

 

PRACTICE NOTES

 

1. Treated as share capital.- Capital redemption reserve account should be treated as paid up share capital for the purpose of reduction of share capital but redemption of preference shares itself will not amount to reduction of share capital.

 

2. Redemption not out of proceeds of fresh issue.-Capital Redemption Reserve Account is not to be provided only when the redemption is out of the proceeds of a fresh issue of shares of the company. It is to be provided only when the redemption of preference shares is made out of the profits of the company.

 

Redemption of Irredeemable Preference Shares

 

S. 80A-Redemption of Irredeemable Preference Shares-Ordinary Resolution

 

"RESOLVED that 55,000 irredeemable preference shares of Rs. 100/each of the company issued on 1-1-1987 having become redeemable, pursuant to section .80A of the Companies Act, 1956, be and are hereby redeemed and the Company being not in a position to redeem them and to pay the dividend already accrued thereon, a petition be moved before the Company Law Board praying for permission to issue further redeemable preference shares equal to the amounts due (including the dividend thereon) in respect of these 55,000 unredeemed preference shares of Rs. 100/- each.

 

RESOLVED FURTHER that the Secretary of the Company be and is hereby authorised to file a petition before the Company Law Board and to take such steps as may be deemed necessary in this connection.

           

RESOLVED that 55,000 irredeemable preference shares of Rs. 100/_ each of the company issued on 1-1-1987 having become, redeemable, pursuant to section 80A inserted in the Companies Act, 1956, by the Companies (Amendment) Act, 1988, be and are hereby redeemed and in lieu thereof 5,50,000 redeemable preference shares of Rs. 10/- lying un issued be issued to the holders of these irredeemable preference shares."

 

PRACTICE NOTES

 

1. Prescribed Rules adhered to-While making a petition to the Company Law Board please ensure that the rules prescribed in this respect are strictly followed.

 

2. Convening of Board Meeting for calling Annual General Meeting.-Call a Board Meeting and pass the above resolutions recommending them to the shareholders for being passed by them as an ordinary resolution. Fix up date, time, place and agenda for a General Meeting.

 

3. Notice of General Meeting.-Give 21 days' clear notice of the General Meeting to all the shareholders of the company.

 

4. Compulsory redemption of irredeemable preference shares.-The section provides for the compulsory redemption of irredeemable preference shares within a period of five, years from the date of the commencement of the Companies (Amendment) Act, 1988. Therefore, the shares are to be compulsorily redeemed. The issue of irredeemable preference shares or shares which are redeemed after a period of more than twenty years has been completely prohibited by this Act. The provision for compulsory redemption of the existing irredeemable preference shares or of shares redeemable after the expiry of more than twenty years, is therefore a corollary to this policy of the Central Government. Redemption have to be done in accordance with section 80 of the Act by payment of redemption amount out of such profits as would be available for payment of dividend or by issue of fresh equity if it is available for such allotment or by increase in the authorised capital for facilitating issue of fresh equity. 21

 

5. Penalty.-Default committed by a company for not complying with the provisions of section 80A is punishable with fine of upto Rs. 10,000/- for every day during which such default continues and default committed by any officer of a company is punishable with imprisonment of 10 years and also with fine.

 

6. Redundant Provision.-It may be noted that the proviso to sub-section (1) of section 80A is a transitory provision and is redundant after the expiry of 5 years from the commencement of the Amendment Act of 1988 on 14-6-1993 in respect of cases covered by sub-section (1)(a) of the said section and would be redundant on expiry of 10 years on 14-6-1998 in respect of cases covered by sub-section (1)(b) of the said section. Therefore, redemption of redeemable preference shares by issue of further redeemable preference shares will be governed solely by section 80. Mangalore Chemials and Fertilisers Ltd., Re, (1994) 79 Com Cases 551 (CLB-Mad).

 

7. Conditional approval of redemption.-The Company Law Board can grant a conditional approval for redemption and the condition that new shares should be issued at a higher rate of dividend was upheld by the court. Raja Ram Corn Products (Punjab) Ltd. v. CLB, (2001) 106 Com Cases 563 (P&H-DB).

 

Approval of Company Law Board

 

Where a company is not in a position to redeem any shares within the stipulated period and to pay the dividend, if any, due thereon, it may with the consent of the Company Law Board on a petition made by it in this behalf and notwithstanding anything contained in the Act issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed shares shall be deemed to have been redeemed.

 

Follow procedure for making petition to Company Law Board

 

The petition has to be made under the Company Law Board Regulations, 1991.

Documents to be attached with the petition.

The petition should accompany the following documents­

 

1.         certified true Copy of the Memorandum and Articles of Association.

2.         certified true copy of the notice calling for the meeting with Explanatory Statement and the Resolution sanctioning the issue.

3.         certified true copy of the minutes of the meeting at which' the resolution was passed.

4.         certified true copies of the 1st three years' audited balance-sheets and profit and loss accounts, auditor's report and directors' reports.

5.         Affidavit verifying the petition.

6.         Bank draft evidencing payment of application fee.

7.         Memorandum of appearance with a copy of the Board Resolution or the executed Vakalatnama, as the case may be. The fee payable on application is Rs. 1000/-

 

Further Issue of Capital as Rights Shares

 

S. 81-Further Issue of Capital as rights shares-Ordinary Resolution

 

1. Ordinary Resolution

 

"RESOLVED that 4,00,000 equity shares of Rs. 10/- each lying unissued out of the authorised share capital of the Company be and are hereby issued and offered to all existing holders of equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on these shares on the date of the offer.

 

RESOLVED FURTHER that the Secretary of the Company be and is hereby directed to notify the number of shares offered to equity shareholders of the Company requiring them to exercise the option to accept the offer within one month from the date of the offer and making it clear that on failure to do so within the time prescribed, the offer shall be deemed to have been declined by them and further that the shareholder has the right to renounce the shares offered to him/her or any of them in favour of any other person or persons.

 

RESOLVED FURTHER that the Board of Directors of the Company be and is hereby authorised to allot the shares on the basis of the applications received as a result of the offers from the existing equity shareholders of the Company and to dispose of the shares remaining unaccepted in such manner as the Board may think beneficial to the company."

 

2. Special Resolution

 

"RESOLVED that pursuant to sub-section (1A) of section 81 of the Companies Act, 1956 and subject to other statutory approvals, if necessary, the Board of Directors of the Company be and is hereby authorised to offer 4,00,000 equity shares of Rs. 10/- each in the authorised capital of the Company to persons mentioned below:

 

1.         100,000 equity shares of Rs. 10/- each to the employees of the company provided that not more than 200 shares shall be allotted to any single employee;

2.         100,000 equity shares to IDBI.

3.         100,000 equity shares to LIC.

4.         100,000 equity shares be issued to public at par.

 

RESOLVED FURTHER that the Board of Directors of the company be and is hereby authorised to do all acts, deeds and things as may be necessary to complete the above allotment."

 

PRACTICE NOTES

 

1. Further issue of capital.-The section provides that further issue of capital should ordinarily be offered to the existing holders of equity shares in proportion to their existing shareholdings. The Board is fully empowered to issue further capital strictly as right issue to the existing shareholders and if this offer is accepted nothing further is to be done.

 

2. Existing shareholders to either accept offer or renounce the offer.-The shareholders to whom an offer is made can either accept the same in part or in full. Alternatively, they may renounce the offer in favour of one or more other persons. In either case, the Board shall allot the shares according to the wish of the existing shareholders.

 

3. Power of Board to offer further issue to any person if Special Resolution passed to that effect.-If the offer is declined either in part or in full, the Board is free to allot the balance shares in any manner, which it may decide in its discretion, and is beneficial to the interest of the company. If the Board is of the opinion that the further issue of the capital should be made in a different manner, the company will have to pass Special Resolution at the General Meeting. For this purpose, the Board will pass its own resolution and recommend it to the shareholders at the Annual General Meeting if it is being held or by calling an Extraordinary General Meeting of the company. If the Special Resolution is passed with the requisite 3/4th majority, the Board shall be empowered to make allotment of the further issue in accordance with that resolution. If, however, the resolution is passed by a simple majority, the Board has two options namely, (1) to drop the proposal and to issue shares by offering them to the existing shareholdings or (ii) to make an application to the Central Government to permit it to make allotment in accordance with the proposal contained in the Special Resolution recommended to the General Meeting. If the Central Government is satisfied that the proposal is beneficial to the company, it may accord its approval. When the. approval is received, the Board may make allotment in accordance with the resolution. If the company has taken loans from any financial institutions or issued debentures, which contain a term that the holder has the option to convert the loan into equity, the company will have to convert these loans into equity if the debenture-holders exercise the option.

 

4. Obtain clearance from SEBL- Ensure to get draft of letter of offer/prospectus scrutinised by the Securities and Exchange Board of India, if the Company is a listed Company.

 

5. Increase of authorised capital if there is no unissued capital.-Increase the authorised capital of the company if there is no unissued authorised capital for the shares to be issued.

 

6. Resolution of general body required for further issue of capital.-Resolution of the General Meeting will be required where it is proposed to issue shares any time after the expiry of two years from the formation of the company or at any time after the expiry of one year from the allotment of shares in the company made for the first time after the incorporation, whichever is earlier.

 

7. Shareholders' right to allot shares by passing Special Resolution unrestricted.-The power of the shareholders to allot shares by passing a Special Resolution with requisite majority is unrestricted. Mls. Kalings Tubes Ltd. and others v. Shanti Prasad Jain & others, AIR 1963 Orissa 189: (1964) 1 Comp LJ 117 (13B).

 

8. Private placement at sole discretion of Board of Directors.-Shareholders can also provide for allotment privately at the sole discretion of the Board of Directors if the resolution is passed with 3/4th majori ty.69 Reservation for preferential allotment or firm allotment to Employees/IDBI/LIC should be in conformity with the SEBI Guidelines for preferential allotment dated 4-8-1994 amended by Clarification XIV dated 1-3-1996.

 

9. Approval of Reserve Bank required for allotment of shares to NRIs.-Obtain approval of the Reserve Bank of India if the shares are allotted to persons residing outside India.

 

10. Filing Special Resolution along with Explanatory Statement with Registrar. The Special Resolution along with the Explanatory Statement should be filed with the Registrar of Companies concerned in. Form No. 23 within thirty days. Form No. 5 is to be filed if the authorised capital is increased pursuant to direction issued by the Central Government under section 81(4) of the Act.

 

11. Approval of Central Government not necessary for issue of debentures to in stitutions specified by Central Government.-While issuing debentures containing clause for conversion into equity, approval of the Central Government will not be necessary if the debentures are issued to institutions specified by the Central Govt. under the Public Companies (Terms of Issue of Debentures & Raising of Shares) Rules, 1977. In such cases, only Board Resolution will suffice. In the case of other institutions, prior approval of the Central Government is necessary.

 

12. Prior approval of Central Government not required for issuing debentures in con. formity with rules.-Where the issue of debentures is in conformity with the rules made by the Central Government, prior approval of that Government will not be required.

 

13. Appeal against Government's order.-If the terms and conditions of conversion communicated by the Central Govt. to the company are not acceptable to the company, the company may prefer an appeal to the High Court within thirty days of the order or within such extended time as the Court may allow and the order of the Court shall be final and conclusive.

 

14. Section 81 not applicable to sale of forfeited shares.-Section 81 is not applicable to the sale of forfeited shares for which no allotment is necessary.

 

15. Reckoning of one year.-The one year specified in section 81 is to he counted from the date on which the company has allotted any share for the first time. 23

 

16. Issue or allotment of shares within two years of formation or within one year of first allotment not affected by section 81-Any issue or allotment of shares within two years of the formation of a company or within one year after the first allotment whichever event occurs earlier, will not be affected by the provisions of section 81.24

 

17. Section applicable to further issue of shares.-The section applies only to cases where it is proposed to increase the subscribed capital of the company by allotment of further shares.

 

18. Right of company of further issue not dependent on capacity of shareholders.-The right of a company to make an issue of shares under this section is not dependent upon the capacity of any shareholder to take up the shares offered.

 

19. No right of existing shareholders to object to increase of share capital.-The existing shareholders cannot object to increase on the ground that the value of the present shares would be thereby reduced. Chandrakant Mulraj v. Tata Engineering and Locomotive Co. Ltd., (1984) 2 Comp LJ 278.

 

20. Section not applicable to allotment of shares in discharge of debts.-The provisions of this section will not apply to the allotment of any shares made in payment of the amounts due to Directors or other persons. Sree Ayyanar Spinning and Weaving Mills Ltd. v. V. V. V. Rajendran, (1973) 43 Comp Cases 225 (Mad).

 

21. Allotment to renouncee.- When a shareholder renounces any of the rights shares offered to him in favour of third person, it is not in the nature of a transfer of such shares and the Board of Directors cannot refuse to allot the shares to the third person unless the articles provide therefor. Simco Securities Trust Ltd., (1972) 42 Comp Cases 457.

 

22. Hypothecation of shares against loans granted by company to employees for buying shares.-Where the employees are granted loans by the company for the purposes of buying shares under 'Stock Option Scheme for Employees of public limited companies these shares may be allowed to be hypothecated against such loans to the companies themselves .

 

23. Compliance Certificate. -Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued right share during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of further shares on rights basis

(Another Format)

 

S. 81-Issue of further shares on rights basis-Special Resolution

 

"RESOLVED that the Board of Directors of the Company be and is hereby authorised to offer, issue and allot 10,00,000 equity shares of Rs. 10/- each hereinafter called 'equity right shares' for subscription for cash at par payable in full on application to the members holding the existing equity shares of the Company and whose names appear in the 'equity share register of members' of the company as on the  ……..2002 in the proportion of one equity rights shares for every     equity shares held as on that date ignoring the fractions and that such equity rights shares shall rank in all respects pari passu with the existing equity shares of the company save and except that the equity rights shares shall only rank for and participate in any divi­dend declared by the company in respect of its financial year ended on the  ……..2002 on pro rata basis and as usual thereafter.

 

RESOLVED FURTHER that the Board of Directors of the company be and is hereby authorised to take such action as it may deem most beneficial to the Company in disposing of any 'equity rights shares' remaining unapplied for including the rights and authority to offer the same to any person or persons which may not be an offeree in the first instance.

 

RESOLVED FURTHER that the Board -of Directors of the Company be and is hereby authorised to take such action as it may deem most beneficial to the Company in disposing of any 'equity rights shares' arising out of the fractions involved in the offer of the said equity rights shares in the proportion aforesaid including the right to allot them to such persons who may be applying for any additional equity rights shares.

 

PRACTICE NOTES

 

1. Further issue of capital regulated by Section 81.-Further issue of shares by a company at any time after the expiry of two years from the formation of the company or at any time after the expiry of one year from the allotment of shares in that company is regulated by the provisions of section 81 of the Act. It would appear that any issue or allotment of shares within two years of the formation of the company or within one year after the first allotment, whichever event occurs earlier cannot be called "further issue" and by implication, may be called "initial issue" of capital.

 

2, Offer of further issue of capital to existing members to be made by a Resolution adopted at General Meeting.-It is felt that even the proposal for the issue of shares to the existing members should be done by a resolution adopted in a General Meeting. The reason is that the Act provides that they shall be offered to the persons who at the date of the offer are holders of the equity shares of the company. A 'member' may be a 'holder' of shares but a 'holder' may not be a member. A person whose name is on the register of members may have sold his shares and from the moment his property in the shares has passed to his purchaser, he ceases to be a 'holder' of those shares. Under section 81, such a person is not entitled to accept offers of new shares or to exercise any right of renunciation. Kedernath v. Jay Engineering Works Ltd., (1962) 66 Cal W.N. 1049.

 

3. Further issue should cover all shareholders.-The way the section is worded, it  appears that the proposed issue covers all the shareholders or any increase in subscribed capital of the company for the purpose of offering further shares to the public.

 

4. Private Company exempted.- This section, except sub-section (4), is not applicable to a private company, including a private company which is a subsidiary of a public company, and, thus, any private company may offer or issue further capital without complying with the formalities prescribed by section 81.

 

5. Filing with SEBI.-The draft letter of offer should be filed with SEBI only if the aggregate value of securities, including premium if any of a listed company exceeds Rs. 50 lakhs at least 21 days prior to the filing of the letter of offer with regional stock exchange.

 

Issue of further shares on rights basis

(Another Format)

 

S. 81 -Issue of further shares on rights basis-Special Resolution

 

"RESOLVED that the Board of Directors of the Company be and is hereby authorised to issue     ....        further Equity Shares of Rs  ……..each (hereinafter referred to as the new Equity Shares) in the authorised capital of the Company on the following terms and condi­tions:

 

(i)         that the approval of the Financial Institutions and International Finance Corporation, USA being obtained in terms of the Company's Agreements with them dated ............. and      respectively;

(ii)        that the issue of the new Equity Shares will be subject to the al­lotment being made of the Bonus Shares in accordance with the quantum and the other terms prescribed in the separate resolution to be passed in this behalf at the Meeting;

(iii)       that the Board of Directors be and is hereby authorised to issue the new Equity Shares for cash and at such premium as may be agreed between the Board and the Securities and Exchange Board of India and payable on such terms as the Board may determine and subject to such other terms and conditions as to number of shares, terms of payment or otherwise as may be required by or agreed with the Securities and Exchange Board of India;

(iv)       that the Board be and is hereby authorised to offer the new Eq­uity Shares of Rs   each at such premium as aforesaid in the first instance for subscription for cash to those members of the Company (other than the members who are resident outside In­dia) holding not less than  ……..Equity Shares in the Com­pany and whose names shall appear on the Register of Members of the Company at the close of business on such date as may be determined by the Board (hereinafter referred to as the said date) in the proportion of  ……..new Equity Shares for every Equity Share registered in their respective names on the said date (fraction of a new Equity Shares being disregarded) with a right to renounce all or any of the shares so offered to them in favour of any other person (other than any person who is resident out­ side India);

(v)        that the Board be and is hereby further authorised to offer out of the new Equity Shares which shall be available after the consolidation of fractions and out of the balance of new Equity Shares remaining available by deducting the total of the new Equity Shares offered under clause (iv) above in the proportion therein referred to from the total  ……..new Equity Shares proposed to be issued (hereinafter collectively referred to as the "fractional residue") on new Equity Share to each of the members (other than members resident outside India) whose names appear on the Register of Members on the said date referred to in clause (iv) and shown in the said Register of Members on the said date to be holding less than      shares and being thereby excluded from the offer of the new Equity Shares under the said clause (iv) above provided however that if the fractional residue is not suffi­cient to make the offer of       new Equity Share to each of the members hereinbefore referred to then and in that event, the Board be authorised to offer the fractional residue among the members hereinbefore referred to in consultation with the Delhi Stock Exchange;

(vi)       that the new Equity Shares of Rs. . ……..each to be offered for subscription in accordance with clauses (iv) & (v) hereof to those members referred to therein be offered by a letter of Rights specifying the number of shares to which they are entitled and providing therein that the offer, if not accepted within thirty days from the date of the offer (such date of thirty days after the date of the offer being hereinafter referred to as the acceptance date) shall be deemed to have been declined and further specifying the terms as the payment for each of the new Equity Shares so of­fered as the Board may determine;

(vii)      that in respect of the ultimate residue of the new Equity Shares (i.e., the quantum representing the total of new Equity Shares hereby offered that is  ……..less than the number of new Eq­uity Shares fully subscribed and paid for within the acceptance date), the Board be and are hereby authorised to offer, issue and allot the same for cash and at the same premium as applicable to all other new Equity Shares, to any Indian Financial Institution or Institutions as the Board may in its absolute discretion determine;

(viii)      that for the purpose of clause (vii) the Board be further authorised to negotiate with and enter into any agreement/ agreement with any Indian Financial Institution/Institutions whereby such Institution/Institutions will undertake to subscribe for the ultimate residue of new Equity Shares as mentioned in clause (vii) above. In the event of such Institution/Institutions not agreeing to subscribe for the same, or the entirety thereof, then the Board be further authorised to issue, allot and distribute the ultimate residue or so much thereof as will remain unsubscribed in such manner as the Board may in its discretion determine;

(ix)       that such new Equity Shares shall in all respects rank pari passu with the existing Equity Shares in the Company except that they shall be entitled only to such dividends as may be declared after allotment of the said new Equity Shares, and they shall not participate in any dividend which may be declared in respect of the financial year or any period prior to the allotment thereof. The new Equity Shares shall be subject to the Memoran­dum & Articles of Association of the Company in all respects;

(x)        that any question arising on the issue of allotment of such new Equity Shares -or any of them to the members or any difficulty pertaining to the allotment and issue of the new Equity Shares shall be determined by the Board in its absolute discretion, and the Board be authorised to negotiate with statutory authorities and the Financial Institutions and International Finance Corporation, USA referred to in clause (1) above and to agree to any condition or conditions which may be imposed by them in connection therewith if the Directors consider the same to be expedient and generally to prescribe the various documents, give all requisite discretions and take all necessary actions as the Directors may consider appropriate in respect of the issue and allotment/distribution thereof;

 

(xi)       that the proportion of one new Equity Share for every ..... .......... existing Equity Shares mentioned in clause (iv) above has been determined on the basis of the shareholdings of the mem­bers resident in India as existing on    .......     and in the event of any significant variation in such shareholdings of the members resident in India between the said  ……..and the said date re­ferred to in clause (iv) above as a result of purchases from or sales to non-resident members which could affect the said pro­ portion, then the Board be further authorised to make such con­sequential changes in the said proportion as the Board may con­sider expedient so that the application of the proportion to the total number of shares held by members resident in India as on the said date referred to in clause (a) above will produce a total of new Equity Shares to be offered to members resident in India under clauses (iv) & (v) above as nearly as circumstances may admit to the total of new Equity Shares proposed to be issued in terms of this Resolution."

 

PRACTICE NOTES

 

1. Board Meeting.- Hold a Board Meeting and fix date, time and venue of the General Meeting for passing a special resolution under section 8 1 (1 A) of the Companies Act, 1956 for making issue of further shares to any person.

 

2. Intimation to Stock Exchange.-Send necessary intimation to Stock Exchange(s) on which the shares of the company are listed.

 

3. General Meeting.- Hold the General Meeting and pass the resolution.

 

4. Pricing.- The price is to be fixed by the Board of Directors in consultation with the lead Manaaer to the issue. A listed company making a composite issue of capital may issue securities at differential prices in its public and rights issue. Justification for price difference is to be disclosed in the letter of offer.

 

5. No prohibition of offering rights shares at lower premium than public issue.-It is to be noted that there is no prohibition for offering rights shares at lower premium than the price for public issue.

 

6. Period of Subscription.-Right issue should be kept open for at least 30 days and not more than 60 days.

 

7. Appointment of merchant banker.-It is to be noted that appointment of merchant banker is not mandatory when the shares by way of rights by a listed company do not exceed rupees fifty lakhs. However, when the rights issues exceed rupees fifty lakhs then the issue has to be managed by the authorised merchant banker.

 

8. Minimum subscription.-If the company does not receive 90% of the issued amount including the amount from underwriters the company is required to refund the entire amount of subscription received to the applicants within forty two days from the date of closure of the issue. If there is delay in refunding the amount by more than eight days, the company shall pay interest as per provisions of section 73 of the Companies Act, 1956.

 

9. FCDs/PCDs 'holders' rights.-(a) No company should pending conversion c FCDs/PCDs issue any shares by way of rights unless similar benefit is extended to the holders of FCDs or PCI)s through reservation of shares out of rights in pro-portion v convertible part of FCDs/PCDs.

 

(b) The reserved shares may be issued at the time of conversion of the debentures 01 the same terms and conditions on which rights issue was made.

 

10. Letter of offer.- If the rights issue exceeds Rs. 50 lakhs, a copy of the letter of offer should be sent to the concerned Regional Office of SEBI, with reference to the location of the issuing company, but does not exceed Rs. 20 crores, as below:

 

Eastern Regional Office: States of West Bengal, Bihar, Orissa, Assam, Sikkim, Amachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Union Territo6 of Andaman and Nicobar Islands. [Regional Manager SEBI FMC Fortuna 5th Floor 234/3A, AJC Bose Road Calcutta-100 020].

 

Northern Regional Qjrice: States of Delhi, Punjab, Haryana, Jammu and Kashmir, E machal Pradesh, Uttar Pradesh, Rajasthan and Union Territory of Chandigarh. [Region; Manager, SEBI, Kailash Building, 4th Floor, 26-Kasturba Gandhi Marg, New Delhi-110 001].

 

Southern Regional Office: States of Tamil Nadu, Kerala, Pondicherry, Andhra Pradesh Karnataka and Union Territories of Lakshwadeep and Minicoy Islands. [Regional Manager, SEBI, Karumuthu Centre, 498-Anna Salai, Nandanam, Madras-600 035].

 

States of Maharashtra, Gujarat, Madhya Pradesh and Goa and Union Territories Daman, Diu, Dadra and Nagar Havell will be under the jurisdiction of the Western Region and shall be looked after by the Head Office till such time a Western Regional office is set up.

 

Letter of offer for issues exceeding Rs. 20 crores in respect of all regions and issues (irrespective of their size) by public sector undertakings, banks and financial institutions will be looked after by Head Office of SEBI at Mumbai.

 

11. Disclosure to be made in letter of offer.- Ensure that the letter of offer conforms to the disclosures prescribed in Form 2A under Section 56(3) of the Companies Act, 1956, read with Chapter VI section III of SEBI (Disclosure and Investor Protection) Guidelines, 2000.

 

12. Over subscription not to be retained.-The company cannot retain any part of over subscription.

 

13. Issue when to be made fully paid-up.-The issue is required to be made fully paid-up within twelve months. It is to be noted that where the issue exceeds Rs. 500 crores

 

(a)        it is not necessary to make the issue fully paid-up within twelve months,

(b)        the amount called on application, allotment and on calls should not exceed 25% of the total issue,

(c)        necessary arrangements be made for monitoring of use the proceeds by one of the financial institutions,

(d)        a copy of the monitoring report be filed with SEBI as per format specified in Schedule XIX of SEBI (Disclosure of Investor Protection) Guidelines, 2000 by the said monitoring agency on a half yearly basis till completion of project for purposes of record.

 

14. Preferential allotment.- (Please note that there is prohibition for any preferential allotment to be made along with any right issue). If the issuer company wants to make any preferential allotments to the employees or any identified persons, it may do so independent of rights issue by complying with the provisions of the Companies Act, 1956.

 

15. Periodical Reports to SEBI.- Ensure that the two periodical reports 3 days post issue monitoring report, 50 days post issue monitoring report, are furnished to SEBI. The formats of these reports should be as given in Schedule XVI of SEBI (Disclosure of Investor Protection) Guidelines, 2000.

 

Rights issue with a minimum offer of 100 shares

 

S. 81-Rights issue of equity shares (with a minimum offer of 100 shares) Special Resolution

 

"RESOLVED that in terms of Section 81 and other applicable provisions, if any, of the Companies Act, 1956 and in accordance with the provisions of the Articles of Association and of the listing agreements entered into by the Company with the Stock Exchanges where the shares of the Company are listed and subject to the approval of the Reserve Bank of India (RBI) and all other concerned authorities and departments if and to the extent necessary, and such other approvals, permissions and sanctions as may be necessary, and subject to such conditions and modifications as may be prescribed in granting such approvals, permissions and sanctions and subject to such conditions as may be imposed by the Securities and Exchange Board of India (SEBI), which may be agreed to by the Board of Directors of the Company (hereinafter referred to as "the Board" which term shall be deemed to include any Committee referred to below), at its sole discretion, the consent of the Company be and is hereby accorded to the Board to create, offer and issue to the holders of the Equity Shares of the Company and to such other persons as are set out hereunder, such number of Equity Shares of the Company of the face value of Rs. 10/- each [not exceeding    ( ) in number] as may be re­quired, for subscription for cash, in one or more branches and at such premium./s per share as may be fixed and determined by the Board prior t6 the issue and offer thereof to such category of persons in con­sultation with the SEBI or such other authorities as may be prescribed or in accordance with such guidelines or other provision of law as may be prevailing at that time and otherwise ranking pari passu (except for payment of dividend pro rata from the date of allotment) with the then existing Equity Shares of the company on such other terms and condi­tions, if any, in respect of such issue to such extent as may be then permissible, and at such time or times or branches as the Board at its absolute discretion and in the best interest of the Company may deem fit:

 

(1) To the shareholders of the Company in the ratio of     Equity Shares of Rs. 10/- each for every  ……..fully paid- up existing Equity Shares held on such record date or dates as may be fixed by the Board of Directors of the company for the purpose subject to the con­dition that where in respect of any shareholder the entitlement in terms of the above referred ratio is less than one hundred Equity Shares or other than in multiples of hundred Equity Shares the entitlement shall be rounded off to one hundred Equity Shares or to the next higher hundred Equity Shares respectively; and

 

(2) To the permanent employees of the Company including any Indian Working Director(s) on an equitable basis such number of Equity Shares of Rs. 10/- each as would not exceed five per cent of the number of Equity Shares offered in terms of (1) above and up to such maximum number of shares and with the provision that any un subscribed portion from such category shall lapse.

 

RESOLVED FURTHER that inasmuch as a minimum offer of 100 shares as rights is envisaged with a view to benefit the smaller shareholders, in order to prevent creation of holdings of Equity Shares in less than market lots of 100, shareholders will not be permitted to split their existing holding to less than the market lot or to transfer their existing holding in less than the market lots and no person shall be entitled to require the Company to record in his name any holding of shares in the Company in less than the market lot of 100 during the period from the date of this Notice till the date of closure of the transfer books or record date to be fixed by the Board for the rights issue in terms of (1) above.

 

RESOLVED FURTHER that the Board shall be entitled to issue, in consultation with and subject to the acknowledgement by SEBI and subject to the approval, if necessary, of any concerned authority, appropriate Letters of Offer to the categories of persons stipulated in (1) and (2) above containing the terms and conditions of such issue as the

 

Board may at its absolute discretion think fit including the provisions relating to renunciation, non-eligibility of additional shares in the event of renouncement by the member, non-eligibility of renouncee for additional shares, payment of subscription monies by installment, listing of the new Equity Shares with stock exchanges, restriction as to subscription and transfer as provided in the Articles of Association of the Company, ranking of the new Equity Shares, allotment to nonresident Indians subject to the permission of the RBI under the provisions of the Foreign Exchange Regulation Act, 1973, order of preference for allotment in the event of over- subscription and such other terms and conditions as may be necessary or stipulated in such Letters of Offer and such other documents as may be permitted by the concerned authority in accordance with law and the Board be and is hereby expressly authorised and empowered to accept such variations and modifications as the SEBI or any other concerned authority may stipulate in that behalf and to also at its discretion to amend, modify, vary or alter all or any of the terms of the issue including the basis or proportion of the offer to be made to the aforesaid categories accordingly including the right to increase, decrease or recalculate the number of Equity Shares to be created, offered and issued the aggregate nominal value of which shall not, however, exceed the face value of Rs ……….. and alter the terms as to premium and their entitlement thereto and to include in the Letters of Offer or such other documents they offer for subscription all such other terms and conditions of offer as are necessary or expedient in the discretion of the Board and/ or may have to be incorporated on account of any modification or amendment required or accepted by any concerned authority.

 

RESOLVED FURTHER that the Board be and is hereby authorised to delegate to a Committee of Directors (one of whom shall be the Managing Director or the Whole-time Director of the Company whom the Board may authorise) all or any of its powers, authorities and discretions vested in it in terms of this resolution as may be permitted in law."

 

PRACTICE NOTES

 

1. No preferential allotment in rights issue.-It is not mandatory to make any reservation for preferential allotment to the employees or any other identified person along with any rights issue. If the company so desires, such preferential allotments should be independent of the rights issue by complying with the provisions of the Companies Act, 1956 and Chapter XIII of SEBI (Disclosure of Investor Protection) Guidelines, 2000. The said Chapter does not apply to preferential issue of non-convertible debentures.

 

2. Advertisement in newspapers.-Listed companies desirous of making rights issues should issue an advertisement at least seven days before the opening of the subscription list prominently in not less than three All India newspapers about the despatch of letters of offer together with composite application forms by registered post giving the date of despatch of letter of offers, date of opening and closing of subscription list.

 

3. Filing of special resolution.-File the Special Resolution along with Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee in cash as prescribed under Schedule X of the Act.

 

Rights issue of Non-Convertible Debentures with Equity warrant option

 

S. 81-Rights issue of NCD with equity warrant option-Special Resolution

 

"RESOLVED that pursuant to Article     of the Articles of Association of the Company and the provisions of Section 81 and other applicable provisions, if any, of the Companies Act, 1956 and subject to requisite approvals/permissions and sanctions from the appropriate authorities, institutions or bodies (hereinafter referred to as "requisite approvals") as may be necessary and subject also to such terms, con­ditions, alterations and modifications, as may be prescribed and speci­fied while granting such approvals, permissions and sanctions which may be agreed to by Board of Directors of the Company (hereinafter referred to as "the Board") the consent of the Company be and is hereby accorded to the Board to create and issue for cash at  ……..par    % Secured Redeemable Non-Convertible Debentures of       Rs  ……../- each (hereinafter referred to as "NCDs") on rights basis to­gether with detachable warrants carrying entitlement to subscribe for the equal number of equity shares of the company between 24th and 48th months from the date of allotment of NCDs as follows and on such terms and conditions as the Board may in its absolute discretion thinks fite:

 

(Rs. In crores)

NCDs Detachable

Warrants

 

(a) NCDs, of Rs  ……../- each to the Equity Shareholders of the Com­pany in the ratio of ............ ............debenture for every ...................fully paid equity shares held  by them on a date to be fixed  by the Board together with detachable warrants carrying entitlement to  subscribe for one equity share of Rs. 10/- each per NCD at a premium  of Rs  ……../- per ….….. share.

 

 

(b) NCDs of Rs  ……../­ each together with detachable warrants carrying entitlement to subscribe for one equity share of Rs. 10/- each per NCD at a premium of Rs . ……../- per share to the  Employees of the Company on an equitable basis as may be decided by the Board.        

 

RESOLVED FURTHER that the Board be and is hereby authorised to issue and allot to the holders of the detachable warrants such number of shares as may be required to be issued against the detachable warrants as aforesaid and also to do all such acts, deeds, matters and things or to execute such documents or writings as may be considered necessary or proper for the purpose of giving effect to this resolution.

 

RESOLVED FURTHER that for the purpose of giving effect to the issue of NCDs together with detachable warrants as aforesaid, the Board be and is hereby authorised to make and/or to accept in the interest of the Company all such modifications and alterations to all or any of the terms and conditions of the issue as may be considered necessary or expedient and to take all actions as may be necessary or desirable to effect such modifications and alterations and to settle all questions that may arise in regard to the issue of NCDs together with detachable warrants."

 

PRACTICE NOTES

 

Same as Practice Notes No. 1 to 3 under Resolution 844 and also.

 

4. Compliance Certificate.- Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued Non-Convertible debentures with equity warrant option during the financial year and complied with the provisions of the Act as per paragraph 19 of the Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of Rights Shares at Premium

 

S. 81-Issue of Rights shares at a premium-Special Resolution

 

"RESOLVED that pursuant to section 81 of the Companies Act, 1956, the Board of directors be and is hereby authorised to issue Equity shares of Rs. 10/- each upon the following terms and conditions, subject to such modifications and conditions as the SEBI may direct or impose and which the Board of directors are hereby authorised to agree to if they deem fit.

 

(1)        equity shares shall be issued and offered at such pre­mium not below Rs  ……..and not exceeding Rs  ……..per share subject to the Memorandum and Articles of Association of the com­pany, ranking in all respects (including voting rights) pari passu with the existing equity shares except that such further equity shares shall entitle such holders to dividend, if any, declared in respect of the company's financial years subsequent to the financial year ................ in proportion to the capital for the time being paid up during such fi­nancial years in respect of which the dividend is declared.

(2)        equity shares be issued and offered in the first instance to the holders of the existing equity shares on the Register of Members of the Company, on such date as may be fixed by the Directors on the basis of every    equity share for existing equity shares, held by such holders.

(3)        The offer aforesaid shall be made by notice specifying the number of shares offered and the time limit, not being less than 30 days, but not exceeding 60 days, from the date of offer within which the offer has to be accepted failing which, it will be deemed to have been declined and the Board shall thereafter be at liberty to extend the time for acceptance as aforesaid from time to time either generally or in respect of any particular holder or holders with a right exercisable by the shareholder concerned to renounce the shares offered to him in whole or in part in favour of nominee(s) approved by the Directors.

(4)        The offer aforesaid may be made with option to the shareholders to apply for additional shares provided that a shareholder who has renounced his right in whole or in part shall not be entitled to an allotment of additional shares. The allotment of additional shares to the applicants will be made on an equitable basis, in consultation with ....................stock exchange, with reference to the equity shares held by them. If any further equity shares applied for are not allotted, the amount paid on application thereof shall be refunded in due course without interest.

(5)        In the event of any person holding less than  ……..equity shares and in the event of a person holding equity shares in excess of an exact multiple of     equity shares, the company shall not issue any coupon in respect of any fractional parts of a share that may arise but all such fractional parts of the shares shall be consoli­dated into new equity shares and the same shall be allotted to a person to be nominated by the Board who shall sell the same at the prevailing market price and distribute the net surplus, if any, arising out of such sale to the members entitled to the fractions in proportion to which they are so entitled provided that the payments, if any, to the non­ resident shareholders shall be subject to the permission of the Reserve Bank of India under the Foreign Exchange Management Act, 1999.

(6)        The Board be and is hereby authorised and empowered to dispose of and allot any of the aforesaid further equity shares not taken up by the holders of the existing equity shares entitled thereto or remaining undisposed to such person or persons, whether shareholders of the company or not, on such terms and at such price or prices or at the ruling market price or the issue price, whichever is higher.

(7)        The allotment to non-resident shareholders will be subject to the sanction of the Reserve Bank of India under the Foreign Exchange Management Act, 1999.

(8)        The certificates in respect of the further equity shares shall be completed and be delivered within six weeks of the closing of subscription list.

(9)        For the purpose of giving effect to this resolution, the Board be and is hereby authorised to prescribe the letter of offer, forms of application and renunciation and other documents in respect of such further equity shares, to give such other directions as they may think fit and proper, including directions for settling any question or difficulty that may arise in regard to the issue and allotment of the further equity shares and to do all acts, deeds, matters and things, as the Directors in their absolute discretion consider necessary, expedient, usual or proper for them to do."

 

PRACTICE NOTES

 

1. SEBI (Disclosure of Investor Protection) Guidelines, 2000-Listed companies going for rights issue at a premium should file the letter of offer with SEBI and should also follow the guidelines of SEBI formulated from time to time in connecilon therewith only, if such rights issue including the premium is more than Rs. 50 lakhs.

 

2. Filing of Special Resolution.- File the special resolution along with Explanatory Statement with the Registrars of Companies concerned within twenty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X of the Act.

 

See also Practice Notes under Resolution 843.

 

Rights and Public Issue of Partly Convertible Debentures and Fully Convertible Debentures

 

S. 81-Composite issue of rights and public issue of PCDs1FCDs-Special Resolution

 

"RESOLVED that in accordance with the provisions of Section 81 of the Companies Act, 1956, and subject to such approvals, premissions and sanctions of the other appropriate authorities, as may be necessary and subject further to such terms, conditions and modifications as may be prescribed in granting such consents, approvals and permissions and subject to such conditions as may be imposed by the Securities and Exchange Board of India (SEBI), which may be agreed to by the Board of Directors of the Company (the Board) at its sole discretion, consent of the Company be and is hereby accorded to the Board to create, Issue and offer to the holders of the Equity Shares of the Company and/or to such other persons as the Board may determine Secured Redeemable Partly Convertible Debentures/Fully Convertible Debentures of an aggregate value not exceeding Rs …………. carrying inter­est at such rate and on Such other terms and conditions with regard to security, option as to conversion into and entitlement to new Equity Shares of the Company and redemption, as may be approved by SEBI and the other appropriate authorities and agreed to by the Board and that consent further be and is hereby accorded to the Board to reserve for the employees (including Indian Working Directors (Workers of the Company) such percentage of the issue(s) as is permissible by the SEBI Guidelines in this behalf (unsubscribed portion of which may beadded back to the public offer) and that consent be and is hereby accorded also to the issue and allotment to the respective holders of the Debentures of such number of Equity Shares of such value and in such manner as may be approved by SEBI and other appropriate authorities upon conversion of the appropriate part of the Debentures and further that for the purpose of giving effect to the above, the Board or such of the Directors as may be empowered by the Board for the purpose be and are hereby authorised to accept such modifications or such terms as may be imposed or required by SEBI and other appropriate authorities in regard to the issue or allotment of the Debentures, issue of the new Equity Shares arising on conversion of the convertible part of the Debentures, the period of repayment of the non- convertible portion of the Debentures and all the other matters connected with the issue or allotment of the Debentures and conversion thereof into new Equity Shares and to settle any question, difficulty or doubt that may arise in regard to the issue or allotment of the Debentures and issue of Equity Shares on conversion, etc., as may be required by the appropri­ate authorities and to do all such acts, deeds, matters or things as the Board or the Directors authorised by the Board for the purpose may think necessary expedient or proper in relation to any of the aforesaid matters."

 

PRACTICE NOTES

 

1. Put and call option.-No company can issue FCDs having a conversion period of more than 36 months unless conversion is made optional with "put" and "call" option.

 

2. Credit rating.- Credit rating is necessary in respect of FCDs, PCDs and NCDs irrespective of maturity period. If the issue is greater than or equal to Rs. 100 crores two ratings from two different credit rating agencies should be obtained.

 

3. Re-purchase and Premium.- Procedure for re-purchase of non-convertible portion of PCDs (Khokhas) should be disclosed in the offer document. Time of conversion and premium amount on conversion, if any, should be pre- determined in consultation with Lead Managers. Differential premium as between rights and public issue can be charged.

 

4. Creation of DRR.- Creation of Debenture Redemption Reserve and appointment of Debenture Trustee are not required if the maturity of debentures/conversion of debentures is less than 18 months. For infrastructure companies, DRR is not required even where the maturity/conversion of debentures is beyond 18 months.

 

5. Trust Deed.- Trust deed should be executed within 6 months of the closure of the issue.

 

6. Certificates from FIs.- Certificates from the concerned financial institutions/banks should he obtained about their no objection for a second or pari passu charge being created in favour of the trustees.

 

7. Promoters' contribution.- (No preferential allotment should be made along with any rights issue.) If tile issuer company wants to make any preferential allotments to the employees or any identified persons, it may do so independent of' rights issue by complying with the provisions of the Companies Act, 1956 and Chapter XIII of SEBI (Disclosure and Investor Protection), Guidelines, 2000.

 

8. Compliance Certificate.-Corn pan les having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued partly and fully convertible debentures to the public as well as on rights basis during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Rights and Public Issue of Fully Convertible Debentures

 

S. 81-Rights and public issue of FCDs-Special Resolution

 

"RESOLVED that in accordance with the provisions of the Articles of Association of the Company and pursuant to the provisions of section 81 (1 A) of the Companies Act, 1956 ('the Act') and subject to the approval of, the consortium of bankers/financial institutions who have granted financial facilities to the company, and          acting as agents and trustees/trustees for debenture holders and such other ap­provals, permissions and consents as may be necessary and subject to such conditions and modifications as may be required by them and the Securities and Exchange Board of India (SEBI) and which the Board of Directors of the Company (the Board) is hereby authorised to ac­cept, consent of the Company be and is hereby granted to the Board to create and issue  ……..% Secured Fully Convertible Debentures of the nominal value of Rs  ……..each (the debentures) of an aggregate nominal value of Rs  ……..for cash at par and on such terms and con­ditions and carrying such rights and obligations as may be attached thereto in accordance with the terms of letter of offer/ prospectus as may be finalised by the Board at the time of such issue.

 

RESOLVED FURTHER that subject to such approvals, permissions, consents and sanctions being obtained the offer of the debentures be made for subscription for cash at par to the following categories of persons, viz.:

 

Category                                                                                 Debentures to be offered

 

A         Existing Equity              Aggregate nominal value not eceeding Rs.

            Shareholders by a          .........

            Letter of Offer

 

B.         Employees of the           Aggregate nominal value not eceeding Rs.

            Company                      .........

 

C.         Public by a Pro-            Aggregate nominal value not eceeding Rs.

            spectus                         .........

 

RESOLVED FURTHER that the un subscribed portion, if any of the debentures after considering the applications received from (A) above shall be added to the public offer.

 

RESOLVED FURTHER that the debentures of Rs  ……..each to be is­ sued as aforesaid shall carry an obligation on the part of the Company to fully convert the said debentures and issue and allot such number of equity shares as are equivalent to the value of the debentures, such new equity shares being of the face value of Rs. 10/- each of the Com­pany credited as fully paid up at a premium not exceeding Rs  ……..per share without any further act or application, by the de­benture holders.

 

RESOLVED FURTHER that the offer of rights shares be made to the shareholders whose names appear on the Register of Members on such date as may be decided by the Board for the said purpose and upon such adjustment and appropriation of the equivalent sum representing the issue price of the new equity shares (i.e. face value of equity share and the premium as may be fixed as aforesaid) from the nominal value of the debentures, the face value of the debentures shall stand reduced to nil per debenture and the same shall be deemed to have been fully converted and extinguished.

 

RESOLVED FURTHER that the new equity shares of Rs. 10/- each issuable consequent upon such conversion shall rank pari passu in all respects with the then existing fully paid up equity shares in the capital of the Company and shall rank for dividend pro rata from ...............

 

RESOLVED FURTHER that in the event of the Company issuing bonus shares by way of capitalisation of its profits and/or reserves prior to allotment or new equity shares as aforesaid, the number of new equity shares to be issued and allotted against such adjustment and appropriation shall stand augmented in the same proportion in which the augmentation shall take place in the equity share capital of the Company consequent upon the issue of bonus shares and the premium on the new equity shares to be allotted on such conversion shall stand reduced pro tanto.

 

RESOLVED FURTHER that in case the ratio in which such new equity shares are to be issued and allotted to the equity shareholders accepted by the Board results in issuance of fractional shares, no fractional shares or coupons shall be issued in respect of such fractional shares but the shares represented by the total number of fractional shares shall be allotted to such person(s) as may be appointed for that purpose by the Board (including one or more of themselves and/or one or more of the officers of the Company), who shall hold the shares so allotted as trustees for and on behalf of the shareholders who would have been entitled to the fractional shares if they had been issued and that the said person(s) shall as soon as practicable sell the same and after payment of all the reasonable expenses of sale, distribute the net proceeds to the shareholders entitled thereto in proportion to their respective fractional entitlements.

 

RESOLVED FURTHER that the debentures be issued, inter alia, on the following principal terms and conditions, viz.:

 

1. Interest- Interest at the rate of         per cent per annum will be pay­able half-yearly on  ……..and  ……..each year (subject to deduction of in­come tax at the rates applicable from time to time prescribed under the Income- tax Act, 1961, or any statutory modification or re-enactment thereof for the time being in force).

 

2. Security-The said debentures till the same are fully converted into equity shares as aforesaid would be secured by a first mortgage and/or charge on the immovable and/ or movable assets and properties of the Company at      in the State of and/or on such other immovable and/or movable assets and properties and having such priority (in­cluding a second charge) as the Board may in its discretion determine in consultation with the trustees for the holders of the debentures.

 

3. Offer to non-residents-The debentures which are offered to nonresident Indians/persons of Indian origin resident abroad/ Foreign Institutional Investors and any allotment to-such persons shall be subject to the approval of Reserve Bank of India, under the Foreign Exchange Management Act, 1999. The consequential issue and allotment of equity shares of Rs. 10/- each credited as fully paid-up as aforesaid upon conversion shall also be subject to such approvals.

 

4. Entitlement-The offer of convertible debentures will be made in the following ratio:

 

(i)         For equity shareholders: -One debenture for equity shares of Rs. 10/- each held on the record date to be fixed for this purpose.

(ii)        For the permanent employees of the company.-As on a date to be determined by the Board, the permanent employees of the company shall be offered debentures not exceeding an aggregate face value of Rs  ……..subject to a maximum of such number of debentures as will result in 200 equity shares on conversion:

 

Provided that those equity shareholders who get nil entitlement on the above basis will be considered for allotment of a minimum of          debentures before considering the allotment against applications received for additional debentures from the offerees who would have applied for the rights entitlement.

 

5. General-The letter of offer will carry the right of renunciation, provision to apply for additional debentures, provision for further borrowings without requiring consent of shareholders, provision for fixing of record dates, book closure dates, issue of allotment advice, letter of allotment/debenture certificate, share certificate and such other terms and conditions and provisions as the Board at its absolute discretion may provide with authority to the Board to accept such amendments, modifications, conditions, as the Central Government of SEBI of other concerned authorities may prescribe in that behalf.

 

RESOLVED FURTHER that for giving effect to this resolution, the Board be and is hereby authorised to give such directions as may necessary or desirable with regard to the issue and allotment of the debentures and issue and allotment of such new equity shares including the power to allot the unsubscribed debentures, if any, in such manner as may appear to the Board to be most beneficial to the Company."

 

PRACTICE NOTES

 

Same as under Resolution 847.

 

Issue of Equity Shares and Secured Premium Notes to Shareholders and Employees

 

S. 81-Issue of equity shares and SPNs to shareholders and employees-Special Resolution

 

"RESOLVED that, in accordance with the provisions of Section 81 and other applicable provisions, if any, of the Companies Act, 1956, and subject to such other approvals, permissions and sanctions as may be necessary and subject to such conditions and modifications as may be imposed by the Securities and Exchange Board of India (SEBI) and as may be considered necessary by the Board of Directors of the Company or as may be prescribed in granting such approvals, permissions and sanctions and which may be agreed to by the Board of Directors of the Company, the consent of the Company be and is hereby accorded to the Board of Directors of the Company to issue Equity Shares and Secured Premium Notes (SPN) of an aggregate value of Rs . to the shareholders and to such persons as are set out hereunder, whether shareholders of the Company or not, and at such time as the Board of Directors may in their absolute discretion think fit, inter alia, upon the following terms and conditions:

 

            The two simultaneous (but not linked) issues aggregating Rs  ……..will comprise:­

 

Amount to be issued     

            (Rs. crores)                 

 

            A . Equity Shares of Rs. 10 each at a price of Rs  ……..per

            share  ……..to be offered to the following categories of subscriber­                      …….. ……..   …….. ……..

 

            (i) …….. Rights Equity Shares to the shareholders in the ratio

            of  Equity Shares of Rs. 10 each at a price of Rs . ……..per

            share for every existing Equity Shares held on a date to be fixed

by the Board of Direc­tors                                                                                  ...............         ...............

 

            (ii) ……..Equity Shares of Rs.10 each at a price of Rs . ……..per

share to the permanent employ­ees/Directors of the Company

subject to a maximum of 200 equity shares per employee

 

Amount to be issued     

            (Rs. crores)                 

 

B. An Issue of 4-7 Year SPN of Rs.

            .......     each (with Warrants attached)

(i)                  ……..SPN of Rs. 300 each to the shareholders on the basis

of a minimum number of SPN (as clarified below) to each share­

holder                                                                                                               --------------       -------------­

 

Amount to be issued     

            (Rs. crores)                 

 

            (ii) ……..SPN of Rs . ……..each to the employees/Directors on the

            basis of a minimum of    SPN to each employee/Director                                     ...............         ...............

 

            (iii) ……..Warrants for sub scribing to 1 Equity Share per

            SPN at Rs . ……..per share (i.e. at a premium of Rs .                                       ...............         ...............

 

Major Terms and Conditions:

 

(i)         The aforesaid offer of Rights Shares and SPN shall be made by notice specifying the number of shares/SPN offered and limiting the time not being less than 30 days from the date of the off6r within which if the offer is not accepted, it will be deemed to have been declined, with liberty to the Directors from time to time to extend the date for such acceptance.

(ii)        In the event of any shareholder holding less than Equity Shares, or holding Equity Shares in excess of multiples of  shares, a fractional coupon equivalent to .....................         of one Rights Equity Share will be issued in respect of each share so held.

(iii)       The amount of Rs . ……..per Equity Share (made up of Rs. 10/­ on capital account and Rs ……..on premium account) and Rs……. per SPN shall be payable as follows:

 

(a)        50% payable on application,

(b)        No amount payable on allotment,

(c)        50% payable in one call as may be decided by the Board but not before six months from the date of allotment.

 

(iv)       In the Rights Issue of Equity Shares to the shareholders (item (A) above), each shareholder can apply for his/her right's entitlement plus additional Equity Shares but only up to a maximum of ................ additional Equity Shares per shareholder (in the same name or names) irrespective of the number of application forms submitted, provided that a shareholder who has renounced his of­fer in whole or in part, shall not be entitled to apply for addi­tional shares. Shareholders may also renounce their Rights enti­tlement in whole or in part.

(v)        With a view to benefit the smaller shareholders, in the Rights Issue of Secured Premium Notes (SPN) to the shareholders (item (B) above), no specific ratio will be offered, but each shareholder can apply for a minimum of       SPN (in the same name or names) irrespective of the number of forms submitted (subject to this minimum figure being reduced to a lesser number of SPN which can be uniformly accommodated within the total issue of SPN depending on the total number of shareholders at the time of the Book Closure/Record Date). Each shareholder may apply for additional SPN, provided they have not renounced their Rights in whole or in part but allotment beyond the minimum number of SPN to each shareholder (as explained above) will depend on the total response. Shareholders can also renounce their entitlement of SPN but only to the extent of the prescribed minimum number of SPN as will be indicated in the Letter of Offer.

(vi)       In order to prevent any misuse of the minimum offer of SPNs (which has been structured in the interest of the existing smaller shareholders), shareholders will not be permitted to split their existing holding to less than the marketable lots or to transfer their existing holding in less than the marketable lots during the period from the date of this Notice till the date of Book Closure/Record Date to be fixed by the Board of Directors for the Rights Issue. This provision will also apply to new purchases of shares in less than marketable lots during the same period.

(vii)      No interest or repayment of principal will become due or accrue on the SPN during the first three years after allotment. Thereafter, the principal amount of the SPN of Rs . ……..each will be re­paid in   equal annual installments of Rs  ……..each from the end of the           year to the end of the     year, together with an equivalent additional amount of Rs  ……..with each installment. Such additional amount will represent interest and/or premium on redemption, in such form as may be in the interest of the SPN holders according to the then prevailing regulations and the Company will offer, before the end of the third year, specific op­tions (e.g. full interest or premium or combinations thereof) to the SPN holders which options would have to be exericised at the end of the third year.

(viii)      Each SPN of Rs . ……..will have a detachable Warrant attached to it which will give the holder the right to apply for and be allotted ........ Equity Share by additional payment in cash of Rs  ……..per share (made up of Rs. 10 on capital account and Rs     on pre­mium account) such right being exercisable between year    and       years after allotment, by which time the amount due on the SPN would be fully paid.

(ix)       If any Equity Shares or SPN out of the Rights offers to the shareholders remain unsubscribed, the Directors shall have full discretion and absolute authority to offer them to whomsoever they may deem fit.

(x)        The unsubscribed portion, if any, out of the offers of Equity Shares and SPN made to the employees/Directors will lapse.

(xi)       The Equity Shares allotted on Rights basis together with further Equity Shares allotted as a result of exercise of the right under the detachable Warrant shall rank pari passu in all respects with the existing Equity Shares of the Company except that such Equity Shares shall carry the right to receive a proportionate dividend which may be declared for the financial year in which the said Equity Shares are allotted.

(xii)      On allotment, the Equity Shares, the Secured Premium Notes and the detachable Warrants of the SPN are proposed to be listed on all the Stock Exchanges on which the existing securities of the Company are listed.

(xiii)      The allotment of further Equity Shares/SPN to non- resident shareholders will be subject to the sanction of the Reserve Bank of India under the Foreign Exchange Management Act, 1999.

 

RESOLVED FURTHER that for the purpose of giving effect to the above, the Directors be and are hereby authorised to do all things necessary for the purposes of this issue of Equity Shares and Secured Premium Notes and to take such action or give such directions as may be necessary or desirable and to accept any modifications in the proposal and terms of the issue (including the price of the Equity Shares to be issued or the ratio or number in which the Equity Shares/SPN are to be offered which may result in a change in the total amount of the issue) as may be considered necessary by the Board of Directors or as may be prescribed in granting approvals to these issues and which may be acceptable to the Board of Directors and to decide the basis of allotment and to settle any question or difficulty that may arise in regard to the issue and allotment of the Equity Shares and Secured Premium Notes (with Warrants)."

 

PRACTICE NOTES

 

1. Disclosure requirements filed with SEBL-The company should make adequate disclosure regarding the terms and conditions, redemption, security, conversion and other relevant features of the Share Premium Notes so that an investor can make determination of the risks and returns, safely and liquidity of the instrument. The disclosures should be filed with SEBI.

 

2. Credit Rating.- Secured Premium Notes irrespective of maturity period would require credit rating, and two credit ratings should be obtained if the issue is greater than or equal to Rs. 100 crores.

 

3. Filing of Special Resolution.-File the special resolution along with Explanatory Statement with the Registrar of Companies concerned within thirty days in Form No. 23 after paying the requisite filing fee as prescribed under Schedule X of the Act.

 

4. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued equity shares and secured premium notes to shareholders and employees during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Roll over of Non-Convertible Debentures

 

S. 81-Roll over of NCD-Special Resolution

 

"RESOLVED that pursuant to the provisions of Section 81 of the Companies Act, 1956, and any other relevant provisions of law and the approval the Securities and Exchange Board of India, in partial modification of the terms contained in the Letter of Offer     dated    and subject to the consent of holders of   % Se­cured Non-Convertible Debentures at a separate meeting and subject also to such other approvals, permissions and consents of any authori­ties as may be necessary and subject to such conditions and modifica­tions as may be prescribed by any of them while granting such ap­provals, permissions and consents which the Board of Directors of the Company (hereinafter referred as the "Board") be and is hereby authorised to accept, the consent, authority and approval of the Com­pany be and is hereby accorded to the Board to revise, modify and al­ter the terms of issue of  ……..% Secured Non-Convertible Deben­tures of the face value of Rs  ……../-each (hereinafter referred to as "the Debentures") aggregating to Rs  …….. (Rupees .....), by ef­fecting alteration in the terms of redemption in the manner hereinafter stated in this resolution:

 

(i)         By extending the date of redemption of the principal amount of the Debentures to  ……..for redemption at par, both in re­spect of the Debentures under the Non-Cumulative Interest Pay­ment Scheme and under the Cumulative Interest Payment Scheme;

(ii)        By paying to the holders of the Debentures with such extended period of redemption, both under the Cumulative Interest Payment Scheme and under the Non ­Cumulative Interest Payment Scheme, the premium of 5% of the face value of each Debenture, on (date);

(iii)       In respect of the Debentures issued under Cumulative Interest Payment Scheme and which are redeemable in three yearly installment commencing from             by draw of lots as per original tern! of issue, the holders of Debentures with such ex­tended period of redemption shall be paid the accumulated inter­est from the date of allotment of the Debentures upto            (date);

(iv)       The Debentures with such extended period of redemption shall, effective from                  (date), bear and carry interest at ....................          % per annum calculated only on Non-Cumulative basis and payable by equal half yearly payments on the last day of and the last day of  ……..each year, the first of such payment of interest to be made on          for the period commencing from  ……..and last of such payment of interest on        along with repayment of the principal amount of the Debentures with such extended period of redemp­tion;

(v)        For every Debentures with such extended period of redemption, there will be a detachable warrant attached to the certificate in relation thereto which will entitle the holder of such Debentures, as on a date to be hereafter fixed by the Board to apply, during a period to be hereafter decided by the Board but not later than     for  ……..Equity Shares per warrant at a price to be determined by the Board before the subject offer is made to the then existing holders of Debentures with such extended period of redemption subject to such approvals as may be required and the Board shall have the fight, at its sole discretion, by giving reasonable written notice to call upon all warrant holders to exercise their said entitlement to apply for  ……..Equity Share per Warrant within such period and in such manner as may then be decided by the Board and if such right attached to a warrant is not exer­cised within such specified period, the entitlement of the Warrant holder to such Equity Share will lapse and the Board will be en­titled to deal with the same as it may in its sole discretion deem most beneficial to the Company;

 

RESOLVED FURTHER that the Board shall be at liberty and be entitled to further advance, prepone, accelerate or otherwise alter the aforesaid date(s) of redemption of the Debentures with such extended period of redemption or the mode or manner of such redemption with the consent of the Trustees for the holders of such Debentures but without any further consent of the holders of such Debentures;

 

RESOLVED FURTHER that a letter of option for roll over shall be issued to the holders of the Debentures providing that the redemption period of the Debentures shall be extended on the above terms and conditions only for those debenture holders who send their positive consent for redemption and that those who are not agreeable to extension of redemption period of the Debentures in the manner aforesaid should send a negative response to the offer for roll over and such debenture holders would be repaid the principal moneys along with premium and interest in accordance with the existing terms of redemption of the Debentures and shall continue to hold the Debentures on the original terms.

 

RESOLVED FURTHER that the Debentures which have been redeemed by the Company as per the original terms, may specifically be kept alive and reissued by the Board as per the existing terms of the issue but with the aforesaid altered terms for redemption to any persons (including Financial Institutions, Investment Institutions or Mutual Funds or Banks) whomsoever as the Board may in its absolute discretion decide and deem proper;

 

RESOLVED FURTHER that the Buy-back Scheme shall not apply to the Debentures with the extended period of redemption;

 

RESOLVED FURTHER that the Trustees for the Debenture- holders shall continue to act as Trustees for the holders of the Debentures with such extended period of redemption;

 

RESOLVED FURTHER that save as varied and modified aforesaid, the terms of the Issue of the Debentures as contained in the said Letter of Offer dated shall remain unchanged;

 

RESOLVED FURTHER that pursuant to the provisions of Section 293(l)(a) and other applicable provisions, if any, of the Companies Act, 1956, consent of the Company be and is hereby granted to the Board to the continuation of the mortgages/ charges already created by the Company at the time of the issue of the Debentures in ..................... in order to continue the existing security pertaining to the Debentures by extending the same to secure the Debentures with the extended period of redemption with authority to the Board to execute any Supplemental Deeds/ Deed of modification, documents or papers as may be necessary or as the Trustees for the holders of the Debentures with the extended period of redemption may require, for continuing and extending the existing security upto the extended date of redemption of such Debentures;

 

RESOLVED FURTHER that the Board of Directors of the Company be and is hereby authorised to issue Debenture Certificates in lieu of the existing certificates and to do, in the interest of the Company, all such acts, deeds, matters and things for giving effect to the modifications and alterations to the terms and conditions of the Debentures as proposed in this resolution as may be considered necessary, expedient or proper and all things connected therewith or incidental thereto."

 

PRACTICE NOTES

 

1. Compulsory Option given.-When non-convertible debentures are rolled-over without change in the interest rate a compulsory option should be given to those debenture holders who want to withdraw from the roll-over programme as per the terms of the offer document.

 

2. Consent in writing.- Roll-over should be done only in cases where the debenture holders have given their positive consent in writing and not on the basis of non- -receipt of negative reply.

 

3. Security.- Fresh security need not be created if the existing trust deed or security documents provide for continuance of the security till the redemption period. But if that is not so fresh trust deed should be executed and fresh security shall be created.

 

4. Credit Rating.-Before roll over of non-convertible debentures fresh credit rating should be obtained within a period of 6 months prior to the initial due date of redemption and it should be communicated to debentureholders before roll over.

 

5. Filing with SEBI.-Letter of option regarding roll-over should be filed with SEBI with regard to credit rating, debentureholders resolution, option for conversion, Justification for conversion price and such other terms which SEBI may prescribe from time to time, through the Merchant Banker.

 

6. Application of SEBI Guidelines.-All the above practice notes will be applicable to a listed company only when the value of NCDs exceeds Rs. 50 lakhs.

 

Permitting Foreign Institutional Investors, Non-Resident Indians Person of Indian Origin and Overseas Corporate Bodies to acquire shares and debentures

 

S. 81-Permitting FIIs, NRIs, PIOs and OCBs to acquire shares/debentures in the company up to a limit of 40%-Special Resolution

 

"RESOLVED that subject to the approval of the Reserve Bank of India and/or Central Government under the Foreign Exchange and Management Act, 1999, and subject to such other approvals, permissions and sanctions as may be considered necessary and subject to the applicable provisions, if any, of the Companies Act, 1956, and subject to such conditions as may be prescribed by any of the authorities while granting such approval s/per- miss ion/sanction s, which the Board of Directors of the Company (hereinafter referred to as "the Board") be and is hereby authorised to accept, the consent, authority and approval of the Company be and is hereby accorded to the Board to allow Foreign Institutional Investors (FIIs) Non-Resident Indians (NRIs) Persons of Indian Origin (PIOs) and Overseas Corporate Bodies predominantly owned by NRI's PlOs and OCBs to acquire Shares/Debentures of the company through Stock Exchanges in India under Portfolio Investment scheme, subject to the following conditions:

 

(i)         the total purchases by FIIs/NRIs/PIOs/OCBs both on repatriation and non repatriation basis be within the overall ceiling limit of:

 

(a)        40% of the paid up Equity Capital of the company;

(b)        40% of the total paid up value of each series of convertible debentures of the company;

 

(ii)        investments made on repatriation basis by any single NonResident Investor in the equity/preference shares and convertible debentures of the company should not exceed 5% of the total paid up equity or preference capital of the company or 5% of the total paid up value of each series of convertible debentures of the company;

 

RESOLVED FURTHER that the Board of Directors of the company be and is hereby authorised to do all such acts, deeds, matters and things and to execute such documents or writings as may be necessary, proper or expedient for the purpose of giving effect to this resolution and for matters connected therewith or incidental thereto."

 

PRACTICE NOTES

 

1. Price of shares allotted.- Preferential allotment should be made to His at a price not less than the higher of the following :

 

(i)         the average of the weekly high and low, or

(ii)        the average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the 2 weeks preceding the relevant date.

 

2. RBI's Approval.- Prior approval of RBI is no longer required as RBI has given general permission in such cases and therefore a declaration within 30 days of the allotment of shares should be filed with the concerned regional office of the RBI in the prescribed form.

 

3. No lock-in-period.-No lock-in-period is applicable.

 

4. Portfolio Investments in unlisted companies.- NRIs/PlOs/OCBs are now permitted to invest in unlisted companies as well under the Portfolio Investment Scheme in conformity with the norms and approval procedures applicable to Portfolio investments in listed companies. Portfolio investments in unlisted companies by NRIs/PlOs/OBCs are subject to individual and aggregate investment limits applicable to investments in listed companies in the following manner:

 

 

(a)        Investment limit by a single Non-Resident Indian (NRI)/Persons of Indian Origin (PlOs)/Overseas Corporate Bodies (owned by such persons to the extent of at least 60 per cent) (OCBs) will be subject to a ceiling of 5 per cent of the paid-up equity capital of the investee company.

(b)        The aggregate investment limit for all NRIs/PIOs/OCBs in an unlisted company will be subject to a ceiling of 10 per cent of the paid-up equity capital. The aggregate investment limit may be enhanced upto 24 per cent subject to the general body resolution by the company.

 

Issue of Equity Shares with Differential Voting

 

S. 81/86-Issue of Equity Shares with Differential Voting Rights-Special Resolution

 

"RESOLVED that pursuant to section 81 read with section 86(a)(ii) and any other applicable provisions of the Companies Act, 1956 and relevant provisions of the memorandum and articles of association of the Company, the Board of Directors of the Company be and is hereby authorised on behalf of the Company to issue and allot 1,00,000 (One lakh) equity shares of Rs. 10/- (Rupees Ten) each at par with differential voting rights as to dividend, voting or otherwise in accordance with and subject to the terms and conditions of the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001 to ..............

 

PRACTICE NOTES

 

1. Conditions to be fulfilled before issue.-Before issue of shares with differential voting rights your company must follow the conditions mentioned in Rule 3 of the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001.

 

2. Register to be maintained.-Rule 4 of the said Rules provides that every company referred to in Rule 3 shall maintain a register as required under section 150 containing the particulars of differential rights to which the holder is entitled to.

 

3. Compliance Certificate.- Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued equity shares with differential voting rights during the financial year and complied with the provisions of the Act and has kept and maintained the register as stated in Annexure A to this certificate as per the provisions and rules made there under and all entries therein have been duly recorded as per paragraphs 1 and 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

4. Postal Ballot.- Listed companies are required to pass the special resolution for issue of equity shares with differential voting rights through postal ballot as per Rule 4(d) of the Companies (Passing of Resolution by Postal Ballot) Rules, 2001.

 

EURO Issue

 

S. 81-EURO Issue-Special Resolution

 

"RESOLVED that pursuant to section 81 and any other applicable provisions of the Companies Act, 1956 and relevant provisions of the memorandum and articles of association of the Company and the listing agreements entered into by the Company subject to any necessary approval, consent, permission and/or sanction of the Government of India, Reserve Bank of India and any other appropriate authorities, institutions or bodies, and subject to such conditions as may be prescribed by any of them in granting any such approval, consent, permission, or sanction, the Board of Directors of the Company (hereinafter referred to as "the Board", which term shall be deemed to include any committee referred to below), and duly authorised committee thereof for the time being exercising the powers conferred on the Board by this Resolution be and is hereby authorised on behalf of the Company to issue and allot, in the course of international offerings in one or more foreign markets, equity shares and/or any securities convertible into equity shares at the option of the company and/ or holder of the security and/or securities linked to equity shares any instruments or securities representing either Equity shares or convertible securities (hereinafter referred to as "Securities") subscribed in foreign currency(ies) to foreign investors (whether institutions and/or incorporated bodies and/ or individuals or otherwise, and whether or not such investors are members of the company), for (or which, upon conversion of all securities so issued or allotted, could give rise to the issue of) an aggregate face value of equity shares of upto 5 1 % of the authorised share capital of the company, such issue and allotment to be made at such time or times, in such iranche or tranches, at such price or prices at a discount or premium to market price or prices, in such manner as the Board may, in its discretion think fit, in consultation with the lead manager and underwriters, and otherwise on such terms and conditions as may be decided and deemed appropriate by the Board at the time of issue or allotment;

 

RESOLVED FURTHER that without prejudice to the generality of the above, the aforesaid issue of securities may have all or any terms or combination of terms in accordance with international practice including but not limited to conditions in relation to payment of interest, additional interest, premia or redemption, prepayment and any other debt service payments whatsoever, and all such terms as are provided in international offerings of this nature including terms for issue of additional equity shares or variation of the conversion price of the security during the duration of the security, and that the Company is also entitled to enter into and execute all such arrangements with any lead managers, company lead managers, underwriters, guarantors, depositories, custodians and all such agencies as may be involved or concerned in such offerings of securities and to remunerate all such agencies including the payment of commissions, brokerage, fees or the like, also to seek the listing of such securities or securities representing the same in one or more international stock exchanges.

 

RESOLVED FURTHER that the Company and/or any agency or body authorised by the Company may issue Depository Receipts represent­ing the underlying equity shares issued by the Company in registered or bearer form with such features and attributes as are prevalent in in­ternational capital markets for instruments of this nature and to provide for the tradeability or free transferability thereof as per the inter­national practices and regulation, and under the forms and practices prevalent in the international markets.

 

RESOLVED FURTHER that the securities issued as above shall be deemed to have been made abroad in the market and/or at the place of issue of the security in the international market and shall be governed by English or New York law, as the case may be.

 

RESOLVED FURTHER that the Board be and is hereby authorised to issue and allot such number of equity shares as may be required to be issued and allotted upon conversion of any securities referred to in paragraph (a) above or as may be necessary in accordance with the terms of the offering, all such shares being pari passu with the equity shares of the company in all respects, expecting such right as to dividend as may be provided under the terms of the issue and in the offer document.

 

RESOLVED FURTHER that for the purpose of giving effect to any issue or allotment of Equity Shares or Securities or instruments or securities representing the same, as described in paragraph (a) above, the Board be and is hereby authorised on behalf of the Company to do all such acts, deeds, matters and things as it may at its discretion deem necessary or desirable for such purpose, including without limitation the entering into of underwriting, marketing and depository arrangements and with power on behalf of the Company to settle any questions, difficulties or doubts that may arise in regard to any such issue or allotment as it may in its absolute discretion deem fit."

 

PRACTICE NOTES

 

1. Global Depository Receipts (GDRs) American Depository Receipts (ADRs) and Foreign Currency Convertible Bonds (FCCBs).-GDRs/ADRs/FCCBs can be freely transferred outside India without making any reference to the company. GDRs/ADRs/FCCBs can be converted into shares on surrendering them to the International Depository which is normally an overseas bank. GDRs/ADRs/FCCBs are held in trust by the Domestic Custodian Bank appointed by the Company. Only a company with consistent track record of three years is eligible to float GDRs/ADRs/FCCBs. The provision of 3 year track record requirement in the case of companies seeking GDR/ADR/FCCB issues to finance investments in infrastructure industries such as power generation, telecommunication, petroleum, petroleum explorating and refining, ports, airports and roads will not apply.

 

2. Euro Issue of unlisted companies.-With effect from, 22nd May, 1998 unlisted companies are also permitted to float Euro/ADRs provided they fulfill the three years track record eligibility requirement. These unlisted companies floating GDR/ADR/FCCB issues would need to comply with the standard listing requirement of listing on the domestic stock exchanges within 3 years of having started making profit.

 

3. What are Euro - Bonds.- Euro- bonds are unsecured bonds convertible into equity shares at a price determined at the time of the issue.

 

4. Price.-Price of the equity shares on conversion should be determined in consultation with the Lead Manager.

 

5. Conformity with general accounting practice.-The company's accounts should be re-structured so as to be in conformity with the UK/USA Generally Accepted Accounting Practice.

 

6. Lead Managers.- The Lead Manager arranges the appointment of Depository Agent to deal with issue/transfer/ cancellation of Depository Receipts.

 

7. Limit of Foreign Investment.-The aggregate foreign investments through GDRs should not exceed 51% of the issued and subscribed capital. If the aggregate foreign investment exceeds/likely to exceed 5 1 % of the issued capital, prior approval of FIPB is to be obtained before final approval by Ministry of Finance.

 

8. End Uses.- GDRs/ADRs are equity instruments and there is no repayment liability on the issuing company. Unlike a commercial borrowing or a foreign currency convertible bond which carries a repayment liability on the company, GDRs/ADRs are fully risk equity. It has, therefore, been decided that all end use restrictions on GDR/ADR issue proceeds be removed. The existing ban on investment of GDR/ ADR issue proceeds be removed. The existing ban on investment of GDR/ADR issue proceeds in real estate and stock markets will, however, continue.

 

9. Deployment of proceeds of GDRs./ADRs-GDP,/ADR raising companies are allowed full flexibility in deploying the proceeds. Upto a maximum of 25% of the total proceeds may be used for general corporate restructuring, including working capital requirements of the company raising GDR. Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end-uses. The GDRs redeemed and underlying shares sold in terms of the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanisms) Scheme, 1993 may be reissued to the extent of such redemption and sale made in the domestic market. Such reissuance will be in terms of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 as amended from time to time and the guidelines issued in this regard.

 

10. Number of Issues.- There is no restrictions on the number of Euro-Issues to be floated by a company or a group of companies in a financial year.

 

11. Euro Issue Guidelines.- Companies Making Euro-issues should adhere to Euro Issue Guidelines issued by the Ministry of Finance dated 19-6-1996 modified from time to time.

 

12. Validity period.- The guidelines issued on 19th June, 1996 as mentioned above had provided that both the 'in principle' and final approval will be valid for 90 days from the date of their respective issues. With effect from 22nd May, 1998, in partial modification of the above requirement, the 90 days validity period for final approval for GDRs/ADRs is withdrawn.

 

13. Stock option scheme for Indian software companies.-A special stock option scheme was announced in the budget speech of the Finance Minister for Indian software companies linked with ADR/GDR offerings by these companies as an instrument to enable these companies to provide incentives to retain their highly skilled professionals. The scheme would enable Indian software companies to offer terms comparable to the packages, offered by international companies in the field. This scheme would be governed by the guidelines given in F. No. 17/2/97 NRI, dated 23-6-1998 Issued by the Ministry of Finance (Investment Division). Following this on 10th November, 1999, Ministry of Finance, Department of Economic Affairs has issued a scheme called Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Amendment Scheme, 1999 by way of an amendment to the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechar1ism) Scheme 1993. Under this, Indian Companies engaged in information technology software and information technology services are eligible to offer to their nonresident/resident permanent employees (including Indian and Overseas working directors) GDRs against issue of ordinary shares under the scheme subject to the operational guidelines/conditions issued from time to time by the Government.

 

By a press note dated 16th June, 2000, Government has expanded the scope of issue of ADR/GDR linked employees stock options as above to cover employees of subsidiary companies also.

 

The aforesaid original scheme has been further amended by the Foreign Currency Convertible Bonds and Ordinary Shares (Through) Depository Receipt Mechanism) (Amendment) Scheme 11 2002 vide Notification No. GSR 532(E) dated 29-7-2002 inserting sub-para 3(l)(1)(ii)(111) and (iv) after para 3(l).

 

14. Eligibility/entitlements of GDR/ADR holders to the rights and bonus issues.- A GDR/ADR holder is entitled to hold or transfer GDRs/ADRs, or redeem them into underlying ordinary shares with the option to continue holding underlying shares, and thus has a right to the ordinary shares underlying GDRs/ADRs. Therefore, if an ordinary shareholder of the issuing company acquires a right or entitlement by virtue of ownership of ordinary shares, the GDR/ADR holder also matures the same rights or entitlements owing to his rights over underlying ordinary shares. GDR/ADR holders, therefore, are entitled to same bonus and rights issue of shares as any ordinary shareholders of the company. Similarly, if ordinary shareholders of a company 'A' become entitled to shares of another company 'B' as a consequence of a genuine business reorganisations, and which is duly approved by the High Court under section 391/394 of the Indian Companies Act, then the GDR/ADR holders of company 'A' also mature the same entitlement to shares of company '13'. Furthermore, when GDR/ADR holders mature an entitlement to shares in a company, the company would need to issue and place ordinary shares with the domestic custodian against which the overseas depository would issue corresponding ADRs/GDRs to the ADR/GDR holders. It has, therefore, been decided to allow Indian companies to issue GDRs/ADRs in cases of bonus or right issue of shares or genuine business reorganisation duly approved by the High Court, in accordance with the provisions of the Scheme and the guidelines issued thereunder. Indian companies would be required to apply to the Department of Economic Affairs for obtaining approval for issue of GDRs/ADRs in all these cases. The Department of Economic Affairs would consider such requests on the basis of necessary supporting documents to assess that the proposed GDRs/ADRs issue is on account of the entitlements of GDR/ADR holders as stated above.

 

15. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued Euro Shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of rights shares to the members of the company

 

S. 81(1)-Issue of rights shares to the members of the company-Special Resolution

 

"RESOLVED that in terms of section 81(l) and other applicable provisions, if any of the Companies Act, 1956 and in accordance with the provisions of articles of association of the Company and subject to the consent of the Securities and Exchange Board of India (SEBI) and all other concerned authorities and departments if and to the extent necessary and such other approvals, permissions and sanctions as may be necessary and subject to such conditions and modifications as may be prescribed in granting such approvals, permissions and sanctions which may be agreed to by the Board of Directors of the Company at it sole discretion, the consent of the company be and is hereby accorded to the Board of Offer  ……..equity shares of Rs. 10/- each on rights basis to the existing members of the Company at a premium of Rs . ……..per share in the ratio of      equity shares of Rs. 10/­ each for every-fully paid equity share of Rs. 10/- each held by such members who are borne on the register of members of the Company at the close of business hours on  ……..or on such date as may be determined by the Board (hereinafter referred to as the 'record date') with a right to renounce all or any of the shares so offered to them in favour of any other person (other than any person who is resident out­ side India).

 

RESOLVED FURTHER that the necessary intimation be given to the     Stock Exchanges where the  Company's shares are en­listed of the said record date 42 days in advance.

 

RESOLVED FURTHER that the draft letter of offer as per the draft prepared in consultation with the Lead Manager copy whereof placed on the Table be and is hereby approved.

 

RESOLVED FURTHER that    be and are hereby ap­pointed as the Registrars and Transfer Agents of the 'company to the proposed issue of rights shares are per draft letter of appointment placed on Table and initialled by the Chairman for purposes of identification.

 

RESOLVED FURTHER that Shri  ……..director and Shri  ……..Secretary of the Company be and are hereby authorised to finalise the date of opening and closing of the subscrip­tion list and to issue letters of offer to the members after approval of SEBI and Stock Exchanges and to do all such acts and things as may be deemed necessary in this regard".

 

PRACTICE NOTES

 

1. Intimation to Stock Exchange.-The Stock Exchange concerned should be intimated 48 hours in advance of the Board Meeting about the consideration of proposal by the Board regarding issue of rights issue.

 

2. Board's approval.-The issue price will be approved by the Board.

 

3. Further intimation to Stock Exchange.-After the Board Meeting the Stock Exchange will be apprised of the proposal to issue right shares, the quantum, price and the ratio in which the rights shares will be offered.

 

4. General Meeting's Approval.-Hold the general meeting and get suitable resolutions passed.

 

5. Finalisation of draft letter.-Finalise the draft letter with the Lead Manager.

 

6. Filing form No. 5 with Registrar of Companies.-File Form No. 5 about the increase in authorised capital with the Registrar of Companies it' any.

 

7. Allotment to Non-resident shareholders.-Make the necessary application to the Reserve Bank of India for allotment of rights share to non-resident if any.

 

8. Approval of SEBI and Stock Exchange of letter of rights issue.-Obtain approval of SEBI and Stock Exchange concerned of the letter of rights issue.

 

9. Obtain approval of the Board of Directors with respect to:

 

(1)        Appointment of bankers.

(2)        Opening of Bank accounts.

(3)        Approval of collecting bankers and Lead Bankers.

(4)        Fixing of Record date in consultation with Regional Stock Exchange.

(5)        Printing of letter of rights.

(6)        Appointment of committee of Directors to decide matters concerning rights issue.

(7)        Authorisation for signing Listing application.

(8)        Printing of share certificates.

(9)        Appointment of Registrars to the issue.

(10)      Opening of issue and closing of subscription list.

(11)      The letter of offer (LOF) containing disclosures, as prescribed by Chapter VI, Section III of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 should be filed with SEBI if the issue including premium exceeds Rs. 50 lakhs.

(12)      Rights issue shall be kept open for at least 30 days and not more than 60 days.

(13)      Differential pricing in a composite issue, i.e., rights-cum-public issue is permissible only in respect of issues made by existing listed companies; justification for differential pricing is, however, required to be given in the offer documents.

(14)      All listed companies making rights issue shall, one week before the date of opening of subscription list, make the announcement in not less than 3 all India newspapers about despatch of Letters of offer with composite application forms by registered post, giving the date of despatch and dates of opening and closing of subscription list, etc. In case of non-receipt of" the original composite application forms, the shareholders shall be provided the freedom to make the application on plain paper.

(15)      Any issue of shares by way of rights by a company listed in a recognised stock exchange and exceeding Rs. 50 lakhs shall be managed by an authorised/ registered merchant banker. Full justification and parameters used for issue price should be clearly mentioned in the letter of offer.

 

Issue of further shares at Board's discretion

 

S. 81-Issue of further shares at Board's discretion-Special Resolution

 

"RESOLVED that pursuant to sec. 81(IA) of the Companies Act, 1956   equity shares of Rs  ……..each being the un-issued shares capital of the Company, be issued at par and allotted to any person or persons or in such manner and at such time as the Board of Directors may deem fit."

 

PRACTICE NOTES:

 

1. Offer of further issue of capital.-A public company, making an issue of shares, after its formation, or I year after its first allotment, should in the first instance offer the shares to the existing members. It is, however, open to the company to pass a Special Resolution authorising the Director to offer the shares to members of the public in the first instance.

 

2. Filing of Resolution along with Explanatory Statement with Registrar.-The resolution along with the Explanatory Statement should be filed with the Registrar of Companies in Form No. 23 together with the requisite filing fee within thirty days of the passing of the resolution.

 

3. Compliance Certificate.- Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued further shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of debentures with right of conversion

 

S. 81(3)-Issue of debentures with right of conversion-Special Resolution

 

"RESOLVED that in accordance with the provisions of the Articles of Association of the Company and provisions of Section 81 and other applicable provisions, if any, of the Companies Act, 1956, and subject to the approval of trustees of privately placed debentures and such other approvals, permissions and consents as may be necessary and subject to such conditions and modifications as may be required, which the Board of Directors of the Company be and is hereby authorised to accept, the consent of the Company be and is hereby accorded to the Board of Directors of the Company to create and issue not more than 7,00,000/­14% secured convertible debentures of Rs. 200/- each (hereinafter referred to as the "Debentures") for cash at par aggregating up to Rs. 14 crores for subscription from the members of the public through prospectus on such terms as the Board of Directors may in their absolute discretion think fit and providing inter alia for offer on preferential basis of allotment to the following categories of persons:

 

(a)        resident Indian equity shareholders of the Company;

(b)        depositors of the Company;

(c)        employees, directors and their friends/relatives and business associates.

 

Subject to the following terms and conditions-.

 

(i)         Each debenture of Rs. 200/- shall consist of two parts viz., Convertible part of Rs. 60/- and Non-convertible part of Rs. 140/-.

(ii)        In the event of over subscription to the debentures offered on preferential basis of allotment as aforesaid, the Board of Directors in consultation with the Stock Exchange at Bombay shall allot the debentures on a suitable basis.

(iii)       The unsubscribed portion, if any, of the debentures offered on preferential basis of allotment as aforesaid shall be added to the debentures offered to the public for subscription for cash at par.

(iv)       The Debentures will carry interest at the rate of 14% per annum, payable half yearly, subject to deduction of tax at source at the rates for the time being prescribed under the Income-tax Act, 1961, or any statutory modification or reenactment thereof, on the, amount for the time being outstanding thereon.

(v)        (a)        The proposed Debentures would carry an obligation on the part of the Company to issue to the holders of every such fully paid Debentures within one year from the date of allotment of such Debentures without any further act or application on the part of the holders of such Debentures, three equity shares of Rs. 10/- each credited as fully paid up at a premium of Rs. 10/- per share against adjustment and appropriation of a sum equivalent to the face value of the three equity shares and a premium as aforesaid against the convertible part of each such Debenture which shall thereupon pro tanto stand redeemed.

 

(b)        Such new Equity Shares when issued and allotted as aforesaid shall rank for dividend declared for the financial year of the Company in which the Equity Sharesare allotted as from the date of allotment there-of pro rata and in all respects pari passu with the then existing fully paid up Equity Shares of the Company.

(c)        In the event of the Company issuing Bonus Shares by way of capitalisation of its profits and/or reserves prior to allotment of shares on conversion/redemption of convertible part of the debentures as referred to hereinabove, the number of Equity Shares to be issued and allotted against such adjustment and appropriation shall, stand augmented in the same proportion in which such augmentation shall take place in the Equity Share Capital of the Company consequent upon the issue of Bonus shares and the premium on the Equity Shares shall thereupon also stand reduced pro tanto.

(d)        In case the Company makes any Rights Issue of Equity Shares to the then existing Equity Shareholders before the allotment of shares on conversion/redemption of the convertible part of the Debentures, the holders of the proposed Debentures shall also be entitled to, apply for said Equity Shares as Right basis with all the attendant rights and conditions that the then existing Equity Shareholders would be entitled to.

 

(vi)       The Non-convertible part of Rs. 140/- of the proposed Debentures shall be redeemed at par in four equal annual installment of Rs. 35/- each to be paid on the completion of the 5th, 6th, 7th and 8th years from the date of allotment of the Debentures.

 

(vii) (a)             The Debentures may also be repurchased by the Company, after the date of conversion and/or nonconvertible part of Debentures, from the market and the same may be re-issued at a rate not less than par if the Board of Directors consider it to be in the interest of the Company and accepted by the Board of Directors on the company's behalf.

(b)        Where the company has redeemed or repurchased any of the proposed Debentures, then the company shall have and shall be deemed always to have had the right to keep such debentures alive for the purpose of reissue and in exercising such right, the company shall have and shall be deemed always to have had, power to reissue such Debentures either by reissuing the same Debentures or by issuing other Debentures in their place.

 

(viii)           The proposed Debentures shall be transferable and transmittable in the same manner and to the same extent and be subject to the same restrictions and limitations as in the case of existing Equity Shares of the Company and the pro

(ix)              visions relating to the transfer and transmission of shares in the Articles of Association of the Company shall apply mutatis mutandis to these Debentures.

(ix)       The proposed Debentures shall be offered subject to the Memorandum and Articles of Association of the Company and the terms of the:

 

(a) Prospectus; and

(b) Application Form.

 

(x)        The proposed Debentures together with interest thereon will be secured by a mortgage and/or charge in such form and over such immovable and movable properties, present and/or future of the Company as may be agreed to between the Company and the Agents and Trustees for the holders of the Debentures. The mortgage and/or charge so agreed to be created may rank pari passu with the existing charges or the charges that may be created hereafter".

 

"RESOLVED FURTHER that the Board of Directors of the Company be and is hereby authorised to finalise with the Agents and Trustees of the Debenture holders the documents and other agreements for creating mortgage and/or charges as aforesaid and to do all such acts, deeds, matter and things as may be necessary or expedient for giving effect to this resolution."

 

"RESOLVED FURTHER that for the purpose of giving effect to the above, the Directors be and are hereby authorised to prescribe the forms of application, determine the amount payable on application, allotment and by way of further calls, if any, to issue prospectus, appoint Lead Managers to the issue, Issue Houses, under writers and/or brokers etc., for the purpose of issue, pay underwriting commission and/or brokerage as may be lawful and reasonable and to take such actions or give such directions as may be necessary or desirable and to obtain any approvals, permissions, sanctions which may be necessary and to settle any question or difficulty that may arise in regard to the issue and allotment of these Debentures."

 

PRACTICE NOTES

 

1. Approval of General Meeting.-Pursuant to the provisions contained in subsection (3) of Section 81 of the Act, the issue of debentures with option to convert them into shares shall have to be approved by a Special Resolution by the Company in the General Meeting.

 

2. Exemptions from Central Government's approval.-Approval of the Central Government will not be required if the terms of issue of shares is in conformity with "The public Companies (Terms of Issue of Debentures and Raising of Loans with Option to Convert such Debentures or Loans into Shares) Rules, 1977" namely

 

(a)        the debentures or loans may be issued or raised either through private subscription or through the issue of a prospectus to the public;

(b)        a public financial institution either underwrites or subscribes to or sanction the whole or part of the issue of debentures or the raising of loans, as the case may be;

(c)        having regard to the financial position of the company the terms of issue of the debentures or the terms of the loans, as the case may be, the rate of interest payable on the debentures or loans, the capital of the company, its loans liabilities, its reserves, its profits during the immediately preceding five years and the current market price of the shares of the company, as may be applicable, the financial institutions provide for the terms including the term providing for an Option to convert such debentures or loans or any part thereof, into shares in the company or to subscribe for shares therein either at par or at a premium not exceeding twenty-five per cent of the face value of the shares.

 

3. Private Company.- A private company is not entitled to issue debentures to the public.

 

4. Debentures Trust Deed.-In case of issue of debentures with maturity of more than 18 months, a Debenture Trustee should be appointed. A debenture trust deed is to be drawn up and got approved. It should contain, inter alia, matters set out in Schedule IV to SEBI (Debenture Trustees' Regulations, 1993. Debenture Trust Deed should be executed within 6 months of the closure of the issue.

 

5. Credit Rating.- The Company should obtain credit rating from the appropriate Credit Rating agency and the credit rating should be disclosed in the offer document.

 

6. Filing.- File the special resolution along with Form No. 23 within thirty days of passing of resolution.

 

7. Information to Stock Exchange.-In case debenture are listed on the Stock Exchange, the concerned Stock Exchange is to be informed accordingly.

 

8. Filing with SEBI.-Draft offer document should be submitted with SEBI by the concerned Lead Manager(s) and should be finalised on the basis of the modifications/suggestions made by SEBI. The final re-used offer document should be resubmitted to SEBI.

 

9. Central Government approval.- The application for approval of the Central Government if required is to be made to the Department of Company Affairs, Shastri Bhavan, Dr. Rajendra Prasad Road, New Delhi along with requisite fee as prescribed by the Companies (Fees on Applications) Rules, 1999.

 

10. Listing on Stock Exchange.-When the Company desires to list the debentures on a Stock Exchange, finalise the proposal in consultation with the Stock Exchange.

 

11. Filing.-File Form No. 10 together with Form No. 13 with the Registrar of Companies concerned by paying the requisite filing fee. Ensure to endorse the certificate obtained from the Registrar of Companies on the debenture certificate.

 

12. Registration of Trust deed.-Ensure to get trust deed registered under the Indian Registration Act.

 

13. Compliance Certificate.- Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs-, are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued debentures with right of

 

 

conversion during the financial year and complied with the provisions of the Act as per paragraph 19 of the Companies (Compliance Certificate) Rules, 2001.

 

Taking of loan with right of conversion

 

S. 81(3)(b)-Taking of loan with right of conversion-Special Resolution

 

"RESOLVED that in accordance with the provisions of Section 8](3)(b) and other applicable provisions, if any, of the Companies Act, 1956 and subject to the approvals of the Central Government and to such modifications as the Central Government may require which the Board of Directors of the Company is hereby authorised to accept, consent of the Company be and is hereby accorded to the Board of Directors of the Company raising

 

(a) an additional Rupee Loan not exceeding Rs. 150 lakhs (Rupees one hundred and fifty lakhs only) from Industrial Development Bank of India (IDBI);

(b) an additional Rupee Loan not exceeding Rs. 200 lakhs (Rupees two hundred lakhs only) from Industrial Finance Corporation of India (IFCI);

(c) an additional Rupee Loan not exceeding Rs. 200 lakhs (Rupees two hundred lakhs only) from the Industrial Credit and Investment Corporation of India Limited (ICICI);

(d) a Rupee Term Loan not exceeding Rs. 10 lakhs (Rupees ten lakhs only) from Life Insurance Corporation of India (LIC);

 

upon such terms and conditions as may be agreed to by the Board of Directors on behalf of the Company on the one hand and IDBI, IFCI, ICICI and LIC on the other hand, such terms and conditions to provide, inter alia, for an option to IDBI, IFCI, ICICI and LIC to convert a part of their respective additional Rupee Loans/Term Loan upto an amount not exceeding 20% thereof into fully paid-up equity shares of the Company at par such option/options to be exercised by IDBI, IFCI, ICICI and LIC at any time on one or more occasions during the period between October 4, 2000 to September 30, 2002 (both days inclusive) and issuing and allotting the requisite number of fully paid-up equity shares of the Company to IDBI, IFCI, ICICI and LIC at par as aforesaid."

 

PRACTICE NOTES

 

1. Approval of General Meeting.-Pursuant to the provisions contained in subsection (3) of section 81 of the Act, the raising of loans with option to convert them into shares shall have to the approved by a Special Resolution by the Company in the general meeting.

 

2. Exemption from Central Government's approval.-Approval of the Central Government will not be required if the terms of Issue of shares is in conformity with "The Public Companies (Terms of Issue of Debentures or Loans with option to convert such Debentures or Loans into Shares) Rules, 1977" namely-

 

(a) the loans may be raised either through private subscription or through the issue of a prospectus to the public;

(b) a public financial institution either underwrites or subscribes to or sanction the whole or part of the raising of loans;

(c) having regard to the financial position of the company the terms of the loans, the rate of interest payable on the loans, the capital of the company, its loans liabilities, its reserves, its profits during the immediately preceding five years and the current market price of the shares of the company, as may be applicable, the financial institutions provide for the terms including the term providing for an option to convert loans or any part thereof, into shares in the company or to subscribe for shares therein either at par or at a premium not exceeding twenty-five per cent of the face value of the shares.

 

3. Private Company.-A private company is not entitled to issue shares to the public.

 

4. Filing.-File the special resolution along with Form No. 23 within thirty days of passing of Resolution. If default is made in complying with the aforesaid provision, the company, and every officer of the company who is in default will be punishable with fine of up to Rs. 100/-.

 

5. Finalisation of Loan Agreement.-Finalise the loan agreement in consultation with the financial institutions and have the same approved at the Board Meeting.

 

6. Information to Stock Exchange.-In case shares are listed on the Stock Exchange, the concerned Stock Exchange is to be informed accordingly.

 

7. Listing on Stock Exchange.-When the company desires to list the shares on a Stock Exchange, finalise the proposal in consultation with the Stock Exchange.

 

8. Filing.-File Form No. 8 together with Form No. 13 with the Registrar of Companies concerned by paying the requisite filing fee. Default made in complying with this requirement will make the company and every officer of the company or other person who is in default punishable with fine of up to Rs. 5,000/-.

 

Taking of loan with option to convert into shares

(Another Format)

 

S. 81(3)(b)-Loans with option to convert into shares-Special Resolution

 

A. Loan from a financial Institution

 

"RESOLVED that subject to the approval of the Central Government as also subject to other approvals, if necessary, the loan of Rs. 70,00,000/- (Rs. Seventy lakhs only) sanctioned by the Industrial Finance Corporation of India (IFCI) containing, inter alia, terms/conditions providing for an option on the part of the IVCI to convert a sum not exceeding Rs. 10,00,000/­- (Rs. Ten lakhs only) being a portion of the said sanctioned loan into equity shares of the Company, as set out hereunder, be and is hereby approved and accepted under Section 81(3)(b) of the Companies Act, 1956:-

 

"The Borrower (i.e., the Company) agrees that 1FCI shall have the right to convert, at its option, which may be exercised once or more than once, a part of the loan not exceeding Rs. 10.00 lakhs (Rupees ten lakhs only) during the period from 1st October, 2000, to 30th September, 2002, into fully paid up equity shares of Borrower of an aggregate face value of Rs. 10,00,000/- at par as will be specified in a notice in writing given by IFCI to the Borrower not less than one month prior to the date on which the conversion is to take effect to be specified in the said notice (hereinafter called "the date of conversion") provided, however, in case the entire amount of the loan is not advanced to the Borrower, the part of the loan convertible into equity shares will be reduced proportionately. On receipt of the notice of conversion, the Borrower shall allot and issue the requisite number of fully paid-up equity shares to IFCI on the date of conversion and IFCI shall accept the same in satisfaction of the principal amount of the loan to the extent so converted. The portion of the loan so converted shall cease to carry interest as from the date of conversion and the loan shall stand correspondingly reduced. Upon such conversion the last instalment(s) of the loan as per repayment schedule hereinafter incorporated shall stand correspondingly reduced in inverse order of maturities. The equity shares so allotted and issued to IFCI pursuant to its exercising the right of conversion shall carry the right to receive the proportionate dividends and other distributions declared or to be declared in respect of the said shares from the date of allotment of shares. Save as aforesaid, the said shares shall rank pari passu with the existing equity share capital of the Borrower in all respects. Provided further that the Borrower shall at all times maintain sufficient unissued equity shares to satisfy the outstanding right of conversion for the time being available to IFCI."

 

RESOLVED FURTHER that the Board of Directors of the Company be and are hereby authorised to issue and allot to the IFCI aforesaid number of equity shares for conversion of the said portion of the loan to the extent of Rs.10,00,000/- (Rupees ten lakhs) or for such lesser amount, as may be desired by the IFCI."

 

CONVERTIBLE LOAN

 

B. Loan from more than one financial institutions

 

"RESOLVED that in accordance with the provisions of Section 81(3)(b) and other applicable provisions, if any, of the Companies Act, 1956, and subject to the approval of Central Government and other approvals, if necessary, and subject to such modifications as the Central Government may require and which the Board of Directors of the Company are hereby authorised to accept, the consent of the Com­pany be and is hereby accorded to the Board of Directors of the Company for-

 

(a) raising a rupee loan of Rs. 150 lakhs from Industrial Development Bank of India (IDBI);

(b) raising a rupee loan of Rs. 70 lakhs from Industrial Finance Corporation of India (IFCI); and

(c) issuing privately placed Debentures of the aggregate nominal amount of Rs. 80 lakhs to Life Insurance Corporation of India (LIC),

 

upon such terms and conditions as may be agreed to by the Board of Directors on behalf of the Company on the one hand and IDBI, IFCI and LIC on the other hand; such terms and conditions to provide inter alia for an option to IDBI, IFCI and LIC to convert a part of their respective loans/debentures as mentioned hereinbelow into fully paid up Equity Shares of the Company at par of the face value of Rs. 10/- each, such options to be exercised by IDBI, IFCI and LIC on one or more occasion(s) during the period 1st October, 2000 to 30th September, 2002 (both days inclusive)

 

Financial Institution

Maximum Amount of Loan/De­bentures to be converted into Equity Shares

Rs.

IDBI

Rs. 24,00,000

IFCI    

Rs. 10,00,000

LIC

Rs. 10,00,000

 

The fully paid up equity shares so allotted and issued to the financial institutions pursuant to their exercising the right of conversion shall carry the right to receive the proportionate dividends and other distributions declared or to be declared for the period commencing from the date of conversion till the end of relevant financial year. Save as aforesaid, the fully paid up equity shares allotted to the financial institutions shall rank pari passu in all respects with the existing fully paid up equity shares of the company provided further that the Company shall at times maintain sufficient unissued equity shares to satisfy the outstanding right of conversion for the time being available to the financial institutions.

 

RESOLVED FURTHER that the Board of Directors be and are hereby authorised to accept such modifications and to accept such terms and conditions as may be imposed or required by the financial institutions arising from or incidential to the aforesaid term providing for such option and to do all such acts and things as may be necessary to give effect to the above resolution."

 

PRACTICE NOTES

 

1. Draft resolutions generally given by lending institutions.-It is to be noted that resolutions to be passed by the company are generally provided by the lending financial institutions.

 

2. Approval of shareholders.-The approval of shareholders by a special resolution at a general meeting before raising of loan is necessary.

 

3. Approval of Central Government.-When issue is not in conformity with the Public Companies (Terms of Issue of Debentures and Raising of Loans into Shares) Rules, 1977 prior approval of Central Government is necessary. However, no approval is necessary when such issue is in conformity with the Rules.

 

4. Order for conversion prospective in effect.-The order passed for conversion is not retrospective in effect but only prospective in effect. Where loans are converted into shares, the holder thereof is entitled to all the rights of a member including voting rights at meetings of the company. In case retrospective conversion is made, the entire voting pattern of meetings of a company which had taken place in the interim period would be upset.

 

5. Filing of Forms.-Ensure to file Form No. 23 within thirty days of the passing of the resolution with the Registrar of Companies concerned as non-filing of this form will attract fine of up to Rs. 100/-.

 

Issue of Cumulative Convertible Preference Shares to Public

 

S. 81-Issue of Cumulative Convertible Preference Shares-Special Resolution

 

"RESOLVED that pursuant to article _________ of the Articles of Asso­ciation of the Company and subject to other statutory approvals, if any,  _________ 10% cumulative convertible preference shares of Rs. 100/­- each and forming part of the authorised capital of the Company and remaining unsubscribed, be issued at par and allotted to any person or persons as the Board of Directors may deem fit, subject to the follow­ing terms and conditions:

 

(a) The holders of the shares shall be entitled to receive a cumulative preferential dividend of 10% per annum in respect of the capital paid-up on the shares;

(b) The holders of the shares shall be entitled to attend meetings and vote on resolutions directly affecting their rights, or where the dividend due on their shares is in arrears for not less than two years before the meeting, on all resolutions at every meeting of the company;

(c) In a winding up, the holders of the shares shall be entitled to a preferential right of return of the capital paid-up thereon together with arrears Of Cumulative preferential dividend due thereon but without any further right or claim over the assets of the company;

(d) The entire issue shall be converted into equity shares of Rs. 10/- each ranking pari passu with the existing equity shares of the company, between the end of three years and five years from the date of the issue.

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to accept on behalf of the Company, any modifications to these terms which may be proposed by SEBI and which the Directors in their discretion think fit and proper."

 

PRACTICE NOTES

 

1. Articles must empower company.-The articles of the company should be perused to see if they permit the issue of this class of shares. Otherwise a Special Resolution will first have to be passed amending the articles.

 

2. Further issue of preference shares.-When a public company issues preference shares two years after its formation or one year after the first allotment of shares, it is bound to offvr the shares to the existing shareholders. However, if the company passes a Special Resolution in the above terms, the Directors are empowered to make an offer to the public without offering it first to the existing shareholders.

 

3. Filing of Special Resolution in Form No. 23 along with Explanatory statement with Register.-The Special Resolution passed should be filed along with the Explanatory Statement in Form No. 23 within thirty days of the passing of the resolution with the Registrar of Companies together with the prescribed filing fee.

 

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

 

5. Guidelines for issue of cumulative preference shares to be complied with.-The guidelines issued for the issue of cumulative convertible preference shares have to be complied with.

 

6. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued cumulative convertible preference shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of shares to foreign collaborators

 

S. 81-Issue of shares to foreign collaborators-Special Resolution

 

"RESOLVED pursuant to the provisions of section 81(1A)(a) of the Companies Act, 1956, that the Directors of the Company be and are hereby authorised to issue and allot 3,00,000 fully paid-up equity shares in the Company of the face value of Rs. 10/- per share at a premium of Rs._________ ranking pari passu with the existing equity shares in all respects to M/s ABC Corporation, Missouri, U.S.A., without of­fering the same to the persons who at the date of the offer are holders of the equity shares of the company."

 

PRACTICE NOTES

 

1. Automatic Approval.-By Press Note No. 2 (2000 Series) dated 11th February, 2000 Government placed all items/activities under automatic route for FDI/NRI and OCB investment except the following : (i) all proposals that require an industrial licence; (ii) all proposals in which the foreign collaborator has a previous venture/tieup in India; (iii) all proposals relating to acquisition of shares in an existing Indian company in favour of a foreign/NRI/OCB investor; (iv) all proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the FIPB and does not want to avail of the automatic route. All proposals for investment in public sector unit as also for EOU/EPZ/EHTP/STP units would quall fy for automatic route subject to the above parameters. By another Press Note dated 28th July, 2000, Government has allowed FDI up to 100% for E-Commerce activities subject to the condition that such companies would divest 26% of their equity in favour of the Indian public in 5 years, if these companies are listed in other parts of the world. Further these companies would engage only in business to business E-Commerce and not in retail trading. The same Press Note also has raised the level of FDI in oil sector under automatic route from existing 49% to 100% and further removed dividend balancing so far applicable to 22 specified consumer goods industries and upper investment limit of Rs. 1,500/- crores in respect of the power projects relating to electric generation, transmission and distribution (other than atomic reactor power plant). By Press Note No. 9 (2000 Series) dated 8th September, 2000 FDI upto 100% is allowed through the automatic route for all manufacturing activities in Special Economic Zones except certain activities like arms and ammunition, explosives etc. FDI up to 100% is also allowed by the said Press Note for certain activities in the telecom sector subject to certain conditions. By another Press Note No. 10 (2000 Series) dated 19th October, 2000, foreign equity participation upto 26% in the Insurance sector as prescribed in the Insurance Act, 1999, is allowed under the automatic route but the companies who bring in FDI will be required to obtain necessary licence from the Insurance Regulatory and Development Authority for undertaking insurance activities.

 

2. Preferential Allotment.-Preferential allotment to foreign collaborators should be at the market related price determined on the basis of the monthly average of the 'high' and 'low' rates quoted at the stock exchanges during the 6 months immediately proceeding the date of the resolution. Before making preferential allotment of shares to select group a listed company should also adhere to Chapter XIII of SEBI (Disclosure & Investor Protection) Guidelines, 2000.

 

3. Certificate.-Computation of the price in terms of 2 above duly certified by a Chartered accountant should be submitted to RBI along with the application for approval.

 

4. Guidelines to be followed.-Follow the guidelines laid down by the RBI and the Department of Industrial Development.

 

5. Compliance Certificate.-Companies having paid-up share capital of less than Rs.2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary In whole-time practice to be filed with the Registrar of Companies mentioning therein inter cilia that the company has issued equity shares to foreign collaborators during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of bonus shares to stock holder

 

S. 81/Regn. 96/TableA-Issue of bonus shares to stockholders-Ordinary Resolution

 

"RESOLVED that pursuant to the recommendation of the Board of Director and article _________ of the Articles of Association of the Com­pany and subject to vetting by SEBI and Such other authorities as may be necessary a sum of Rs. _________ standing to the credit of the company's general reserves be capitalised and such amount be applied in paying up in full            equity shares of Rs. _________ each in the capital of the company, to be allotted and distributed as fully paid shares to the members of the company registered as the holders of the stock of the company in the proportion of one equity share for every one unit of stock held by the company.

 

RESOLVED FURTHER that the equity shares to be issued in pursuance of this resolution shall be subject to the Memorandum and Articles of Association of the company and shall in all respects rank pari passu to the existing equity shares of the company, provided, however, that the new equity shares shall not be entitled to participate in any dividend declared or to be declared for any year or period prior to the issue of the said shares.

 

RESOLVED FURTHER that the Board of Directors of the company be and is hereby authorised to convert the new equity shares into stock of the company after allotment."

 

PRACTICE NOTES

 

1. Issue of Shares to stockholders.-There is provision in section 205(3) proviso of the Act for such an issue. Reg. 96 of Table A provides for the issue of bonus shares and Reg. 36 gives power to the company to convert shares into stock.

 

2. Guidelines issued by SEBI to be complied with.-The guidelines for a bonus issue laid-down in Chapter XV of SEBI (Disclosure and Investor Protection) Guidelines, 2000 have to be complied with if the company is a listed company. Further the draft offer document of the issue should be filed with SEBI and requirements under standard listing agreement should be followed by a listed company.

 

3. Filing of return with Registrar of Companies.-After the fresh issue is made and converted into stock, the company has to file a return in Form No. 5 within 30 days of the conversion together with the requisite filing fee, as prescribed under Schedule X to the Act.

 

4. Compliance Certificate.-Companies having paid-up share capital of less than Rs.2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued bonus shares to stock holder during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of bonus shares

(Another Format)

 

S. 81/Regia. 96/Table ‘A’-Issue of bonus shares-Ordinary Resolution

 

"RESOLVED that a sum of Rs out of the Company's Special Re­serve and Rs._________ out of the Company's General Reserve aggregating to Rs._________ forming part of the undistributed profits of the Company be capitallsed and that the said sum so capitallsed be applied in paying up in full at par _________ new Equity Shares of Rs. _________ each (hereinafter referred to as the "said Bonus Shares") in the share capital of the Company and the said Bonus Shares be appropriated as capital and not as income and allotted and distributed as fully paid up Bonus Shares to and amongst the persons registered in the Register of Members as the holders of the existing Equity Shares of the Company on such date as may hereafter be determined by the Directors, in the proportion of said Bonus Shares for every existing Equity Share held by such per­ sons respectively provided that the issue and allotment of the said Bo­nus Shares are subject to the following terms and conditions:

 

(i) that the vetting, if any, from Securities and Exchange Board be got done for such issue;

(ii) that the necessary approval of the Reserve Bank of India, if any, be obtained under the Foreign Exchange Management Act, 1999 to the issue and allotment of the proportionate Bonus Shares to those shareholders who are resident outside India;

(iii) that the approval of the Financial Institutions be obtained in terms of the Company's Agreement with them dated _________ 2002 _________

(iv) that the said Bonus Shares shall in all respects rank pari passu with the existing Equity Shares except that they shall be entitled to participate only in such dividends which may be declared after allotment of the said Bonus Shares and they shall not participate in any dividend which may be declared in respect of the financial year or any period prior to the allotment of the said Bonus Shares. The said Bonus Shares shall also be subject to the Memorandum and Articles of Association of the Company in all respects;

(v) that no allotment letter shall be issued to the allottees of the said Bonus Shares and that Certificates in respect of the said Bonus Shares allotted shall be sent to the respective allottees within four months of the respective dates of allotment thereof;

(vi) that in making the allotment of the said Bonus Shares, the Directors shall not issue fractional certificates but the total number of the said Bonus Shares representing such fractions shall be allotted to a person or persons appointed by the Directors to act as a trustee or trustees for and on behalf of the members who would have been entitled to fractional certificates if such certificates would have been issued, and that the said person or persons shall hold the said shares so allotted to him in trust to sell the same and, after payment of all expenses of the sale, to distribute the net proceeds of such sale amongst the members in proportion to their respective fractional entitlements thereto;

(vii) that for the purpose of implementing the Resolution, the Board of Directors be and are hereby authorised-

 

(a) to negotiate with the relevant statutory authorities and the Financial Institutions, referred to in clauses (i), (ii) and (iii) above and settle with them any question or difficulties pertaining to the issue of the said Bonus Shares in such manner as the Directors may think fit and to agree to any condition or conditions which may be imposed by them in connection therewith if the Directors consider it expedient and generally to prescribe the various documents, give all requisite directions and take all necessary actions as the Directors may consider appropriate in respect of the issue and allotment/distribution thereof;

(b) without prejudice to the generality of the foregoing provisions, in particular to make, if so required by the terms of sanction of the said statutory authorities or any of them, such consequential changes in the quantum and proportion of the said Bonus Shares as they may think fit and in case the requisite approval of the said statutory authorities or any of them cannot be obtained to the issue of the said Bonus Shares and/or to the allotment/ distribution thereof to the non-resident shareholders or any of them, then in that event the issue of the said Bonus Shares shall stand rescinded altogether.

 

(viii) that it is hereby recorded that subject to statutory limitation of dividend, if any, and provided cash resources are adequate and profits after taxation for the year are sufficient to cover the dividend plus transfers to reserves which may be required, it is the intention of the Board of Directors unless prevented by unforeseen circumstances to recommend the declaration of a dividend of at least Rs. _________ per Equity Share on the share capital as in­creased by the proposed bonus issue in the financial year of the Company immediately after the allotment of the said Bonus Shares. This statement of intention is not a forecast."

 

PRACTICE NOTES

 

1. Articles of Associations.-En sure that Articles of Association contains a provision for issue of Bonus shares by capitallsation of reserves. In case Articles of Association do not contain a provision, take steps to amend the Articles of Association of the Company.

 

2. Authorised Capital.-Ensure that the existing authorised capital is sufficient to cover the Bonus issue. If not, take steps to increase the authorised capital of the company.

 

3. Board Meeting.-Hold a Board Meeting and fix date, time and venue of the General Meeting for considering the proposal for issue of Bonus Shares and also to decide about the notice of the general meeting and the relevant explanatory statement.

 

4. Intimation to Stock Exchange.-Send necessary intimation to Stock Exchange(s) on which the Company's shares are listed.

 

5. Closure of Register of members.-Fix record date for closure of Register of members in consultation with the Stock Exchange concerned.

 

6. Other requirements.-The company has to ensure that:

 

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

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

(c) Issue of bonus shares after any public/rights issue is subject to the condition that no bonus issue shall be made which will dilute the value or rights of the holders of debentures, convertible fully or partly. In other words, no company shall, pending conversion of FCDs/PCDs, issue any shares by way of bonus unless similar benefit is extended to the holders of such FCDs/PCDs, through reservation of shares in proportion to such convertible part of FCDs or PCDs. The shares so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the bonus issues were made.

(d) The declaration of bonus issue, in lieu of dividend, is not made.

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

(f) The company has not defaulted in payment of interest or principal in respect of fixed deposit, and interest on debentures or on redemption of debentures. The Company has not defaulted in respect of payment of statutory dues of the employees such as contribution to provident funds, gratuity, bonus etc.

(g) Ensure that a company which announces its bonus issue after approval of the Board of Directors must implement the proposals within a period of six months from the date of recommendation by Board. The decision of bonus issue taken cannot be changed by the Board.

(h) File notice of increase with the Registrar of Companies concerned.

 

8. Board Meeting for allotment of Bonus Shares.-Hold a Board Meeting and make allotment of Bonus shares to members.

 

9. Compliance certificate.-Listed companies are required to forward a Certificate duly countersigned by the statutory auditor or by a Company Secretary in practice to the effect that terms and conditions of bonus issue as laid down in SEBI (Disclosure & Investor Protection) Guidelines, 2000 have been complied with.

 

§ 863

Another form of resolution for issue of bonus shares

 

S. 81/Regn. 96-General Body Resolutions to consider and if thought fit to pass the following Resolutions as Ordinary Resolutions with or without amendments

 

"RESOLVED that it is desirable to capitalise a sum of Rs. _________ standing to the credit of the Company's General Reserves and that the said sum be accordingly set free for distribution not by way of payment in cash but applied in paying up in full _________ No. of un-issued Equity Shares in the company of the face value of Rs. 50/- each to be allotted and distributed and credited as Fully Paid-up to and amongst such members in the pro­portion of _________ No. of Bonus Shares for every _________ No. of Equity Shares of Rs. 50/- each held by such members on a date to be determined by the Board, fractions below Re. 1/2 being ignored and fractions of Re. ½ and above being rounded off to the next higher integer.

 

RESOLVED FURTHER that such new equity shares distributed as bonus shares shall rank pari passu in all respects with the existing equity shares of the company including the right to participate in any dividend that may be declared by the company in respect of the year ending 31-3-2002.

 

RESOLVED FURTHER that the Board of Directors be and hereby authorised and empowered to take all necessary steps to give effect to the aforesaid Resolutions."

 

PRACTICE NOTES

 

See under Resolution § 862.

 

Capitalisation of profit by Issue of Bonus Shares

 

S. 81/Regn. 96-Capitalisation of Profit by Issue of Bonus Shares-Ordinary Resolution

 

"RESOLVED that pursuant to recommendation of the Board of Di­rectors and article of the Articles _________ of Association of the com­pany, and subject to other statutory approvals, if any, a sum of Rs.3,00,00,000 standing to the credit of the company's general reserve be capitalised and the aforesaid amount of Rs. 3,00,00,000 be applied in terms of article _________ of the Articles of Association of the company, for paying up in full at par 30,00,000 equity shares of Rs. 10/- each in the capital of the company to be allotted and distributed as fully paid bonus shares to such members holding equity shares as per the register of equity shareholders at date determined by the Board of Directors of the company, who are the holders as on the aforesaid date of the ex­isting 30,00,000 equity shares of the company fully paid-up in pro­portion to one bonus share for one existing fully paid equity share upon t i he footing that they become entitled to such new equity shares as capital and not as income.

 

RESOLVED FURTHER that where the proportion of the new equity shares is not in the exact proportion of the holding of existing equity shares and results in any member becoming entitled to fraction of new equity shares to be allotted as bonus shares, the company shall not issue any certificate or coupon in respect of such fractional shares but the total number of new equity shares representing such fractions shall be allotted by the Board of Directors of the company to a nominee to be selected by the Board of Directors who on behalf of the existing shareholders shall have the right to be allotted such fractional shares and the company shall issue in favour of such nominee, such equity share certificate or certificates after consolidating all the fractional certificates into a marketable lot and thereafter such equity shares shall be sold by such nominee at the prevailing market rate(s) and the net sale proceeds of such shares be distributed amongst such members who are entitled to such fractional certificates in proportion to their respective holdings and allotment of fractional certificates therefor.

 

RESOLVED FURTHER that the bonus shares to be issued as fully paid equity shares are subject to the Memorandum and the Articles of Association of the company and shall rank in all respects pari passu to the existing equity shares, provided, however, that such new equity shares shall not be entitled to participate in any dividend declared or to be declared for any year or period prior to the issue of the bonus shares and that no letter of allotment shall be issued in relation to the bonus shares.

 

RESOLVED FURTHER that the Directors of the company be and are hereby assigned the responsibility of posting the new equity share certificates giving details on basis of bonus shares and post such certificates to the members thereof to the registered addresses of such members as recorded in the Register of Members (equity shares) within two months from the date of allotment and that the allotment of new bonus shares to any non-resident members shall be subject to the approval of the Reserve Bank of India under Foreign Exchange Management Act, 1999."

 

PRACTICE NOTES

 

1. Articles to empower Board to capitalise profits.-There is no specific provision in the Act for the issue of bonus shares. Articles of the company must empower the Board to capitalise the profits.

 

2. Regulation 96, Table 'A' contains provision which is usually found in Articles.-Reg. 96, Table A contains necessary provision which is usually found in the articles of all companies. Articles should be amended, if they are silent, to incorporate provision similar to Reg. 91.

 

3. Guidelines of SEBI to be complied with.-Guidelines for issue of bonus shares issued by the Securities and Exchange Board of India should be fully complied with.

 

Capitalisation of Profit by Issue of bonus shares

(Another format)

 

S. 81/Regn. 96-Capitalisation of Profit by Issue of Bonus Shares-Special Resolution

 

"RESOLVED

 

(a) That upon the recommendation of the Board of Directors of the company and subject to the necessary approvals, if any and pursuant to Article of the Articles of Association of the Company, the sum of Rs. _________ out of the amount standing as on _________ to the credit of the Company's General Reserve, be and is hereby capitalised and the same be applied on behalf of the persons, whose names appear on the Register of members of the company at the close of business on _________ towards payment in full of         ____________ unissued new equity shares of the company of the face value of Rs. 10/- each and that such new equity shares, credited as fully paid up, be accordingly allotted to such persons respectively in the proportion of two new equity shares for one existing equity share held by such persons respectively as on the said date and that the new equity shares so allotted shall be treated for all purposes as an increase in the nominal amount of the capital of the company held by each such member and not as income;

(b) That the new equity shares shall be allotted subject to the Memorandum and Articles of Association of the company;

(c) That the new equity shares shall upon allotment have the same rights of voting as the existing equity shares and be treated for all other purposes pari passu with the existing equity shares except that they shall not be entitled to any dividend declared or paid prior to the date of allotment.

(d) That the members to whom the new equity shares are allotted in accordance with paragraph (a) hereof shall accept the same in full and final settlement, satisfaction and discharge of their respective rights and interests in the capitalised sum of Rs. _________

(e) That no letter of allotment shall be issued and the certificates in respect of the new equity shares as aforesaid shall be delivered within three months from the allotment thereof;

(f) That for the purpose of giving effect to this resolution, the Directors of the company be and hereby authorised to do all such acts, deeds, matters and things as they may in their absolute discretion deem necessary or desirable and to settle any question, difficulty or doubt that may arise in regard to the issue and the distribution of the new equity shares or as they may think fit.

 

"RESOLVED FURTHER that subject to unforeseen or unavoidable adverse circumstances, the Directors intend to declare and/ or to recommend the declaration of dividend at the rate of not less than _________ percent (subject to deduction of tax) on the expanded paid up share capital of the company in the year immediately after the issue and allotment of bonus shares".

 

PRACTICE NOTES

 

1. Necessity of bonus issue.-The idea behind the issue of bonus shares is to bring the nominal share capital into line with the true excess of assets over liabilities. A company would like to have more working capital but it need not go into the market-for obtaining fresh capital by issuing fresh shares. The necessary money is available with it and this money is converted into shares which really means that the undistributed profits have been permanently ploughed back into the business and converted into share capital. Fully paid bonus shares are thus not a gift; they are merely a distribution of capitalised undivided profit. It would be a misnomer to call the recipients of bonus shares as donees of shares from the company.

 

2. Bonus issue in the form of fully paid shares not income for income tax purposes.-Bonus shares are not issued free or ex gratia as the company gets an adequate quid pro quo from the shareholders. It is also settled law that a bonus issued in the form of fully paid shares of the company is not income for income-tax purposes. the undistributed profits of the company applied and appropriated for the issue of bonus shares would never become profits in the hands of the shareholders at all. The bonus shares would be something in the nature of an extra share certificate in the company. The shares allotted to a shareholder do not represent taxable income in his hands. (Commissioner of Income tax Madras v. AA V Ramachandra Chettair, (1964) 1 Mad LJ 281).

 

3. When fully paid-up bonus shares issued profits capitalised.-When fully paid-up bonus shares are issued to the shareholders, what actually happens is that the profits are capitalised and the existing shareholders, instead of receiving any moneys out of the undistributed profits only, receive pro rata fresh shares out of the old shares converted as fully paid-up or out of the new issue. (Sivagananammal v. Thirumaggal Mills Ltd., (1948) 18 Com Cases 286).

 

4. Vesting of bonus shares takes place from date of resolution.-Vesting of bonus shares takes place from the date of the company's resolution and not from the date of actual allotment.

 

5. Furnishing of certificate duly signed by issuer and duly undersigned by statutory Auditor/Secretary.-Forward a certificate duly signed by the issuer and duly countersigned by its statutory auditor or by a company secretary in practice to the effect that the terms and conditions for issue of bonus shares as laid down in these guidelines have been complied with.

 

6. Bonus issue after public/rights issue not to dilute rights of debenture holders, etc.-Issue of bonus shares after any public/rights issue is subject to the condition that no bonus issue shall be made which will dilute the value or rights of the holders of debenture, convertible fully or partly.

 

7. Bonus issue made out of free reserve.-The bonus issue is made out of free reserves built out of the genuine profits or share premium collected in cash only.

 

8. Reserve created by revaluation of fixed assets not capitalised.-Reserve created by revaluation of fixed assets are not capitalised.

 

9. Declaration of bonus issue in lieu of dividend not made.-The declaration of bonus issue, in lieu of dividend should not be made.

 

10. Bonus issue not made unless partly paid shares made fully paid-up.-The bonus issue is not made unless the partly-paid shares, if any, existing are made fully paid up.

 

11. Company not defaulted in payment of interest, statutory dues, etc.-The company-

 

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

(2) has sufficient reason to believe that it has not defaulted in respect of' the payment of statutory dues of the employees such as contribution to Provident Fund, gratuity, bonus, etc.

 

12. Company must implement decision of the Board to issue bonus shares within six months.-A company which announces its bonus issue after the approval of the Board of Directors must implement the proposals within a period of six months from the date of such approval and shall not have the option of changing the decision.

 

13. Articles of Association must contain provision for capitalisation of profit. -There should be a provision in the articles of association of the company for capitalisation of reserves, etc., and if not, the company shall pass a resolution at its General Body Meeting making provisions in the articles of association for capitalisation.

 

14. Increase in authorised capital. -Consequent to the issue of bonus shares if the subscribed and paid-up capital exceed the authorised share capital, a resolution shall be passed by the company at its General Body Meeting for increasing the authorised capital.

 

15. Unlisted closely held and private companies not to issue bonus shares out of reserves created by revaluation of fixed assets.-The existing private/closely held and unlisted companies should not issue bonus shares out of reserves created by revaluation of fixed assets.

 

Capitalisation of Profit by Issue of Bonus Shares

(Another Format)

 

S. 81-Capitalisation of Profit by Issue of Bonus Shares-Special Resolution

 

"(1) RESOLVED that upon the recommendation of the Directors and subject to the approval of Reserve Bank of India and other appropriate authorities where applicable, a sum of Rs. _________ (Rupees __________________ ) out of the sums standing to the credit of General Reserved/Share Pre­mium Account be and the same is hereby capitalised and accordingly the Directors be and are hereby authorised to appropriate the said sum for distribution to and amongst the members of the company whose names appear in the Register of Member of Equity Shares as on such date to be hereafter fixed by the Directors in proportion to the Equity Shares held by them respectively and to apply the said sum in paying up in full _________ Equity Shares of Rs. 10/- each at par in proportion of _________ new share for every _________ of the said existing equity shares then held by such members respectively on the basis that members become entitled to the new equity shares as capital and not as income.

 

(2) RESOLVED FURTHER that the new equity shares shall be allotted subject to the Memorandum and Articles of Association of the company and shall in all respects rank pari passu with the existing fully paid-up equity shares of the company, with a right, if the Directors so determine, to participate in full in dividend to be declared after the date of allotment of these shares.

 

(3) RESOLVED FURTHER that no fractional certificate shall be issued to the members in respect of their respective fractional entitlement of bonus shares but all the fractions remaining after allotment of the bonus shares as aforesaid shall be consolidated into full bonus shares which shall be allotted at the discretion of the Directors to any person or persons in trust for the benefit of those members who are entitled to fractional entitlements of bonus shares, for the purpose of selling such consolidated full bonus shares as soon as possible in the market and that the net sale proceeds of such consolidated full bonus shares after deducting therefrom the costs, charges, and expenses of sale, shall be divided and distributed proportionately amongst those members who would be entitled to fractional entitlements of such full bonus shares.

 

(4) RESOLVED FURTHER that no letter of allotment shall be issued in respect of the said bonus shares but the certificates in respect of the new equity shares to be allotted as fully paid bonus shares as aforesaid shall be delivered within six months of the date of allotment thereof by the Board of Directors of the company (Board) or within such extended time as may be allowed by appropriate authorities.

 

(5) RESOLVED FURTHER that the issue and allotment of the said bonus shares and/or payment of any sum in cash in lieu of fractional shares as aforesaid to the extent they relate to the non-resident members of the company, will be subject to the approval of the Reserve Bank of India, as may be necessary.

 

(6) RESOLVED FURTHER that for the purpose of giving effect to this resolution and for removal of any doubts or difficulties, the Board be and is hereby authorised to do all such acts, deeds, matters and things and to give from time to time such directions as may be necessary, expedient, usual or proper and to settle any question or doubt that may arise in relation thereto or otherwise reconsider the matter with the changed circumstances, if any, as the Board in its absolute discretion may think fit and its decision shall be final and binding on all members and other interested persons.

 

(7) RESOLVED FURTHER that the present intention of the Board of Directors to recommend, barring unforeseen circumstances, and subject to the provisions of the Companies (Transfer of Profits to Reserves) Rules, 1975 that the dividend to the members on the expanded equity capital of the company in the year immediately after the bonus issue, shall not be less than __________________ % be and is hereby recorded.

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to take such steps as may be necessary or desirable to give effect to these resolutions."

 

PRACTICE NOTES

 

1. SEBI Guidelines.-Listed companies going for bonus issue should adhere to Chapter XV of SEBI (Disclosure & Investor Protection) Guidelines, 2000.

 

2. Filing of Special Resolution.-The special resolution passed should be filed along with the explanatory statement in Form No. 23 within thirty days with the Registrar of Companies along with requisite fee as prescribed under schedule X of the Act. For non filing of this Form within time, the company and every officer of the who is in default shall be punishable with fine of up to Rs. 100/-.

 

Issue of Bonus Redeemable Preference Shares

 

S. 81/80-Issue of Bonus Redeemable Preference Shares-Special Resolution

 

RESOLVED that on the recommendation of the Board of Directors of the company and subject to other appropriate authorities wherever applicable, a sum of Rs. _________ (Rupees __________________) out of the sums standing to the Credit of General Reserve/Share Premium Account of the Com­pany be and is hereby capitalised and accordingly the Board of Di­rectors be and is hereby authorised to appropriate the said sum for distribution to and amongst the members of the company where names appear in the Register of Members of Equity Shares as on such date to be hereafter fixed by the Board of Directors in proportion to the Eq­uity Shares held by them respectively and to apply the said sum in paying up in full     Redeemable Preference Shares of Rs. 100/- each at par in proportion of 1 such Preference Share for every 1 existing equity share held by such members.

 

RESOLVED FURTHER that the Redeemable Preference Shares shall be allotted subject to the Memorandum and Articles of Association of the Company and also subject to the following terms and conditions:-

 

(i) that no such shares when due for redemption shall be redeemed except out of profits of the Company which would otherwise be available for dividend, that is, out of general reserve created by ploughing back of distributable profits;

(ii) that such redemption 'May be made out of the proceeds of a fresh issue of shares made for the purpose of redemption;

(iii) that the redeemable preference shares now being issued shall carry a dividend of 9% per annum and the same shall accrue to the holders of these shares from the date of allotment to them;

(iv) that the redemption shall be made as on _________ 2010, and such redemption shall be at par;

 

RESOLVED FURTHER that no letter of allotment shall be issued in respect of the said bonus redeemable preference shares but the certificates in respect of the said preference shares to be allotted as fully paid bonus shares as aforesaid shall be delivered within six months of the date of allotment thereof by the Board of Directors of the Company or within such extended time as may be allowed by appropriate authorities.

 

RESOLVED FURTHER that for the purpose of giving effect to these resolutions and for removal of any doubt or difficulties, the Board of Directors of the Company be and is hereby authorised to do all such acts, deeds, matters and things and to give from time to time such directions as may be necessary, expedient, usual or proper and to settle any question or doubt that may arise in relation thereto or otherwise reconsider the matter with the changed circumstances, if any, as the Board in its absolute discretion may think fit and its decision shall be final and binding on all members and other interested persons.

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to take such steps as may be necessary or desirable to give effect to these resolutions.

 

PRACTICE NOTES

 

Same as given in Resolution § 866 and add.

 

3. Compliance Certificate.-Companies having paid-up share capital of, less than Rs.2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued bonus 9% redeemable preference shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Issue of Bonus Debentures

 

S. 81-Issue of Bonus Secured Redeemable Non-Convertible Debentures Special Resolution

 

RESOLVED that on the recommendation of the Board of Directors of the Company and subject to other appropriate authorities wherever applicable, a sum of Rs. ________ (Rupees ________________) out of the sums standing to the credit of General Reserve/Share Premium Account of the Com­pany be and is hereby capitalised and accordingly the Board of Di­rectors be and is hereby authorised to appropriate the said sum for distribution to and amongst the members of the company whose names appear in the Register of Members of Equity Shares as on such date to be hereafter fixed by the Board of Directors in proportion to the Equity Shares held by them respectively and to apply the said sum in paying up in full 10% Secured Redeemable Non-Convertible Debentures of Rs. 100/- (Rupees One Hundred) each at par in proportion of 1 such Debentures for every 1 existing Equity Shares held by such members.

 

RESOLVED FURTHER that the 10% Secured Redeemable No Convertible Debentures shall be allotted subject to the Memorandum and Articles of Association of the Company and also subject to the following terms and conditions:-

 

(i) that such Debentures will be secured by a Debenture Trust Deed as per section 117A till the day they are redeemed;

(ii) that a Debenture Redemption Reserve for the redemption of such debentures to which adequate amount shall be credited from o of the profits of the Company every year until such Debentures are redeemed and this will not be utilised by the Company except for the this purpose;

(iii) that the interest of 10% shall accrue to the holders of these Debentures from the date of allotment to them and shall be paid them half yearly on 30th June and 31st December every year;

(iv) that the redemption shall be made as on ________ 2005 and such redemption shall be at par;

 

RESOLVED FURTHER that letters of allotment shall be issued respect of the said Debentures to be allotted as fully paid Bonus Debentures and the certificates in respect of these Debentures as allow aforesaid shall be issued after the security is created on such Debentures and the charge in respect thereof is filed with the Registrar Companies by the Board of Directors of the Company.

 

RESOLVED FURTHER that for the purpose of giving effect to the., resolutions and for removal of any doubt or difficulties, the Board of Directors of the Company be and is hereby authorised to do all such acts, deeds, matters and things and to give from time to time such directions as may be necessary, expedient, usual or proper and to settle any question or doubt that may arise in relation thereto or otherwise reconsider the matter with changed circumstances, if any, as the Boa] of Directors in its absolute discretion may think fit and its decision shall be final and binding on all members and other interested person

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to take such steps as may be necessary or desirable to give effect to these resolutions.

 

PRACTICE NOTES

 

Same as given in Resolution § 849 and add.

 

3. Compliance Certificate.-Companies having paid-up share capital of less than Rs.2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued 10% secured redeemable non-convertible bonus debentures during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

4. Deemed Dividend.-Issue of bonus debentures is treated as deemed dividend under section 2(22) of the Income-tax Act, 1961 and the interest on the said debentures are a tax-deductible expense.

 

Increase of authorised Share Capital

 

S. 94(l)(a)-Increase of authorised Share Capital-Ordinary Resolution

 

"RESOLVED that pursuant to the provisions of section 94(l)(a) of the Companies Act, 1956, and other applicable provisions, if any, the authorised share capital of the Company be and is hereby increased from Rs._________ divided into _________ equity shares of Rs. 10/- each to Rs. _________ divided into _________ equity shares of Rs. 10/- each.

 

RESOLVED FURTHER that the existing Clause V of the Memorandum of Association of the Company as to share capital be and is hereby deleted and in its place the following Clause V be substituted:

 

"The authorised share capital of the company is Rs. _________ di­vided into _________ equity shares Rs. 10/- each."

 

Amendment of Articles of Association-Special Resolution

 

RESOLVED that pursuant to the provisions of section 31(l) of the Companies Act, 1956, the existing article _________ of the Articles of Association of the Company be and is hereby deleted and in its place the following article _________ be substituted therefor:

 

"The authorised share capital of the company is Rs. _________ divided into _________ equity shares of Rs. 10/- each."

 

PRACTICE NOTES

 

1. Articles must empower company.-There must be a provision in the Articles of Association of the company permitting increase in the share capital of the company. If there is no provision, first alter the Articles of Association of the company by passing a Special Resolution inserting such a provision.

 

2. Convening of Board Meeting for calling General Meeting.-Convene a Board Meeting, for recommending the above resolution for adoption by the shareholders. Fix up the date, time, place and agenda for a General Meeting.

 

3. Convene Extraordinary General Meeting unless Annual General Meeting to be held.-Convene an Extraordinary General Meeting of the company unless the Annual General Meeting is scheduled to be held for passing the resolutions pursuant to section 94(l)(a) of the Act.

 

4. Annex Explanatory Statement with Notice of Meeting.-An Explanatory Statement pursuant to section 173(l) of the Act be annexed to the notice of the meeting.

 

5. No approval necessary for increase in authorised capital.- In crease in authorised capital of the company does not require the approval of the Central Government or Company Law Board or the Court.

 

6. Passing of resolutions.-The ordinary resolution amending the Memorandum of Association and Special Resolution for alteration of the Articles of Association to this effect be passed at the same General Meeting. North Cheshire Brewery Co., (1920) WN 149.

 

7. Filing of Special Resolution.-File the Special Resolution in Form No. 23 together with Explanatory Statement with the Registrar of Companies concerned by paying the requisite filing fee within thirty days of the passing of the resolution.

 

8. Carrying out alterations in copies of Memorandum and Articles.-Effect the alteration in the copies of Memorandum and Articles of Association.

 

9. Articles to empower company.-The powers under this section can be exercised only if authorised by the articles. It has been held that if the articles do not contain any such authorisation, the articles must first be amended before the power can be exercised. Re: Patent Invert Sugar Co., (1885) 31 Ch D 166.

 

10. Bona fide for benefit of company.- The power should be exercised bona fide in the interest of the company and not for benefiting any group. Fiercy v. Mills (s) & Co., (1920) 1 Ch 77.

 

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

 

Increase in Authorised Share Capital

(Another Format)

 

S. 94(l)(a)-Increase in authorised share capital-Ordinary Resolution

 

Amendment to memorandum of association

 

"RESOLVED that the Share Capital of the Company be increased from Rs. _________ divided into _________ Equity Shares of Rs. 10/­- each to Rs. _________ divided into _________ Equity Shares of Rs 10/- each by the creation of _________ new Equity Shares of Rs. 10/- each sub­ject to the condition that unless otherwise determined at the time of is­sue the new Equity Shares shall rank pari passu in all respects with the existing Equity Shares of the Company."

 

Amendment to articles of association-Special Resolution

 

"RESOLVED that the Articles of Association of the Company be altered by substitution for the existing Article _________ the following new Article, namely­-

 

“_________ (Article No.) on the date of adoption of this Article, the Share Capital of the Company is Rs. _________ divided into _________ Equity Shares of Rs. 10/- each."

 

PRACTICE NOTES

           

Same as under Resolution § 869.

 

Increase in Authorised Share Capital

(Another Format)

 

S. 94(l)(a)-Increase in Authorised Share Capital-Ordinary Resolution

 

"RESOLVED that Authorised Capital of the Company be increased to Rs.50,00,00,000/­divided into:

 

(a) 4,50,00,000 Equity shares of Rs. 10/- each.

(b) 5,00,000 Cumulative Redeemable Preference Shares of Rs.100/-each redeemable at par at the option of the Company at any time after five years of their issue on giving three months' notice and carrying a fixed cumulative preferential dividend of 10% p.a."

 

PRACTICE NOTES

 

Same as under Resolution § 869.

 

Increase of authorised capital

(Another Format)

 

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

 

"RESOLVED that the authorised capital of the Company be increased from Rs. 500 lakhs (Rupees five hundred lakhs) to Rs. 700 lakhs (Rupees seven hundred lakhs) by creation of 20,00,000 equity shares of Rs. 10/- each, ranking pari passu with the existing equity shares and that clause _________ of the Memorandum of Association and arti­cle _________ of the Articles of association of company be altered accordingly."

 

PRACTICE NOTES

 

1. Passing of Resolution.-Power under this section is exercisable by ordinary resolution only if authorised by the articles, but articles may be altered suitably to give such power, if necessary, otherwise the resolution will have to be passed as a Special Resolution.

 

2. Issue of increased share capital to be in accordance with section 81-Subject to any directions that may be given by the company in General Meeting by means of special resolution or ordinary resolution followed by approval of the Central Government, the increased share capital, when issued, will have to be issued in accordance with the provisions of section 81 of the Companies Act, 1956.

 

3. Formalities to be observed for increasing authorised share capital.-For increasing the authorised share capital of the company:

 

(i) It is to be seen if the Articles of Association authorise the company to increase the share capital (Section 94). If it does not authorise, steps should be taken to alter them accordingly;

(ii) A Board Meeting should be called to decide about the increase and to fix up the date, time, place and agenda for a General Meeting to pass an ordinary resolution (or special one, if so required by the articles) for the same [Section 94(2)];

(iii) Immediately after Board Meeting the concerned Stock Exchange should be informed by letter or by telegram, short particulars of the increase of capital;

(iv) Notices should be issued for the General Meeting with suitable Explanatory Statements;

(v) General Meeting should be held to pass the resolution;

(vi) A copy of the proceedings of the General Meeting should be sent to the concerned Stock Exchange;

(vii) If the resolution passed is a Special Resolution, the same along with the Explanatory Statement should be filed with the Registrar of Companies in Form No. 23 within thirty days (Section 192);

(viii) Increase in authorised capital should be intimated to the Registrar in Form No. 5 within thirty days on which the Registrar will make necessary changes in the company's memorandum and articles (Section 97);

(ix) While filing the above notice, the registration fees for the increased authorised capital shall have to be paid. The amount payable will be the difference between the fees payable at the existing rate on the authorised capital before and after the increase;

(x) Necessary changes should be made in every copy of the Memorandum and Articles of Association and in all other papers and documents.

Increase of Authorised Share Capital

(Another Format)

 

S. 94 (1) (a)-In crease of Authorised Share Capital-Special Resolution

 

"RESOLVED that the Authorised Capital of the Company be increased from Rs. 1,25,00,000/- ­(Rupees one crore twenty five lacs) divided into 12,50,000 (Twelve Lacs Fifty Thousand) Equity shares of Rs. 10/- (Rupees Ten) each to Rs. 4,00,00,000/- (Rupees Four Crores) divided into 40,00,000 (Forty Lacs) Equity shares of Rs. 10/- (Rupees Ten) each and that Clause V of the Memorandum of Association of the Company be altered accordingly."

 

PRACTICE NOTES

 

1. Convening of Board Meeting.-Convene Board Meeting for approving the notice of' the general meeting to consider alteration of the capital clause in memorandum and articles.

 

2. Intimation to Stock Exchange.-Send notice of the general meeting to all the stock exchanges where listed.

 

3. Notice of Meeting.-Give 23 clear days notice of' the meeting, to all the shareholders, the legal representatives of deceased and insolvent shareholders and the auditors.

 

4. Holding of General Meeting.-Hold the general meeting and pass the following resolutions for alteration of capital clause:-

 

(a) Ordinary resolution for alteration of' capital clause in Memorandum unless the articles specify special resolution.

(b) Special resolutions for alteration of capital clause in articles.

 

5. Filing with Registrar of Companies.-File the special resolution with the concerned ROC in Form No. 23, within 30 days of passing thereof.

 

6. Filing of notice of increase with Registrar of Companies.-File the notice of increase in capital with the concerned ROC in Form No. 5 within 30 days of' the general meeting.

 

7. Power to be exercised bona fide in the interest of company.-Tile power should he exercised bona fide in the interest of the company and not for benefiting any group. [Piercy v. Mill(s) & Co., (1920) 1 Ch 77; Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 51 Com Cases 743 (SC)].

 

8. Payment of fee to Registrar of Companies.-So long as the original authorised capital, on which the company had already paid the prescribed fees under the Companies Act, is not exceeded, the company should not be called upon to pay any further fees. It would, however, be required to file Form No. 5-1 to facilitate completion, of the records of the Registrar. [Circular No. 8/13(94)/59- PR, dated 12-2-1960].

 

Increase of Authorised Capital by creation of Redeemable

Preference Shares

 

S. 94 (1)(a)-Increase of Authorised Capital by creation of Redeemable Preference Shares-Ordinary Resolution

 

"RESOLVED that the authorised capital of the Company be and is hereby increased to Rs.________ by the creation of ________ 13.5% redeem­able preference shares of Rs. ________ each -subject to the terms and condi­tions laid down in section 80 of the Companies Act."

 

PRACTICE NOTES

 

1. Articles to empower company.-The power to increase capital must be available in the article, otherwise the articles will first have to be amended by a Special Resolution.

 

2. Passing of resolution.-Where there is power in the article the above resolution can be by way of Ordinary Resolution. '

 

3. Company to adhere to ceiling on preference dividend.-The company will have to ensure that it adheres to the ceiling on preference dividend that may be notified from time to time.

 

4. Filing with Registrar of Companies.-Within 30 days of the passing of this resolution the company should file with the Registrar in Form No. 5 showing the increase in the authorised capital, giving particulars of the creation of the preference shares.

 

5. Fee payable to Registrar of Companies.-The fees for this return will be at the rates prescribed in Schedule X to the Act, and may be made in cash to the Registrar, by

means of treasury challans from specified branches of Punjab National Bank or demand

drafts drawn in favour of the Pay and Accounts Officer of the area concerned and sent to the Registrar along, with the form.

 

6. No conversion of issued shares into redeemable preference shares except by reduction of capital.-There can be no conversion of any of the issued shares of the company into redeemable preference shares, except by going through the process of reduction of capital.

 

7. Shares to be redeemed for acquisition of shares in private company.-Shares issued must be redeemable within a period of twenty years from the date of issue.

 

Increase of authorised capital by creation of Redeemable

Preference Shares (Another Format)

 

S. 94(1)(a)-Increase of authorised capital by creation of Redeemable Preference Shares-Ordinary Resolution

 

"RESOLVED THAT the authorised share capital of the Company be and is hereby increased to Rs. ________ by the creation of ________ 13.5% redeem­able preference shares of Rs. ________ each on the terms and conditions that­-

 

(1) the aforesaid shares will carry a fixed non-cumulative preferential dividend of 13.5% per annum on the capital paid up thereon and payable out of the profits of that year;

(2) the preference shares will rank in priority to the equity shares for repayment of share capital and arrears of dividend in a winding-up;

(3) the preference shares will not be entitled to further participation in surplus assets. The preference shares will not confer a right to vote at the company's general meetings.

(4) The preference shares will be redeemable in 20 years from the date of their issue."

 

Alternative conditions for preference shares

 

The following conditions may be substituted for conditions (1) and (2) above;

 

(i) the aforesaid shares will carry a fixed cumulative preferential dividend of 13.5% per annum on the capital paid thereon;

(ii) the aforesaid shares will, in a winding-up, rank in priority to the equity shares for the repayment of capital and dividend whether declared or not, until the commencement of the winding-up;

(iii) the aforesaid shares will also have a further right to participate in pari passu with the equity shares in any further surplus remaining after repayment of capital and dividend on preference shares and after repayment of capital on equity shares.

 

Convertible Preference Shares

 

Add the following condition

 

(1) The aforesaid shares until conversion will carry a fixed non-cumulative preferential dividend of 13.5% per annum on the capital paid thereon.

(2) The aforesaid shares will be converted into ________ equity shares of Rs. ________ each at a premium of Rs. ________ each after the expiry of ________ years from the date of allotment of the aforesaid shares.

(3) The aforesaid shares on conversion shall be eligible for pro rata dividend as equity shares and shall in all respects rank pari passu with the existing equity shares of the company.

(4) In the event of winding up before conversion, the aforesaid shares will rank in priority to the equity shares for repayment of capital only and shall not have any further right of participation in the surplus assets.

(5) Until conversion the preference shares shall not confer a right to vote at the company's general meeting.

 

Conversion at the option of the share holder

 

(1) Each of the aforesaid shares will be converted into ________ eq­uity shares after expiry of ________ years from the date of allotment thereof and after the registered shareholder for the time being inti­mates to the company at its registered office in writing of his desire to convert the shares into equity shares together accompanied by the preference share certificates. The conversion shall be effected within 15 days from the receipt of such intimation by the company and the new equity share certificates despatched within ________ weeks thereafter.

 

PRACTICE NOTES

 

Same as under Resolution § 874.

 

Increase of authorised capital by creation of shares at a

premium

 

S. 94(1)(a)-Increase of authorised capital by creation of shares at a premium-Ordinary Resolution

 

"RESOLVED that the aUthorised capital of the Company be and is hereby increased from Rs. ________ consisting of ________ equity share of Rs. ________ each to Rs. ________ consisting of    equity share of ________ Rs. ________ each, by the creation of ________ equity share of Rs. ________ each ranking pari passu in all respects with the existing equity share in the Company, save and except that any dividend which may be declared in respect of the financial year in which the equity shares are allotted shall be paid pro-rata from the date of allotment of the said equity shares, and that the shares be offered at a premium of not more than Rs. 2.50 per share to the existing members of the Company."

 

PRACTICE NOTES

 

1. Authorisation by Articles.-The power can be exercised only if it is authorised by Articles. If the articles do not contain such a provision the Articles must first be amended.

 

2. SEBI Guidelines.-SEBI (Disclosure & Investor Protection) Guidelines, 2000 with regard to issue of shares at a premium should be adhered to by a listed company.

 

Increase of authorised capital by creation of shares at a premium (Another Format)

 

S. 94(l)(a)-Increase of authorised capital by issue of shares at a premium-Ordinary Resolution

 

"RESOLVED that the authorised capital of the Company be and is hereby increased from Rs. ________ to Rs. ________ by the creation of ________ equity shares of ________ each ranking pari passu with the existing equity shares of the company and be issued at a premium not exceeding Rs. ________ per        share."

           

PRACTICE NOTES

 

1. Authorisation by Articles.-The power can be exercised only if it is authorised by Articles. If the articles do not contain such a provision the Articles must first be amended.

 

2. Filing of Notice in Form No. 5-After the passing of the resolution Form No. 5 should be filed with the Registrar of Companies within thirty days of its passing along with requisite fee in cash prescribed under Schedule X of the Act.

 

Increase of authorised capital to purchase controlling interest

 

S. 94(l)(a)-Increase of authorised capital to acquire controlling interest in company-Ordinary Resolution

 

"RESOLVED that the authorised capital of the Company be and is hereby increased from Rs. ________ consisting of ________ equity share of Rs. ________ each to Rs. ________ by the creation of ________ equity share of Rs. ________ each for the purpose of acquiring 51 % of the shareholding in X And Co. Pvt. Ltd., Mumbai.

 

RESOLVED FURTHER that clause ________ of the Memorandum of Association and article ________ of the Articles of Association of the Company be amended accordingly."

 

PRACTICE NOTES

 

1. Section 372A not applicable for acquisition of shares in private company. - Since the acquisition is proposed to be made in private company which is not a Subsidiary of a public company the constraints of section 372A will not apply.

 

Increase in authorised capital

 

S. 94(l)-Increase in authorised capital-Ordinary Resolution

 

"RESOLVED that pursuant to the provisions of section 94(l)(a) of the Companies Act, 1956, and other applicable provisions if any, the Authorised Share Capital of the company be and is hereby increased from Rs. 50,000/- divided into 5,000 Equity Shares of Rs. 10/- each to Rs. 5,00,000/- divided into 50,000 Equity Shares of Rs. 10/- each.

 

RESOLVED that existing Clause V of the Memorandum of Association of the company as to Share Capital be and is hereby deleted and in its place the following Clause V be substituted:

 

"The Authorised Share Capital of the Company is Rs. 5,00,000/- (Rupees Five Lakhs) divided into 50,000 Equity Shares of Rs. 10/- each."

 

PRACTICE NOTES

 

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

 

2. Increased capital may consist of preference shares.-The increased capital may consist of preference shares, provided that this is not inconsistent with rights given by the memorandum of association (Andrews ,. Gas Meter Co., (1897) 1 Ch 361.

 

3. Shareholders acquiescing in irregular increase cannot challenge later.-Shareholders who have acquiesced in the irregular increase of the share capital cannot latter challenge such an increase (Re Athenaeum Life Assurance Society, (1988) 4 KAJ 305).

 

4. Articles must contain power.-The powers under section 94 of the Act can be exercised only if authorised by the articles. It has been held that if the articles do not contain any such authorisation the articles must first be amended, before the power can be exercised. (Re Patent Invest Sugar Co., (1885) 31 Ch D 166).

 

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

 

Increase of Capital by the creation of Cumulative

Preference Shares

 

S. 94(l)(a)-Increase of authorised capital by creation of preference shares-Ordinary Resolution

 

"RESOLVED that the authorised capital of the Company be and is hereby increased to Rs. ________ by the creation of ________ 15% cumu­lative redeemable preference shares of Rs. ________ each.

 

RESOLVED FURTHER that the said shares shall confer on their holders the following rights and restrictions:

 

(a) The shares shall carry a right to a cumulative preferential dividend of 15% per annum in relation to the capital paid-up on them.

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

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

 

PRACTICE NOTES

 

1. Passing of Resolution.-The above can be by way of ordinary resolution.

 

2. Articles to empower company.-The power to increase capital and create preference shares would depend upon whether the Articles of Association of the company authorise its creation.

 

3. Amendment of articles where no power exists.-Where there is no such power in the article, they will first have to be amended by a Special Resolution of the General Body.

 

4. Filing with Registrar of Companies.-Within thirty days of the passing of this resolution, the company should file with the Registrar in Form No. 5 showing the increase in the authorised capital, giving particulars of the creation of the preference shares.

 

5. Fee payable to Registrar of Companies.-The fees for this return will be at the rates prescribed in Schedule X to the Act, and may be made in cash to the Registrar, or by means of treasury challan from specified branches Of Punjab National Bank or by demand drafts drawn in favour of' the Pay and Accounts Officer of the area concerned and sent to the Registrar along with the form.

 

6. Prohibition on issue of irredeemable/redeemable preference shares after twenty years.-After 1-3-1997, on which date the Companies (Amendment) Act, 1996, came into force, no company can issue irredeemable preference shares or redeemable preference shares redeemable after a period of more than twenty years.

 

Increase of Authorised Capital by the creation of Non­

Cumulative Preference Shares

 

S. 94(l)(a)-Increase of capital by creation of non-cumulative preference shares-Ordinary Resolution

 

"RESOLVED that the authorised. capital of the Company be and is hereby increased to Rs. ________ by the creation of ________ 15% non­-cumulative redeemable preference shares of Rs. ________ each.

 

RESOLVED FURTHER that the said shares shall confer on their holders the following rights and restrictions:

 

(a) The shares shall carry a right to a preferential dividend of 15% per annum in relation to the capital paid-up on them.

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

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

 

PRACTICE NOTES

 

1. Authorisation by Articles.-The power can be exercised only if it is authorised by Articles. If the articles do not contain such a provision the Articles must first be amended.

 

2. Filing of Notice in Form No. 5-After the passing of the resolution Form No. 5 should be filed with the Registrar of Companies within thirty days of its passing along with requisite fee in each as prescribed under Schedule X of the Act.

 

Increase of Capital with Provision for conversion of Preference

Shares into Equity Shares on happening of contingency

 

S. 94(l)(a)-Increase of capital with provision for conversion-Ordinary Resolution

 

"RESOLVED that the capital of the Company be and is hereby in­ creased to Rs. ________ by the creation of ________ 13.5% redeemable Cumulative Preference Shares of Rs. ________ each and having the fol­lowing rights and restrictions:

 

(a) The Preference Shares shall confer on their holders a preferential right to dividend until an aggregate amount of Rs. 10/- per share is received thereof as and by way of dividend.

(b) As and when the said sum of Rs. 10/- is received as aforesaid, the Preference Shares shall cease to have any preferential right to dividend and shall stand automatically converted into Equity Shares, ranking pari passu in all respects with the Equity Shares of the Company in existence on that day.

(c) In the event of the Company being wound up before the conversion, the surplus assets of the Company after discharging the credits of the Company will be applied in paying to the Preference Shareholders the nominal value of their shares together with the accumulated dividend thereon.

(d) In the event of the Company being wound up after such conversion, the new shares shall not confer on their holders any preferential right to payment from out of the surplus assets of the Company."

 

PRACTICE NOTES

 

1. Surrender of certificates by preference shareholders for fresh equity shares certificates.-On the condition being fulfilled, the company will have to call upon the reference shareholders to surrender their Share Certificates and arrange for fresh equity share certificates to be issued to them.

 

2. Company to carry out changes in records.-The company will then have to carry out the necessary changes in its records.

 

Consolidation and division of share capital

 

S. 94(l)(b)-Consolidation and division of share capital-Ordinary Resolution

 

"RESOLVED that the authorised, issued and paid-up equity share capital of the Company of Rs. 10/- each, be so consolidated that ten existing equity shares of nominal value of Rs. 10/- ­each are consolidated into one equity share of Rs. 100/- each and for equity shares of Rs. 10/- each being fully paid-up, ten such fully paid shares be consolidated into one equity share of Rs. 100/­each fully paid-up.

 

RESOLVED FURTHER that the existing share certificates issued to the holders of equity shares be called back by the Directors for cancellation and issue of fresh share certificates in lieu thereof."

 

PRACTICE NOTES

 

1. Articles to empower company for consolidation of shares.-Power of consolidation should also be reserved or provided for in the articles of the company; and in the absence of such a provision in the articles, the alteration of the articles will have to be taken up first. After necessary provisions have been made in the articles the proposed consolidation of shares will be possible by passing an ordinary resolution. A Special Resolution can be passed directly giving effect to the consolidation of shares as envisaged.

 

2. Consolidation and division of share capital into smaller denomination not covered by section 94(l)(b).-Consolidation and division of share capital into shares of smaller denominations are not covered by section 94(l)(b). For this purpose, the company should move the Court under section 391 as it amounts to reorganisation of share capital. Letter No. 40/3/71-CL. III, dated 21-7-1975. However, shares could be subdivided into shares of smaller amounts under section 94(l)(d).

 

3. Procedure for consolidation and division of share capital into shares of larger amount.-A step by step account of how one should go about in following the procedure to consolidate and divide all or any of the company's share capital into shares of larger amount than the existing one would be to-

 

(i) Consult the Articles of Association to see as to whether or not they permit such consolidation; if not, complete proceedings to alter them accordingly.

(ii) Give twenty-one days' prior notice to the Stock Exchanges with which the company is enlisted of such proposed consolidation and division (according to Standard Listing Agreement).

(iii) Make an application to the exchange for listing of the securities as changed.

(iv) Call a Board Meeting to decide about the consolidation and to fix up day, time, place and agenda for calling a General Meeting to pass an ordinary resolution (Special Resolution, if the articles so require) for the same.

(v) Issue notices for the General Meeting proposing the resolution with suitable Explanatory Statement.

(vi) Hold the General Meeting and pass the resolution.

(vii) Forward a copy of the proceedings of the General Meeting to the Stock Exchange concerned if the company is listed.

(viii) If the resolution passed is a Special Resolution, file the same with the Registrar of Companies in Form No. 23 within thirty days of the passing (Section 192).

(ix) Give notice of consolidation to the Registrar in Form No. 5 within thirty days when the Registrar will record the notice and make any alteration which may be necessary, in the Memorandum and the Articles of Association of the company (Section 95).

(x) Pay the required fee cash by way of in accordance with Schedule X as substituted by S.O. 419(E), dated 27-4-2000, w.e.f. 1-5-2000 or by way of cheques or bank drafts payable or drawn on post offices or banks located in the same city or town as the office of the Registrar (Proviso to Rule 22).

(xi) Make necessary changes in share certificates, records, documents and registers of the company.

 

Classification of unclassified shares

 

S. 94(l)(b)-Classification of unclassified shares-Special Resolution

 

"RESOLVED that clause ________ of the memorandum of association of the Company and clause ________ of the Articles of Association of the Company be amended by amending the words 1,00,000 unclassified shares of Rs. 10/- each' and substituting therefor the words ________ equity shares of Rs. 10/- each and 50,000 preference shares of Rs. 10/- each."

 

PRACTICE NOTES

 

1. Classification of Shares.-The company may have unissued unclassified shares in its memorandum and articles. These shares may be classified by passing a Special Resolution.

 

2. Not regarded as an arrangement.-As none of the unclassified shares we have been issued and there are no share-holders for the same, this resolution is not an arrangement within Section 390.

 

Conversion of equity share capital into Preference Shares and

Equity Shares

 

S. 94(l)(b)-Conversion of existing equity share capital into preference shares and equity shares-Ordinary Resolution

 

"RESOLVED that subject to the approval of the High Court, the existing equity share capital of the company comprising 1,00,000 equity shares of Rs. 10/- each be divided into 50,000 preference shares of Rs. 100/- each and 5,000 equity shares of Rs. 10/- each.

 

RESOLVED FURTHER that the existing equity shares numbered as under:

 

(1) number                                to                                 inclusive

(2) number                                to                                 inclusive

(3) number                                to                                 inclusive

 

be converted into the aforementioned 50,000 preference shares of Rs. 10/- each and such preference shall be henceforth numbered 1 to 50,000 inclusive.

 

RESOLVED FURTHER that (1) the aforesaid preference shares shall carry a fixed non-cumulative preferential dividend of Rs. 10% per annum on the capital paid up thereon, (2) the preference shares shall rank in priority to the equity shares for repayment of share capital in a winding up, (3) the preference shareholders will not have a right to vote at the company's general meetings, (4) the preference shares be redeemable in 5 years from the date of issue thereof.

 

RESOLVED FURTHER that the shareholders of the existing equity shares whose share numbers are mentioned earlier do surrender their share certificates to the Company at its registered office on or be fore ________ for issues of fresh preference share certificate and that the Board of Directors be and hereby is authorised to take all necessary steps in this regard."

 

PRACTICE NOTES

 

1. Amounts to arrangement.-Conversion and division of existing share capital is an arrangement falling within Section 390(b) and the procedure required under section 391 must be followed by application to the Court.

 

2. Alteration of Memorandum and Articles of Association.-Special Resolutions for alteration of the memorandum and articles of association must also be passed consequential to the division of existing equity capital.

 

3. Meeting convened by High Courts-All the resolutions will be passed at the meeting convened by the High Court under section 391 (1).

 

Consolidation of Shares

 

S. 94(l)(b)-Consolidation of Shares-Ordinary Resolution

 

"RESOLVED that the consent of the Company be and is hereby given to the consolidation of the issued and fully paid-up equity capital of the company of Rs. 3,00,000/- comprising of 30,000 equity shares of Rs. 10/- each into ________ equity shares of Rs. ________ each.

 

RESOLVED FURTHER that the Board of Directors be and is hereby authorised to call for -the certificate of shares already issued for cancellation and to issue fresh share certificates pursuant to the Companies (Issue of Share Certificates) Rules, 1960."

 

PRACTICE NOTES

 

1. Articles to empower company.-There must be a provision in the Articles of Association of the company permitting the consolidation of shares.

 

2. Alteration of Articles where no provision exists.-If not, pass a Special Resolution amending the Articles of Association of the company suitably so as to insert a specific provision on the lines of section 94(l)(b).

 

3. Convening of Board Meeting.-Convene a Board Meeting for recommending the above resolutions for adoption by the' shareholders. Fix up date, time, place and agenda for General Meeting.

 

4. Convening of Extraordinary General Meeting.-Convene an Extraordinary General Meeting of the company unless the Annual General Meeting is scheduled to be held for passing the resolutions pursuant to section 94(l)(b).

 

5. Annex Explanatory Statement with Notice of Meeting.-An Explanatory Statement pursuant to section 173(l) of the Act be annexed to the notice of the meeting.

 

6. Guidelines of SEBI to be followed.-En sure to follow SEBI (Disclosure and Investor Protection) Guidelines, 2000, if it is a listed company.

 

7. Collect existing share certificates before issuing new certificates.-En sure that the existing share certificates are collected before new share certificates are issued.

 

8. Consolidation of equity and redeemable preference share capital not covered by section 49(l)(b).-Consolidation of the equity share capital and the redeemable preference share capital into shares of smaller denomination, i.e., 10/- each is not covered by clause (b) of sub-section (1) of section 94 of the Act. The company has to move the Court under section 391 for sanction of the scheme of arrangement. Letter No. 40/3/71 -CL.III, dated 21st July, 1975.

 

9. Filing of Return with Registrar of Companies.-Return in Form No. 5 be filed with the Registrar of Companies concerned within thirty days of the passing of the resolutions along with requisite filing fee, in cash as prescribed under Schedule X of the Act.

 

10. Alteration in Memorandum and Articles be effected.-Effect the alteration in all copies of Memorandum and Articles of Association.

 

Conversion of fully paid-up shares into stocks

 

S. 94(1)(c)-Conversion of fully paid-up shares into stocks-Ordinary Resolution

 

"RESOLVED that 5,00,000 equity shares, bearing numbers _________ to _________ (both inclusive) of Rs. 10/- each in the capital of the Com­pany, which are fully paid-up, be and are hereby converted into stocks divided into 5,000 units of Rs. 1,000 fully paid-up."

 

PRACTICE NOTES

 

Same as under Resolution § 886.

 

Provision for conversion of unissued shares into stocks

 

S. 94(l)(c)-Provision for conversion of unissued shares into stocks- Ordinary Resolution

 

"RESOLVED that 3,00,000 equity shares of the Company forming part of the authorised capital and remaining unissued be converted into stocks of 3000 units of Rs. 1,000/- ­each, as and when the said shares are issued and become fully paid up."

 

PRACTICE NOTES

 

1. Only fully paid shares to be converted into stock.-The company can convert shares into stock when the shares are fully paid-up.

 

2. Power to be exercised in General Meeting.-The power of converting shares into stock or reconverting stock into shares can be exercised by the company in general meeting.

 

Reconversion of stock into fully paid-up shares of any

denomination

 

S. 94(l)(c)-Reconversion of stock into fully paid- up shares of any denomination-Ordinary Resolution

 

"RESOLVED that the consent of the Company be and is hereby given to the reconversion of stock of Rs. 1,00,000/- into 10,000 fully paid-up equity shares of Rs. 10/- each numbered I to 10,000 (both inclusive).

 

RESOLVED FURTHER that the Board of Directors of the Company be and is hereby authorised to substitute the stock certificates issued in respect of this stock substituted by share certificates representing the value of stock in question into shares of such denomination as may be requested by the holders of stock converted."

 

PRACTICE NOTES

 

1. Articles to empower company.-There must be a provision in the Articles of Association of the company permitting conversion of stock into shares. If there is no provision, first alter the Articles of association of the company inserting such a provision.

 

2. Convening of Board Meeting.-Convene a Board Meeting for recommending the above resolution for adoption by shareholders. Fix up date, time, place and agenda for a General Meeting.

 

3. Convening of Extraordinary General Meeting.-Convene an Extraordinary General Meeting of the company unless the Annual General Meeting is scheduled to be held for passing the resolution pursuant to section 94(l)(c) of the Act.

 

4. Annexing of Explanatory Statement with notice of meeting.-An Explanatory Statement pursuant to section 173(2) of the Act be annexed to the notice of the meeting.

 

5. SEBI guidelines to be followed.-Ensure to follow SEBI (Disclosure & Investor Protection) Guidelines, 2000 if it is a listed company.

 

6. Filing of Return with Registrar of Companies.-Return in Form No. 5 be filed with the Registrar of Companies concerned within thirty days of the passing of the resolution along with requisite filing fee, in cash as per Schedule X of the Act.

 

7. Stock Certificates be collected before issuing Share Certificates.-En sure that stock certificates are collected before and share certificates in lieu thereof are issued.

 

Conversion of shares into stock

 

S. 94(l)(c)-Conversion of shares into stock-Ordinary Resolution

 

"RESOLVED that the consent of the Company be and is hereby given to the conversion of 10,000 equity shares of Rs. 10/- each numbered 1 to 10,000 (both inclusive) of the issued and fully paid- up capital into ordinary stock worth Rs. 1,00,000/-.

 

RESOLVED FURTHER that the Board of Directors of the Company be and is hereby directed to substitute the share certificates issued in respect of these shares substituted by stock certificates representing the value of the shares in question in such units as may be requested by the holders of shares converted."

 

PRACTICE NOTES

 

Same as under Resolution § 889.

 

Conversion of Shares into Stock

(Another Format)

 

S. 94(l)(c)-Conversion of shares into stock-Ordinary Resolution

 

"RESOLVED that the consent of the Company be and is hereby given to the conversion of 10,000 equity shares of Rs. 10/- each numbered 1 to 10,000 (both inclusive) of the issued and fully paid- up capital into ordinary stock worth Rs. 1,00,000/- divided into 10,000 units of Rs. 10/- each.

 

Provision for future conversion

 

RESOLVED that shares of Rs. _________ each in the unissued equity share capital of the Company shall as and when the same are issued and be­come fully paid-up shares, be converted into number of ordinary stock units of a nominal value of Rs. 10/- each."

 

PRACTICE NOTES  

 

1. Shares to be fully paid up.-Only fully paid up shares can be converted into stock and vice versa. Partly paid up shares cannot be converted into Stock. To convert them into Stock, they should be first made fully paid up and then convert into Stock.

 

2. Authorisation by Articles.-The power can be exercised only if it is authorised by Articles. If the articles do not contain such a provision the Articles must first be amended.

 

3. Filing of Notice in Form No. 5-After the passing of the resolution Form No. 5 should be filed with the Registrar of Companies within thirty days of its passing along with requisite fee in cash as prescribed under Schedule X of the Act.

 

Sub-division of shares into smaller amount

 

S. 94(1)(d-Sub-division of shares into smaller denomination-Ordinary Resolution

 

"RESOLVED that each of the equity shares of the nominal value of Rs. 100/- each in the capital of the Company fully paid-up, be divided into ten equity shares of Rs. 10/- each fully paid-up.

 

RESOLVED FURTHER that the Board of Directors of the Company be and is hereby authorised to call back the existing share certificates from the shareholders and to issue in cancellation thereof, new share certificates in the aforesaid proportion subject to the rules as laid down in the Companies (Issue of Share Certificates) Rules, 1960, and the Articles of Association of the company."

 

PRACTICE NOTES

 

1. Requirement with listing.-If a public company is going for listing for the first time, it has to follow the conditions of listing and as per the listing agreement the denomination of equity shares should not be more than Rs. 10/- per share.

 

2. Authorisation by Articles.-The power can be exercised only if it is authorised by Articles. If the articles do not contain such a provision the Articles must first be amended.

 

3. Filing of Notice in Form No. 5.-After the passing of the resolution Form No. 5 should be filed with the Registrar of Companies within thirty days of its passing along with requisite fee in cash as prescribed under Schedule X of the Act.

 

4. SEBI (Disclosure and Investor Protection) Guidelines, 2000.-Listed Companies should follow the provisions of paragraphs 3.7.1, 3.7.2 and 3.7.3 of the said guidelines for changing the denomination of shares.

 

Sub-division of shares into smaller amount

(Another Format)

 

S. 94(l)(d)-Sub-division of shares into smaller denomination-Ordinary Resolution

 

"RESOLVED that each of the equity shares of the nominal value of Rs. 100/- each in the capital of the Company of which Rs. 50/- has been called up, be and are hereby sub-divided into ten equity shares of Rs. 10/- each of which Rs.5/- shall be deemed to have been called up.

 

RESOLVED FURTHER that the Board of Directors of the Company be and are hereby authorised to call back the existing share certificates from the shareholders and, in cancellation thereof, issue new share certificates in the aforesaid proportion of Rs. 10/- each of which Rs. 5/- is deemed to have been called up subject to the Companies. (Issue of Share Certificates) Rules, 1960, and the Articles of Association of the Company."

 

PRACTICE NOTES

 

Same as given under Resolution § 892.

 

Sub-division of Shares into smaller amount

(Another Format)

 

S. 94(l)(d)-Sub-division of shares into smaller amount-Ordinary Resolution

 

"RESOLVED that each and every one of the equity shares of the Company of the nominal value of Rs. 100/- be divided into 10 equity shares of Rs. 10/- each, and that in the case of equity shares which are not fully paid up, the proportion between the amount paid and the amount which is unpaid on each reduced equity share of Rs. 10/- each shall be the same as it were in the case of the existing equity share of Rs. 100/- each from which the reduced equity share of Rs. 10/- each is derived."

 

PRACTICE NOTES

 

Same as given under Resolution § 892.

 

Sub-division into two classes of shares

 

S. 94(l)(d)-Sub-division into two classes of shares-Ordinary Resolution

 

"RESOLVED that pursuant to article     of the Articles of Asso­ciation of the Company, each of the existing fully paid equity shares of Rs. 100/- each, be and are hereby sub-divided into 5 equity shares of Rs.10/- each, ranking pari passu in all respects with the existing equity share capital of the Company and 15% preference shares of Rs.50/- each which shall confer on their holders the following rights and obligations:

 

PRACTICE NOTES

 

1. Two classes of shares.-A company can only have two classes of share capital, preference share capital and equity share capital with voting rights or with differential rights as to dividend, voting or otherwise In accordance with such rules and subject to Such conditions as prescribed by the Companies (Issue of' Share Capital with Differential Voting Rights) Rules, 2001  as per sections 85 and 86 of the Act.

 

2. Authorisation by Articles.-The power can be exercised only if it is authorised by Articles. If the articles do not contain Such a provision the Articles must first be amended.

 

3. Filing of Notice in Form No. 5-After the passing of the resolution Form No. 5 should be filed with the Registrar of Companies within thirty days of 'Its passing along with requisite fee in cash as prescribed under Schedule X of the Act.

 

Sub-division of shares into two classes

(Another Format)

 

S. 94(l)(d)-Sub-division of shares into two classes-Ordinary Resolution

 

"RESOLVED that each of the equity shares of the nominal value of Rs. 100/- each in the capital of Company be and are hereby subdivided into one equity share of Rs. 50/- each and into one-13.5% cumulative preference shares of Rs.50/- each, having the following rights and obligations:

 

(a) The share shall carry a right to a cumulative preference dividend of 13.5% 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 over the surplus assets of the company.

(d) The shares issued shall be redeemed at any time after the expiry of seven years and shall be redeemed before the expiry of a period of ten years from date of issue."

 

PRACTICE NOTES

 

Same as given under Resolution § 895.

 

Sub-division of shares into smaller amount

(Another Format)

 

S. 94(1)(d)-Sub -division of shares into smaller denomination-Ordinary Resolution

 

"RESOLVED that subject to the provisions contained in arti­cle    of the Articles of Association of the Company, each of the existing fully paid equity shares of Rs. 100/- each in the capital of the company be divided into ten fully paid equity shares of Rs.10/- each."

 

PRACTICE NOTES

 

1. Articles to empower company.-The Articles of Association should be examined to ascertain whether they permit sub-division of shares into smaller amount. If not, proceedings to alter them should be completed.

 

2. Formalities to be observed for sub-division of shares into shares of smaller amount.-The company will have to observe the following procedure for sub-division of shares into shares of smaller amount than fixed by the company's Memorandum of Association:

 

(i) Articles of Association should be examined to ascertain whether they permit sub-division; if not, proceedings to alter them should be completed;

(ii) Twenty-one days' prior notice should be given to the Stock Exchanges with which the company is enlisted, about the proposed sub-division of shares into shares of smaller amount;

(iii) An application should be made to the exchange for listing of the securities as changed (according to Standard Listing Agreement);

(iv) A Board Meeting should be called to decide about the sub-division and to fix up the date, time, place and agenda for calling a General Meeting to pass an ordinary resolution (Special Resolution, if the articles so require) for the same;

(v) Notices should be issued for the General Meeting proposing the resolution with suitable Explanatory Statement;

(vi) General Meeting should be held to pass the resolution;

(vii) A copy of the Proceedings of the General Meeting should be forwarded to the I concerned Stock Exchange;

(viii) If the resolution passed is a Special Resolution, it should be filed with the Registrar of Companies in Form No. 23 within thirty days of the passing (Section 192);

(ix) Notice of sub-division should be given to the Registrar in Form No. 5 within thirty days. On its receipt, the Registrar will record the notice and make any alteration which may be necessary, in the Memorandum and the Articles of Association of the company (Section 95);

(x) Required fee should be paid by way of cash or by way of cheques or bank drafts payable or drawn on post offices or banks located at the same city or town as the office of the Registrar as per Schedule X.

(xi) Necessary changes should be made in share certificates, records, documents and registers of the company.

 

Sub-division of shares

 

S. 94(l) (d)-Sub - division of shares-Ordinary Resolution

 

"RESOLVED that the consent of the Company be and is hereby accorded to the sub-division of the issued and subscribed fully paid-up equity capital of the company of Rs. _________ comprising of _________ equity shares of Rs. 100/- each into Rs. _________ comprising of        equity shares of Rs. 10/- each.

 

RESOLVED FURTHER that the Board of Directors of the Company be and is hereby authorised to call for the certificates of shares already issued for cancellation and to issue fresh share certificates pursuant to the Companies (Issue of Share Certificates) Rules, 1960."

 

PRACTICE NOTES

 

1. Articles to empower company.-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.

 

2. Convening of Board Meeting for calling general meeting.-Convene a meeting of the Board of Directors for recommending the above resolutions for adoption by the shareholders. Fix up the date, time, place and agenda for a General Meeting.

 

3. Convening of Extraordinary General Meeting.-Convene an Extraordinary General Meeting of the company unless the Annual General Meeting is scheduled to be held for passing the resolutions pursuant to section 94(l)(d) of the Act.

 

4. Annexing of Explanatory Statement with notice of meeting.-An Explanatory Statement pursuant to section 173(l) of the Act be annexed to the notice of the meeting.

 

5. Guidelines of SEBI to be followed.-Ensure to follow SEBI (Disclosure & Investor Protection) Guidelines, 2000, in this regard if it is a listed company.

 

6. Existing Share Certificates be collected before issuing new share certificates.- Ensure that the existing share certificates are collected before new share certificates are issued.

 

7. Approval of Central Government/Court order not required.-It is to be noted that no approval of the Central Government is needed or Court's order is required. No approval of the Central Government or Company Law Board or Court is required. Chowgule & Co. Private Ltd., 1972 Tax LR 2163.

 

8. Filing of form with Registrar of Companies.-Re turn in Form No. 5 be filed with the Registrar of Companies concerned within thirty days of the passing of the resolution along with requisite filing fee, in cash as prescribed under Schedule X of the Act.

 

Cancellation of unissued shares

 

S. 94(l)(e)-Cancellation of unissued shares-Ordinary Resolution

 

"RESOLVED that pursuant to article _________ of the Articles of As­sociation, authorised capital of Company be and is hereby reduced from Rs. _________ consisting of _________ equity shares of Rs. _________ each and 11.5% cumulative redeemable preference shares of Rs. _________ each to Rs. _________ consisting of _________ equity shares of Rs. _________ each by cancel­ling _________ 11.5% cumulative redeemable preference shares of Rs_________ each, remaining unissued and which have not been taken or agreed to be taken by any person."

 

PRACTICE NOTES

 

1. Cancellation not reduction of capital.-As per section 94(3) of the Act, cancellation of shares under section 94(l)(e) will not be deemed to be a reduction of share capital.

 

2. Authorisation by Articles.-The power can be exercised only if it is authorised by Articles. If the articles do not contain such a provision the Articles must first be amended.

 

3. Filing of Notice in Form No. 5.-After the passing of the resolution Form No. 5 should be filed with the Registrar of Companies within thirty days of its passing along with requisite fee in cash as prescribed under Schedule X of the Act.

 

Cancellation of shares

(Another Format)

 

S. 94(l)(e)-Cancellation of shares-Ordinary Resolution

 

"RESOLVED that the consent of the Company be and is hereby given to the cancellation of the _________ equity shares of Rs. 10/- each of the company lying unissued and the authorised share capital of the com­pany be diminished from Rs. _________ comprising of _________ equity shares of Rs. 10/- each to Rs. _________ comprising of _________ equity shares of Rs.10/- each."

           

PRACTICE NOTES

 

1. Articles to empower company.-There must be a provision in the Articles of Association of the company permitting the company to diminish the amount of its share capital unissued; 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)(e) of the Act.

 

2. Convening of Board Meeting.-Convene a Board Meeting for recommending the above resolution for adoption by the shareholders.

 

3. Convening of Extraordinary General Meeting.-Convene an Extraordinary General Meeting of the shareholders unless the Annual General Meeting of the company is scheduled to be held for passing the resolution pursuant to section 94(l)(e) of the Act.

 

4. Annexing Explanatory Statement to notice of Meeting.-An Explanatory Statement pursuant to section 173(1) of the Act be annexed to the notice of the meeting.

 

5. Approval of Central Government/order of court not required.-No approval of the Central Government or/and any order of Court is required. No approval of the Central Government or Company Law Board or Court is required.

 

6. Creation of shares with cancellation of a class of unissued shares does not amount to increase in authorised capital.-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 authonised 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, return in Form No. 5 has to be filed with the Registrar of Companies concerned for completion of the record. Circular No. 8/13/94-59-PR, dated the 12th February, 1960.

 

7. Filing of return with Registrar of Companies.-Return in Form No. 5 be filed with the Registrar of Companies concerned within thirty days of the passing of the resolutions along with requisite filing fee, in cash as prescribed under Schedule X of the Act.

 

8. Power of company to cancel shares not taken or agreed to be taken.-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). Surendre Megan Lal Mehta v. Reliance Textiles Ind. Ltd., (1982) 3 Comp U 103 (Bom).

 

Increase in Number of Members of a Company not having a

 share capital

 

S. 97-Increase in Number of Members of a company not having share capital-Ordinary Resolution

 

"RESOLVED that the number of Members of the Company be and is hereby increased to _________ from _________”.

 

PRACTICE NOTES

 

1. Filing of notice of increase with Registrar of Companies.-Within 30 day of passing of this resolution, the company has to give notice to the Registrar of Companies in Form No. 5 together with the requisite filing fee, in cash as prescribed under Schedule X of the Act.

 

2. Effecting necessary amendments in Memorandum and Articles.-The Registrar will then carry out the necessary amendments in the Memorandum and Articles of Association. All copies of the Memorandum and Articles of Association issued by the company thereafter should reflect the corrections.

 

3. Penalty.-If default is made in complying with this section, the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 500/-

 

Unlimited Company providing for Reserve Capital on Re­

Registration

 

S. 98(a)-Unlimited Company providing for Reserve Capital by increase of Nominal Amount of Share Capital-Ordinary Resolution

 

RESOLVED that pursuant to section 98(a) the nominal amount of to­tal share capital of Rs. _________ of the Company be and is hereby in­creased by increasing the nominal amount of each of its _________ equity shares of Rs. _________ each by Rs. _________ each subject to the condition that no part of the increased capital shall be capable of being called up ex­cept in the event and for the purpose of the company being wound-up.

 

RESOLVED FURTHER that the Board of Directors of the Company be and is hereby authorised to take every step that may be necessary to implement the aforesaid resolution and to do all deeds and acts in connection therewith or incidental thereto.

 

PRACTICE NOTES

 

1. Prerequisites.-Three conditions must be fulfilled before passing this resolution, first, the company must be a company registered as an unlimited company under section 12, second, that such unlimited company must have a share capital and third, that such an unlimited company to pass such a resolution while registering "Itself as a limited company under section 32(l)(a).

 

2. Form of Memorandum and Articles.-Schedule I Table E provides for the form of memorandum and articles of association of an unlimited company with share capital.

 

3. Same as practice note 2 given under Resolution § 901.

 

Unlimited Company providing for Reserve Capital on

Re-Registration

 

S. 98(b)-Unlimited Company providing for Reserve Capital without increasing share capital-Ordinary Resolution

 

RESOLVED that pursuant to section 98(b) the uncalled share capital of the company of Rs. _________ be and is hereby not be capable of being called up except in the event and for the purpose of the company being wound-up.

 

PRACTICE NOTES

 

Same as given under Resolution § 902.

 

Reserve Liability of Limited Company

 

S. 99-Reserve liability of limited company-Special Resolution

 

"RESOLVED that pursuant to the provisions of section 99 of the Companies Act, 1956, consent of the Company be and is hereby accorded that a sum of Rs. 10/- per share in respect of its issued capital of 100,000 equity shares of Rs. 10/- each, on which Rs. 5/- has already been paid-up, shall not be capable of being called except in the event and for the purposes of the company being wound up."

 

PRACTICE NOTES

 

1. Convening of Board Meeting for calling General Meeting.-Call a Board Meeting and pass the above resolution recommending the same to the shareholders of the company for being passed by them as a Special Resolution at the Annual General Meeting/Extraordinary General Meeting as the case may be. Fix up date, time, place and agenda for a General Meeting.

 

2. Notice of General Meeting.-Give 21 days' clear notice for calling the Annual General Meeting/ Extraordinary General Meeting and annex to the notice of the meeting the Explanatory Statement pursuant to section 173(l) of the Companies Act, 1956.

 

3. Filing of Special Resolution with Registrar of Companies.-File the Special Resolution in Form No. 23 along with the Explanatory Statement with the Registrar of Companies concerned on payment of requisite filing fee within thirty days of the passing of the resolution. Non-filing will attract penalty by way of fine of upto Rs. 100/-.

 

4. Company cannot charge capital which it has resolved not to call.-Once the company has resolved not to call the capital, it cannot charge the same though such a power is available to the company in its Memorandum and Articles of Association.

 

5. Capital not to be called except for winding up.-The company has no power to call up such a capital except in the event of winding up of the company.

 

Conversion into Reserve Capital

(Another Format)

 

S. 99-Settling apart uncalled capital as reserved capital-Special Resolution

 

“ RESOLVED that the share capital of the Company on which an amount of Rs. 2.50 per share in the issued capital of 50,00,000 equity shares of the nominal value of Rs. 10/- each (called and paid-up to the extent of Rs. 7.50 per share) which has not been called up so far shall not be called by the Board of Directors except in the event and for the purposes of the company being wound up."

 

PRACTICE NOTES

 

1. Creation of reserve liability not an unalterable item in Memorandum.-It is to be noted that 'creation of reserve liability' is not an unalterable item in the Memorandum of Association of a company.

 

2. Filing of Special Resolution with Registrar of Companies.-The above resolution, being Special Resolution, must be filed with the Registrar of Companies in Form No. 23 within thirty days of the date of its passing. A certified copy of the Explanatory Statement attached to the resolution should also be filed along with the Special Resolution. Non-filing will attract penalty by way of fine of up to Rs. 100/-.