Execution of Deeds (S. 48)

If on behalf of a body corporate, a document is signed, bearing wax or water or other indication of a seal and the intention was to execute the document as a deed or other contract, this is sufficient proof of its due execution by that body corporate." Where the seat purports to be affixed as required by the company's articles, the presumption is that it was duly affixed by persons duly appointed and their signatures were duly made, the burden of proving the contrary being upon the party alleging it.19 The execution of a lease by the Managing Director without affixing the common seal of the company which was in contravention of article 42 of the Articles of Association and was accordingly unauthorised. It could not be validated by a subsequent resolution .

Execution of deeds under the common seal

S. 48 Execution of deeds under the common seal Board Resolution

"RESOLVED that Mr. NBN, an employee of the company for the time being, be and is hereby authorised to sign, execute, alter, or amend the turnkey contract for which negotiation with Niginal Railways is currently under way, on behalf of the company and pass any payment voucher and bills (invoice) raised or made on the company in connection with the said contract.

RESOLVED FURTHER that the common seal of the company be affixed pursuant to the provisions of article of the company's Articles of Association, to a power of attorney executed in favour of the said Mr. NBN in the presence of Mr ……. a Director of the company and Mr ……Secretary of the company in relation to the matters and things therein mentioned in the draft power of attorney which is initialed by the Chairman for the purpose of identification and placed at the meeting."

PRACTICE NOTES

1. Conferring power under power of attorney.- For the sake of convenience, the company may confer power under a power of attorney to any of its employees, especially where it is necessary to perform repetitive acts under authority of the Board and on behalf of the company.

2. Deed executed through attorney binding.- Where a deed is executed on behalf of the company by its attorney, empowered in accordance with sub-section (1) of section 48, by writing under the common seal of the company, the deed will be binding on the company to the same extent as it would be, if executed by the company itself under the common seal of the company.

3. Power of Attorney to contain actual and defined authority.- A power of attorney executed by the company or for that matter the scope of operation of the power is to be strictly construed. Power of attorney should give actual and defined authority and, therefore, there should be no scope for 'apparent' or ostensible authority.

Affixture of seal on agreement

S. 48-Affixture of Seal on Agreement-Board Resolution

"RESOLVED that the common seal of the company be affixed to the agreement dated between the company and Shri AB, which agreement has already been signed by the said Shri AB, and that Shri ………and …………directors of the company sign the agreement on behalf of the company and Shri ……….Secretary of the company be authorised to deliver the agreement duly signed and sealed to the said Shri. B."

PRACTICE NOTES

1. Provision in the Articles of Association.-For affixing common seal the provisions given in the articles of association should be adhered to. In case the company is a public company and there is no provision as to the affixation of the common seal on any document, then provision of regulation 84(2) of Table A of Schedule I should be followed.

2. The Power of Attorney.-The agreement can also be signed by the power of attorney holder if he is so empowered to do so by writing under the common seal of the company. A deed signed by such an attorney on behalf of the company and under his seal where sealing is required will bind the company and have the same effect as if it were Linder its common seal as per section 48(2) of the Act.

Execution of deed under the common seal

S. 48-Execution of deed-Board Resolution

"RESOLVED that Shri LMN, be and is hereby authorised to negotiate, sign and execute contract on behalf of the company with Doordarshan for the construction of TV Centre at Lucknow on such terms and conditions as the attorney may consider beneficial in the interest of the company.

RESOLVED FURTHER that the draft of the power of attorney to be issued in favour of the said Shri LMN, placed before the meeting and initialed by the Chairman for the purposes of identification be and is hereby approved and the same be executed under the common seal of the company in the presence of Shri …….Managing Director, Shri ………... Director and Shri ………. the Secretary of the company pursuant to article 65 of the Company's Articles of Association, who shall also sign the same."

PRACTICE NOTES

1. Execution of Power of Attorney.- The power of attorney shall be executed on a stamp paper of the value as prescribed by the State in which it is executed and got notarised by a Notary Public.

2. Strict compliance with provisions of Articles.- The provisions contained in the Articles of Association should be strictly adhered to while executing any document under the common seal of the company.

3. Resolution to be specific and not vague.- The resolution should specify the purpose for which the document is to be executed and should not be vague.

4. Resolution not required to be riled with Registrar.- There is no necessity to file the resolution with the Registrar of Companies.

5. Execution of document as a deed or contract bearing indication of seal sufficient proof of its execution.- If on behalf of a body corporate, a document is signed, bearing, wax or water or other indication of a seal and the intention was to execute the document as a deed or other contract, this is sufficient proof of its due execution by that body corporate. 21

6. Presumption as to sealing.- Where the seal purports to be affixed as required by the company's articles, the presumption is that it was duly affixed by persons duly appointed and their signatures were duly made, the burden of proving the contrary being upon the party alleging it.22

7. Document with seal in contravention of Articles cannot be validated by subsequent resolution.- Execution of a lease deed by the Managing Director without affixing the common seal of the company which was in contravention of the Articles of Association was unauthorised and it could not be validated by a subsequent resolution

Execution of deeds without common seal

S. 48-Execution of Deed without Common Seal-Board Resolution

"RESOLVED that Shri be and hereby is appointed attorney of the company for the purposes of in area and he be and is hereby empowered to execute deeds on behalf of the company in the area and for the purposes aforesaid under his seal where sealing is required so that all such deeds shall bind the company and have the same effect as if they were under the common seal of the company.

RESOLVED FURTHER that a copy of these resolutions be and is hereby given to the said Shri ………under the common seal of the company."

PRACTICE NOTES

1. Provision in the Articles of Association.- For affixing common seal the provisions given in the articles of association should be adhered to. In case the company is a public company and there are no provision as to the affixation of the common seal on any document, then provision of Regulation 84(2) of Table A of Schedule I should be followed. Seal of the company is not required to be affixed on promissory notes executed by directors on behalf of the company under section 48. Sundararaja Pillai C v. Sakthi Talkies Ltd., (1967) 37 Com Cases 463 (Mad).

2. The Power of Attorney.- The agreement can also be signed by the power of attorney holder if he is so empowered to do so by writing under the common seal of the company. A deed signed by such an attorney on behalf of the company and under his seal where sealing is required will bind the company and have the same effect as if it were under its common seal as per section 48(2) of the Act. Whole-time director and general manager holding power of attorney as such cannot file suit as managing director/joint managing director on whom authority has been conferred by company's articles of association to institute suits. Since he is not a managing director. Ferruccio Sias v. Jai Manga Ram Mukhi, (1993) 12 CLA 212 (Delhi).

Surrender of lease

S. 48-Surrender of lease executed without common seal-Board Resolution

"RESOLVED that the lease of the premises be surrendered with effect from and the Secretary of the company be directed to inform the landlord accordingly."

PRACTICE NOTES

1. General Power of the Board.- The Board of Directors of a company is entitled to exercise all powers and to do all acts on behalf of the company as the company is authorised to do except those required to be done by the company in general meeting.

2. Surrender of Company's property.- In case of property transactions of the company it is always advisable to do by passing a Board Resolution.

Authority to secretary to surrender house premises

S. 48-Authority to secretary to surrender house premises executed without common seal-Board Resolution

"RESOLVED that the lease of the premises at be surrendered to the Landlord with effect from and Shri AB, the Secretary, be and is hereby autborised to collect a sum of Rs from the Landlord in consideration for such surrender (or pay the Landlord a sum of Rs as compensation for surrender of the lease before the expiry of the Lease period)."

PRACTICE NOTES

Same as under Resolution § 142.

Deed relating to service agreement

S. 48-Deed relating to service agreement-Board Resolution

"RESOLVED that an agreement containing standard terms and conditions of service, as approved by the Board, be entered into between the company and Mr. SBN, designated as Pusha Branch Manager and that the common seal of the company be affixed in the agreement in the presence of Mr …….and Mr …….the Directors of the company, pursuant to article of the company's Articles of Association, who shall also sign the same."

PRACTICE NOTES

Same as under Resolution § 142.

Execution of Excise Bond

S. 48-Execution of Excise Bond-Board Resolution

WHEREAS the Chairman produced before the Board the draft of the agreement for maintaining a bonded go down under the Central Excises and Salt Act, and also to maintain a current account with the Commissioner of Central Excise, and the same was considered;

"AND NOW THEREFORE IT WAS RESOLVED that the draft agreement between the Commissioner of Central Excise and the company relating to matters as contained therein and as identified by the initial of the Chairman hereof, be and is hereby approved for execution under the common seal of the company in the presence of Mr ……….and Mr…………the Directors of the company, pursuant to article of the company's Articles of Association, who shall also sign the same."

PRACTICE NOTES

1. Power of Attorney.- Instead the agreement being affixed with the common seal of the company, a special power of attorney may be given to any official of the company dealing with excise matters of the company either by the managing director of the company holding a general power of attorney or by the board of directors of the company by writing under the common seal of the company.

2. Provision in the Articles of Association.- For affixing common seal the provisions given in the articles of association should be adhered to. In case the company is a public company and there are no provisions as to the affixation of the common seal on any document, then provision of Regulation 84(2) of Table A of Schedule I should be followed.

Agreement with provident fund trustees

S. 48-Agreement with provident fund trustees-Board Resolution

"RESOLVED that the draft agreement of trust dated the .......... 2003, entered between the company and Mr………….. Mr………… and Mr ………..the trustees of the provident fund for the purpose of creation of a provident fund for the benefit of the senior employees of the company, be and is hereby approved and the common seal of the company, in the presence of Mr. JKW and Mr. PKW, the Directors of the company, and Mr. XYZ, the Secretary of the company, pursuant to article of the company's Articles of Association, be affixed thereto, who shall sign thereon.

RESOLVED FURTHER that the copies of the engrossed deed of trust between the trustees of the provident fund and the company containing rules and regulations governing such provident fund be forwarded to the Commissioner of Income-tax under a formal application to be verified and signed by Mr …………a Director of the company, for recognition of the fund pursuant to the terms and conditions provided in the Fourth Schedule (Part A) to the Income-tax Act, 1961.

RESOLVED FURTHER that a copy of the said agreement of trust containing the rules and regulations governing the provident fund be also forwarded to the Regional Commissioner of the Provident Fund, seeking approval to such rules contained in the deed of trust hereof."

PRACTICE NOTES

1. Trust Act, 1882.- The provisions of the Indian Trusts Act, 1882 should be adhered to while forming the provident fund trust.

2. The Power of Attorney.- The agreement can also be signed by the power of attorney holder if he is so empowered to do so by writing under the common seal of the company. A deed signed by such an attorney on behalf of the company and under his seal where sealing is required will bind the company and have the same effect as if it were under its common seal as per section 48(2) of the Act.

Deed of appointment of a new trustee of the provident fund

S. 48-Deed o appointment of a new trustee of the provident fund-Board Resolution

"RESOLVED that Mr ……of …..Nagpur 440 012, be and is hereby appointed a new trustee of the company's provident fund in place of Mr ………….who has left the services of the company."

PRACTICE NOTES

1. Documents to accompany application for recognition of Provident Fund.- An application for recognition made by the employer for maintaining a provident fund for which recognition is sought must be accompanied by the following documents:

(a) the deed in original with one copy thereof; and

(b) the rules of the fund.

2. Application to be submitted through Income-tax Officer concerned.- The application must be submitted through the Income-tax Officer of the area in which the accounts of the fund are kept, or, if the accounts are kept outside India, through the Income tax Officer of the area in which the local headquarters of the employer is situated.

3. Information to be furnished in the application.- The application must contain the following information:

(a) Name of the employer and address, his business, profession, etc., as also his principal place of business;

(b) Number of employees subscribing to the fund (i) in India, and (ii) outside India;

(c) Place where the accounts of the fund are or will be maintained;

(d) If the fund is already in existence

(i) a copy of the last balance-sheet of the fund; (ii) details of investment of the fund.

4. Form of verification.- A verification in the following form must be annexed to the application:

Form of Verification

I/We, the trustee(s) of the abovenamed fund, do declare that what is stated in the above application is true to the best of my/our information and belief, and that the documents sent herewith are the originals/true copies thereof.

( ..................

Trustees ..................

..................

Keeping of common seal in safe custody

S. 48/Reg. 84-TableA-Keeping of common seal in safe custody-Board Resolution

"RESOLVED that the common seal of the company, which was submitted and adopted at the previous board meeting, be placed in overall custody of the Secretary of the company and that one of the keys to the box in which such seal is contained be kept with the Secretary and the other with Mr…….a Director of the company."

PRACTICE NOTES

1. Custody of Common Seal.- The Board has overall responsibility for the proper use of the common seal of the company and custody thereof. Further, in order to ensure proper use of the common seal of the company short details of each document executed under the common seal have to be maintained by the company in a register for perusal at any meeting of the Board of Directors of the company.

Common Seal-Affixation thereof

S. 48/Regn. 84-Common Seal-Affixation thereof Board Resolution

"RESOLVED that the approval of the Board of Directors be and is hereby given to the company to the execution of the agreement with Messrs. XYZ Company for maintenance of company's plant at Okhla Industrial Area, New Delhi, as per draft of the agreement placed before the meeting and duly initialed by the Chairman for purposes of identification.

RESOLVED FURTHER that the Managing Director and Shri ABC, Director be and are hereby authorised to sign the agreement with Messrs. XYZ Company and to affix the common seal of the company thereon in accordance with article 113 of the Articles of Association of the company."

PRACTICE NOTES

1. Provisions of Articles to be checked up.- Articles of Association must be checked as to the number of persons required to sign a document on which common seal of the company is to be affixed.

2. Board's Resolution required for affixation of Common Seal.- Common seal of the company to any document can be affixed only if it is authorised by a Board's resolution.

3. Document on which Common Seal affixed without Board's resolution to be forged one.- A document will be considered to be a forged document on which common seal of the company is affixed without Board's resolution.

4. Effect of affixation of Common Seal without Board's resolution.- If the seal is affixed without any authority, the act will not be an act of the company, and the instrument to which it is affixed will be a forged instrument.

5. Interest of third person having no notice of irregularity protected.- Third per sons who have no notice of any irregularity or want of authority will be protected.

6. Execution of document by Managing Director without affixing Common Seal which being in contravention of Articles could not be validated by subsequent resolution.- Execution of a lease by the Managing Director without affixing the common seal of the company was in contravention of article 42 of the Articles of Association and accordingly unauthorised. It could not be validated by a subsequent resolution.

Authority to affix common seal (general)

S. 48-Authority to affix common seal-Board Resolution

"RESOLVED that the common seal of the company be affixed to the agreement, a copy of which was submitted to the meeting and initialed by the Chairman for identification in the presence of Mr……………and Mr …………..the Directors of the company, and Mr …………the Secretary of the company, who shall sign the same."

PRACTICE NOTES

1. Official seal vis-a-vis common seal.- A deed or other document to which an official seal is duly affixed shall bind the company as if it had been sealed with the common seal of the company [S. 50(5)].

2. Power of Attorney.- The agreement can also be signed by the power of attorney holder if he is so empowered to do so by writing under the common seal of the company. A deed signed by such an attorney on behalf of the company and under his seal where sealing is required will bind the company and have the same effect as if it were under its common seal as per section 48(2) of the Act.

Deed/Documents binding on which Common Seal affixed

If the Official Seal is used upon any deed or document, it will be as binding upon the company as though the common seal itself has been used provided the following conditions are satisfied:

(1) the person affixing the seal has the company's authority in writing under its seal-,

(2) the deed or other document is one to which the company is party; and

(3) the person affixing the seal is acting in exercise of his authority in a place where the official seal was authorised to be used.

Authority to affix facsimile signature

S. 48-Authority to affix facsimile signature-Board Resolution

"RESOLVED that the signature of Mr. A.B., the authorised signatory of the company shall be affixed by facsimile to any instrument required to be executed under the common seal of the company."

PRACTICE NOTES

1. Articles to empower company.- The articles should empower such mechanical means for affixing of signature before a resolution to this effect can be passed. Otherwise the articles will first have to be amended.

2. Share certiricates/debenture certificates or their Allotment Letters.- Such a facsimile is usually used on share or debenture certificates or their allotment letters where they are in thousands.

Investments of the company not held in its own name

S. 49-Investments of the company not held in its own name-Board Resolution

“RESOLVED that pursuant to section 49(2) of the Companies Act, 1956, one hundred equity shares of Rs. 100/- each (distinctive numbers……. To……….. ) of ABC Co. Ltd., be jointly held by this company and Mr. XYZ, a Director of that other company and that the share certificate in respect thereof be kept in the custody of the Company's bankers ……………..Bank, and that the Secretary of the Company be in structure to enter the particulars in the appropriate register pursuant to section 49(7) of the Companies Act, 1956."

PRACTICE NOTES

1. Cases where investments need not be held in the company's own name.- In case of subsidiaries and also in case where the company has a right to appoint any person or persons or where nominee or nominees of the company has or have been appointed as a director or directors of any other body corporate, a company may hold shares jointly in the names of itself and of each such person or nominees, or only in the name of each such person or nominees.

2. Register of Investments.- Every company should maintain a register of investments for all those investments not held in its own name and enter therein the nature, value and such other particulars as may be necessary fully to identify the shares or securities in question and the bank or person in whose name or custody the shares or securities are held.

This register of investment being a statutory register is also important for the purpose of obtaining a Compliance Certificate from a secretary in whole-time practice in the Form appended to the Companies (Compliance Certificate) Rules, 2001 for a company having a paid-up share capital of less than Rs. 2 crores but equal to or more than Rs. 10 lakhs.

3. Penalty.- For non-compliance of the provisions of section 49, the company and every officer of the company who is in default will be punishable with fine of up to Rs. 50,000/-.

Investment not held in company's own name

(Another format)

S. 49-Investment not held in company's own name-Board Resolution

"WHEREAS the Company has subscribed to 6000 equity shares of Rs. 10/- of ABC Co. Ltd.; AND WHEREAS the said ABC Co. Ltd. is a public company limited by shares and needs minimum seven members; NOW THEREFORE IT IS RESOLVED that the said investment in the 6000 equity shares of ABC Co. Ltd. be held in the name of the company along with Mr. XYZ, Mr. PCB, Mr. QYB, Mr. ABC, Mr. BSP and Mr. OMN, all directors of the company and that the share certificates in respect thereof be kept in the custody of this company's bankers ……………..Bank, and that the Secretary be instructed to enter the particulars in the appropriate register pursuant to section 49(7) of the Companies Act, 1956."

PRACTICE NOTES

1. Company not having business of buying and selling to hold investments made in its name.- Section 49 of the Companies Act, 1956, provides that a company, whose, principal business does not consist of buying and selling of shares or securities, making investments in its own behalf must hold them in its own name. Such a company may hold the investment made by it jointly in the name of the company and a Director of investee company or individually in the name of the Director of the investee company provided that the said Director is a nominee of the investor company appointed by the investor company.

2. Investment made in subsidiaries be held in name of nominee(s).- A company may also hold investment made by it in any of its subsidiaries in the name of any nominee or nominees of the company instead of holding them in its own name even for the purpose of ensuring that the number of members of the investee subsidiary is not reduced below the statutory minimum, that is, below seven in the case of a public company, and below two, in the case of a private company.

3. Section 49 not applicable to deposit of shares or securities with bankers for collection of dividend/interest.- Provisions of section 49 do not apply if a company deposits with its bankers any shares or securities for the collection of any dividend or interest due on them or for the purpose of facilitating their transfer. Any shares or securities deposited or transferred to any person as security for repayment of any loan or for performance of any obligation would not attract the restriction of section 49(l).

4. Investment by company in shares but not held in its own name be kept in custody of either company or its bankers and particulars thereof be entered in Register maintained.- Share certificates in respect of investments made by the company but not held in its own name must be kept in the custody of either the company or its bankers and the particulars of these investments must be entered in a register maintained for this purpose as-provided in sub-sections (6) and (7) of section 49. This register must also be made accessible to all members and debenture-holders of the company at least for two business hours in each day. If any inspection is refused, the Company Law Board, may by order direct an immediate inspection of the register.

Investment of the company not held in its own name and held as qualification shares

S. 49-Investment of company not held in its own name and held as qualification shares of the nominee director-Board Resolution

"RESOLVED that 200 equity shares of Rs. 10/- each with Nos. 5506 to 5605 of ABC Company Limited, be jointly held in the name of the Company and Mr. LMN, a Director of that company as his qualification shares and the share certificate issued by that company in respect of these shares be kept in the custody of the Secretary of the Company who is instructed to enter the particulars of these shares in the register kept by the company pursuant to the provisions of section 49(7) of the Companies Act, 1956."

PRACTICE NOTES

1. Section not applicable to company dealing in buying or selling of shares/securities.- This section does not apply to a company whose principle business is of buying and selling of shares or securities.

2. Holding of shares jointly with other person for fulfilling requirement of qualification shares.- The shares held by the company jointly with ally other person should be for purposes of fulfilling the requirement of holding qualification shares by that person for purposes of his holding the office of Director in that company as a nominee of the investing company. The section will not apply if the shares are deposited in the bank for purposes of collection of dividend or for facilitating their transfer.

3. Custody of Share Certificates.- Share certificates issued for the shares must not be kept in the custody of the person who is joint holder of the shares. The shares should be in the custody of the Company Secretary or the Managing Director of the company or in the custody of the company's bankers whosoever may have been authorised by Board's resolution.

4. Register to be kept open to inspection of any number/debenture holders.- The company should open a register pursuant to section 49(7) of the Companies Act, 1956, and enter the particulars of these shares in that register. This register shall be open to inspection of any member or debenture holder of the company without charging any fee during business hours subject to such restrictions as the company may impose pursuant to its Articles of Association or any resolution passed in the General Meeting provided that at least two hours are allowed each day for such inspection. If the inspection is refused, the Company Law Board may by order direct an immediate inspection of the register.

5. Penalty.- The above instructions should be strictly complied with as any default in their compliance will render every officer of the company who is in default liable to be punished with fine which may extend to Rs. 50,000/-.

6. Filing of return in Form Nos. I and II prescribed under Companies (Declaration of Beneficial Interest in Shares) Rules, 1975.- Pursuant to section 187C, return in Forms I and II prescribed under the Companies (Declaration of Beneficial Interest in Shares) Rules, 1975, is to be filed with the Registrar of Companies within thirty days of the acquisition of shares.

Investment of the company not held in its own name but in the

name of the depository

S. 49(5)(c)-Investments of company held in the name of depository-Board Resolution

WHEREAS the company is holding 1,00,000 equity shares of Rs. 10/each of ABC Co. Ltd. as a beneficial owner; AND WHEREAS the name of the company is mentioned in the records of the depository, National Securities Depository Limited as the beneficial owner; NOW THEREFORE IT IS RESOLVED that the said securities held by the company be held in the name of the aforesaid depository in the register of members of that other company.

PRACTICE NOTES

1. The Depositories Act, 1996- Clause (c) of sub-section (5) of section 49 was inserted by the Depositories Act, 1996 to allow companies to have their investments held in the name of the depository when such investments are in the form of securities held by the companies as beneficial owners.

2. Deemed to be a member.- The Company, whose name is mentioned in the records of any depository as a beneficial owner, of some equity shares will be deemed to be a member of the concerned company as per section 41(3).

Adoption of official seal for use outside India

S. 50-Adoption of official seal-Board Resolution

"RESOLVED that the official seal which is a facsimile of the common seal of the Company with the addition on its face, the words "Kuala Lumpur, Malaysia", an impression whereof has been made on Fine increased from Rs. 5,000/- to Rs. 50,000/- by the Companies (Amendment) Act, 2000 (53 of 2000) (w.e.f. 13-12-2000). page ………..of the No. 2 minute book of the company dated the ………….2003…….be and is hereby adopted as the official seal of the Company.

RESOLVED FURTHER that Mr ………the Manager of the company for the office situated in Kuala Lumpur, Malaysia, be and is hereby authorised to affix the official seal to any deed or other documents to which the company is a party in the abovementioned place and that common seat be affixed to the authorisation letter which is produced before the meeting, in the presence of Mr …………….. and Mr ……………..the Directors of the company, and Mr …………the Secretary of the company, who shall also sign the same."

PRACTICE NOTES

1. Adoption of official seal for use outside India.- Pursuant to the provisions of section 50, the Board may authorise use of an official seal for the transaction of business outside India. The Board's power, however, is subject to the provisions of the company is Articles of Association. The official seal has to be a facsimile of the common seal of the company, with the addition on its face of the name of the territory, district or place where it is to be used.

2. Person using Official Seal to be authorised in writing under Common Seal. Section 50(2) provides that a company having an official seal in use in any such territory etc., may by writing, under its common seal, authorise any person appointed for the purpose in that territory or place to fix the official seal to any deed or other documents to which the company is a party in that territory or place.

3. Official Seal binding on company.- A deed or document to which an official seal is used as aforesaid would bind the company as if it had been sealed with the common seal.

Adoption of official seal for use outside India

(Another format)

S. 50-Adoption of official seal for use outside India-Board Resolution

"RESOLVED that the facsimile of the common seal of the company with the words 'for use in USA' engrossed on the face of it, an impression of which has been affixed in the margin of the minutes book of the Board and initialed by the Chairman, be and is hereby adopted as the official seal of the company for use in the United States of America.

RESOLVED FURTHER that Mr. LMN, the Executive Director of the company stationed in USA, be and is hereby authorised and appointed to affix the seal to any deed or other documents to which the company is a party in that country on behalf of the company."

PRACTICE NOTES

1. Articles to empower company.- Ensure that there is a provision in the articles for prescription of such a seal. If not, take steps to make necessary alterations in the Articles of Association for inserting a provision identical to section 50 of the Companies Act, 1956.

2. Seal adopted for use outside India to be similar to official Seal.- The seal adopted for use outside India should be similar to the official seal of the company with the only addition on its face of the name of the country/ territory where it is to be used.

3. Authorisation to person using seal to be given by specific resolution.- The authorisation to a person using the seal on behalf of the company should be given pursuant to a specific resolution of the Board and this authorisation should be under the common seal of the company.

4. Seal to be affixed to such documents to which company is a party.- Ensure that the seal is affixed only to such documents to which a company is a party.

5. Seal to be kept in personal custody of person authorised.- The person authorised to use the seal should ensure that it is kept under his personal custody and is used very carefully because any deed, instrument or a document to which seal is affixed will bind the company in the same manner as if the instrument, deed or document has been sealed with the common seal of the company.

6. Date and place to be mentioned.- Any person who has been authorised to affix any such official seal on any deed or document must by writing under his hand certify on that deed or document, the date on which and the place at which is affixed. [Section 50(4)].

Revocation of Authority to affix official seal

S. 50(3)-Revocation of authority to affix official seal-Board Resolution

WHEREAS the company had issued an official seal of the company for use in the United States of America authorising Mr. LMN, the Executive Director of the company stationed in USA to be used on any deed or other documents to which the company is a party in that country on behalf of the company; AND WHEREAS Mr. LMN has resigned from the service of the company with effect from …….2003; NOW, THEREFORE, IT IS RESOLVED that the authority of Mr. LMN to use the official seal on any deed or documents be and is hereby revoked with immediate effect.

"RESOLVED FURTHER that an advertisement be issued in a news paper in the state of ……….in USA where the foreign office of the company is situated cautioning and informing the general public dealing with company about the said fact"

PRACTICE NOTES

1. Revocation of official seal- Under sub-section (3) of section 50 any person authorised under the common seal to affix the official seal to any deed or other documents to which the company is a party may be revoked or determined.

2. Period mentioned in the instrument conferring the authority- The person authorised or appointed under the common seal of the company to affix the official seal to any deed or other documents to which the company is a party may mention some period till which such authority is to continue and if that is the case such authority automatically gets revoked and no specific resolution for revocation of the authority is necessary. The resolution for revocation will be required only where no period is mentioned in the instrument conferring the authority on any person appointed to affix the official seal.

Service of documents on company

S. 51-Service of documents on company-Board Resolution

"WHEREAS the company had served a notice on M/s. ABC Ltd. having its registered office at 145, N.R. Avenue, Kolkata-700053 for the repayment of debt due by that company; AND WHEREAS the said notice- has come back undelivered; AND WHEREAS a search carried out at the office of the ROC West Bengal shows that no change in registered office has taken place; NOW THEREFORE IT IS RESOLVED that the said notice be served by registered post on the company at the aforesaid regis tered office and on the directors of the company, Mr. A Ghosh of 20, Chandra Nath Chatterjee Street, Kolkata-700025, Mr. B. Chatterjee of 23, Ballygunge Station Road, Kolkata-700019 and on Mr. C. Mukherjee of 103, Palm Avenue, Kolkata-700019.

RESOLVED FURTHER that the Secretary of the company be instructed to carry out the aforesaid resolution and report the matter to the Board."

PRACTICE NOTES

1. Effect of service.- Notice of a suit served by a plaintiff of the Company in one of the modes provided in section 51 of the Act, would entitle the plaintiff to have an exparte or decree if the cover is not returned to him or returned to him later on. Cothrinehohn v. Nore Equipment Trading Ltd., (1972) 2 YV-LR 1248.

2. Notice to Company through Directors and officers.- A notice addressed to the company and served on the directors is good service. Benabo v. Jay (Williams) & Parttiers Ltd., (1942) 12 Com Cases 92. Notice to a director or other officer in the course of a transaction in which he is concerned as such director or officer amounts to notice to the Company. Batik of Ireland v. Cogry Spinning Co., (1900) IR 219. A company will not be bound by a notice received by a director or other officer in the course of a transaction with which he is not concerned. Kanhaiyalal Jhanwar v. Pandit Shirall & Co., (1953) 23 Com Cases 399 (Cal). In case a director is duty bound to receive papers on behalf of the company but he does not do so and because of this plunges the company into ignorance, the director will be personally liable for any consequential loss of the company. Societe Generale De Paris v. Walker, (1885) 11 App. Cas. 20 (HL).

3. Contrary provisions in article not enforceable.- If the articles of the company contain any provisions contrary to section 51 then such provisions cannot be enforceable nor can they limit the mode of service to only one of the modes provided by section 51. Sadasiv Shankar Dandige v. Gandhi Seva Samaj Ltd., (1958) 28 Com Cases 137 (Bom).

4. Other modes of service.- The provision in section 51 is only an enabling provision and the method of service provided therein is not only the method of serving documents on a company and in the case of suits by or against the Corporation the manner of service provided for summons in the code of civil procedure, on the Secretary or on any director or other principal officer may be adopted in appropriate cases. Jute and Gunny Brokers Ltd. v. Union of India, (1962) 32 Com, Cases 845 (SQ. An oral notice to the Board of Directors while sitting in a meeting and also an oral notice to a company's employee at his registered office in office hours and during the absence of the secretary will also be a sufficient notice. Worcester, Ex P. Agra Bank, (1868) 3 Ch. App. 555.

5. Notice to company through Office Assistant.- Service of notice on a company, for the purpose of filing a suit, by service on the office assistant of the company is not a good service. Nicco Corporation Ltd. v. Cethar Vessels Ltd., (1998) 92 Com Cases 748 (Mad).

6. Service by electronic mode.- Where the securities are held in a depository the records of the beneficial ownership may be served by such depository on the company by means of electronic mode or by delivery of floppies or dises. (Section 51 proviso).

7. Expression "Document" includes summons.- The expression 'document' occurring in section 51 includes summons and therefore summons upon a company must be served on its registered office to be a valid service under this section. Harendra Nath Ghosal v. Superfoam (P) Ltd., (1992) 9 CLA 121 (Cal).

Service of documents on Registrar of Companies

S. 52-Service of documents on Registrar of Companies-Board Resolution

"WHEREAS Mr. A, a director of the company had resigned from the Board of Directors of the company; AND WHEREAS Mr. B, a new director had been appointed in his place; AND WHEREAS, Secretary of the company had filed Form No. 32 in duplicate with the Registrar of Companies, West Bengal, indicating the aforesaid changes; AND WHEREAS a notice has been received from the Registrar of Companies, West Bengal, asking the company to explain why the requisite form has not been filed with him; NOW THEREFORE IT IS RESOLVED that a certified copy of the said Form No. 32 along with a copy of the receipt evidencing the original filing of the form be delivered to the Registrar of Companies, West Bengal personally by the Secretary of the company."

PRACTICE NOTES

1. Correction by authorised persons.- Although it is necessary that the documents which have been filed with the Registrar of companies are corrected by the signatory of the respective documents but for administrative convenience it has been decided by the Department of Company Affairs that a duly authorised person should be allowed to make the correction only if the said person is given authority by way of a Power of Attorney duly executed on a non-judicial stamp paper of requisite value as may be applicable in the State or Union Territory accompanied by a resolution of the Board of Directors by the concerned company. Circular No. 8/90: No. 14/ 2/88-CL-V, dated 17-5-1990.

2. Expeditious registration of documents.- Documents filed with the Registrar of Companies if accompanied by a certificate from a practicing Chartered Accountant/Cost Accountant/Company Secretary stating it to be correct will be registered expeditiously.

Service of document on member by company

S. 53-Service of document on member-Board Resolution

"WHEREAS Mr. A is a resident of Mumbai; AND WHEREAS the registered office of the company is in Calcutta; AND WHEREAS it is difficult to serve notice of the AGM personally to Mr. A; AND WHEREAS Mr. A has complained of non-receipt of notice addressed to him and sent by letter under certificate of posting; AND WHEREAS Mr. A has deposited sufficient sum of money for defraying the expenditure on sending the letter by registered A.D. post; NOW THEREFORE IT IS RESOLVED that the notice for 53rd AGM of the company to be held on 12th July, 2002 be sent to him by registered A.D. post and the said letter be posted by 12th June, 2002;

RESOLVED FURTHER that Mr. X, Mr. Y and Mr. Z, who do not have any registered address in India and who have not supplied any such address to the company may be served with the aforesaid notice of the AGM by issue of an advertisement of the said AGM in the Calcutta, Mumbal, Delhi and Chennai, edition of the newspaper Indian Express on 12th June, 2002;

RESOLVED FURTHER that Secretary of the company shall take necessary action as aforesaid."

PRACTICE NOTES

1. Address as per Register of Members.- Documents should be served on the members of the Company to the addresses given or recorded in the Register of Members of the company. In case of joint-holders of a share, a document should be served on the jointholder named first in the Register of Members.

2. Modes of service.- Four modes of service are provided by section 53 namely, personal delivery, by ordinary post, under certificate of posting or by registered post with or without acknowledgement due. Service of document to a member under certificate of posting or by registered post with or without acknowledgement due is followed only when the member concerned has deposited with the company a sum sufficient to defray the expenses of doing so. Abdul Karlin Khan v. Sirpur Paper Mills Ltd., (1969) 39 Corn Cases 33 AP.

3. Effect of service.- In case of notice of a meeting service will take effect at the expiration of forty-eight hours after the letter containing the same is posted, and in any other case at the time at which the letter would be delivered in the ordinary course of post. When a document is advertised in any newspaper circulating in the neighborhood of the registered office of the company it shall be deemed to be duly served on the day on which the advertisement appears, on every member of the company who has no registered address In India and has not supplied to the company any address within India for service of notices to the member. When a document is sent by post under clause (a) of sub-section (2) of section 53, such service shall be deemed to have been effected in the case of a notice of a meeting, at the expiration of 48 hours after the letter containing the same is posted. Challa Rajendra Prasad v. Asian Coffee Ltd., (2000) 100 Com, Cases 689 (AP).

4. Service in case of death or insolvency.- A document may be served by the company on the persons entitled to a share in consequence of the death or insolvency of a member by sending it through the post in pre-paid letter addressed to them by name, or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied by serving the document in any manner in which it might have been served if the death or insolvency had not occurred. A notice served by the company on the dead or insolvent member at the address which is recorded in the company's register of members and such service could be deemed to have been served as if the death of the member had not occurred in case the legal representatives of such dead member fail to send the intimation to the company about the address at which notices should be served. Canara Batik Ltd. v. TPR Tanipi, (1972) 42 Com Cases 473 Ker.

5. Presumption of service.- Service is usually presumed when notices of meetings are served to members under postal certificates but such presumption is rebuttable if the register and books of the company claiming to send such nott ces in the said mode cannot prove it. In such a case presumption of service under section 114 of the Evidence Act, 1872 is not applicable. [Bhankerpur Sitnboli Beverages P. Ltd. v. P.R. Pandya, (1995) 17 Corpt. IA 170 (P&H)]. Presumption of service that arises under this section by showing the fact of despatch is neither absolute nor irrebutable and the guest is one of fact. R. Khenika v. Deccan Enterprise (P) Ltd., (1998) 5 Comp U 258 (AP).

6. Place of performance of service.- Sub- section (2) of section 53 specifically mentions that where a document is sent by post, such servI ce thereof will be deemed to be effected by properly addressing, prepaying and posting the letter containing the document. Since there is a statutory mode of delivering the document by post and a provision deeming such delivery, the place where such posting is done is the place of performance of the statutory duty and the duty stands discharged as soon as the document is posted. H. V. Jayrani v. ICICI Ltd. & Others, (2000) 99 Com Cases 341 (SQ.

7. Onus of Proof.- Receipt of a letter sent under a certificate of posting was denied by the address and the onus to prove the posting is on the sender who has to produce corroborative records, like postage account, despatch register, etc. Ajit Singh v. DSS Enterprises (P) Ltd., (2001) 4 Comp U 421 (CLB).

8. Jurisdiction for complaint.- Section 53 dealing with service of documents on members by a company, makes it clear that the cause of action for non-compliance with the provision of this section arises at the place of the registered office of the company from where the documents were required to be sent and therefore the court which has jurisdiction to entertain a complaint for non-supply of the documents is the court within whose jurisdiction the registered office of the company is situate. Karnataka Batik Ltd. v. B. Suresh, (2001) 105 Com. Cases 110 (Kant).

Authentication of documents and proceedings

S. 54-Authentication of documents and proceedings-Board Resolution

"RESOLVED that subject to the provisions of the Companies Act, 1956 and the Articles of Association of the company, requiring a document to be signed/ executed by the company, Mr ................. Mr ……….Mr ………….Mr …………Mr …………..the Directors of the company for the time being, and Mr ………….Mr……… Mr…………..the employees of the company, be and are hereby authorised individually to authenticate any documents or proceedings issued by the company.

PRACTICE NOTES

1. Authority for authentication of documents and proceedings.- Section 54 liberalises the provisions in respect of the aforesaid matter. For authentication of documents and proceedings attached to various applications made to the Government and other authorities, it is necessary to give the designation or authority of the signatory of documents. It is, therefore, preferable that a general authority on the above line be given to a number of employees.

2. Authority not required for directors/secretary.- Section 54 of the Act provides that authentication of a document by any director or manager or secretary of the company can be made without any express authorisation of the board of directors. Such authentication need not be under common seal of the company.

Dating of Prospectus [S. 55]

The date of publication of prospectus must be differentiated from the date appearing in the original prospectus and also the date of issue of prospectus. This section provides for a statutory presumption with regard to the publication of the prospectus. The aforesaid distinction is very relevant as the time limit in the various provisions relating to the prospectus commences from different dates.

Powers of Securities and Exchange Board of India [S. 55A]

The provisions contained in the following sections will be administered by SEBI in case of listed public company, and also in case of those public companies which purport to be listed and in any other case they will be administered by the Central Government.

SEBI cannot exercise powers under the Companies Act, 1956 being not a designate enforcement authority thereunder and cannot enforce the provisions of the said Act in the absence of the requisite statutory authorisation because the said Act itself is a wholesome legislation leaving its enforcement to the authorities designated thereunder and the SEBI is not one among them. Bank of Baroda v. SEBI, (2000) 26 SCL 532 (SAT).

Section Subject matter

S.55. Dating of prospectus

S.56. Matters to be stated and reports to be set out in prospectus

S.57. Expert to be unconnected with formation or management of company

S.58. Expert's consent to issue of prospectus containing statement by him

S.59. Penalty and interpretation

S.60. Registration of prospectus

S.61. Terms of contract mentioned in prospectus or statement in lieu of prospectus, not to be varied

S.62. Civil liability for mis-statements in prospectus

S.63. Criminal liability for mis-statements in prospectus

S.64. Document containing offer of shares or debentures for sale to be deemed prospectus

S.65. Interpretation of provisions relating to prospectuses

S.66. Newspaper advertisements of prospectus

S.67. Construction of references to offering shares or debentures to the public, etc.

S.68. Penalty for fraudulently inducing persons to invest money

S. 68A. Personation for acquisition, etc., of shares

S.69. Prohibition of allotment unless minimum subscription received

S.70. Prohibition of allotment in certain cases unless statement in lieu of prospectus delivered to Registrar

S.71. Effect of irregular allotment

S.72. Applications for, and allotment of, shares and debentures

S.73. Allotment of shares and debentures to be dealt in on stock exchange

S.74. Manner of reckoning fifth, eighth and tenth days in sections 72 and 73

S.75. Return as to allotments

S.76. Power to pay certain commissions and prohibition of payment of all other commissions, discounts, etc.

S.77. Restrictions on purchase by company, or loans by company for purchase, of its own or its holding company's shares

S. 77A. Power of company to purchase its own securities

S. 77AA. Transfer of certain stuns to capital redemption reserve account

S. 77B. Prohibition for buy-back in certain circumstances

S.78. Application of premiums received on issue of shares

S.79. Power to issue shares at a discount

S. 79A. Issue of sweat equity shares

S.80. Power to issue redeemable preference shares

S. 80A. Redemption of irredeemable preference shares, etc.

S.81. Further issue of capital

S.82. Nature of shares or debentures.

S.83. Numbering of shares.

S.84. Certificate of shares.

S.108. Transfer not to be registered except on production of instrument of transfer

S.109. Transfer by legal representative

S.110. Application for transfer

S.112. Certification of transfers

S.113. Limitation of time for issue of certificates

S. 116. Penalty for personation of shareholder

S. 117. Debentures with voting rights not to be issued hereafter

S.118. Right to obtain copies of and inspect trust deed

S. 119 Liability of trustees for debenture holders

S. 120 Perpetual debentures

S.121. Power to reissue redeemed debentures in certain cases

S. 122. Specific performance of contract to subscribe for debentures

S.206. Dividend not to be paid except to registered shareholders or to their order or to their bankers

S. 206A. Right to dividend, rights shares and bonus shares to be held in abeyance pending registration of transfer of shares

S.207. Penalty for failure to distribute dividends within forty-two days

Share application form to accompany with the abridged prospectus [S. 56(3)]

Circular No. 1192, dated 9-1-1992

In terms of section 56(3) of the Companies Act, 1956, no one shall issue any form of application for shares / debentures of a company unless the form is accompanied by a memorandum containing such salient features of a prospectus as may be prescribed. Government have recently revised the format of this memorandum (abridged prospectus) to provide for greater disclosure of information to prospective investors so as to enable them to take an informed decision regarding investment in shares and debentures. It has, however, come to the notice of this Department that share/debenture application forms are being circulated by companies without complying with the legal requirements of section 56(3) of the Act. As a result the investors have no information when they are given only application forms. In order to ensure compliance of the provisions of law, you are requested to advise your constituent member- companies that the share application form should be a part of the abridged prospectus, being attached to it along a perforated line. The abridged prospectus and the share application form should bear the same printed number. The investor may detach the share application form along the perforated line after he has had an opportunity to study the contents of the abridged prospectus, before submitting the same to the company or its designated bankers. The same procedure be also followed while making available copies of the prospectus under section 56 of the Act. In this connection, it may be pointed out that contravention of the provisions of section 56(3) is punishable with fine which may extend to Rs. 50,000. The Registrars of Companies are being advised to ensure strict compliance of these provisions of law and file necessary prosecution, in cases of default. [Issued by the Ministry of Law, Justice and Company Affairs, Department of Company Affairs, vide File No. 116188-CL-V, dated 9-119921.

Printing of abridged prospectus under s. 56(3) with two application forms forming part of the same allowed to be issued Clarification regarding (S. 56(3))

Press Note dated 10th April, 1992.-As per the provisions of Section 56(3) of the Companies Act, 1956, the share application form should be. a part of the memorandum containing salient features of the prospectus (abridged prospectus), being attached –to it along a perforated line. The abridged prospectus and the share application form should bear the same printed number. The investor may detach the share application form along the perforated line after he has had an opportunity to study the contents of the abridged prospectus, before submitting the same to the company or its designated bankers. Since one application form to every abridged prospectus might increase the printing charges it was suggested that the abridged prospectus with two application forms, form ing part of the same, be allowed to be issued. The Government has accepted this suggestion and allowed companies and their merchant bankers to print two application forms, accompanying the abridged prospectus, being attached to it, along the perforated line, bearing separate printed numbers. Care should, however, be taken that the abridged prospectus is printed in such a way that it is easily readable.

Contents of Abridged Prospectus

Clauses 6.20 to 6.37 mentioned in section 11 of Chapter V1 of SEBI (Disclosure and Investor) Protection Guidelines, 2000 provide for contents of abridged prospectus of a listed company or for a company going for a public issue.

Prospectus issued without compliance with the disclosure requirements of the Companies Act, 1956 and also SEBI Guidelines, court held that a writ petition for an order to SEBI to revoke its consent is maintainable. Federal Batik Ltd. v. Shanirao Vithal Cooperative Batik Ltd., (2001) 106 Com Cases 419 (Kant).

Appointment of Lead Merchant Banker and Co-managers

Ss. 55 to 60-Appointnient of Lead Merchant Banker and Co-managers Board Resolution

RESOLVED that ………………… be and is hereby appointed as Lead Merchant Banker to the proposed issue of ……………. Equity shares of Rs. 10/- each by the Company and be and are hereby appointed as Co-managers to the said issue.

FURTHER RESOLVED that the Memorandum of Understanding to be entered between the Company and the said Lead Merchant Banker (draft whereof placed before the meeting and initialed by Chairman for purpose of identification) be and is hereby approved.

FURTHER RESOLVED that Shri …………… Managing Director of the Company and Shri ……….... Secretary of the company be and are hereby jointly authorised to enter into the said Memorandum of Understanding on behalf of the company with the said Lead Merchant Banker and to affix the common seat of the company thereon.

PRACTICE NOTES

1. Obligation of Lead Merchant Banker.- As per Regulation 22 of the SEBI (Merchant Bankers) Regulations, 1992 the Lead Merchant Banker holding a certificate under Category I is to accept a minimum underwriting obligation of five percent of total underwriting commitment or Rs. 25 lakhs, whichever is lower. In case the lead merchant banker is unable to accept the minimum underwriting obligation, that lead merchant banker shall make arrangement for having the issue underwritten to that extent by a merchant banker associated with the issue and shall keep the Board informed of such arrangement.

2. Underwriting commitments of Merchant Banker.- The outstanding underwriting commitments of a merchant banker shall not exceed 20 times its net worth at any point of time. In respect of an underwritten issue, the lead merchant banker shall ensure that the relevant details of underwriters are included in the offer document.

3. Lead Merchant Banker to satisfy himself about worth of underwriters.- It is the duty of the Lead Merchant Banker to satisfy himself about worth of underwriters as to whether they will be able to fulfill their obligations.

The lead merchant banker shall incorporate a statement in the offer document to the effect that in the opinion of the lead merchant banker, the underwriters' assets are adequate to meet their obligations. The lead merchant banker shall also obtain underwriters' written consent before including their names as underwriters in the final offer document.

4. Devolvement on underwriters.- Where there is devolvement on underwriters the Lead Merchant Banker has to ensure that the underwriters honour their commitments within 60 days from the date of closure of issue.

5. Memorandum of understanding.- No Company shall make an issue of security through a public or rights issue unless a Memorandum of understanding (MOU) has been entered into between a lead merchant banker and the issuer company specifying their mutual rights, liabilities and obligations relating to the issue. The MOU shall contain such clauses as are specified of schedule I of SEBI (DIP) Guidelines, 2000 and such other clauses as considered necessary by the lead merchant banker and the issuer company. Provided that the MOU shall not contain any clause whereby the liabilities and obligations of the lead merchant banker and issuer company under the Companies Act, 1956 and SEBI (Merchant Bankers) Rules and Regulations, 1992 are diminished in any way. The Lead Merchant Banker responsible for drafting of the offer documents shall ensure that a copy of the MOU entered into with the issuer company is submitted to SEBI along with the draft offer document. [Clauses 5.3.1.1., 5.3.1.2 and 5.3.1.3 of SEBI (DIP) Guidelines, 20001

Issue of prospectus

Ss. 55-60-Issue of prospectus-Board Resolution

"RESOLVED that the draft prospectus offering 100,000 equity shares of Rs. 5/- each at a premium of Rs. 50/- each, as tabled be and is hereby approved and adopted and that a copy of such prospectus signed by all the Directors named therein or by their authorised agents along with other required documents be delivered to the Registrar of Companies for registration thereof before the date of its publication pursuant to the provisions of section 60 of the Companies Act, 1956.

RESOLVED FURTHER that the application forms for shares and terms and conditions contained therein which are to accompany such prospectus be and are hereby approved.

RESOLVED FURTHER that the Secretary be and is hereby authorised to make any alterations in the draft prospectus, if required.

RESOLVED FURTHER that the Secretary be and is hereby also authorised, subject to compliance of the provisions of section 60 of the Companies Act, to circulate and advertise such prospectus and mail sufficient copies of the forms of application for shares accompanied by prospectus to the managers to the issue, to all the underwriters, brokers, and bankers and to all concerned in accordance with the scheme of offer to public as approved by the Board."

PRACTICE NOTE

1. Contents of prospectus.- A prospectus issued in relation to any public company or intended public company must contain the matters specified in Part I of Schedule Il and set out the reports specified in Part 11 of that Schedule. In case of a listed company or a company going for listing, the prospectus must also contain particulars as given in Chapter VI Section I of SEBI (DIP) Guidelines, 2000.

2. Abridged form of prospectus.- A company is now permitted to furnish along with the application for shares/debentures an abridged form of prospectus instead of the full prospectus which, however, is to be furnished on demand. The form of Abridged Prospectus is specified in Form 2A of Annexure 'A' to the Companies (Central Government's) General Rules & Forms, 1956. In case of a listed company the abridged prospectus must also contain the disclosures as specified under section I and 11 of Chapter VI of SEBI (DIP) Guidelines, 2000.

3. Revised format of prospectus for companies.- The Government has since revised the format of prospectus given in Schedule II of the Companies Act 1956. The revised format has been made effective from 1^st November, 1991.

This has been done to provide for greater disclosure of information regarding the company, its management, the project proposed to be undertaken by the company, the financial performance of the company for the last five years and management perception of risk factors so as to enable the investors to take an informed decision regarding investment in shares or debentures offered through public issue. In addition, the issuer Company/Lead Manager(s) to the issue should ensure adequate disclosures and compliance with the Guidelines for Disclosure and Investor Protection issued by SEBI both in letter and spirit.

Further alterations have been made in the Declaration given in Part III of Schedule II mentioning SEBI Act, 1992 and Rules and Guidelines made thereunder vide Notfn. No. GSR 650(E), dt. 17-9-2002.

4. Issue of prospectus when obligatory.- It is obligatory to issue a prospectus, containing the prescribed particulars, except when the shares are not offered to the public, or when the shares are offered to existing shareholders as rights issue, or when the issue relates to shares which are in all respects uniform with shares previously issued and quoted on a stock exchange.

5. Particulars regarding listed companies under same management.- The company will also be required to furnish particulars in regard to other listed companies under the same management within the meaning of section 370(113) of the Companies Act which have made any capital issue during the last three years.

6. Obtaining of credit rating for debentures/preference shares.- The company is required to obtain credit rating for debentures offered through an offer document irrespective of their maturity/ conversion period and for preference share issue. If the issue of debentures is greater than or equal to Rs. 100 crores, two ratings from two different credit rating agencies should be obtained."

7. Declaration regarding compliance with provisions of the Act and guidelines of Government.- A declaration will also have to be furnished to the effect that all the relevant provisions of the Companies Act, 1956 and the guidelines issued by the Government have been complied-with and no statement made in prospectus is contrary to the provisions of Companies Act, 1956 and rules made thereunder.

8. Registration of Prospectus.- According to section 60 of the Companies Act, no prospectus shall be issued by or on behalf of a company unless, on or before the date of its publication, there has been delivered to the Registrar of Companies for registration a copy thereof signed by every person who is named therein as a Director or proposed Director of the company or by his agent authorised in writing and having endorsed thereon or attached thereto, any consent to the issue of the prospectus by any expert and also a copy of every contract required by clauses 16 and 32 of Schedule 11 specified in such prospectus, or in the case of a contract not reduced to writing, a memorandum giving full particulars thereof. In case the prospectus mentions both the names of original and alternate Directors, then the prospectus must be signed either by the original Director or by the alternate Directors, as the case may be and not by all such Directors named. (Letter No. F. 5(59)-CL. VI/65, dated 1-12-1965).

9. Approval of draft prospectus by Registrar.- If any company wants to have the draft prospectus approved by the concerned Registrar before it is delivered to him for registration, the company can do so. (Circular No. 128/11CC/64, dated 27-7-1964).

10. Filing of draft prospectus with SEBL- The issuer company should ensure that the Lead Merchant Banker has filed a draft prospectus with SEBI at least 21 days prior to the film,,, of prospectus with the Registrar of Companies. Provided that if within 21 days from the date of submission of draft prospectus, SEBI specifies changes, if any in the draft prospectus (without being under any obligation to do so) issuer or the Lead Merchant Banker must carry out such changes in the draft prospectus before filing the prospectus with the Registrar of Companies. [Clause 2. LI of SEBI (DIP) Guidelines, 2000].

11. Exemption from riling of offer documents.- A listed company making an issue of security through a rights issue and the aggregate value of securities including premium if any does not exceed Rs. 50 lakhs does not require to file the letter of offer with SEBI. [Clause 2.1.2 of SEBI (DIP) Guidelines, 2000].

12. Jurisdiction for filing offer document.- The offer document, draft and final both of the size upto Rs. 20 crores should be filed by the head Merchant Banker with the concerned regional office of SEBI under the Jurisdiction of which the registered office of the issuer company falls. [Clause 16. 1. 1(a) of'SEBI (DIP) Guidelines, 2000]

13. Form of advertisement regarding issue of capital to public.- Section 66 of the Companies Act deals with the publication of prospectus by way of newspaper advertisement. To save expenses of newspaper advertisement, Department of Company Affairs has advised the advertiser to adopt a shorter form of an advertisement containing: (a) Name of the company and the address of the registered office; (b) Existing and proposed activities; (c) Location of the industry; (d) Bord of Directors; (e) Authorised capital; (f) Subscribed capital; (g) Proposed issue to the public (whether at par, discount or premium); (h) Dates of the opening and closing of the subscription list; (i) A statement to the effect that application form along with copies of the prospectus can be had from the registered office of the company or from others who are organising the issue on behalf of the company i.e., the underwriters, bankers and brokers, whose names and addresses should also be given; Name of Managing Director/Manager. (Circular No. 5(13)CL-VI/62, dated 215-1962).

The issuer company should also follow the Guidelines on Advertisement given in Chapter IX of SEBI (DIP) Guidelines, 2000.

Issue of Equity shares to public for first time

Ss. 55 to 60-Issue of Equity Shares to public for first time-Board Resolution

"RESOLVED that pursuant to the applicable provisions of the Companies Act, 1956, and to such other approvals, permission and sanctions as may be necessary and subject to such conditions and modifications as may be imposed by the Securities and Exchange Board of India (SEBI). The approval of the Board be and is hereby accorded to the Company to the issue of ………..Equity shares of Rs. 10/ each at par at an aggregate value of Rs ……..to the public by prospectus for meeting a part of the capital cost of project set up by the company.

RESOLVED FURTHER that …………. and ………….. who have conveyed their willingness to act as Lead Managers/Merchant Banks to the issue be and are hereby appointed as Lead Managers/Merchant Bankers to the proposed public issue.

RESOLVED FURTHER that the Managing Director of the Company be and is hereby authorised to settle the terms and conditions of the said appointment of Lead Managers/Merchant Bankers and enter into a Memorandum of Understanding with them and submit the same for approval of the Board.

RESOLVED FURTHER that the Managing Director of the Company be and is hereby authorised to finalise the draft of the prospectus in consultation with the Lead Managers and to settle other matters concerning the proposed issue to enable Lead Managers to submit draft of the prospectus with all documents necessary to SEBI for vetting.

RESOLVED FURTHER that the Managing Director of the Company be and is hereby authorised to issue advertisements in such newspapers as he may deem fit and proper about the future prospects of the company and the proposed issue conforming to the guidelines issued bv SEBI."

PRACTICE NOTES

L Approval, of Draft Prospectus.- The draft of prospectus is to be got approved from the financial Institutions which have sanctioned loan and have agreed to underwrite the shares.

2. Informal consent to be obtained from Registrar of Companies.- Forward the draft of the prospectus to the Registrar of Companies concerned and obtain his informal consent in advance.

3. Furnishing of draft prospectus to the Stock Exchange.- Forward the draft of the prospectus to the Stock Exchange concerned and its comments, if any, be incorporated in the prospectus.

4. Appointment of Merchant Bankers/Lead Managers.- Obtain approval of the Board for the appointment of one or more Merchant Bankers/Lead Manager to the issue in accordance with the norms fixed in SEBI (DIP) Guidelines, 2000.

5. New company making issue.- A new unlisted company eligible to make an issue for the first time may freely price its equity shares. A new company for this purpose is defined as a company with less than twelve months of commercial operation whose audited operative results are not available.

6. Differential Pricing.- Any unlisted company or a listed company making a public issue may issue securities to applicants in the firm allotment category at a price different from the price at which the net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which securities are offered to public.

7. Filing of draft prospectus with SEBL- In terms of the SEBI (DIP) Guidelines, 2000 the draft prospectus is required to be filed with SEBI, before issue. Such filing should be made at least 21 days prior to the filing of prospectus with the Registrar of Companies. [Clause 2. 1.1 of SEBI (DIP) Guidelines, 2000].

8. Subscription list to be kept open for at least three working days.- Subscription list for public issue shall be kept open for at least 3 working days, and not more than 10 working days, but public issue made by an infrastructure company may be kept open for a maximum period of 21 days [Clause 8.8.1 of SEBI (DIP) Guidelines, 20001, and disclosed in the prospectus.

9. Quantum of issue.- The quantum of issue, shall not exceed the amount specified in the prospectus/letter of offer. No retention of over- subscription is permissible except that an over subscription to the extent of 10% of the net offer to public is permissible for the purpose of rounding off to the nearer multiple of 100 while finalising the allotment.

10. Forwarding of monitoring report to SEBL- Irrespective of the level of subscription, the post-issue Lead Merchant Banker must ensure the submission of 2 post issue monitoring reports as per formats specified in schedule XVI of the SEBI (DIP) Guidelines, 2000.

11. Mandatory Collection centres.- In a public issue, the minimum number of collection centres should be at least 4 collection centres, at four metropolitan centres situated at Mumbai, Delhi, Calcutta and Chennai and all such centres where stock exchanges are located in the region in which the registered office of the company is situated and also the regional division of collection centres as indicated in schedule VII to SEBI (DIP) Guidelines, 2000. Companies are free to appoint as many collection centres as they may deem fit in addition to the above minimum requirement.

12. When issue at par application for minimum number of shares be fixed at 200 shares.- In a public issue at par, the minimum number of shares for which the application would be entertainable shall be fixed at 200 shares of the face value of @ 10 each. When the issue is at a premium (or comprises of security whether convertible or nonconvertible, or the public issue is of more than one security) the amount payable in all in respect of each instrument by each applicant shall not be less than 2,000/- irrespective of the size of premium subject to applications being for multiple of tradeable lots.

13. Proportionate Allotment.- Allotment should be subject to allotment in marketable lots and shall be made on a proportionate basis.

14. Appointment of Registrars to the issue.- In all public issues Registrars to the issue, registered with SEBI shall be appointed. To facilitate the redressal of investors com plaints, the Registrars are required to retain the issue-records at least for a period of 6 months from the last date of despatch of letters of allotment/share certificates/refund orders.

15. Person taking part in issue of prospectus to act with care and caution.- In view of the complicated nature of the provisions relating to the issue of a prospectus and the onerous nature of the liabilities and severity of the penalties, it behoves on all those who are about to take part in the issue of a prospectus to act with great care and caution and as a general rule under legal advice. Having regard to the definition of 'prospectus' in section 2(36), the word 'issued' here obviously means issued to the public. (Re South of England Natural Gas and Petroleum Co. Ltd., (1911) 1 Ch 573).

16. Issue of Form of application to accompany memorandum containing salient features of prospectus.- No one shall issue any form of application for shares of a company unless the form is accompanied by a memorandum containing salient features of a prospectus in Form No. 2A.

17. Printing of two application forms along perforated line.- It Is open to the companies and their merchant bankers to print two application forms, accompanying the abridged prospectus, being attached to it, along the perforated line, bearing separate printed numbers. Care should, however, be taken that the abridged prospectus is printed in such a way that it is easily readable. The abridged prospectus must be printed at least in point 7 size with proper spacing as per SEBI (DIP) Guidelines, 2000.

18. Offer of shares without compliance of section 56 in a violation.- Offer of shares to the public without complying with the provisions of section 56 of the Act is a violation.

19. Sending of circulars to dealers and agents amount to inviting subscription: Where a company sends circulars to dealers and agents for subscription in the share capital of the company, such circular would amount to inviting subscription from the public for subscription to its shares and will require registration of prospectus.

20. Prospectus to give fair and accurate picture of state of company.- A prospectus is required to give to the persons to whom it is addressed a full, accurate and fair picture of the state and prospectus of the company.

21. Furnishing of accounts with prospectus.- Companies are now required to furnish in the prospectus the accounts up to date not earlier than six months from the date of issue of the prospectus.

22. Period of five years meaning.- The period of five years means a simple period of five years ending on a date three months before the issue of prospectus and hence every company will have to furnish in the prospectus accounts up to a date not earlier than six months from the date of issue of the prospectus, irrespective of the fact whether or not the financial year of the company closes on a date three months before the issue of prospectus.

23. Reckoning of issue.- If the first issue was by advertisement, time will be counted from the date of the advertisement. If there was any other kind of issue, it has to be determined as to whether such an issue would come, within the words "issued generally". If does so, time will be reckoned from the date of that issue. If there was also a newspaper advertisement in addition, time will run from the date of issue of advertisement.

24. Application to Stock Exchange for enlisting of shares.- Every company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue make an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange.

25. Prospectus to contain names of Stock Exchange where application made. Where a prospectus, whether issued generally or not, states that an application under subsection (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognised stock exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made be void.

Approval of Draft Prospectus

S. 56-Approval of Draft Prospectus-Board Resolution

WHEREAS the draft prospectus to be issued in respect of public issue of fully convertible debentures together with complete set of material contracts and documents required to be filed with the Registrar of Companies was placed before the Board; AND WHEREAS the Board was informed that the said draft prospectus had been approved by the Lead Managers to the Issue, and also by the Stock Exchanges at ................... and …………..and settled by M/s …………… ............. Legal Advisers to the issue;

AND WHEREAS the Board was further informed that the draft prospectus had been vetted by the Securities and Exchange Board of India and their comments and observations have been duly incorporated;

"NOW THEREFORE IT WAS RESOLVED that the draft prospectus offering ………… equity shares of Rs….. each for cash at par with the annexures thereto as required under section 60 of the Companies Act, 1956, placed before the Board, be and is hereby approved and that a copy of the draft prospectus duly signed by all the Directors named therein or their authorised agents along with the annexures thereto be delivered to the Registrar of Companies ………….. for registration thereof.

RESOLVED FURTHER that Mr ………….. Secretary of the company be and is hereby authorised to make, sign and initial any corrections to the draft prospectus as may be deemed necessary for filing with the Registrar of Companies ................

RESOLVED FURTHER that the memorandum containing salient features of prospectus in accordance with section 56(3) of the Companies Act, 1956 and the application forms for shares be and are hereby approved.

RESOLVED FURTHER that Mr ………..Secretary of the Company be and is hereby authorised, subject to compliance with the provisions of section 60 of the Companies Act, to circulate and advertise such prospectus and send sufficient copies of the application forms and memorandum containing salient features of prospectus to the lead managers and co-managers to the issue, the underwriters to the issue, brokers, and bankers to the issue and other concerned persons in accordance with the distribution schedule to be finalised with the lead managers to the issue."

PRACTICE NOTES

1. Prescribed format of memorandum containing salient features of prospectus. The memorandum containing salient features of a prospectus should be in Form No. 2A. This memorandum is required to be annexed to all application forms of fully convertible debentures.

2. Penalty.- Contravention of provisions of sub-section (3) of section 56 is punishable with fine upto rupees fifty thousand".

3. Compounding of offence.- The fine of rupees five thousand for contravention of the provisions of sub-section (3) of section 56 is compoundable by the Regional Director concerned as per section 621-A(l)(b).

Abridged prospectus (S. 56)

By the Companies (Amendment) Act, 1988, as a measure of economy, amendment has been made to section 56 to provide that any application for shares should be accompanied by an abridged prospectus and the full prospectus should be furnished on request before the closing of the subscription list. See Form 2A of Annexure 'A' to the Companies (Central' Government's) General Rules & Forms, 1956 for the format of Abridged Prospectus.

Form of Prospectus and Advertisement (S. 56)

A company issuing prospectus may adopt any other suitable form according to its choice but not offending the provisions of section 56 of the Companies Act, 1956. The form of advertisement, if the full contents of the prospectus are not included therein, should be approved by the Board of Directors by a Board Resolution.

Approval of Memorandum containing salient features

S. 56-Approval of Memorandum containing salient Features-Board Resolution

"RESOLVED that the Memorandum containing the salient features in form No. 2A be and is hereby approved and the same be printed with the share application form alongwith perforated line bearing separate printed numbers and the same be filed with the Registrar of Companies for his perusal."

PRACTICE NOTES

1. Issue of application forms.- No one shall issue any form of application for shares in or debentures of a company, unless the form is accompanied by a memorandum containing salient features of a prospectus in Form No. 2A.

2. Printing of two application forms.- It is open to the companies and their merchant bankers to print two application forms, accompanying the abridged prospectus, being attached to it, alone, the perforated line, bearing separate printed numbers. Care should, however, be taken that the abridged prospectus is printed in such a way that it is easily readable.

Form of advertisement

S. 56-Form of advertisement-Board Resolution

"RESOLVED that the draft text of advertisement, as tabled and initialed by the Chairman, be and is hereby approved and that the Secretary of the company be and is hereby authorised to arrange publication of such text in at least three selected commercial newspapers having circulation in the whole of India."

PRACTICE NOTES

1. Terms of payment to be contained in advertisement.- The newspaper advertisement of prospectus may contain the terms of payment of shares . It should also conform to the guidelines on Advertisement framed given in Chapter IX of SEBI (DIP) Guidelines, 2000.

2. Company not to publish any material relating to issue between date of announcement and date of closing.- No corporate advertisement of issuer company shall be issued after 21 days of the filing of the offer document with SEBI till the closure of the issue unless risk factors as are required to be mentioned in offer document, are mentioned in such advertisement. No product advertisement of such company shall contain any reference directly or indirectly to the performance of the company during the period as mentioned aforesaid .

3. Risk factors.- No advertisement relating to the issue shall be made without giving "Risk Factors" in respect of the concerned issue. In all issue advertisements, equal treatment in all respects should be given to the risk factors and highlights. It should be ensured that the print size of highlights and risk factors of the issue advertisement is not less than point 9 size apart from the two being given equal importance in all respects.

Delivery of prospectus to prospective investors

S. 56(3) Proviso-Delivery of prospectus to prospective investors-Board Resolution

"WHEREAS the company had issued a prospectus inviting applications for subscription to the shares of the company; AND WHEREAS application forms were supplied with the accompaniment of a memorandum containing prescribed salient features of the prospectus; AND WHEREAS Mr. A, a prospective investor has requested for the supply of a full prospectus;

NOW THEREFORE IT IS RESOLVED that the full prospectus be supplied by ordinary post to Mr. A of 128, Harrington Street, Calcutta-700001."

PRACTICE NOTES

1. Time of making request.- The request for giving a copy of the full prospectus should be made any time before the closing of the subscription list and also such a request should be granted by the company concerned before the said closing.

2. Form of abridged prospectus.- The memorandum containing salient features of a prospectus which should be accompanied by any form of application for shares in or debentures of a company should be in Form No. 2A prescribed in Companies (Central Government's) General Rules and Forms, 1956.

3. Exemption.- The requirement of sending abridged prospectus alongwith every application form for shares in or debentures of a company is exempted if it is shown that the form of application was issued either in connection with a bonafide invitation to a person to enter into an underwriting agreement with respect to the shares or debentures or in relation to shares or debentures which were not offered to the public.

4. Stay order against public issue.-A complaint was made by a hire-purchase financier to SEBI after it had permitted the public issue to restrain the public issue on the ground that the company had not mentioned its indebtedness to the financier in its prospectus. SEBI did not withdraw permission even after receipt of the complaint and no suit was filed by the financier to recover his dues from the company. Thereafter the financier filed an application for injunction which was dismissed by the court found to be made only to harass the company and force it to come to terms. Kothari Orient Finance Ltd. v. Tele Data Inforniatics Ltd., (2002) 108 Corn Cases 863 (Mad).

5. Penalty.- For contravention of the provisions of sending abridged prospectus alongwith an application form and also for not furnishing full prospectus, if requested, is punishable with fine which may extend to fifty thousand rupees".

6. Compounding of offence.- The fine of rupees five thousand for contravention of provisions of sub-section (3) of section 56 is compoundable by the Regional Director concerned as per section 621-A(l)(b).

Expert's statement in prospectus

S. 57-Expert's statement in prospectus-Board Resolution

"WHEREAS a statement by Mr. X, an engineer was included in the prospectus; AND WHEREAS it now appears that Mr. X is an executive working with M/s. XYZ Ltd.;

AND WI-IEREAS the prospectus has not yet been delivered for registration;

NOW THEREFORE IT IS RESOLVED that the said statement of Mr. X be expunged from the prospectus and in its place, the statement obtained from Mr. Y, a practicing architect be included in the prospectus."

PRACTICE NOTE'S

1. Prohibition against inclusion of expert's statement.- Section 57 of the Act prescribes inclusion of any statement in the prospectus made by an expert who is engaged or interested in the formation or promotion, or in the management, of the company issuing the prospectus.

2. Consent of the expert.- Before including any statement of any expert in the prospectus, that expert's consent should be obtained as required by section 58 and also by item No. 2 part (11) of Schedule (11) to the Act. This is also required under clause 6.17.2 of SEBI (DIP) Guidelines, 2000.

Expert's consent to the issue of prospectus

S. 58-Expert's consent to the issue of prospectus-Board Resolution

"WHEREAS a statement by Mr. X, an engineer has been included in the draft prospectus; AND WBEREAS the draft prospectus is now ready for delivery for registration;

NOW THEREFORE IT IS RESOLVED that the said statement of Mr. X be expunged from the prospectus;

RESOLVED FURTHER that consent be obtained from Mr. Y and architect, who is familiar with the facts and circumstances to include his statement in the prospectus;

RESOLVED FURTHER that a statement, be obtained from Mr. Y that he has given his consent and has not withdrawn his consent before delivery of the prospectus for registration."

PRACTICE NOTES

1. Requirement of giving consent.- Giving of written consent by an expert which should be obtained before the delivery of a copy of the prospectus for registration to the Registrar of Companies and the prospectus should include a statement to that effect and also a statement that the concerned expert has not withdrawn his consent before the issue of prospectus. This requirement is also called for by item No. 2 of Part 11 of Schedule 11 to the Act.

2. Expert to be unconnected with formation/ management.- It is also required by section 57 of the Act that the expert who gives a statement which is to be included in the prospectus should not himself be engaged or interested in the formation or promotion or in the management, of the company issuing the prospectus.

3. Filing with SEBL- The requirement of giving consent by an expert whose statement is included in the prospectus should be obtained also before filing a copy of the prospectus with SEBI.

Fixed Deposit (S. 58A)

By the Companies (Amendment) Act, 1988, section 58A has been amended to protect the interest of depositors. Every deposit accepted by a company after the commencement of the Amendment Act, should, unless renewed in terms of section 58A, be repaid to the depositor. According to the newly introduced sub-section (9), if a company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board may if it is satisfied either on its own motion or on the application of the depositor, that it is necessary so to do to safeguard the interests of the company, the depositors or in the public interest, direct, by order, the company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in that order.

Nomination facility (S. 58A(11))

Sub-section (t t) has been inserted by the Companies (Amendment) Act, 1999, w.e.f. 31-10-1998 giving the right to deposit holders to nominate at any time a person in Form No. 2B of the Companies (Central Government's) General Rules and forms, 1956 in whom his deposits will vest in the event of his death. The provisions of new sections 109A and 109B also inserted by the Companies (Amendment) Act, 1999 will apply to such nomination made under his sub-section. In case the deposits are held by more than one person jointly, the joint holders may together make such nomination. During the life time of the deposit holders such nomination can be varied or cancelled in the prescribed manner.

Invitation for acceptance of deposits from Public (S. 58A)

It has been held by the Andhra Pradesh High Court that the offence under this section is of a continuing nature. A fresh period of limitation commences with every successive day of default.29Failure to file a return as required by Rule 10 of the Companies (Acceptance of Deposits) Rules, 1975, which is punishable by Rule 11 is a continuing offence and there is no period of limitation within which proceedings may be taken.

Section 58A and the Rules framed under it are not ultra vires the legislative power of Parliament. 3 1 The Supreme Court has also held that Section 58A is constitutionally valid. It is not outside the legislative competence of Parliament to enact such a provision as it falls within the scope of Entries 43 and 44 of List I of the Seventh Schedule to the Constitution .32

The employees and ex-employees are also to be regarded as those failing in the category of 'public' and the deposits accepted from them would as such attract the provisions of section 58A and the rules made there under as deposits from other categories of 'public'. 33 If a shareholder depositor ceases to be a member the deposit made by him cannot be treated as exempted deposit.34

The loan taken by a private company from a firm, all of whose partners are shareholders of the borrowing company will stand on the same footing as loans taken from the shareholders themselves. Such loans are not to be regarded as deposits.

It is essential to deduct the amount of un provided depreciation from the aggregate of paid up capital and free reserves for determining the limits up to which deposits can be accepted by a company, for purposes of Explanation to Rule 3 of the Companies (Acceptance of Deposits) Rules, 1975 .

The limits up to which a company can accept deposits are to be computed with reference to aggregate of paid-up capital and free reserves as appearing in the latest audited balance-sheet of the company and any change arising thereafter is to be disregarded . Any amount through issue of bonds or debentures does not ipso facto become exempt deposit under rule 2(b) (x). It would be treated as exempt deposit if later on it is secured by mortgage by ail immoveable property.

The rules do not specify whether the interest should be simple or compound. The term interest' is a generic term which may be simple or compound

Renewal amounts to receiving fresh deposits within the meaning of section 58A . If a private company invites, accepts or renews deposits from the public with effect from 15th June, 1988, i.e., coming into force of the Companies (Amendment) Act, 1988, it becomes a deemed public company.

The matured deposits which remain unclaimed/unpaid are deposits within the meaning of Rule 2(b) of the Companies (Acceptance of Deposits) Rules, 1975, and are required to be treated as such for calculating the limits prescribed in Rule 3 thereof.

Under clause (c) of sub-section (2) of section 205C read with its proviso matured deposit with companies remaining unclaimed and unpaid for a period of 7 years from the date they become due for payment should be credited to the Investor Education and Protection Fund.

The provisions governing the prospectus including those relating to civil and criminal liabilities for misstatement, penalty for fraudulently inducing persons to make deposits with any company will mutatis inutandis apply to the advertisement for deposits.

With effect from 9-1-1997, Company Law Board is clothed with powers to order repayment of deposits accepted by non-banking financial companies in case of default in making the payment of principal amount and interest there on. [See Sec. 45QA of the Reserve Bank of India Act, 1934].