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Book No. A3Fast Track Material in Company Law_33e

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Index

S.No. Chapter Name Pages

1. Company Basic Concepts 3-6

2. Classes of Companies 7-12

3. Promotions & Incorporation of a company 13-16

4. Memorandum & Articles of Association 17-24

5. Prospectus 25-33

6. Allotment of Shares & Underwriting 34-37

7. Deposits 38-39

8. Membership 40-45

9. Share Capital 46-54

10. Calls & Forfeiture/ Surrender of shares 55-56

11. Transfer & Transmission of Shares 57-61

12. Debentures 62-64

13. Charge 65-68

14. General Meetings – Part - I 69-73

15. General Meetings – Part – II 74-83

16. Miscellaneous matters in Company Law 84-88


IPCC _33e_C.Law_Fast Track _______________________________________3

No.1 for CA/CWA & MEC/CEC MASTER MINDS

1. COMPANY BASIC CONCEPTS

Company and its Features.

Definition-Sec.2(20) Of companies Act, 2013: Company formed and registered under companies Act 2013 / previous Acts.

Features:

1. Voluntary Association:

a) An association

b) contribute money

c) share the profit and loss & form voluntarily

2. Separate Legal entity / Corporate Personality:

SALOMON VS. SALOMON & CO. LTD:

Facts:

a) 'S' sold his shoe business for £.38,782 - 'S' took 20,000 shares of £ 1 each, debentures worth £ 10,000 & balance in cash.

b) Wife, daughter and 4 sons took up one share each.

c) Company liquidated with assets worth £ 6,000 & liabilities £.17,000. Payment made first to 'S' being secured creditor.

Petition: Unsecured creditors argued that 'S' can’t be treated as secured creditor.

Judgement: Co. is different from its members.

LEE VS. LEE AIR FARMING LTD:

Facts:

a) 'L' had 2999 shares out of 3000 shares. He was the MD & chief pilot.

b) 'L' died while working.

c) His wife claimed compensation.

Petition: Insurance Co. challenged her claim.

Judgement: Compensation is payable to widow.

KANDOLI TEA CO. LTD.:

Facts: Persons transferred their properties on which tax was payable.

Petition: Claimed exemption from tax.

Judgement: Co. is separate from shareholders.

3. Artificial Person: It is an artificial person and therefore it has to depend upon natural persons. 4. Limited Liability:

a) Limited by shares - Limited to the unpaid value.

b) Co. limited by guarantee - Limited to the amount guaranteed. 5. Separate property- capable of acquiring in its name.



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6. Perpetual existence:

a) Members may come, members may go but company goes on forever

b) Change or death of some or even all members do not affect continuity of a Co. 7. Transferability of shares: Freely transferable (Except for Pvt. companies)

8. A Company can sue or can be sued. 9. Termination / Death: Can die by operation of law only. 10. Common seal: Official signature, deemed to be signed by Co. 11. It has Nationality: It is not decided by the nationality of its shareholders.

12. No Citizenship and fundamental rights.

Implications of the concept of separate legal entity

a) Government Co. is not ‘Government’- not one and same.

b) Managing Director can also be an employee.

c) Common directors or shareholders don’t mean that both companies are same.

d) Wholly owned subsidiary is different from its holding co.

e) Perpetual Succession.

f) The nationality of the co. is not governed by the nationality of its shareholders.

g) Any of its members can enter contract with it.

h) The company’s money and property belong to the co and not to the shareholders.

i) Members can’t have any insurable interest in the company’s property

Lifting of Corporate Veil.

Corporate Veil Meaning: A Company is a person created by law, having a distinct entity. This principle is referred as Veil of Incorporation.

Misuse: If the veil is used as a mask of fraud, then the courts will lift the veil and look at the persons behind the company.

Lifting or piercing the corporate veil:

a) It means ignoring the separate identity of a company.

b) Disregarding the corporate personality and looking behind the real persons who are in the control of the company.

Cases Falling Under Judicial Interpretation

1. Enemy character of Co.:

Daimler Co. Ltd vs. Continental tyre & Rubber Co. Ltd:

a) German company incorporated as England Company for the purpose of selling tyres made in Germany.

b) During First World War, Co. started recovering its debts.

c) Court held this as trading with an enemy.




2. Prevention of Fraud or improper Conduct:

Gilford Motor Co. Ltd. Vs. Horne:

a) H a former employee of ‘G’ was subject to not solicit its customers.

b) H incorporated a company to solicited customers of 'G'.

c) The court passed an injunction order.

3. Protection of Revenue.

Sir Din Shaw Maneckjee Petit Vs CIT

a) D was enjoying large profit and income in the form of interest and dividend

b) Formed four new private companies and transferred interest income to them

c) Returned income to ‘D’ in the form of pretended loan

d) D and all the four companies were treated as one. 4. Avoidance of welfare legislation:

Workmen Employed in Associated Rubber Industries ltd.:

a) A subsidiary Co. was formed wholly by the Holding company only to receive dividends from shares transferred.

b) Court held that the new company was formed to reduce the bonus to workmen. 5. Company acting as agent of the shareholders:

F.G.FILMS LTD. CASE:

a) An American company produced a film in India, actually in the name of a British company.

b) The sensor board refused to register the film as a British film.

6. Subsidiary acting as an agent:

MERCHANDISE TRANSPORT LIMITED VS BRITISH TRANSPORT COMMISSION:

a) As the transport co. would not get licences on its own name, it formed a subsidiary co.

b) Court held that both are same & application was rejected.

7. Experience of directors is experience of the company:

Progressive Aluminium Ltd.

a) prospectus stated that the company has vast experience

b) In fact only directors of the company had vast experience

c) It was held that the experience of the directors is the experience of the company.

8. To protect the public policy

9. In quasi criminal cases

CASES FALLING UNDER STATUTORY PROVISIONS

1. Reduction in membership:

a) The no. of members should not fall below the statutory minimum.

b) If the Company continue to carryon business for more than 6 months with reduced members.

c) Every member who knows this fact is jointly liable for the whole of the debts.

2. Failure to refund application money (Sec.69(5)):

a) Must be refunded with in such time as prescribed.

b) Otherwise, directors shall be personally liable to pay money with interest.




3. Misrepresentation in prospectus: Every person who authorises issue of such prospectus shall be

personally liable. 4. Misdescription of name: Every officer who signs on behalf of the co. shall be personally liable.

5. Non-Payment of tax: Every director of the company at any time during the previous year shall be jointly and severally liable.

6. Sec.447: If the company is formed with an intention to defraud the creditors, the persons who are

knowingly responsible are personally liable at the time of liquidation.

Copy Rights Reserved

To MASTER MINDS, Guntur




2. CLASSES OF COMPANIES

Classification on the basis of incorporation

Chartered Companies: Incorporated under a special charter granted by the king or queen of England. Statutory Companies:

a) These are created by a special act of the parliament/state assembly.

b) Nature and powers of such companies are laid down in the special Act

c) Audit is conducted under the control and supervision of the Auditor General of India Body Corporate: Sec.2 (11) Of companies Act, 2013 defines ‘Body corporate’ or ‘corporation’ includes a company incorporated outside India but does not include:

a. a co-operative society registered under any law relating to co-operative societies;

b. any other body corporate not being a company which the Central Government may by notification in the Official Gazette, specify in this behalf”.

Registered Companies: Which are registered under the companies Act, 1956 or under previous companies Acts.

Classification on the basis of liability

Companies Limited by Shares:

a) Liability is limited to the unpaid value of the shares.

b) Shares are fully paid- liability nil. Companies Limited by Guarantee:

1. Liability is limited to a fixed amount which the members undertake.

2. to contribute to the assets of the company in the event of its being wound up.

3. It is in the nature of Reserve Capital.

4. The liability of shareholder’s is limited to:

a) Guarantee co. without share capital - To the extent of guarantee.

b) Guarantee co. with share cap. - To the extent of guarantee + Un paid value on shares.

5. Requirement of own articles is mandatory Unlimited Companies: Means a company not having any limit on the liability of its members.

1. The liability of each member extends to the whole amount of the company's liabilities.

2. It may or may not have share capital.

3. Articles must state the amount of share capital and the amount of each share

4. Unlimited liability of members is towards creditors only, not towards company.

5. May alter or reduce its share capital without any restriction.






Classification on the basis of its members

Private Company (Sec.2(68) Of companies Act, 2013): Private company means which has a minimum paid up capital of Rs.1 lakh or such higher paid-up share capital as may be prescribed, and which by its articles —

1. Restricts the right to transfer its shares:

a) Persons to whom: Transfer only to those who have director’s approval.

b) Preference: To existing holders first.

c) Communication in writing: To the directors of such intention of the shareholder.

d) Calculation of the price: By specifying the method for calculating the price.

e) Employees leaving the company: Shall offer the shares to specified persons only.

2. limits the number of its members to 200 not including:

a) Employee + Member (Present and Past employees).

b) Joint shareholders are to be treated as a single member. Issues:

a) No exemption if member+ employee.

b) Directors or MD are not considered to be employees, they will be counted as members.

c) The limit of 200 is only for shareholders.

3. Prohibits from making an invitation to the public to subscribe for any securities of the company.

4. Prohibits from making an invitation for acceptance of deposits from persons other than its members. Public Company: A public company is a company which:

a) Is not a private company & Has a minimum paid up capital of Rs.5 lakhs. or such higher paid-up capital, as may be prescribed.

b) Further a subsidiary of a public company will be a ‘Public Company’ even if it is incorporated as a private company.

Holding and subsidiary Company

Holding company [Sec 2(46)]: in relation to one or more other companies, means a company of which such companies are subsidiary companies. Subsidiary company or subsidiary [Sec 2(87)]: in relation to any other company (that is to say the holding company), means a company in which the holding company-

a) controls the composition of the Board of Directors; or

b) exercises or controls more than one-half of the total share capital either at its own or together with its subsidiary companies.

c) shall not have layers of subsidiaries beyond prescribed. Explanation: For the purposes of this clause.

a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in point (i) &(ii) is of another subsidiary company of the holding company;

b) control is said to be exercised if discretion to appoint or remove all or a majority of the directors;




c) the expression – company includes any body corporate;

d) layer in relation to a holding company means its subsidiary or subsidiaries;

e) shares held in a 'fiduciary capacity' shall not be counted

Other classification of companies

Government Company - (Sec.2(45) of the co.Act 2013):

1. Not less than 51% of the paid-up share capital is held by

a) The Central Government Or

b) Any State Government or Governments Or

c) Partly by the Central Government and partly by one or more State Governments. 2. The subsidiary of a Government company is also a Government company. 3. Popularly known as public sector companies. Foreign Companies: A Company incorporated outside India and having a place of business in India. Investment Co.: Principal business is the acquisition of shares, debentures etc. Finance Co.: It means a non-banking company, which is a financial Company. Public Financial Institutions:

1. LIC 2. IDFC Ltd. 3. Company referred in UTI Act 4. Institutions notified by CG

However, no institution shall be so specified unless:

a) Established or constituted by or under any Central Act, or

b) >50% of the paid up capital held by C.G.

1. MCA Circular No.34/2011- Criteria to be declared as PFI:

a) Established under a Special Act or the Co’s Act

b) Main Business should be Industrial / Infrastructural Financing.

c) In existence for at least 3 years and income from main business exceed 50% of their total income.

d) Net worth Rs. 1000 crores

e) Registered as IFC with RBI or as an HFC with NHB.

f) For CPSUs/SPSUs no restriction shall apply with respect to financing specific sector(s) and net worth

Association not for profits Or Non profit oriented companies (sec 8): 1. Registration of an association not for profit- C.G. permission. 2. With limited liability without using "Limited"/ "Private Limited". 3. Conditions for grant of licence:

a) For promoting commerce, art, religion etc.

b) Prohibits payment of any dividend.

c) A licence subject to other conditions as think fit by C.G.

d) can't alter its objects clause in MOA without the approval of C.G.




4. C.G may also grant exemption for other provisions. 5. Revocation of licence:

a) The C.G. may revoke if objects clause changed without the approval of the C.G.

b) Upon revocation, the registrar shall add the word "Limited" or "Pvt. Ltd".

c) Before a licence is revoked, the C.G. shall give an opportunity of being heard. 6. Advantages:

a) Need not pay stamp duty.

b) A partnership firm can be a member.

c) Adopt in lieu of Co. a suitable name.

d) The C.S. need not be a qualified C.S.

e) May hold it’s AGM on a public holiday.

f) 14 days notice is sufficient

g) BOA preserved for 4 years only

h) Need not have the minimum paid capital

Converting a private company into a public company

Sec 14(1) - by SR alter its articles Procedure:

1. Board Meeting - fix time, place for General Meeting

2. Amend Name Clause by removing word ‘Private’ by SR

3. SR for removing restrictions

4. Alter articles which do not apply to a public company by resolutions for clause by clause.

5. Apply to Tribunal approval of resolutions

6. File all necessary documents with the Registrar

Conversion of a Public company into a Private company

Sec 14(1) By SR alter articles converting - A public company into a private company.

Procedure:

1. Alter Articles to incorporate the restrictions SR

2. Application to the Tribunal for approval of the change.

3. Approval: Approval of the Tribunal (CG for time being as per Companies Act, 1956)

4. file with Registrar within 15 days

Explain the composition of National Company Law Tribunal?

Constitution of National Company Law Tribunal:

1. Central Government shall, by notification, constitute, a Tribunal to be known as the National Company Law Tribunal

2. consisting of a President and such number of (Judicial and Technical) members,

3. to exercise and discharge such powers and functions as conferred on it by or under this Act or any other law for the time being in force.

4. President shall be a person who is or has been a Judge of a High Court for five years.




5. A person shall not be qualified for appointment as a Judicial Member unless he is or has been—

a) a judge of a High Court; or

b) a District Judge for at least five years; or

c) an advocate of a court for at least ten years.

6. A person shall not be qualified for appointment as a Technical Member unless he is or has been—

a) for at least 15 years a member of the Indian Corporate Law or Indian Legal Service out of which at least three years shall be in the pay scale of Joint Secretary to the Government of India or equivalent or above in that service; or

b) in practice as a chartered accountant, or a cost accountant practice, or as a company secretary for at least fifteen years

c) a person having special knowledge and experience, of not less than fifteen years, in various disciplines ,

d) a presiding officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947 for at least five years.

Term of office of President, Chairperson and other Member

1. Shall hold office for a term of five years from the date on which he enters upon his office,

2. but shall be eligible for re-appointment for another term of five years. A Member of the Tribunal shall hold office as such until he attains,—

a) in the case of the President, the age of sixty-seven years;

b) in the case of any other Member, the age of sixty-five years. Exception: A person who has not completed fifty years of age shall not be eligible for appointment as Member. Provided further that the Member may retain his lien with his parent cadre or Ministry or Department, while holding office for a period not exceeding one year.

Explain the formation National Company Law Appellate Tribunal.

Constitution of Appellate Tribunal:

1. Central Government shall constitute, an Appellate Tribunal to be known as the National Company Law Appellate Tribunal

2. consisting of a chairperson and number of Judicial and Technical Members,

3. not exceeding eleven,

4. to be appointed for hearing appeals against the orders of the Tribunal. Qualifications of Chairperson and members of Appellate Tribunal:

1. the chairperson shall be a person who is or has been a Judge of the Supreme Court or the Chief Justice of a High Court.

2. A Judicial Member shall be a person who is or has been a Judge of a High Court or is a Judicial Member of the Tribunal for five years.

3. A Technical Member shall be a person having special knowledge and experience, of not less than twenty-five years in various disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies.




Term of office of President, Chairperson and other Members: The chairperson or a Member of the Appellate Tribunal shall hold office for a term of five years from the date on which he enters upon his office, but shall be eligible for re-appointment for another term of five years. A Member of the Appellate Tribunal shall hold office as such until he attains,—

a) in the case of the Chairperson, the age of seventy years;

b) in the case of any other Member, the age of sixty-seven years. Exception: A person who has not completed fifty years of age shall not be eligible for appointment as Member. Provided further that the Member may retain his lien with his parent cadre or Ministry or Department, while holding office for a period not exceeding one year. Selection of Members of Tribunal and Appellate Tribunal:

1. The President of the Tribunal and the chairperson and Judicial Members of the Appellate Tribunal, shall be appointed after consultation with the Chief Justice of India.

2. The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee.

Committee consisting of—

a) Chief Justice of India or his nominee—Chairperson;

b) a senior Judge of the Supreme Court or a Chief Justice of High Court — Member;

c) Secretary in the Ministry of Corporate Affairs—Member;

d) Secretary in the Ministry of Law and Justice—Member; and

e) Secretary in the Department of Financial Services in the Ministry of Finance— Member. The Secretary, Ministry of Corporate Affairs shall be the Convener of the Selection Committee. The Selection Committee shall determine its procedure for recommending persons for appointment.

No appointment of the Members of the Tribunal or the Appellate Tribunal shall be invalid merely by reason of any vacancy or any defect in the constitution of the Selection Committee.

THE END


IPCC _33e_C.Law_Fast Track_Promotion & Incorporation of a Company _____13


3. PROMOTION & INCORPORATION OF A COMPANY

Q.No.1. Promoter

Meaning of Promoter:

a) named as such in a prospectus or is identified by the company in the annual return

b) has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or

c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act. Not in professional capacity.

Q.No.2. Fiduciary position of a promoter

Until a Company gets incorporated, Promoter stands in a fiduciary capacity Legal position of promoter: Neither an agent nor trustee Duties of Promoter (Fiduciary Position)

a) Not to make any profit at the expense of the company

b) To give benefit of negotiations to the company

c) To make a full disclosure of interest or profit: Promoter fails to disclosure-co. may sue for damages &recover secret profit made. Law does not prohibit. If full disclosure is made, the profit is permissible.

d) Not to make unfair use of position.

Q.No.3. Write about remuneration of promoter.

No right if there is no express contract. If there is an express contract, the remuneration in one of the following ways:

a) Sell his own property at a profit provided he makes a disclosure of it.

b) Option to buy shares at a lesser price.

c) Commission on the shares sold.

d) Fixed sum.

Q.No.4. Remedies available to the company against the promoter

If the promoter fails to disclose any secret profits made by him:

a) Cancel the contract or

b) Retain the property & pay not more than what the promoter actually paid for purchase of it.

c) Claim damages for violation of duty of disclosure.





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Q.No.5. Pre-Incorporation Contracts

1. Meaning: Entered by promoters on behalf co. before its existence. 2. Legal Position:

a) There must be two parties to a contract. But before incorporation, it is not an entity.

b) Hence, contract never binds the company. 3. Cannot ratify –Only option is to enter into a new contract. 4. Adoption of contract: will not create a contract between the company and the other 5. Principle of constructive notice:

a) person entering into a contract is presumed to have knowledge Memorandum, Articles

b) person who enters into a pre incorporation contract with the promoters does at his own risk. 6. Indian Contract Act:

a) Sec 70 of the Indian Contract Act, 1872 must be considered.

b) clearly states that where a person lawfully does anything for another person without intending to do gratuitously compensation must be paid for enjoyment of benefits

7. Personal liability: Promoters are personally liable. But exception is, if the agreement provides that:

a) Liability shall cease if co. adopts and

b) Either party may rescind the contract.

Q.No.6. Procedure for incorporation

1. Requirement for the reservation of the name of the company:

a) make an application to the Registrar for the reservation of a name

b) Registrar reserve the name for a period of 60 days from the date of the application.

c) After reservation of name it is found that name was applied by furnishing wrong information:

i) if the company has not been incorporated - reserved name shall be cancelled

ii) if the company has been incorporated - Registrar

• either direct to change or striking off the name or

• make a petition for winding up of the company.

2. After getting the name approved file documents with fee. 3. Registrar Issue of certificate of incorporation on registration

4. Registrar shall allot a corporate identity number (CIN) from date of incorporation

5. company shall maintain and preserve at registered office copies of all documents till dissolution 6. Furnishing of false or incorrect information or suppression of material fact: shall be liable for

action U/s447 (Fraud).




7. Order of the Tribunal: company incorporated by furnishing false information or suppressing facts Tribunal on application:

a) Pass such orders - for regulation of the management

b) Direct - liability of the members as unlimited; or

c) Direct - removal of the name or

d) Pass - winding up

Q.No.7. Documents to be filed with Registrar at the time of registration

a) the memorandum and articles signed by all the subscribers

b) a declaration that all the requirements of this Act and the rules complied with.

c) affidavit from each of the subscribers / first directors

i) he is not convicted of any offence in connection with the promotion etc

ii) not been found guilty of any fraud or misfeasance

iii) all the documents filed with the Registrar correct and complete

d) address for correspondence

e) particulars of every subscriber

f) particulars of first directors

g) particulars of the interests of the persons mentioned in the articles as the first directors

Q.No.8. One person company

“One Person Company” means a company which has only one person as a member. Law with respect to formation of OPC provides that:

a) The memorandum of OPC shall indicate the name of the other person (nominee)

b) other person shall give his prior written consent and same shall be filed with Registrar

c) Such other person may be given the right to withdraw his consent

d) member of OPC may change name of such other person

e) change in the name of the person shall not be deemed to be an alteration of the memorandum.

f) Only a natural person who is an Indian citizen and resident in India

i) shall be eligible to incorporate a OPC;

ii) shall be a nominee for the sole member of a OPC.

g) No person shall incorporate more than 1 OPC or become nominee in more than 1 company.

h) No minor shall become member or nominee of the OPC

i) Such Company cannot be incorporated or converted into a company under section 8

j) Such Company cannot carry out Non-Banking Financial Investment activities

k) OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation

l) contravenes the provisions, they shall be punishable



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Q.No.9. Effect of Registration of a company

1. From the date of incorporation

a) subscribers MOA become members of the company

b) It shall be a body corporate

c) capable of exercising all the functions of an incorporated company

d) have perpetual succession and a common seal

e) It shall have power to acquire, hold and dispose of propertyetc in own name

2. becomes a legal person separate from the incorporators and binding contract between the company and its members

3. A shareholder, who buys shares, does not buy any interest in the property of the company

4. Merely because a company purchases all the shares of another company will not put an end to corporate character of another company

5. juristic person separate and distinct from its members

Q.No.10. Certificate of Commencement of Business

1. company having a share capital shall not commence any business unless

a) a declaration is filed with the Registrar stating that

i) every subscriber has paid the value of the shares agreed be taken and

ii) the paid-up capital is not less than 5 lakh/1 lakh in case of a public/private respectively on the date of making of this declaration

b) the company has filed with the Registrar a verification of its registered office 2. If any default made

a) The company - penalty up to 5000 and

b) officer - punishable with fine upto 1000/day 3. Where no declaration has been filed with the Registrar within 180 days of incorporation and the

Registrar believe company is not carrying on business remove name from register Effect of issue of The CCB: Until the CCB is issued, the company cannot carry on business, exercise borrowing

Q.No.11. Provisional contracts.

a) Provisional contracts: contracts entered into after obtaining the Certificate of Incorporation but

before it becomes eligible to commence business

b) contracts shall be binding upon the company from the date company entitled to commence business.

c) if the company goes into liquidation, without commencing the business, such contracts can’t be enforced at all

THE END


IPCC _33e_C.Law_ Fast Track_Memorandum & Articles of Association ______ 17


4. MEMORANDUM & ARTICLES OF ASSOCIATION

Memorandum of Association and its clauses/contents

It is the Charter (Constitution) of the company.

Objects of it:

a) Shareholders / loan providers can know the purpose for which the funds are going to be used.

b) Persons dealing can know whether the contractual relation is within its objects. Form: As prescribed in Schedule I or as near thereto. Requirements of MOA: Divided into paragraphs and numbered consecutively, signed and at least 1 witness attest the signature of the subscribers.

CONTENTS OF MEMORANDUM OF ASSOCIATION

There are 6 clauses in MOA. These are discussed in detailed below:

NAME CLAUSE

a) The name shall not be identical with to the name of an existing company

b) It shall not be undesirable in the opinion of the CG.

c) Name shall not give impression that the company is connected with, or having patronage of CG,SG etc. or

Labeling of company: Every company shall:

a) paint or affix its name, and the address of its registered office

b) have its name engraved in legible characters on its seal

c) have its name printed on hundies, promissory notes, bills of exchange etc.

Injunction if identical name is adopted: Existing company can apply to the CG for stopping the new company from using such name.

Limited or Private Limited: In case of a Public company the word “Limited” and in case of a Private company the words “Private Limited” In case of OPC: The words ‘‘One Person Company’’ shall be mentioned in brackets below. Now all the companies are allotted a Corporate Identity Number (CIN) in addition to the name.

REGISTERED OFFICE (R.O.) / SITUATION CLAUSE / LOCATION CLAUSE

Every company shall furnish registered office within a period of 30 days of its incorporation. Significance of Registered Office:

a) Company shall not commence business unless it has registered office.

b) On and from the 15th day of its incorporation shall have a registered office for receiving all communications and notices.

c) The nationality of a company is determined by the place of its registered office.

d) Determine the jurisdiction of the Court.




Requirements of the Companies Act:

a) Paint or affix its name and address of its registered office at every place business is carried on.

b) Get its name, address and CIN printed on all its business letters, bill heads etc.

OBJECTS CLAUSE

1. It is the most important clause in MOA

a) Sets the boundary for company to operate.

b) Cannot undertake any activity not specified

c) Members/creditors can know the purpose to which their money can be applied.

d) Persons dealing with the company can know the extent of the company’s powers from it.

2. May choose any objects. However

a) Should not be illegal or against to public interest. E.g.: Gambling

b) Can’t be against Act

3. What to be stated?

a) Objects and matters necessary for progress

b) Powers (Eg Borrowing powers)

4. Any provision contained in any of the above mentioned document, shall be void, to the extent to which it is inconsistent to the provisions of this Act.

LIABILITY CLAUSE

1. States the limits to the liability of members

2. Co. Limited by Shares

3. Guarantee co. without share capital

4. Guarantee co. with share capital

5. Unlimited Company: Liability clause is not mandatory absence of this clause means liability is unlimited.

CAPITAL CLAUSE

a) The capital clause states- Number and nominal value of shares,

i) the number of shares agreed to subscribe (Min 1 share)

ii) OPC: the name of the nominee.

b) Promoters decide the amount

c) Stamp duty and Registration fee is payable on the basis of authorised capital.

d) No maximum limit to the amount.

e) No share capital = Not required to have the capital clause.

f) Cannot issue more shares than the authorised by MOA.

ASSOCIATION / SUBSRIPTION CLAUSE

a) Shall be signed by at least 2 and 7 subscribers in case of private & public companies respectively.

b) signature shall be attested by at least 1 witness .

c) Every subscriber is deemed to be a member

d) A subscriber cannot repudiate his liability on the ground of misrepresentation in prospectus.




Alteration of Memorandum of Association

Meaning of Alteration - Alter or Alteration - includes the making of additions, omissions and substitutions.

Procedure = SR + complying with the procedure specified.

The memorandum of association of a company may be altered in the following respects:

a) By changing its name [Sec 13(2)]

b) By altering it in regard to the state in which the registered office is to be situated [Sec 13(4) & (7)]

c) By altering its objects [Sec 13(1) & (9)]

d) By altering its share capital [Sec 61]

e) By reorganizing its share capital [Sec 203 to 237[

f) By reducing its capital [Sec 66]

Alteration of “Name Clause”

Situation 1: Change of name (voluntarily) (Sec 13):

a) By S.R. and approval of C.G

b) Change of name on the conversion does not require the approval of the C.G.

c) Change not allowed if defaulted in filing its annual returns or financial statements etc with ROC

d) File with the Registrar = Copy of SR + CG Approval

e) ROC will issue a fresh certificate of incorporation in the new name.

Situation 2: Rectification of name of company (Compulsory) (Sec 16):

Case A – If name resembles name of existing company:

a) CG may direct the company to change its name and the company shall change,

b) Within a period of 3 months from the issue of such direction

Case B – Resembles name of existing trade mark:

a) On an application by a registered proprietor, the CG within 3 years of incorporation or change of name of the company

b) the company shall change within a period of 6 months after passing an ordinary resolution.

1. The company shall intimate to the Registrar within 15 days

2. Default: Company fine of 1000/day and every officer fine >=5000 rupees but upto 1 lakh rupees.

3. Company shall disclose former name or names so changed during the last two years.






Q.No.4. Alteration of “Registered Office Clause” of MOA

CHANGE OF REGISTERED OFFICE

1. Change within the same city, town or village - approval of BOD and Notice of change to registrar within 15 days of the change.

2. From one city, town or village to another within the jurisdiction of same RoC - Special resolution + Notice of change to registrar within 15 days of the change.

3. From one city, town or village to another involves change in jurisdiction of ROC

a) Special resolution + Confirmed by the Regional Director on an application made by the company.

b) RD communicate confirmation within 30 days to company

c) Company file the confirmation with the Registrar within 60 days

d) RoC certify within 30 days

e) Certificate shall be the conclusive evidence

4. From one state to another state

a) Approval of Central Government

b) CG must satisfy that the alteration has the consent of the creditors, debenture-holders etc or adequate security has been provided for such discharge.

c) Order of the Central Government shall be filed with the Registrar of each of the States.

d) RoC shall issue a fresh certificate of incorporation indicating the alteration.

Q.No.5. Alteration of “Objects” clause

Procedure for Alteration:

a) Special resolution

b) Filie a copy of Special Resolution with the Registrar who shall within a period of 30 days Change of objects for which money raised through prospectus: Pass special resolution through postal ballot

a) such resolution shall also be published in the newspapers and shall also be placed on the website

b) The dissenting shareholders shall be given an opportunity to exit.

Within the same town

Different City but within the state Different State

• SR • C.G. Approval

Different Jurisdiction of RoC (Maharasthra- Mumbai to Pune, Tamilnadu- Chennai to Coimbatore) • SR • Permission of Regional

Director

Same Jurisdiction

of ROC

Special Resolution

Board Resolution




Q.No.6. Alteration of “Liability Clause”

Change of liability clause of memorandum:

1. Special resolution + file with the Registrar of Companies

2. It does not affect any debts, liabilities etc. incurred before alteration. Unlimited company to provide for reserve share capital on conversion into limited company-

a) Increase the nominal amount of its share capital

b) Provide a specified portion which shall be called only at the time of winding up

Q.No.7. Alteration of “Capital Clause” of MOA

Authorized by its articles + resolution in general meeting

a) increase its authorized capital

b) consolidate existing shares:

c) convert fully paid-up shares into stock

d) sub-divide its shares

e) cancel shares which have not been taken.

Q.No.8. Conversion of a company from one “class of company” to another class

1. Alter MOA/AOA in accordance with the provisions of Chapter II (Incorporation of company and

matters incidental thereto).

2. File an application to the Registrar who shall after satisfying himself that the provisions applicable for registration of companies have been complied with, of the company.

3. Registrar closes the former registration + issue a certificate of incorporation

4. No effect on the debts, liabilities etc., incurred before conversion

Q.No.9. Articles of association of a company

Meaning: The articles of association of a company are its rules and regulations, which are framed to manage its internal affairs. Significance of Articles:

a) Articles provide the manner in which the objects are to be carried out.

b) business document regulates the domestic management of a company

c) bye-laws of the company Contents and model of articles of association:

a) Contain the regulations for management of the company.

b) The articles may contain provisions for entrenchment (to protect something) and entrenchment shall only be made either

i) on formation of a company or

ii) by an amendment in the articles agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.




iii) Forms specified in Tables, F, G, H, I and J in Schedule I as may be applicable

iv) May adopt all or any of the regulations contained in the model articles Form of Articles of Association:

Type of company Form of AOA

Public company limited by shares Table F

Company limited by guarantee and having share capital. Table G

Company limited by guarantee and not having share capital. Table H

Company with unlimited liability and having share capital Table I

Company with unlimited liability and not having share capital Table J

Copies of memorandum, articles, etc., to be given to members: Within 7 days of the request on the payment of fees.

In case of default, the company and every officer a penalty of 1000/day or 1 lakh rupees whichever is less.

Q.No.10. Alteration of the AOA and its limitations

Alteration of Articles:

1. Special resolution

2. Alteration to include conversion of private company into a public company vice versa

3. Where a private company removes restrictions, from the date of such alteration cease to be a private company

4. Conversion public company to private requires approval of the Tribunal (CG for time being)

5. Shall file with the Registrar copy of the altered articles within 15 days

6. Altered articles are valid as if it were originally contained in the articles.

7. Every alteration made in articles of a company shall be noted in every copy of the articles

8. A company cannot deprive itself of these powers (Andrews vs. Gas Meter Co). Limitations to alteration:

1. Only by passing a special resolution.

2. Must not exceed the powers given by MOA

3. It must not be against any provisions of the Companies Act.

4. It must not be against to any provisions of any other law

5. The alteration shall not be illegal or opposed to public interest.

6. It must be for the benefit of the company as a whole.

7. The alteration must not be against to an order of the court.

8. The articles should not be in fraud on minority

9. For converting a Public Co. into a Private Co., the approval of the C.G. is necessary.




Q.No.11. “MOA” Vs. “AOA”

Difference MOA AOA

Object state the purposes for which the Co. has been established.

Manner in which the objects are to be carried out.

Contents In total it contains 6 clauses. contains the rules and regulations

Position/Imp. Equivalent to the ‘Constitution’ Equivalent to ‘bye-laws’.

Action ultravires

Ultravires the MOA is fully void and cannot be ratified.

Ultravires the Articles but within MOA can be confirmed by the S.H.s.

Can’t include MOA can’t include any clause contrary to the provisions of the companies act.

can’t include any clause contrary to the provisions of the Act & MOA.

Q.No.12. Binding effects of MOA & AOA

1. Between the members and the company:

a) Constitute a contract between the members and the company.

b) Members are bound to the company under a statutory contract. Borland’s Trustee VS. Steel bros & co. ltd: AOA states member’s shares should be sold only to other member. Held, Trustee was bound by Articles, as Shares were purchased in terms of AOA of the Company.

2. Between the company and the members:

a) One of the opinions is that it binds in the same way as its members are and another opinion is that the company is not wholly bound.

b) It is bound to the extent to prevent any breach of the article as to rights of a member.

3. Between the members inter-se:

a) No express agreement yet each and every member of the company is bound by the Memorandum and the Articles.

b) The articles can’t regulate the rights arising out of commercial contract 4. Between the company and the outsiders:

a) Do not constitute a contract between the company and outsiders.

b) Neither the company nor the members are bound by the Articles to outsiders.

Q.No.13. Doctrine of constructive notice

Doctrine of Constructive notice:

a) MOA & AOA are Public documents person dealing with company is assumed as read the M&A

b) Person dealing cannot argue that he is not aware of the provisions of the M&A.

c) It operates in favour of the company and against the person who failed to enquire. KOTLA VENKATA SWAMY VS. RAM MURTHY’S CASE:

a) Articles require deeds signed by the MD, Secretary and Director.

b) Plaintiff accepted deed of mortgage signed by the secretary and a working director only.

c) Held that the plaintiff could not claim anything under this deed.




Q.No.14. Doctrine of Indoor Management (Or) Turquand rule.

This doctrine is an exception to the doctrine of constructive notice.

Meaning: Persons presumed to have read the M&A and to see that the proposed dealing is not inconsistent therewith but they need not do more. They can presume that all this was done regularly Royal British bank Vs. Turquand:

a) Directors were authorized to borrow on bonds by obtaining approval of shareholders.

b) Directors issued a bond to ‘T’ without such approval.

c) Held, that ‘T’ could sue the company on the strength of the bond.

Conditions for applicability of Doctrine of Indoor Management:

a) The person dealing with the company must have the knowledge of the MOA and AOA

b) The person dealing with the company must not have the knowledge of irregularity.

c) The person dealing with the company must not be put upon an enquiry.

d) There must be some procedural or internal irregularity.

e) There must not be any ultra-vires act or illegality.

Exceptions:

a) Acts done in the name of the company are void abinitio,

b) Cannot apply to forgery which must be regarded as nullity.

c) If an officer of a company makes a contract with a third party and if such act of the officer falls outside his ordinary authority

d) Person dealing with the company acted negligently

Q.No.15. Doctrine of ultra vires & its effects. 1. ‘Ultra’ means ‘Beyond’ and ‘Vires’ means ‘Powers’.

2. Effect:

a) Ultra vires to the Company’s Act / MOA is illegal and void and it cannot be ratified.

b) Ultra vires articles, but intravires the Act / MOA, can be ratified by GM resolution.

c) Ultra vires the powers of the directors, but intra vires the company can be ratified by the shareholders

3. Purpose of Doctrine: To protect the interest of shareholders and creditors.

4. Further effects of ultravires transactions:

a) Any member of the company can get an injunction to stop doing it.

b) Can bring an action against the directors to pay money wasted.

c) Company can neither be sued on an ultra vires transaction, nor can it sue on it.

d) Company’s right over that property is still valid as it represents the company’s money.

e) Act are void and they can’t be ratified

f) If the directors have lent money which is ultra vires company can sue for the recovery

THE END


IPCC _33e_C.Law_Fast Track_Prospectus _____________________________25


5. PROSPECTUS

Meaning and role of the Prospectus.

Meaning of prospectus: any document described or issued as prospectus and includes A red herring prospectus or Shelf prospectus or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate. Important conditions:

a) Invitation to the public in written form

b) made by or on behalf of the company.

c) Application constitutes an offer by the subscriber on its acceptance by the company binding contract comes into existence.

Role of prospectus:

a) investors decide whether or not they should subscribe securities.

b) information in the prospectus is vital and any misstatements may result in huge losses.

Different modes of issue of securities by a Company

Public company -

a) Through prospectus in public offer or Private placement or

b) Through a rights issue or a bonus issue. Public offer includes initial public offer (IPO) or Further public offer (FPO)or an offer for sale. Private company -

a) By way of rights issue or bonus issue; or

b) Through private placement.

Private placement

A) Private Placement: offer to a select group of persons through issue of a private placement offer

letter and by fulfillment of the conditions specified.

Maximum number of persons: Offer shall be made maximum to 50 persons or such higher number as may be prescribed, in a financial year. Does not include- Qualified institutional buyers and employees stock options

B) Offer is treated as “Public offer”:

Case A: Offer/ invitation made to more than 50 or such higher prescribed number of persons

Case B: On non-compliance of conditions of private placement

Procedure for private placement

Applicability: Private and Public companies.




The following are the conditions through which invitation can be made:

a) May make private placement through issue of a private placement offer letter.

b) shall be made maximum to 50 persons or such higher as may be prescribed, in a financial year

c) No fresh offer or invitation shall be made unless- allotments completed, or invitation has been withdrawn, or Abandoned by the company.

d) All monies shall be paid by cheque or demand draft or other banking channels not by cash.

e) shall allot its securities within 60 days from the date of receipt of the application money.

f) Monies received shall be kept in a separate bank account and shall be utilised only for - adjustment against allotment of securities; or the repayment of monies if unable to allot securities.

g) Offers shall be made only to persons whose names are recorded by the company prior to the invitation complete information about such offer shall be filed with the Registrar within 30 days.

h) shall not publish any advertisements or utilise any media to inform large public about such offer.

i) File with the Registrar a return of allotment. Penalties:

Default in allotment of securities:

a) not able to allot within 60 days, it shall repay the application money within 15 days and

b) If fails to repay that money with interest @ of 12 % per annum from the expiry of 60th day

Persons liable Penalty Company, Promoters, Directors

• upto amount involved in the offer or invitation, or

• 2 crore Rupees

Whichever is higher. Company shall also refund within a period of 30 days of the order.

Limitations on private placement as per Rules

a) Previously approved by a Special Resolution, for each of the Offers or Invitations.

b) The explanatory statement shall disclose the basis or justification for the price.

c) For non- convertible debentures SR is sufficient only once in a year for all the offers.

d) Not more than 200 persons in the aggregate in a financial year excluding QIB and ESOPs.

e) The value of such offer or invitation per person shall be with an investment size of not less than 20,000 rupees of face value of the securities.

f) Payment to be made for subscription shall be made from the bank account of the person subscribing and the company shall keep the record of the same.

When prospectus is not required to be issued

a) Bona fide invitation to a person to enter into an underwriting agreement

b) Private placement

c) Rights issue or a bonus issue




d) Issue of shares or debentures which are in all respects uniform with shares or debentures previously issued

e) Sweat equity shares

f) Employees Stock Option Scheme

Requirements as to registration of prospectus

1. Deliver to ROC [Sec 26(4) of the Companies Act, 2013]:

a) No prospectus shall be issued by or on behalf of a company or in relation to an intended company unless on or before the date of its publication, a copy has been delivered to the Registrar for registration.

b) The same shall be signed by every person who is named therein as a director or proposed director of the company or by his duly authorised attorney.

2. Prospectus to state the delivery of copy and documents to the registrar [Sec 26(6) of the

Companies Act, 2013]: Every prospectus issued shall, on the face of it:

a) state that a copy has been delivered for registration to the Registrar, and

b) specify any documents required to be attached to the copy so delivered or refer to statements included in the prospectus which specify these documents.

3. No registration of prospectus [Sec 26(7) of the Companies Act, 2013]: The Registrar shall not

register a prospectus unless:

a) the requirements of this section with respect to its registration are complied with, and

b) the prospectus is accompanied by the consent in writing of all the persons named in the prospectus.

4. Consent of expert [Sec 26(5) of the Companies Act, 2013]: If the prospectus includes a

statement made by an expert, it shall also include consent in writing of that expert.

a) It should also state that the consent given has not been withdrawn before delivery of prospectus to the registrar.

b) The expert should not be a person who is connected with the formation or management of the company.

5. Time period for the issue of prospectus [Sec 26(8) of the Companies Act, 2013]: No

prospectus shall be valid if it is issued more than 90 days after the date on which a copy thereof is delivered to the Registrar.

6. Approval by various agencies: As per SEBI (Issue of Capital and Disclosure Requirements)

Regulations, the draft prospectus has to be approved by various agencies before it is filed with ROC such as:

a) All the lead managers to the issue, (who must be authorised by SEBI).

b) Each of the stock exchange where the shares are listed / proposed to be listed,

c) Lead financial institution underwriting the issue (if applicable, Authorised by SEBI). 7. Vetting by SEBI: The draft prospectus is vetted by SEBI to ensure adequacy of disclosures.

However, vetting by SEBI does not amount to approval of prospectus. SEBI does not take any responsibility for the correctness of the statements made or opinions expressed in the prospectus.

8. Penalty [Sec 26(9) of the Companies Act, 2013]: The following is the penalty for contravention of the this section:




Persons liable Penalty

Company Fine varying from 50,000 rupees to 3 lakh rupees Every person • Imprisonment up to 3 years or

• Fine varying from 50,000 rupees to 3 lakh rupees or • With both

Matters that are to be stated in the prospectus

Contents of the prospectus: shall be dated and signed

1. State the following information, namely:-

a) Names & addresses of registered office and the other persons (like company secretary etc.)

b) Dates of the opening and closing of the issue

c) Details of separate bank account

d) Details of the underwriters and the amount underwritten by them

e) Consent of directors, auditors, bankers to the issue, expert’s

f) Authority for the issue and resolution details

g) Procedure and time schedule for allotment

h) Capital structure of the company

i) Main objects of public offer

j) Main objects and present business of the company

k) Other particulars relating to management view of risk factors, gestation period, extent of progress, deadlines for completion, any litigation or legal action pending

l) Minimum subscription

m) Details of directors 2. Set out the following reports

a) Reports by the auditors of the company

b) Reports relating to profits and losses for each of the five financial years

c) reports made by the auditors

d) Reports about the business or transaction to which the proceeds are to be applied

3. Declaration about the compliance of the provisions of this Act

Procedure for variation in terms of contract or objects in prospectus

1. A company shall pass special resolution (in case of listed coy’s through postal ballot).

2. Notice shall also be published in the newspapers indicating clearly reason for such variation.

3. The dissenting shareholders shall be given an exit offer by promoters or controlling shareholders

Offer of sale of shares

1. Members of a company may propose in consultation with the Board to offer their holdings




2. Offer of sale document be deemed to be a prospectus and all laws and rules shall apply

3. Members shall collectively authorize the company whose shares are offered for sale to the public and they shall reimburse the company all expenses incurred by it.

Issue of securities in dematerialized form

In case of public offer:

a) every company making public offer; and

b) such other class or classes of public companies prescribed

shall issue the securities only in dematerialized form. In case of other companies: May convert their securities into dematerialized form.

Abridged prospectus.

Objective: To reduce the cost of issue Meaning: means a memorandum containing such salient features specified by the SEBI. Every form of application issued shall be accompanied by an abridged prospectus. Exception:

1. Entered into an underwriting agreement with respect to such securities, or

2. Securities are not offered to the public. A copy of the prospectus shall be furnished to any person on demand. Penalty: Company Rs.50000 for each default

Powers of SEBI to regulate issue and transfer of securities, etc

1. Provisions relating to (Chapter III - Prospectus and allotment), (Chapter IV - share capital and

debenture) and section 127:

a) listed companies b) companies which intend to get listed

Administered by SEBI

c) In any other case Administered by CG (i.e MCA)

2. Powers relating to all other matters shall be exercised by CG, the Tribunal or the Registrar.

Misleading prospectus

Misleading prospectus:

a) Misleading, in the form and context.

b) Certain material matter omitted to mislead. Golden Rule for prospectus:

a) present the whole picture of the company




b) must disclose all material facts truly, honestly and accurately.

c) All facts influence decisions must be disclosed

d) No fact should be omitted Consequence: May lead to criminal and civil liability. Action by affected persons:

a) Suit may be filed or

b) Any other action may be taken U/s 34 or 35 or 36. By whom? persons who have been affected by misstatement.

Remedies available to a person deceived by a false and misleading prospectus

Remedies against the company as per general law of contracts: Rescission of the contract:

a) As contract is based on the utmost good faith, voidable at the option of the aggrieved party.

b) subscriber can file a suit against the company to rescind the contract. But the following conditions must be followed:

1. material fact

2. induced to take the shares

3. The shareholder relied on the statement

4. the omission was misleading

5. those acting on behalf of the company acted fraudulently and were authorised to act on its behalf

6. suffered a loss or damage

7. the proceeding for rescission was started as soon as the allottee came to know the fact. Damages for deceit:

The allottee may recover damages from the company for any loss he may have suffered if he was induced to take shares based on a fraudulent misrepresentation of material facts. The allottee cannot, however, both retain the shares and get damages against the company.

Liabilities for misstatements in prospectus

A. Criminal liability for misstatements in prospectus:

1. Misstatement in prospectus:

a) Misleading, in the form and context.

b) Certain material matter included or omitted to mislead. 2. Punishment for the misstatement:

a) Every person who authorizes the issue shall be liable U/s 447 (Fraud).

i) imprisonment - not be less than 6 months but up to 10 years and




ii) Fine - not be less than the amount involved in the fraud, but up to 3 times the amount.

b) fraud involves public interest, imprisonment shall not be less than 3 years. 3. Exception to criminal punishment:

a) statement or omission was immaterial, or

b) He had reasonable grounds to believe

B. Civil liability for misstatements in prospectus [Sec 35]: person has subscribed on prospectus

which is misleading and has sustained any loss 1. Persons liable for the misstatement:

a) director

b) authorised himself to be named in prospectus as a director,

c) promoter

d) authorised the issue of the prospectus and

e) expert

2. Punishment:

a) liable to pay compensation to every person who has sustained such loss or damage.

b) Also U/s 36 for fraudulently inducing persons to invest money. 3. Exception to civil punishment:

a) Having consented and withdrew his consent before the issue of the prospectus, and was issued without his authority or consent; or

b) issued without his knowledge or consent, and on becoming aware gave public notice.

Expert and his liabilities

Meaning of an Expert: includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate. Must be unconnected with the formation or management of the company 1. When can report be included

a) given his written consent and not withdrawn before delivery to ROC &

b) A statement appears in the prospectus that he has not withdrawn the same. 2. Liabilities: An expert will be liable U/sec 35 - Civil liability for misstatements in prospectus.

3. When not liable?

a) given his consent and he withdrew before delivery for registration or

b) prospectus was issued without his knowledge and gave a reasonable public notice.

c) liable in the capacity of an expert and not for any other statement 4. No criminal Liability




Penalties for fraudulently inducing a person to invest money

Persons who fraudulently induces persons to invest money by making statement which is false, deceptive etc. to enter into

a) Any agreement for acquiring, disposing of, subscribing for, or underwriting securities; or

b) Any agreement, the purpose of which is to secure a profit to any of the parties

c) Any agreement for obtaining credit facilities from any bank or financial institution. shall be punishable for fraud U/s 447

Personation for acquisition of securities

Any person who

a) making of an application in a fictitious name for securities

b) multiple applications to a company in different names or

c) induces company to allot, or register any transfer to him, or to any other in a fictitious name. Such person shall be liable for action U/s 447. The amount received through disgorgement or disposal of securities shall be credited to the Investor Education and Protection Fund.

Deemed prospectus

When?

a) offer for sale to public made within 6 months of allotment or agreement to allot or

b) whole consideration not received by the company when offer to the public was made. Effect of deemed prospectus:

a) All enactments and rules of law shall apply

b) Liability in respect of mis-statement in prospectus shall apply to deemed prospectus.

c) Deemed that the persons by whom the offer to the public is made as directors. Contents of deemed prospectus:

a) Contents specified u/s 26 of the companies Act, 2013

b) Net consideration received or to be received by the company

c) Time and place for inspection of contract Signing of deemed prospectus:

a) In case of a company, by directors of the company;

b) In case of firm, by not less one-half of the partners in the firm.




Shelf Prospectus

Meaning: "shelf prospectus" means a prospectus under which one or more issues are made over a certain period without the issue of a further prospectus. It shall commence from the date of opening of the first offer of securities under that prospectus. No further issue of prospectus for a period of 1 year Whom it applies? Class or classes of companies, as the SEBI may provide Filing of shelf prospectus: At the stage of first offer only no further prospectus is required. Filing of information memorandum with the registrar: prior to every subsequent offer:

a) New charges created,

b) Changes in the financial position, and

c) Such other changes as may be prescribed, If any changes made in shelf prospectus, company shall intimate to the persons who paid money in advance and company shall refund all the monies received as subscription within 15 days thereof if they desire to withdraw. Prospectus = I.M. + S.P.

Red herring prospectus

Means a prospectus which does not include complete particulars of the quantum or price Company may issue a red herring prospectus prior to the issue of a prospectus. Filing with the registrar: Shall file it with the Registrar at least 3 days prior to the opening of the subscription list and the offer. A red herring prospectus shall carry the same obligations of prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus. Upon the closing of the offer of securities, the prospectus shall be filed with the registrar and the SEBI which shall state the total capital raised, closing price, any other details as were not included.

THE END


IPCC _33e_C.Law_Fast Track_Allotment of Securities & Underwriting _______34


6. ALLOTMENT OF SECURITIES & UNDERWRITING

Allotment of shares

a) Appropriation out of previously unappropriated capital

b) Allotment of shares is the acceptance by the company

c) Allotment only on sale of securities by a company, hence cannot be made for bonus shares.

d) Reissue of forfeited securities is not allotment

Requisites of a valid allotment

Conditions for allotment of securities:

Primary conditions:

a) minimum amount subscribed and

b) The sums payable on application received by cheque etc (5% of FV or as specified by SEBI).

c) Must be received within 30 days from issue of the prospectus, or as specified by SEBI, otherwise, all moneys shall be returned.

Filing of return of allotment: file with the Registrar Consequences of default: Company for each default, of 1000/day or 1 lakh, whichever is less Rules: If minimum not subscribed and minimum application money not received then

a) repay within 15 days of closure of issue and

b) Otherwise all shall jointly and severally be liable to repay @15 percent per annum.

c) Refund credited to the same bank account from which it’s received.

Return of Allotment

U/Sec 39 (4) company shall file with the Registrar a return of allotment with registrar on allotment. Rules - within 30 days file with the Registrar in Form PAS-3 and pay prescribed fees.

Attachments and inclusions in Form PAS 3:

a) A list of allottees states their names, address, etc.

b) Allotted as fully or partly paid up for consideration other than cash – also copy of the contract.

c) Bonus shares – also a copy of the resolution passed in the general meeting. Reissue of forfeited securities is not allotment - return of allotment is not required to be filed.

i) Minimum Subscription, and ii) Application Money payable on shares being issued

1. Meaning: Minimum amount which is stated in the prospectus as such.

2. Purpose - to prevent a company from starting its business without adequate capital.




3. Importance: cannot proceed with allotment unless

a) minimum amount subscribed and

b) The sums payable on application received by cheque etc (5% of FV or as specified by SEBI). 4. Time Limit: within a period of 30 days of issue of the prospectus or specified by SEBI 5. Deposit in separate bank account:

a) application moneys shall be kept in a separate scheduled bank and

b) utilized for adjusting against allotment or refunding. 6. As Per SEBI Regulations: public and rights issue shall be 90% of the issue amount.

Opening of Subscription List

A. Opening of Subscription List: Date of offer for securities opens (i.e allotment) B. Minimum No. of days of opening of subscription list: For public issues should be kept open for

at least 3 working days.

Irregular allotment

Irregular allotment: Allotment made in violation of Sections 23, 26, 39 and 40. Irregular allotment therefore arises in the following instances: 1. does not issue a prospectus in a public issue

2. prospectus does not include matters required or information given is misleading

3. prospectus not filed with the Registrar

4. minimum subscription not received

5. Minimum application money is less than 5% of the nominal value

6. Approval for listing not obtained when rewuired Effects of irregular allotment: 1. Where prospectus doesn’t contain matters to be stated or information to be given:

a) company not be less than 50,000 up to 3 lakh rupees and

b) All others imprisonment up to 3 years or fine not less than 50,000 rupees but up to 3 lakh. 2. Non receipt of minimum subscription: Allotment will be void and punishment as per sec 39 (5). 3. Default in getting approval of listing permission:

a) company fine not be less than 5 lakh rupees but up to 50 lakh rupees and

b) officer imprisonment up to 1 year or fine not be less than 50,000 rupees but up to 3 lakh.

Listing of securities on stock exchange

1. Shall make an application to one or more recognised stock exchange(s).




2. Prospectus shall states application has been made shall also state the name(s).

3. Deposit in separate bank account:

a) application moneys shall be kept in a separate scheduled bank and

b) utilized for adjusting against allotment or refunding. 4. Penalty for default:

a) For Company – Fine not less than 5 Lakh rupees but up to 50 lakh rupees

b) officer imprisonment up to 1 year or fine not be less than 50,000 rupees but up to 3 lakh.

Underwriting

‘Underwriting’ underwriters guarantee to purchase whole or an agreed portion of the securities not applied by public. Payment of commission for subscription: Prospectus and Allotment of Securities Rules:

1. Authorized by the Articles

2. May be paid out of proceeds of the issue or the profit

3. Rate of Commission: shall not exceed,

a) Shares- 5% of issued price or authorized by articles, whichever is less, and

b) Debentures- 2.5% of issued price or authorized by articles, whichever is less

4. Prospectus of the company shall disclose the names, the rate and amount of the commission etc

5. No commission on securities not offered to the public

6. Copy of the contract to be delivered to the Registrar

Depositary receipt

Depositary receipt: Negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. Conditions for issue [Rule 4]:

1. Resolution of BOD authorizing issue

2. SR

3. Overseas depository bank – issues DR’s. Domestic custodian bank – keep underlying shares.

4. Comply with all the provisions (Act), schemes, regulations (RBI) etc.

5. Compliance report to be placed at the BOD meeting: immediately after closure of all formalities of the issue of depository receipts.

6. Act and any rules related to public issue shall not apply to issue of depository receipts abroad.

Manner for issue of depository receipts and Voting rights

As per The Companies (Issue of Global Depository Receipts) Rules, 2014: Manner for issue of depository receipts [Rule 5]:

1. by way of public offering or private placement or manner prevalent abroad

2. may be issued against issue of new shares or may be sponsored shares




Proceeds of issue [Rule 7]: The proceeds of issues shall be remitted to bank account in India or deposited in an Indian bank operating abroad

Sponsored issue of Depository Receipts- the proceeds shall be credited to shareholders account. Right to vote to the holder of depository receipts [Rule 6]:

1. A holder of DR’s become a member and entitled to vote as such only on conversion.

2. Until the conversion overseas depository shall be entitled to vote on behalf of the holders

THE END


IPCC _33e_C.Law_Fast Track _Deposits_______________________________38


7. DEPOSITS

Deposit and Exempted deposits

‘Deposit’ includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include amounts as may be prescribed in consultation with the RBI.

According to the Companies (Acceptance of Deposits) Rules, 2014, following categories of amount may not be considered as deposit: amount received

a) CG or SG, or LA or repayment is guaranteed by CG/SG

b) foreign Governments, foreign international banks etc

c) loan or facility from any banking company.

d) loan or financial assistance from Public Financial Institutions

e) issue of commercial paper or any other instruments notified by RBI

f) from any other company;

g) towards subscription to any securities

h) director of the company

i) issue of bonds or debentures secured by a first charge

j) from an employee of the company

k) non-interest bearing amount or held in trust;

l) in the course of business of the company

m) brought in by the promoters

n) Nidhi company

Acceptance of deposits

Acceptance of deposits: Comply Chapter V of the Act (applicable to all companies), exception to:

a) Banking company,

b) Non- banking financial company

c) A housing finance company

d) such other company as the CG may specify Conditions:

a) resolution in general meeting + rules prescribed

b) Issuance of a circular to its members showing financial position of the company, credit rating etc previous deposits accepted

c) File a copy of the circular with Registrar within 30 days before issue

d) Deposit repayment reserve: not be less than 15% deposits maturing during a financial year and the financial year next following

e) Shall provide such deposit insurance

f) Security: Create security for the due repayment of deposit or the interest Repayment of deposit: shall be repaid with interest in accordance with the terms and conditions.


IPCC _33e_C.Law_Fast Track _Deposits_______________________________39


Failure on the repayment of deposit: pay the sum due or for any loss or damage incurred. Application of the amount of DRR account: only for repayment of deposits Penalty:

a) fine is at least Rs 50,000 and the maximum limit is Rs 10 lakhs.

b) officer imprisonment for a term extending up to 5 years and also liable with fine. [Note: The corresponding provision is given in the section 75 of the Companies Act, 2013 , which is not yet notified.]

Repayment of deposits accepted before commencement of this Act

Applicability: Section 74 is applicable to all companies. 1. file with the Registrar of Companies,

a) Within 3 months of commencement of the Act or

b) Within 3 months of due,

a statement of all deposits accepted and remaining unpaid AND

2. Repay within 1 year from such commencement or due whichever is earlier.

Application to NCLT: inability to repay, may approach NCLT seeking time.

Acceptance of deposits from public by companies having high net worth or turnover

Applicability: Public company having net worth not less than 100 crore rupees or turnover of not less than 500 crore rupees

Eligible public companies may accept deposits from public, subject to:

a) Compliance of conditions of section 73(2),

b) Compliance of the rules,

c) Obtaining the rating AND the rating shall be obtained for every year during the tenure of deposits

d) If secured deposits, create a charge on its assets within 30 days of such acceptance. Note:

1. For acceptance of deposits from members by a public company as well as private company, section 73 is applicable.

2. Private companies are prohibited from accepting deposits from public. However, banking companies, NBFCs and other companies to be specified by the Government can accept deposits from public.

Net worth: means as per Sec 2(57)

THE END


IPCC _33e_C.Law_Fast Track_Membership ____________________________40


8. MEMBERSHIP

Definition & Different ways of becoming

Section 2(55)

a) The subscriber to the memorandum

b) Every other person who agrees in writing

c) Holding shares and whose name is entered as a beneficial owner in the records of a depository.

One of the following ways:

a) Membership by subscription to Memorandum

b) By Application and Allotment (Primary Market)

c) By Transfer (Secondary Market)

d) In case of depository

e) By Succession (Transmission of shares)

f) Membership by acquiring qualification shares

g) By estoppel

Member may not be a shareholder Vice Versa - Circumstances

a) Transfer of shares: ceases to be a holder of shares, but continues to be member till transfer is

registered.

b) Death of a member: no longer a shareholder, But continue to be a member until his legal representatives gets registered.

c) Member becoming insolvent: Official Receiver or Assignee holds shares in his own right but continues to be member

d) Holder of a share warrant: is a shareholder but he is not a member

e) Subscribers to MOA: immediately becomes member, even though no shares allotted

f) Company limited by Guarantee: only members but no shareholders

Member and Share holder

No. Basis Member Shareholder

1. Definition defined U/s Sec 2(55) not been defined under the Act.

2. Meaning name is entered in the register a person who holds shares

3. Nature of a company

shall have the minimum number of members

May or may not have shareholders

4. Registration registered SH is member registered member may not be SH

5. On the death of member

Legal heir becomes member on registration

Legal heir becomes SH

6. Share Warrant

not a member still a shareholder.




7. Subscription to MOA

immediately becomes Becomes SH only on allotment

8. On the transfer

remains the member till registered ceases to be a holder of shares

When membership ceases

a) transfers all of his shares;

b) shares are forfeited, surrendered or sold to enforce a lien

c) redemption of preference shares

d) He dies and his legal representative transfers the shares

e) He becomes insolvent

f) member company in liquidation

Rights of members of the company

1. To have the certificate of shares

2. To have his name borne on the register of members.

3. To transfer shares

4. To attend meetings

5. to apply to the Court restraining directors from paying dividends on an ultra vires

6. To inspect the registers

7. To obtain copies of Memorandum and Articles

8. To have right shares

9. rights set aside variation by the Court

10. To have notice resolution

11. To obtain on request minutes

12. To remove directors

13. To obtain a copy of the profit and loss etc.

Liabilities and duties of members

1. To take shares, when they are allotted

2. To pay for the shares allotted

3. To abide by the doing of the majority of members

4. To contribute to the assets of the company in the case of winding up

Minor as member of a company

Contractual capacity should be taken into consideration. Since a minor has no contractual capacity the agreement with a minor is void. Minor can become a member provided 4 conditions are fulfilled:




a) The Co. must be of a co. limited by shares.

b) Shares are fully paid up.

c) Application for transfer is made on behalf of minor by a lawful guardian.

d) The transfer is manifestly for the benefit of the minor. If the directors allot shares to a minor in response to application? As soon as the co. comes to know of this fact, it shall avoid the allotment On reaching majority: The name of the minor will be replaced in the place of guardian’s name.

Membership of (a) An insolvent (b) Partnership firm (c) Foreigner (d) Government (e) HUF (f) Trust (g) Co-operative Society (h) Society (i) Trade Union.

a) An Insolvent: So long as his name appears in the register of members, he is a member

b) Partnership Firm: A partnership firm may hold shares in a co. in the individual names of partners as joint shareholders.

c) Foreigner: Can become a member subject to RBI approval under FEMA act.

d) Government: Yes, it can.

e) HUF: Held the shares in the name of its kartha.

f) Trust: Cannot become a member of the company because it has no separate legal entity.

g) Co-operative Society: Yes, because it has separate legal entity.

h) Society: Yes, if registered under the societies Registration Act, 1860.

i) Trade union: Yes, A trade union registered under the Trade union Act, 1926.

Member Vs contributory

Contributory [Sec 2(26) of Companies Act, 2013]: means a person liable to contribute towards the assets at winding up. A person holding fully paid-up shares is also a contributory but shall have no liabilities This difference between member and contributory arises only when the company is winding up.

Joint holders under the Act

a) Joint holders will be counted as 1.

b) Jointly & severally liable.

c) Notices etc. are served on the first named person.

d) Voting rights-only by the first named person.

e) Dividends are paid only to the first named person.

f) The co. will issue only one share certificate.

g) Joint holders shall sign the proxy form jointly.

h) Transfer deed is signed by all the joint holders.

i) Bonus and right shares are issued in the name of all the shareholders.

j) Transposition and split off of their holding is possible.




Company as member in another company

Only if authorized by its MOA no company shall, either by itself or through its nominees-

a) Hold any shares in its holding company, and

b) No holding company shall allot or transfer its shares to any of its subsidiary Following are the exceptions -

a) Holds as the legal representative of a deceased member or

b) holds such shares as a trustee or

c) shareholder before it became a subsidiary Voting rights even for exceptions: Only in clause (a) or clause (b) of the said exceptions

Register of securities holders

1. Duty of company to maintain registers:

a) indicating each class of equity and preference

b) register of debenture-holders and other security holders. 2. Index of names: include an index of the names included therein 3. register maintained by depository shall also be deemed to be index 4. Foreign register:

a) if so authorised by its articles keep a part outside India

b) Such a part of register called foreign register 5. Failure to maintain the registers:

a) The company and every officer fine not less than 50,000 rupees but up to 3 lakh and

b) up to 1000/day if failure continues

Closure of register of members

Closing by giving previous notice:

a) may close for any period not exceeding 45 days in aggregate in year

b) not exceeding 30 days at any one time Rules 1. Prior notice for the closing of register:

a) at least 7 days previous notice

b) listed company advertisement shall be given at least once in a vernacular newspaper and English newspaper and website

2. In case of private company: not less than 7 days prior to closure no advertisement




Rules relating to “register of members”

Register of members:

a) maintain a register of its members in Form No: MGT1.

b) existing companies- comply within 6 months Register of debenture holders or other: shall maintain a separate register for each type Authentication:

1. shall be authenticated by the CS or by any other person authorized by the Board

2. foreign register shall be authenticated by the CS or person authorized by the Board

Rules for “maintenance” of the Register of members

1. Entries in the register: entries shall be made within 7 days of allotment 2. Place for keeping the register:

a) at registered office

b) SR for keeping at any other place 3. Entries of any changes in the register: shall be made within 7 days after approval by the Board 4. Entries with respect to the change in the status of the members shall also be made 5. If any rectification pursuant to any order passed shall be indicated in respective register. 6. The particulars of any pledge, lien created by promoters on securities held by them Shall be

entered in register within 15 days

Rules for Index of names to be included in Register of members

1. register shall include an index

2. index is not necessary in case the no. of members is < 50.

Foreign registers - Rules

1. Who can maintain? if so authorized by its articles, keep in any country outside India, a part of the

register 2. Notice to the registrar:

a) within 30 days file with the Registrar notice of situation and

b) Within 30 days of any change 3. deemed to be part of "principal register" shall be maintained in same format as principal register 4. Inspection:

a) open to inspection and may be closed, and

b) Extracts may be taken there from and copies allowed




5. Transmit to its registered office a copy of every entry in any foreign register within 15 days Keep a duplicate register

6. If company discontinue then all entries shall be transferred to some other foreign register or to

principal register.

Preservation of register of members

Evidence: registers shall be prima facie evidence of any matter inserted Rules 1. The register of members and index shall be preserved permanently 2. The register of debenture holders or other and index shall be preserved for 8 years from redemption 3. Copies of all annual returns and certificates be preserved for a period of 8 years from filing with

Registrar 4. Preservation of foreign register:

a) The foreign register members shall be preserved permanently

b) debenture holders or other security shall be preserved for 8 years Investigation of beneficial ownership of shares in certain cases - appoint competent persons to investigate and report as to beneficial ownership

Benami share holding

1. Person who does not hold the beneficial interest in share:

a) entered in the register of members as SH but not hold beneficial interest

b) shall make a declaration to the company specifying name of person who holds such interest

2. Person who holds or acquires a beneficial interest in share: shall also make a declaration in the same way.

3. Change in the beneficial interest: within 30 days from change

4. CG has Power of to make rules on manner of disclosure

5. Filing of return:

a) the company shall make a note of such declaration in the register and

b) file, within 30 days with the Registrar

6. penalized in case of non filing of return

7. No claim of right related to any share: No to claim allowed for shares by beneficial owner if no declaration filed

8. No effect on the obligation of a company to pay dividend to member

THE END


IPCC _33e_C.Law_Fast Track_Share Capital ___________________________46


9. SHARE CAPITAL

Various kinds of share capital

1. Equity share capital:

a) With voting rights; or

b) With differential rights as to dividend, voting or otherwise and 2. Preference share capital Equity share capital: which is not preference share capital Preference share capital: which carries or would carry a preferential right with respect to:

a) Payment of dividend and

b) Repayment, in the case of a winding up or repayment of capital Condition for the Issue of preference shares:

a) Authorised by articles + SR

b) No subsisting default in the redemption of preference shares or in payment of dividend due on any preference shares.

Conditions for issue of Equity shares with differential rights

a) Authorized by AOA + OR (Postal ballot in case of listed companies)

b) Maximum: shall not exceed 26 % of the total post-issue paid up equity share

c) consistent track record of distributable profits for the last 3 years

d) Company has not defaulted in filing FS’s and annual returns for 3 FY’s

e) No Default:

i) in the payment of a declared dividend or repayment deposits or redemption of preference shares or debentures.

ii) Rpayment of loan from PFI or SFI or scheduled Bank or

iii) payment of statutory payments

f) Not penalized: in last 3 years of any offence under the

i) RBI Act, SEBI Act, SCRA, FEMA

g) shall enjoy all other rights such as bonus shares, right shares etc.

Issue of shares at a premium

Meaning: issued at a price higher than the face value. excess over face value is called premium. The Co.Act 2013 does not prescribe any restriction or condition Securities premium account: According to Sec 52 a sum equal to the aggregate amount of premium received shall be transferred to a “securities premium account”.




Amount Vs. Value: The word 'amount' refers to cash premium and the word 'value' refers to premium other than cash. Differential premium: There is no prohibition in the Act against issue of securities at differential premium. Utilization of Premium:

a) Issuing fully paid bonus shares

b) Writing off the preliminary expenses

c) Writing off the expenses of or commission paid or discount allowed on, issue of shares or debentures of the company.

d) premium payable on the redemption preference shares or debentures

e) For the purchase of its own shares or other securities Utilization of premium in case of certain companies: such class of companies, as may be prescribed

a) bonus shares; or

b) in writing off the expenses or commission paid or discount allowed on equity shares or

c) for the purchase of its own shares or other securities Utilization of premium for other purposes: provisions of this Act relating to reduction of share capital shall apply

Issue of shares at a discount

Meaning: at a price lower than the face value. excess of face value over the issue price is discount.

1. Not allowed and issue shall be void.

2. Liabilities: Where a company contravenes the provisions

a) company fine not be less than 1 lakh rupees but up to 5 lakh and

b) officer imprisonment up to 6 months or fine not be less than 1 lakh but up to 5 lakh or both.

Sweat equity shares

Sweat equity shares means shares issued by company to its directors or employees at a discount or other than cash, for providing know-how or intellectual property etc

Conditions:

a) Authorized by SR

b) Resolution specify number of shares, current market price, consideration, if any, and directors or employees names

c) Not less than one year has elapsed since the date of commencement of business

d) Listed company - issued in accordance with the regulations SEBI

such shares shall rank pari passu with other equity shareholders. Note:

1. Employee:

a) permanent employee working for at least last one year; or




b) a director whether a whole time director or not; or

c) an employee or a director as of a subsidiary or holding 2. Benefits derived or to be derived by company from an expert etc for which consideration is not paid

or included in normal remuneration payable

Voting rights of members

1. Applies to all companies, whether public or private. 2. Voting right of member holding equity share capital:

a) equity share capital shall have right to vote on every resolution placed before the company and

b) voting right on poll shall be in proportion to paid-up equity capital 3. Voting right of member holding preference share capital:

a) vote only on resolutions which directly affect rights attached to preference shares and,

b) resolution for winding up

c) voting right on poll in proportion to paid-up preference capital

4. Where dividend not been paid for a period of 2 years or more such class of preference shareholders have right to vote on all the resolutions

Restriction on voting rights

1. on which any calls or other sums presently payable by him have not been paid or company exercised right of lien.

2. nor on any other ground.

Variation of rights attached to any class of shares

A. Conditions for varying rights:

1. Consent of atleast ¾th of the issued shares of the class or SR of that class and

2. MOA & AOA must permitting such variation. Or

3. such variation shall not prohibited by terms of issue of class. B. Procedure in addition to the above includes:

1. Information to Stock Exchange

2. Within 30 days, file a copy of resolution and Form No.23 to ROC.

3. Alter MOA/AOA C. Rights of Dissentient Shareholders:

1. shareholders holding atleast 10% of class of shares

2. Apply to the Tribunal for cancellation of variations.

3. Within 21 days of consent of holders / passing of resolution.

4. Action of Tribunal:

a) either confirm variation or disallow

b) Decision of the Tribunal is final.




5. order be filed with ROC within 30 days after service on the Company D. Non applicability of this section:

1. part of scheme or arrangement with the intervention of the Tribunal U/s.391.

2. Sub division of shares

Conversion of shares into stock

1. Meaning:

a) Stock means a bundle of shares expressed in a lumpsum

b) It is consolidated amount is divisible into fractions of any amount

c) Thus it represents that part of the capital of the company which is fully paid 2. Procedure for issue

a) if authorized by its articles + ordinary to convert fully paid shares into stock.

b) can’t issue stock ab-in-itio. first issue share when fully paid up convert into stock. 3. file with Registrar within 30 days of resolution 4. Effects of conversion of shares into stock:

a. stock held instead of the shares

b. does not affect any rights of a member.

c. can be transferred in the same way as shares 5. Advantage: transferable in any denomination not limited to the nominal value 6. BOD may fix minimum amount of stock transferable 7. Reconversion of stock into shares: comply with the same conditions for conversion

Alteration or increase of share capital

a) In any manner specified in section 61(1).

b) An order made by the Government (option attached to debentures/loan) has the effect of increasing authorized capital or

c) Redemption of redeemable preference shares shall file a notice in the prescribed form with the Registrar within 30 days

Punishment in contravention of the provision: If a company and any officer liable

Differences between shares and stock

a) Numbering: Shares are identified by distinctive numbers and stocks are not

b) Denomination: Shares have fixed denomination and stocks expressed in amount

c) Issue: Unlike shares, the company can’t issue stock directly

d) Fully paid up: Shares may be fully paid-up. Stock is always fully paid-up

e) Division: Stock is divisible into any amount required it is not possible to share.




Further issue of shares – Right Shares

Applicability: All companies having share capital. where at any time issue of further shares 1. First offer to holders of equity shares by notice specifying number of shares offered and fixing time

not less than 15 days and not exceeding 30 days

a) offer deemed to include a right to renounce

b) if declines to accept offer Board may dispose manner advantageous to company.

2. To employees under ESOP + special resolution or

3. To any persons if authorized by SR

Issue of further shares to persons other than existing ESH’S

1. With S.R to employees

2. With S.R to outsiders

3. Declines the offer: board may dispose off beneficial to Company

4. Exercise of an option attached: exercise of an option attached to the debentures or loan

5. Conversion of debentures/loan into shares - debentures issued or loan obtained from Government and Government order to convert into shares

Powers of Government with regard to the conversion of debentures into shares

Conversion of debentures/loan into shares:

a) debentures issued, or loan from any Government and

b) Government Order to convert into shares Government shall have due regard to

a) The financial position of the company,

b) The terms of issue of debentures or loans, as the case may be,

c) The rate of interest payable on such debentures or loans and

d) Such other matters as it may consider necessary. Terms of conversion not acceptable to the company: appeal to tribunal within 60 days

If government pass order and no appeal made authorized capital to such extent stands increased if needed automatically.

Reduction of share capital

1. Meaning: Reduction of :

a) Issued capital which has been subscribed, called up and paid up, or

b) Issued capital which has been subscribed but not called up




2. Methods:

a) By reducing or extinguishing the liability of members in respect of uncalled or unpaid capital

b) By paying off or returning paid up capital not wanted

c) By paying off the paid up capital on the footing that it may be called up again

d) By following a combination of any of the preceding methods.

e) By writing off or canceling the capital which has been lost

3. Procedure for reduction:

a) Authorize by AOA + SR

b) Apply to Tribunal requiring the acceptance of the scheme

c) Notice to creditors: If the reduction in capital involves reduction of liability in respect of unpaid capital

d) List: The Tribunal then settles a list of such creditors who are entitled to object

e) If creditors Does not consent: Tribunal will order to either pay his debt or provide security.

f) The Tribunal can order the Co. to add ‘And reduced’ after its name

g) ROC: The registrar must register the order and the minutes of reduction.

h) order of the Tribunal shall be published in such manner directed by Tribunal.

4. Non-applicability

a) Unlimited companies

b) limited by guarantee and not share capital.

Reduction of share capital Vs. Diminution of share capital

Diminution: cancellation of that portion of the issued capital which has not been subscribed.

a) Applicable Section: Reduction U/s.100 of Companies Act, 1956 and Diminution U/s 61 of the Companies Act, 2013.

b) Meaning: Reduction involve reduction of paid up capital whereas diminution in respect of authorized capital

c) O.R. Vs. S.R.: Reduction by SR. Diminution by OR

d) Tribunal permission: Diminution needs no confirmation by Tribunal but reduction requires.

e) And reduced: In case of reduction Tribunal order to add the words ‘And reduced’ but not exist in case of diminution.

f) Creditor’s permission: Required for reduction and not required for diminution.

g) Change in MOA: Not required in case of reduction and it is required in case of diminution.

Can a company purchase its own shares

Company cannot buy its own shares

Exceptions:

a) Bank: lending of money by a banking company in the ordinary course

b) Trustee: shares held by trustees for the benefit of the employees

c) Loans to employees: giving of loans to persons in the employment not directors amount not exceeding their salary for a period of 6M

d) Not apply to redemption of preference shares




Penalty for contravention:

a) Company Fine not be less than 1 lakh but up to 25 lakh and

b) officer imprisonment up to 3 years and fine not be less than 1 lakh rupees upto 25 lakh

Prohibitions on Buy back of shares

Prohibition for buy-back in certain circumstances

a) Through any subsidiary company or

b) Through investment or group of investment companies or

c) defaulted in repayment of deposit or interest thereon, redemption of debentures or preference shares or payment of dividend or repayment of any term loan or interest thereon to any financial institution or bank.

Exception: where default is remedied and a period of 3 years has elapsed

d) Defaulted in: filing of Annual Return, declaration of dividend or punishment for failure to distribute dividend and financial statement

Buy back and procedure

1. Sources of funds for buy-back of shares: purchase its securities out of:

a) Its free reserves; or

b) The securities premium account; or

c) The proceeds of the issue of any shares or other specified securities. buy-back out of the proceeds of same kind of shares or other specified securities can’t be made

2. Conditions for buy-back:

a) Authorized by AOA + SR

b) Resolution by B.O.D. is sufficient if buy back of shares is less than or equal to 10% of the total paid up equity and free reserves.

c) Maximum Limit:

i) In total: 25% or less of the aggregate of paid-up capital (both equity and preference) and free reserves;

ii) For equity capital: not exceed 25% of its total paid up equity a FY.

d) Debt equity ratio: not more than twice the paid up capital and its free reserves

e) Fully Paid up: Only fully paid up shares/securities is allowed

f) Listed: in accordance with regulations made by SEBI

g) Unlisted: in accordance with rules as may be prescribed

h) Gap between 2 buy backs: one year from the date of the closure of the preceding offer

3. Procedure before buy-back: The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by an explanatory statement.

4. Time limit for completion of buy-back: shall be completed within 12 months from SR.

5. Only a solvent company is permitted to buy back its shares. file with the ROC a declaration of solvency stating that it will not be rendered insolvent within next 1 year.

6. Physically destroy the securities so bought-back within 7 days




7. Register of Buy Back:

a) It shall maintain a register contain consideration paid, date of cancellation

b) Date of extinguishing and physically destroying

8. Filling of return: within 30 days of buy back completion 9. Penalty for Default:

a) Company fine not be less than 1 lakh but up to 3 lakh and

b) Officer with imprisonment up to 3 years or fine not be less than 1 lakh but up to 3 lakh

10. Where purchases out of free reserves or securities premium transfer sum equal to the nominal value to CRR

Bonus shares

1. Out of:

a) Its free reserves;

b) The securities premium account; or

c) The capital redemption reserve account:

But not reserves created by the revaluation of assets

2. Conditions:

a) authorised by its articles;

b) recommendation of the Board+ general meeting approval

c) not defaulted in payment of interest or principal in respect of fixed deposits

d) not defaulted in payment of statutory dues

3. articles of the company contain provisions in regard thereto.

4. Capital profits, shares premium and capital redemption reserve account can also be used

Redemption of redeemable preference shares

Maximum tenure of preference shares:

a) authorized by its articles, issue preference shares to be redeemed within 20 years

b) for infrastructure projects exceeding 20 years is allowed Conditions for redemption of preference shares:

a) only out of the profits of the company or proceeds of fresh issue

b) only fully paid;

c) No AOA authorisation is required

d) Transfer to CRR: redeemed out of the profits, sum equal to the nominal amount

e) Utilisation of CRR account: Only for fully paid bonus shares Notice to ROC: within 30 days + altered memorandum.




Share certificate

A share certificate is a document of title

A share certificate, however cannot be described as “share”. Prima facie evidence of title:

a) shall be prima facie evidence of the title of the person to such shares.

b) it enables him to prove his title to any shares he might be desiring to transfer, pledge, or charge. Depository: the record of the depository is the prima facie evidence of ownership. Form, Manner etc.: Rules prescribed by CG

a) The manner of issue or renewal of a certificate or issue of a duplicate thereof.

b) The form of a certificate

c) The particulars to be entered in the Register of Members

d) The form of such registers. Time Limit for delivery of share certificates

Different conditions Period of the delivering the certificates

subscribers to the memorandum Within 2 months of Incorporation

allotment Within 2 months from allotment

transfer or transmission of Securities Within 1 month of receipt of transfer deed

allotment of debenture Within 6 months from allotment

Implications of share certificate

1. Estoppel as to title:

a) The company cannot deny the truth of the certificate

b) But if officer has no authority issues a forged certificate then no estoppel 2. Estoppel as to payment: If share certificate states that shares are fully paid up, it cannot later

deny

Issue of duplicate share certificate

May be issued, if such certificate: lost or destroyed; or defaced, mutilated or torn and is surrendered to the company.

Manner/Form of issue: Manner of issue, form, the particulars to be entered in register and other matters shall be as prescribed. Penalty for fraud: to defraud issues a duplicate certificate, company shall be punishable with fine

a) not be less than 5 times the FV but up to 10 times the FV of such shares or

b) 10 crores whichever is higher

every officer liable for action under section 447

THE END


IPCC _33e_C.Law_Fast Track_Calls & Forfeiture / Surrender of Shares _____55


10. CALLS & FORFEITURE / SURRENDER OF SHARES

Calls on shares

Calls on shares: It is a

a) A demand by the company,

b) On its shareholders,

c) To pay the whole or part of balance remaining unpaid on each share,

d) At any time during the continuance of the Company Rules

a) Only Directors can make a call and the power cannot be delegated

b) calls shall be made on a uniform basis on all shares falling under that class.

c) same nominal value but different amounts paid-up are not same class.

Calls in advance

Company if so authorized by its articles, accept calls in advance.

Consequences:

a) Voting rights: not be entitled to any voting rights on amount paid in advance until that amount called up.

b) Shareholder’s liability in respect of the call for which the amount is paid is extinguished.

c) Interest:

i) is entitled to claim interest on calls in advance according to AOA.

ii) Interst must be paid even though no profits to company

iii) interest on calls in advance shall not exceed 12% p.a.

d) Not refundable: The amount received in advance of calls is not refundable.

e) Priority: calls in advance and interest must be paid before shareholders are paid off.

f) Power must be exercised in the general interest and for the benefit company

Forfeiture of shares

a) Meaning: remedy for non-payment of calls or installments of call or other sums as premiums due.

b) Consequences:

i) he ceases to be a member.

ii) amount already paid stands forfeited.

iii) does not amount to reduction of share capital.

c) Procedure and conditions relating to forfeiture of shares:

i) Power can be exercised only if articles allow.

ii) power required to be exercised bona fide, in the interest of the company


IPCC _33e_C.Law_Fast Track_Calls & Forfeiture / Surrender of Shares _____56


Regulations as per Table F:

a) Notice prior to forfeiture: serve a notice on the defaulting shareholder requiring payment.

b) Notice shall fix date of payment and shall give at least 14 days and

c) State that, in the event of non-payment shares shall be liable to be forfeited.

d) If not paid be forfeited by a resolution of the Board to that effect.

e) forfeited share may be sold or otherwise disposed of as Board thinks fit. Status of original holder:

a) person whose shares have been forfeited shall cease to be a member

b) notwithstanding the forfeiture, remain liable to pay to the company all monies payable by him

c) liability shall cease only when all monies are received by company Liability of purchaser: The purchaser would be liable to pay all the calls

Surrender of shares

a) Meaning: return of the partly paid shares by shareholders voluntarily for cancellation and no payment

will be made by company.

b) It is opposite to forfeiture.

c) Surrender is effected with the assent of the shareholder

d) Empowered by AOA: The articles of companies, often empower the directors to accept the surrender of shares. Courts too recognise it on the principle that it relieves the directors of the necessity to go through the formalities relating to forfeiture.

e) Shortcut: It may be right to say that surrender of shares in a Co. is a shortcut to forfeiture.

f) Circumstances for accepting Surrender of Shares:

Partly paid Shares Fully paid Shares

Surrender is possible only when Forfeiture is justified.

Generally cannot. However, surrender is permissible if it is in exchange for new Shares

g) Reissued: may be re-issued, if this is done, reduction in capital will not occur.

h) No consideration shall be paid by the company in exchange of surrendered shares

THE END


IPCC _33e_C.Law_Fast Track_Transfer & Transmission of Shares___________57


11. TRANSFER & TRANSMISSION OF SHARES

Transfer and its procedure

Transfer: means voluntary passage of the rights and duties of a member to another.

Shall be transferable in the manner specified in the Act and Articles

Requirement for registering the transfer of securities:

a) Applicable in case of:

i) Transfer of securities of the company or

ii) Transfer of interest if no share capital.

b) Instrument of transfer:

i) A proper instrument of transfer duly stamped, dated and executed

ii) shall specify name, address and occupation of transferee,

iii) Certificate relating to the securities

c) Time limit for submission: Within a period of 60 days from execution.

d) Where the instrument of transfer has been lost or not delivered Company may register the transfer on indemnity

e) Transfer of partly paid up shares:

i) The company shall give notice to transferee

ii) transferee shall give no objection within 2 weeks

f) Time limit for issue of new share certificates:

i) transfer or transmission Within a period of 1 month

ii) Time period starts from the date of receipt of instruments by the company

Nomination

1. Meaning: process of assigning the next person to whom the Shares / Debentures will vest in the

event of his death.

2. Applicability: Applicable to all companies.

3. Nomination by whom?: Every holder of securities

4. In Case of joint holders: the joint holders may together nominate in the death of all

5. Time limit: at any time.

6. Variation or cancellation: At anytime in prescribed manner

7. Nominees to be the holder of the securities to the exclusion of the all other persons.

8. A minor may be named as a nominee, if some other person is appointed as guardian

Transmission of Shares

Transmission of shares takes place

a) On the death of the registered shareholder




b) On shareholder being adjudged as insolvent

c) company and it goes into liquidation

The Companies Act recognises the ownership of the shares with the legal representative whether registered or not. Options to nominee:

a) Get himself registered as holder of the securities; or

b) Transfer the securities Procedure:

a) send to the company a notice of his intention

b) company registers the same

c) Ownership is undisputed, but will not have any voting rights unless the shares are registered in his name.

Transmission of shares Vs Transfer of Shares

S.No Transfer of shares Transmission of shares

1 voluntary/deliberate act operation of law

2 It takes place for consideration. No consideration is involved.

3 execute a valid instrument of transfer. no prescribed instrument

4 the liability of the transferor ceases. continue to be subject to original liabilities.

Restrictions on transfer of shares in a Private and a Public company

Private Company: Refer chapter 2 Public company:

a. not being a fully paid to a person of whom they do not approve or

b. company has a lien.

Restrictions in transfer

Restriction on transfer of shares Refusal to transfer of shares

Conditions that must be met before shares can be transferred. applicable to private companies.

irregularity in a particular transaction renders registration of transfer impossible

reduce freedom in transferring is an act of a company otherwise permitted obstacle to the transaction itself. - no remedy may appeal to Tribunal

Refusal to registration of transfer / transmission of securities

Private company Public company

Restriction on transfer of shares:

As per Act

Freely transferable




Giving notice of refusal:

a. company must give a notice of refusal.

b. Notice to whom?-

• Transferor and Transferee or

• Person giving intimation of transmission

c. Time limit for sending notice –within 30 days

Intimation of refusal: company may intimate such refusal within 30 days

Remedy available against refusal: a. Appeal to NCLT: If refusal not justified b. Who can file the appeal? Transferee or

person giving intimation of transmission c. Time limit for filling the appeal:

• Within 30 days refusal or

• Where no reply, within 60 days of lodging documents.

Remedy available against refusal a. Appeal in NCLT: refused without sufficient

cause b. Who can file the appeal: Transferee or

person giving intimation of transmission c. Time limit for filling the appeal:

• Within 60 days

• where no intimation within 90 days of the delivery of the instrument.

Action by NCLT:

a) Direct registration within 10 days of the receipt of the order; or

b) Direct rectification of the register and pay damages

Refusal for rectification of register of members

Erroneous inclusion/removal of name Transfer in contravention of applicable laws

a. Application to whom? NCLT or court outside India as specified by CG

b. Grounds for rectification - Without reasonable cause

• name entered/removed in register

• delay made in entering

c. Who can appeal: person aggrieved, or member or company

d. Time limit for making application

• No time limit - reasonable time.

e. Action by NCLT: either dismiss the appeal, or by order— • direct registration within a period of 10

days or

• direct rectification and pay damages

f. Right of transferee:

• section not restrict right of a holder to transfer such securities

• entitled to voting rights unless suspended

a. Application to whom? NCLT or court outside India as specified by CG

b. Grounds for rectification: transfer in contravention of • SCRA • SEBI • this Act or • any other law

c. Who can file? • Depositary • Company • depository participant • Holder of securities • SEBI

d. Time limit - No time limit.

e. Order of tribunal: direct company or depository to set right the contravention and rectify register




Blank transfer

1. Meaning: shareholder fills up his name and signs it as a 'transferor' and delivers to a buyer, but

does not mention the name of the buyer. 2. Why blank transfer?

a) enable buyer to sell shares again to a subsequent buyer without filling his name and signature.

b) can be repeated any number of times

c) For ultimate transfer and registration, the first seller will be treated as transferor. 3. Status of blank transfer:

a) not a negotiable instrument merely

b) title of the transferee shall be subject to the title of the transferor. 4. Disadvantages / Evils:

a) Avoidance of transfer stamps.

b) Concealment of the identity of the real owners

c) Evasion of tax 5. Procedure for Blank Transfer: The transferor delivers to the buyer (i) share certificate, and (ii)

Blank transfer deed. 6. Not valid: As per Sec 56(1) a company shall not register a transfer unless a proper instrument of

transfer delivered to the company

Therefore, blank transfers are no longer valid and no company will register such transfers.

Forged transfer

Meaning: transfer made on the basis of transfer deed on which the transferor’s signatures are forged. Nullity: A forged transfer is a nullity. It does not give the transferee any title to the shares. Position of various parties is as follows: Original owner: if name of the true owner of shares is taken off, he can

a) Compel the company to restore his name

b) Also claim any dividend if wrongly paid to others Transferee (Obtained shares on a forged transfer deed):

Case A: If shares are with the transferee itself (i.e not transferred)

a) company cancels the share certificate and transferee’s name will be struck off

b) transferee shall be liable to indemnify the company against the consequences of the damages

Case B: Where the transferee has already transferred the shares to an innocent purchaser

a) company can recover damages paid to innocent purchaser from transferee




Company:

a) bound to restore the name of the real owner and pay dividends

b) Shall be liable to compensate the innocent purchaser (if any) Innocent purchaser (i.e ultimate transferee, if shares are transferred by the transferee):

• Does not get a good title to the shares so transferred

• But eligible for compensation if the transferee acts in good faith

Position of ‘Transferor’ and ‘Transferee’

a. Calls: The transferor must pay the calls, if any, may recover from transferee. b. Dividends declared and paid before transfer, company must pay it to the transferor and if sold ‘ex-

dividend’ the seller shall be entitled. Otherwise to transferee only. c. Voting Power: rests with the transferor but he must vote as the transferee directs

THE END


IPCC _33e_C.Law_Fast Track_Debentures_____________________________62


12. DEBENTURES

Debenture

1. Debenture: Debenture includes debenture stock, bonds or other instrument evidencing a debt,

whether charge on the assets or not. 2. Debenture certificate is issued in acknowledgement of any indebtedness 3. Features:

a) issued under company’s seal and contain a provision for the repayment of principal, interest

b) usually secured upon the company’s property or undertaking.

c) secured by a fixed or floating charge or both.

Debentures vs. Shares

Distinction between Debenture and Share:

a) Capital / Loan: Shares form part of the capital whereas debentures are loan.

b) Owners / Creditors: The shareholders are owners, whereas debentures are creditors.

c) Voting rights: Shareholders enjoy voting rights whereas debenture holders do not.

d) Return: The return paid on the debentures is interest and on the shares it is dividend.

e) Fixed/Flexible return: The rate of interest is fixed in the case of debentures whereas on equity dividend may change

f) Compulsory payment: Interest on debentures payable even no profits. But dividends paid only out of the profits

g) Winding up: debenture holders have prior claim for repayment over shareholders.

h) Charge: Debentures generally have a charge on assets of the Co. but shares do not.

i) Issue at discount: unlike shares no prohibition/restrictions for issuing debentures at a discount.

Manner of Issue debentures

1. Issue of debentures with an option to convert: shall be approved by a special resolution 2. company shall not issue debentures carrying voting rights. 3. Creation of debenture redemption reserve (DRR) account:

a) company shall create DRR account out of the profits and

b) shall be utilised only for redemption of debentures. 4. shall not issue to members exceeding 500 unless appointed one or more debenture trustees 5. Debenture trustee shall take steps to protect the interests of the debenture holders 6. Debenture trustee is liable if fails degree of care and due diligence

Exemption from the liability: agreed by majority of holders holding not less than 3/4th in value.




7. Shall pay interest and redeem the debentures in accordance with the terms of issue. 8. Filing of petition before the Tribunal by the debenture trustee:

a) Where assets are insufficient or

b) likely to become insufficient

The debenture trustee may file a petition before the Tribunal for releif 9. On failure to redeem the debentures/ to pay interest on the debentures: Tribunal may direct, to

redeem forthwith 10. Procedure to be prescribed by the Central Government: Securing the issue of debentures, The

form of debenture trust deed, etc.

Appointment of debenture trustee

Appointment of Debenture Trustee: company making offer to more than 500 shall appoint debenture trustees Rules for appointment of Trustee:

a) Obtain written consent and

b) A statement shall appear in the letter of offer. Persons not eligible for appointment: if he:

a) Beneficially holds shares

b) Is a promoter, director or key managerial personnel

c) entitled to moneys/dues

d) Is indebted to the company

e) furnished guarantee in respect of the principal debts

f) financial relationship amounting to

i) 2% or more of its gross turnover or total income or

ii) 50 lakh rupees or higher prescribed,

whichever is lower,

during the 2 immediately preceding financial years or during the current financial year;

g) is a relative of any promoter or director or key managerial personnel

Rules relating to debenture redemption reserve

1. shall be created out of the profits available for dividend

2. The company shall create Debenture Redemption Reserve (DRR) in accordance with following conditions:-

a) No DRR required:

i) All India Financial Institutions (AIFIs) and Banking Companies

ii) Financial Institutions (FIs)




b) DRR for NBFC’s:

i) the adequacy of DRR will be 25% of the value of debentures issued and

ii) No DRR for privately placed debentures. c) DRR for other’s:

i) 25% of the value of debentures issued through public issue and

ii) 25% for privately placed debentures by listed companies.

iii) For unlisted 25% of the value of debentures. 3. Maintenance of liquid assets: by 30th April each year, not less than 15 % maturing during the

year ending on the 31st day of March, invest in:-

a) In deposits with any scheduled bank

b) securities of CG/SG or others prescribed shall not fall below 15 % during the year

4. partly convertible debentures, DRR shall be created in respect of non-convertible portion only. 5. The amount credited to DRR shall be used for redemption only.

Pari Passu

Pari Passu: means all the debentures of that particular series are paid rateably, if security is insufficient to satisfy the whole debts Significance: a) If this clause is not included will rank in accordance with the date of issue b) A company, however, cannot issue a new series of debentures so as to rank ‘pari passu’ with any

prior series unless power is reserved

THE END


IPCC _33e_C.Law_Fast Track_Charge ________________________________65


13. CHARGE

Charge and its types

Meaning of Charge:

a) Making available property as a security for the payment of a debt

b) An interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage;

c) Charge can be on immovable property, movable property, intangible asset, future assets.

i) Fixed / Specific Charge: A charge is fixed specifically to cover assets

ii) Floating Charge: It is a charge on a class of assets-changing from time to time.

Crystallisation of floating charge

Right of the company to deal in assets, which are subject of floating charge, comes to an end:

a) If the company is wound up

b) Where the company ceases to carry on business.

c) Where a receiver is appointed.

d) makes a default in payment of interest or repayment of principal

Differences between fixed charge & floating charge

Fixed charge Floating charge

specific, ascertained and existing assets. No specific assets.

Cannot deal with the assets Free to deal with the assets

have priority over floating charge No such priority.

generally on fixed assets. generally on assets circulating e.g., stock

Procedure as to registration of charges

1. Register by submission of:

a) Form signed by the company and the charge holder

b) Instruments creating such charge

with the registrar within 30 days of creation.

2. certificate shall be issued to the person in whose favour the charge is created. 3. no charge shall be taken into account by the liquidator unless It is duly registered registration shall also, apply to:

a) acquiring any property subject to a charge

b) any modification in the terms or conditions




Default in filling of charges

Condonation of delay to file the charge within 30 days of creation - The Registrar may, on an application made within a period of 300 days on payment of additional fee. The Companies (Registration of Charges) Rules, 2014:

Application + declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of creditors

Recourse for non registration of charge created by the Company

the person in whose favor the charge is created may

a) Apply to the Registrar for registration and

b) within a period of 14 days give notice to the company, unless the company registers,

c) Allow such registration on payment of such fees prescribed.

d) that person shall be entitled to recover from the company the amount of any feespaid.

Modification of charge

Modification of charge:

a) variation of any of the terms of the agreement including rate of interest

b) Even assignment of rights of a charge holder

c) it shall be the duty of the company to get such modification registered. Rules:

a) Registrar shall issue a certificate of modification of charge.

b) The certificate issued by the Registrar shall be conclusive evidence

Satisfaction of charge

1. A company shall give intimation to the Registrar in the prescribed form within 30 days 2. Notice to the holder of charge by the registrar:

a) Registrar send a notice to the holder of the charge

b) Give not exceeding 14 days to show cause why not to register and

c) if no cause is shown – enter memorandum of satisfaction and shall inform the company

3. If any cause is shown record a note and shall inform the company. Make entries of satisfaction even though no intimation is received:

a) On evidence being given to his satisfaction:

i) That the debt paid or satisfied in whole or in part or

ii) property charged has been released from the charge

Enter in the register of charges a memorandum of satisfaction in whole or in part

b) The Registrar shall inform the affected parties within 30 days




Appointment of receiver or manager to the company & registrar

a) If any person obtains an order for the appointment of a receiver or under any power contained in an

instrument,

b) within 30 days give notice to the company and the Registrar + copy of order or instrument

c) Registrar register particulars of the receiver

d) on ceasing to hold such appointment, give to the company and the Registrar a notice to that effect

Register of charges

1. Maintenance of register of charges: shall keep at its registered office a register of charges + copy

of instrument creating charge

2. shall kept be open for inspection during business hours:

a) creditor without fees or

b) other person with fee prescribed. Rules::

1. The entries shall be made forthwith after the creation, modification or satisfaction.

2. authenticated by a director or the secretary of the company.

3. register of charges shall be preserved permanently and instruments for a period of 8 years.

Penalty

Punishment for contravention [Sec 86 of the Companies Act, 2013]:

If any company contravenes any provision relating to the registration of charges contained under chapter VI (Sec 77 to Sec 87) of the Act, the company shall be punishable with

a) Fine which shall not be less than 1 lakh rupees but which may extend to 10 lakh rupees and

b) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than 25,000 rupees but which may extend to 1 lakh rupees, or with both.

Rectification of register of charge

1. The Central Government on being satisfied that

i)

a) omission to file particulars of any charge created or

b) the omission to register within the time required or

c) mis-statement of any particular,

Was accidental or not prejudice to creditors or

ii) on any other grounds, it is just and equitable to grant relief,

2. Where the Central Government extends the time for the registration of a charge, the order shall not prejudice any rights acquired in respect of the property concerned before the charge is actually registered.




Condonation of delay and rectification of register of charges:

1. Registration not filed within 300 days from the date of its creation or modification not filed within 30 days

2. shall be filed with the Central Government along with the fee

3. The order passed by the CG Registrar

THE END


IPCC _33e_C.Law_Fast Track_General Meetings-I_______________________69


14. GENERAL MEETINGS - I

Classification of Meetings:

1. Meetings of Shareholders or Members: AGM, EGM ,Class Meetings.

2. Meetings of debenture holders

3. Meetings of creditors and contributories in winding up.

4. Meetings of creditors otherwise than in winding up.

5. Meetings of Directors

Requirements for valid general meetings

a) Properly convened: notice must be sent by the proper authority to all entitled.

b) Properly constituted: chairman, quorum etc

c) Properly conducted – as per law

Holding of an AGM

1. Sec 96:Every company must hold AGM in each year. 2. First Annual General Meeting: within 9 months from closing of first FY

If held withing time it is not be necessary to hold AGM in the year of its incorporation

Time limit for second and subsequent AGM:

a) Each calendar year one AGM

b) within 6 months from close of relevant FY

c) Interval between two AGM: Not more than 15 months 3. Extension for conducting AGM: period not exceeding 3 months. cannot provide for First AGM. 4. Date, time and place of AGM:

a) Every AGM shall be called during business hours between 9 a.m. and 6 p.m. not a National Holiday and

b) held at registered office or within the city, town in which registered office is situated.

5. Financial statements:

a) lay before the meeting financial statements for FY.

b) Where a company has one or more subsidiaries: all the subsidiaries also

Failure to convene the Annual General Meeting

1. offence is committed not holding AGM

2. not complying with directions CG the company and officer

Punishable fine up to Rs 50,000 and continuing default up to Rs 2,500 for every day

Power of CG to call AGM [Sec 167 of Companies Act, 1956]:

a) The CG may call or direct calling, holding and conducting of the meeting.

b) direct that even one member of the company present in person or proxy shall be deemed to constitute a meeting.




EGM

1. When board may call EGM

2. Board on requisition of members:

a) No.of Requisitionists:

i) company having a share capital, not less than 1/10th paid-up

ii) company not having a share capital, not less than 1/10th of the total voting power

b) requisition shall set out the matters for the consideration and signed by the requisitionists

c) Time period for calling the meeting: Board call within 21 days and call within 45 days 3. Requisitionists to call the meeting on the failure of the Board: If Board fails requisitionists may

call an EGM within 3 months from requisition

reasonable expenses incurred by the requisitionists shall be reimbursed by company

EGM by requisitionists

1. Requisition for convening of EGM by members: request in writing or electronic mode at least clear 21 days prior to date of EGM

2. Notice with details as to the place, date etc.:

a) notice shall specify the place, date, day and hour

b) requistionists should convene at Registered office and on working day.

3. If resolution is SR it must specify the intention of passing SR

4. Notice to be signed: notice shall be signed by all the requistionists

5. No explanatory statement annexed to the notice: by the requistionists but may disclose the reasons for the resolutions

6. notice shall be given to those whose names appear in the Register of members

7. No meeting convened: Where meeting is not convened, the requistionists shall have a right to receive list of members and address

Power of the Tribunal w.r.t EGM

1. Not ordinarily interfere with the domestic management of a company

2. The discretion should be used sparingly with caution

3. The Tribunal should take a common sense view

4. The Tribunal should ordinarily keep itself far from participating in quarrels of rival groups of directors or shareholders.

5. Before the CLB/Tribunal exercise its discretion under Section 186, the CLB/Tribunal must be satisfied

Notice

Authority to issue:

a) given by the proper summoning authority normally Directors.

b) issued without authority may be ratified




Persons entitled to notice:

a) every member, legal representative or assignee

b) auditor and every director Notice to preference shareholders:

a) not required if articles provide preference SH’s not entitled to notice

b) but must if their dividend is in arrears for more than a certain period Failure or Omission to give notice: invalidate meeting but non-receipt or accidental omission shall not invalidate meeting

Length of Notice

1. Length of notice: not less than clear 21 days 2. Short Notice: consent by not less than 95% of the members entitled to vote

Notes on Consent calculation: members entitled to attend and vote and 'not of members entitled to just vote.

3. Time limit for sending statement of Accounts, Auditors Report etc: shall also be sent to

members not less than 21 days before meeting. 4. Consequences if meeting called without notice: invalid and proceedings also invalid.

Service of notice of a meeting

Mode of service: personally or post or electronic mode

Place to be served: At registered address

Service through post: Notice of meeting shall be deemed to have been effected on expiry of 48 hours of posting if done properly

Specification by member: if member has deposited money with the company notice must be served accordingly

In case of Joint Holders: on the one whose name appears first in the register of members.

Notice through advertisement: it is regarded as having been served on day on which the advertisement appears.

Service of notice in electronic mode

1. Notice through e-mail: may be sent through e-mail as text or attachment or as notification

providing electronic link 2. Manner of sending, registration of e-mail etc:

i) shall be addressed to the person entitled to receive

ii) subject line shall state the name of the company, type of meeting, place and the date

iii) notice in form of non-editable attachment to e-mail

iv) obligation shall be satisfied when it transmits the e-mail

v) If member entitled to receive notice fails to provide company shall not be in default

vi) e-mail through in-house facility or its registrar and transfer agent

vii) simultaneously placed on the website




Contents to be disclosed in a notice

Contents of notice:

a) place, date, day and the hour of meeting

b) contain a statement of the business to be transacted at such meeting. Annexure to notice: statement setting out all the material facts (Explanatory statement) concerning each item of special business

Types of Business at Annual General Meeting

Kinds of business:

1. In the case of AGM, all business to be transacted thereat shall be deemed special, other than:

a) consideration of financial statements and the reports of Directors and auditors

b) declaration of any dividend

c) appointment of directors

d) appointment and fixing of remuneration auditors and

2. In the case of any other meeting, all business shall be deemed to be special.

Explanatory statement

Significance: purpose is ensuring that all facts brought to their notice to form their judgement When? special business is to be transacted Matters to be covered in the statement:

1. Material Facts

a) The nature of concern or interest, financial or otherwise

i) director and manager, key managerial personnel

ii) relatives of above

b) Any other information and facts

2. Transactions with other company: extent of shareholding interest in that other company of every

a) promoter, director, manager and KMP If such shareholding is not less than 2% of paid-up of that company Details of time and place of inspection of documents: Where any item of business refers to any document Default in disclosure: shall be liable to compensate company to extent of benefit received by him. Penalty: fine up to 50,000 or 5 times the amount of benefit whichever is more.






Class meetings

Meaning: particular class of shares

Feature of class meetings:

1. Only members of the class concerned may attend and vote at meeting.

2. rules to voting apply to class meetings like general meetings.

3. convened whenever it is necessary to alter or change the rights or privileges

4. For effecting such changes, it is necessary that these are approved at a separate meeting by SR

Meeting of debenture holders

Significance of Debenture-holders Meeting:

a) The term of issue contain provisions for meetings

b) Discuss debenture-holders’ interests and ascertainment of their wishes Matters discussed at Debenture holders meetings:

1. to effect modification or compromise of rights between the company and the debenture-holders.

2. renunciation or modification by the debenture-holders of their strict rights.

3. It may be desirable or expedient

Report on Annual General Meeting

1. listed public company prepare a report including confirmation that meeting conducted as per Act

and rules 2. Filing of the report with the registrar: within 30 days of AGM 3. Default in filing of the report:

a) fine not less than 1 lakh but up to 5 lakh rupees and

b) every officer with fine not be less than 25,000 but up to 1 lakh.

Rules:

a) the report shall be prepared in addition to the minutes

b) signed and dated by the Chairman of the meeting or by any two directors

c) contain following

i) the day, date, hour and venue of the annual general meeting;

ii) confirmation with respect to appointment of Chairman of the meeting;

iii) number of members attending the meeting;

iv) confirmation of quorum;

v) confirmation with respect to compliance of the Act and the Rules

vi) business transacted at the meeting

vii) particulars with respect to any adjournment, postponement of meeting

d) shall contain fair and correct summary of the proceedings of the meeting.

THE END


IPCC _33e_C.Law_Fast Track_General Meetings-II ______________________74


15. GENERAL MEETINGS - II

Resolutions

Meaning:

a) Resolution is a formal proposal put to the meeting, for approval.

b) A company expresses its will by the mean of resolutions. 1. Ordinary resolution: votes cast in favour including the casting vote if any, exceed the votes cast

against.

2. Special resolution: Conditions to be satisfied:

a) notice must specify intention of passing special resolution

b) votes cast in favor are not less than 3 times the votes cast against

Other compliance for SR:

a) notice must set out the actual wording of the resolution and

b) Attach an explanatory statement

c) File with RoC: Copy of SR (together with explanatory statement) be filed within 30 days 3. Common Notes for Ordinary and special resolutions:

a) where proxies are allowed, the vote of proxy shall also be counted (poll)

b) members absent and who does not participate in the voting will not be counted.

c) No mention of casting vote of the chairman in the case of S.R.

Resolution requiring special notice

Meaning: Notice received by company from shareholder of his intention to move the resolution, such notice is called special notice.

Who can give notice? Such number of members holding

a) not less than 1% of total voting power or

b) holding shares of sum as prescribed (not more than 5 Lakh) has been paid-up (Presently it is 5 lakhs as per rules).

Procedure:

a) eligible members shall give notice of their intention to move such resolution to the company.

b) The company shall give its members (others) notice

What resolutions require special notice?

a) appointment a person as auditor other than the retiring auditor

b) removing a director before the expiry and appointing someone else

Serving of special notice to the Company by members

Rules

1. Signing of special notice: signed, by members holding not less than 1% of total voting power or holding shares in aggregate not less than 5 lakh rupees paid up




2. Notice shall be sent not earlier than 3 months but at least 14 days before the date of the meeting

3. Company shall immediately give its members notice at least 7 days before the meeting

4. If it is not practicable to give the notice publish in English newspaper and vernacular newspaper at least 7 days before the meeting

Status of resolutions passed at adjourned meeting

Whether passed by

a) a company; or

b) the holders of any class of shares in a company; or

c) the Board of Directors of a company, treated as having been passed on the date on which it was in fact passed and not earlier date.

Filing of ‘resolutions’ with the Registrar

1. Filing of copy of resolution/any agreement: A copy of every resolution + explanatory statement if

any shall be filed with the Registrar

i) within 30 days of passing and

ii) if not filed the same be filed within 270 days on payment of additional fees 2. Failure to file the resolution or the agreement: even after 270b days

a) punishable with fine not less than 5 lakh but up to 25 lakh and

b) every officer shall be punishable with fine not less than 1 lakh rupees up to 5 lakh rupees 3. Applicability:

a) special resolutions

b) agreed to by all the members (Unanimous)

c) resolution of the Board of Directors relating a managing director;

d) class of members passed by a specified majority

e) resolutions passed under Sec 180(1) (a) & (c) (Restrictions on powers of board).

f) resolutions requiring wound up voluntarily

g) resolutions as per Section 179(3) (Powers of Board) and

h) any other prescribed

Circulation of Members Resolution

Procedure to be followed:

1. such number of members, as required in Sec 100(Calling of EGM i.e 1/10th of paid up capital/voting power) give notice

2. on requisition give notice to members and circulate statement

a) Conditions for making request:

i) Requesting for resolution - not less than 6 weeks before meeting;

ii) other requisition - not less than 2 weeks before the meeting

b) deposit money to meet expenses




3. if after deposit of requisition an AGM is called on a date within 6 weeks still the requisition shall be

deemed to have been properly deposited. 4. Exception from circulation of any statement: rights conferred are being abused to secure

needless publicity for defamatory matter. 5. Cost incurred by the company shall be paid to the company by the requisitionists 6. Default in contravention of the provision: company and officer liable to a penalty of 25,000

Quorum for calling general meeting

1. Meaning: minimum number of members be present to constitute a meeting 2. Quorum in case of Public/Pvt:

a) public company-

Quorum Number of members as on date of meeting 5 not more than 1000 15 more than 1000 to 5000 30 >5000

b) private company - 2 members personally present

3. Consequences of no quorum: not present within half-an-hour

a) stand adjourned to same day in the next week at same time and place, or Board may determine or

b) if called by requisitionists shall stand cancelled

4. Validity of meeting without quorum:

a) If no quorum meeting and proceedings are invalid

b) However would not affect the rights of third parties if they had no notice of the irregularity. 5. Notice of an adjourned meeting: How many days? The company shall give at least 3 days notice

6. No quorum in an adjourned meeting:

a) not present within half-an-hour members present shall be quorum

b) A single member present shall not constitute quorum at an adjourned meeting. 7. Who are counted and who are not?

a) Personally present exclude proxies

b) Representative

c) Person present in multiple capacities - count as more than one member

d) Joint holders: one of them may be counted in a quorum.

When quorum is immaterial: If all the members are present

Proxy

Meaning: instrument in writing authorizing another person to attend on behalf of member

1. Who is entitled to appoint a proxy? member entitled to attend and vote meeting




2. In case of company having no share capital: not apply unless articles provide otherwise

3. Restrictions on proxy:

a) act on behalf of members not exceeding 50 and number of shares as may be prescribed

b) Rules

i) Sec 8 shall not be entitled to appoint proxy

ii) not exceeding 50 and holding not more than 10% of the total share capital

iii) A member holding more than 10% may appoint a single person as proxy and such person shall not act to any other person

4. Status of proxy:

a) no right to speak at the meeting.

b) cannot vote on a show of hands.

c) not counted for the purpose of quorum. 5. Notice to specify: member is entitled to appoint a proxy and that a proxy need not be a member. 6. Default: every officer of the company punishable with fine up to 5,000. 7. Depositing of Proxy: 48 hours before the meeting 8. Invitations to appoint as proxy at company’s expense:

a) Not to be allowed

b) Every officer willfully permits their issue shall be punishable with fine up to 1 lakh. 9. The instrument appointing a proxy shall: be in writing and signed by the appointer 10. Inspection of Proxy forms

a) Member who wish inspect give atleast 3 days notice to company

b) Inspection allowed 24 hours before the meeting and ends with conclusion of the meeting.

c) Timings: Any time during the business hours of the company.

11. Revocation of Proxy:

a) If after appointment the member himself attends

b) Once the proxy has voted, it cannot be revoked. 12. Rights of proxy: to attend the meeting, vote on poll and demand a poll Rules:

1) Only a member can be appointed as proxy

2) A person can act as proxy not exceeding 50 and holding in the aggregate not more than 10% of share capital

a) Representations of corporations at meetings of companies and creditors b) Representation of the President and Governors in meeting

1. Representations of corporations at meetings of companies and creditors:

a) Appointment of a representative by a body corporate:

i) if it is a member of a company: by resolution of its Board of Directors or governing body authorize a person




ii) if it is a creditor, including a holder of debentures: by resolution of its directors or other

governing body, authorise a person to act as representative at creditors meeting

b) A person authorised entitled to exercise the same rights and powers of the body corporate 2. Representation of the President and Governors if members: appoint a person as

representative and entitled to same rights and powers

a) Restriction on voting rights b) Different methods of voting

1. Restriction on voting rights:

a) any calls or other sums not been paid, or

b) Company exercised any right of lien.

not on any other ground. 2. The following are the different methods of voting at a general meeting:

a) Voting by show of hands:

i) A resolution unless a poll is demanded or the voting is carried out electronically, be decided on a show of hands.

ii) A declaration by the Chairman and entry in minutes is conclusive evidence

b) Voting through electronic means

c) Voting through for poll

Voting through electronic means

Voting through electronic means: CG may prescribe classes of companies and manner to vote by the electronic means Rules:

1. listed company or company having not less than 1,000 shareholders provide facility to vote by electronic means.

2. Procedure to be followed by the Company: if company opts the facility

a) notice shall clearly mention that the business may be transacted through electronic voting

b) notice shall also be placed on the website

c) notice shall clearly indicate the process and manner for voting and time schedule and provide login ID and password for casting of vote in secure manner

d) Advertisement: be published, not less than 5 days before the date of voting period.

e) No. of days: e-voting open for not less than 1 day and not more than 3days

f) Facility to both who holds shares in physical form or in dematerialized

g) at the end of the voting portal where votes are cast shall be blocked. Scrutinizers and their role: a) Appointment of scrutinizer: CA/CMA/CS not in employment of the company to scrutinize the

e-voting process




b) Time limit for declaring results: not exceeding 3 working days from conclusion of e-voting in the presence of at least 2 witnesses

c) Maintenance of particulars: maintain a register to record the assent or dissent, received, and

particulars of shareholders d) register and all papers remain in the safe custody of the scrutinizer until chairman approves and

signs the minutes

Poll

Meaning: member or his proxy has as many votes as the number of his shares Demand for poll:

1. Order of demand for poll by the chairman of meeting: on his own motion and on a demand made in that behalf

a) in the case a company having a share capital: by members or proxy having

i) not less than 1/10th of the total voting power or

ii) holding sum not less than 5 lakh or as prescribed and

b) other company: members or proxy having not less than 1/10th of voting power.

2. Withdrawal of the demand: may be withdrawn at any time

3. Time limit for conducting poll:

a) for adjournment of meeting or appointment of Chairman - taken forthwith.

b) other reasons - not being later than 48 hours from demand

4. Chairman appointment a person to scrutinize the poll process and to report to him

5. Chairman shall have power to regulate the manner in which the poll shall be taken.

6. The result of poll shall be deemed to be the decision of the meeting Other points:

a) Before or on the declaration of the result by show of hands if demand for poll is made chairman must conduct poll.

b) a member entitled to more than one vote need not use all his votes in the same way

Postal ballot

Meaning: whereby ballot papers are distributed or returned by post to electors, in contrast to electors voting in person Meaning as per Act: Postal ballot means voting by post or through any electronic mode. According to the section, a company:

1. Specified business: CG by notification, declare the business to be transacted only by means of postal ballot

2. Other business: if coy wants it may Instead of transacting such business at a general meeting

If assented to by requisite majority by means of postal ballot it shall be deemed to have been passed at a general meeting




Rules relating to passing of resolution by postal ballot

1. Notice to all shareholders:

a) draft resolution explaining the reasons there for and

b) requesting to send their assent or dissent in writing

c) within a period of 30 days of dispatch 2. Manner of sending notice: by Registered Post or speed post, or electronic means, courier

service 3. Publishing of an advertisement: advertisement shall be published in a vernacular and English

language with prescribed particulars 4. Notice shall also published be on website and kept till the last date for receipt of the postal ballots

from the members. 5. Board shall appoint one scrutinizer to conduct voting process in a fair and transparent manner. 6. If resolution is assented to by the requisite majority deemed to have been duly passed at a general

meeting 7. Postal ballot received to be kept under safe custody of the scrutinizer 8. scrutinizer shall submit his report not later than seven days thereof. 9. Maintenance of register by the Scrutinizer: assent or dissent received and other particulars

prescribed. 10. Preservation of postal ballots:

a) till the chairman considers, approves and signs the minutes.

b) Thereafter return to company who shall preserve safely. 11. Reply from members after 30 days from the date of issue of notice is invalid 12. The results + scrutinizer’s report must be placed website 13. The resolution shall be deemed to be passed on the date of at a meeting convened in that behalf. 14. Transaction of business through postal ballot:

a) alteration of the objects clause

b) alteration AOA in relation to insertion or removal of restrictions on private company;

c) change in place of registered office

d) outside the local limits of any city, town or village as specified in Section 12(5);\

e) change in objects for which a company has raised money

f) issue of shares with differential rights

g) variation in the rights attached to a class of shares or other securities

h) buy-back of shares

i) sale of the whole or substantially the whole of an undertaking

j) giving loans or extending guarantee or providing security in excess of the limits Exception: OPC and other companies having members upto200 are not required to transact by postal ballot.




Minutes

Meaning and significance:

a) written record of business transacted at a meeting.

b) contain a fair and correct summary of the proceedings. Section 118 1. Preparation of the minutes of the proceedings of meetings:

Every company shall cause minutes of the proceedings of every

a) general meeting and

b) resolution passed by postal ballot and

c) meeting of its Board of Directors or committee

to be prepared and signed within 30 days of the conclusion 2. minutes shall contain a fair and correct summary of the proceedings thereat. 3. All appointments made at meetings aforesaid shall be included in the minutes of the meeting. 4. Exemptions to matters from inclusion in the minutes: There shall not be included in the

minutes, any matter which, in the opinion of the Chairman of the meeting:

a) is or could reasonably be regarded as defamatory of any person; or

b) is irrelevant or immaterial to the proceedings; or

c) is detrimental to the interests of the company. 5. Chairman shall exercise absolute discretion in regard to the inclusion or non-inclusion of any matter 6. Minutes shall be evidence of the proceedings recorded therein. 7. Minutes signifies the validity of the procedure:

a) meeting deemed to have been duly called and held

b) all proceedings duly taken place

c) resolutions duly passed 8. Adherence of secretarial standards by company 9. Default in compliance: company - penalty of 25,000 and every officer - penalty of 5,000. 10. Tampering with the minutes: punishable with imprisonment up to 2 years and fine 25,000 to 1

lakh.

‘Rules’ relating to minutes of proceedings of general meeting

1. Separate book: A distinct minute book shall be maintained for each type of meeting namely:-

general meetings, meetings of the creditors, Board and committees of the Board.

resolutions passed by postal ballot shall also be recorded in the minute book of 2. Time limit: shall be entered within 30 days of the conclusion of the meeting.




3. A brief report on how postal ballot conducted, the result of the voting thereon and the summary of

the scrutinizer’s report shall be entered within 30 days of resolution. 4. Signing: Each page shall be initialed or signed and last page shall be dated and signed :

a) Meeting of Board or committee: by chairman

b) General meeting: by the chairman within 30 days or in the event of the death or inability a director duly authorized

c) Postal ballot: by the chairman of Board within 30 days or in the event of the death or inability a director duly authorized

5. Place to be kept: shall be kept at the registered office of the company and shall be preserved

permanently

Inspection of minutes books

1. Maintenance of minutes books and its inspection: minutes of any general meeting or of a

resolution passed by postal ballot, shall:

a) be kept at the registered office and

b) be open, during business hours, to the inspection

i) by any member without charge,

ii) for not less than 2 hours in each business day. 2. Issue of copy of minutes to the member:

a) Member is entitled to a copy of any minutes on payment of such fees

b) Company shall furnish copy, within 7 working days 3. Refusal of inspection or furnishing of copy of minutes

a) company - penalty of 25,000 and

b) every officer - penalty of 5,000 for each such refusal or default

Maintenance and inspection of documents in “Electronic form” and related rules

Electronic form Where any document, record, register, minutes, etc.:

a) required to be kept by a company; or

b) allowed to be inspected or copies to be given

may be kept or inspected or copies in electronic form 1. Who shall maintain: listed company or a company having not less than 1,000 shareholders,

debenture holders and other security holders 2. Records in electronic form shall be maintained in such manner as the Board may think fit,

Minimum requirements:

a) maintained in same formats and all other requirements as provided in Act or rules

b) information as required should be adequately recorded for future reference;

c) must be capable of being readable, retrievable and reproducible in printed form

d) records are capable of being dated and signed digitally

e) once dated and signed digitallyshall not be capable of being edited or altered




Examples of ordinary resolution

a) To increase the share capital if authorised

by the Articles

b) To appoint auditors

c) To appoint directors;

d) To adopt annual accounts;

e) To declare dividends;

f) wind up voluntarily

Examples of special resolution

1. alter the objects or the place of registered office

2. change the name

3. alter the articles of association

4. reduce the share capital

5. To commence any new business which is not useful to the present business

6. pay interest on shares, out of capital

THE END


IPCC _33e_C.Law_Fast Track_Miscellaneous matters in Company Law_______84

Ph: 98851 25025/ 26 www.mastermindsindia.com

16. MISCELLANEOUS MATTERS IN COMPANY LAW

Law applicable for a contract to take shares

Applicability of general law to contract of shares: governed by the same rule like other contracts

1. No difference between a contract to take shares and any other contract

2. Prospectus is invitation to offer, application is offer and allotment is acceptance by the company

3. Applicant can revoke his application before notice of allotment sent to him

4. Handing over of the notice of allotment to postman does not constitute its posting

5. On proper posting of the notice the contract is complete even if it is lost

6. Acceptance must be communicated whether by writing or verbally or conduct.

7. Notice brought home to the applicant, not from company but elsewhere will be binding

8. Application made before incorporation company accepts it after incorporation, it is a contract

9. If application is conditional, allotment must be made in pursuance of specified conditions

10. Application made on condition precedent, he becomes member only when condition is complied.

11. Application made on condition subsequent, the applicant becomes member and contributory, though the condition not complied but claim damages

12. Where applicant waives notice the contract for shares is still complete and allottee becomes member

13. Person becomes member only when his name is entered on the register of members

14. Decree for specific performance of a contract to take /to allot shares valid

Forms of contracts

Forms of contract: Valid whether in written or verbal if done by the authorized representative of the company. As long as the contract is made by an expressly or impliedly authorized person on behalf of the company and is signed by him, it would be enough.

a) Drawing of bills of exchange and promissory notes by the company. b) Execution of deeds. c) Authentication of documents

Bill of Exchange and Promissory Note and Hundi:

a) Will depend on the conditions laid down in the memorandum.

b) U/s 22 a bill of exchange, or promissory note etc drawn, accepted, made by any person acting under its authority is valid.

Execution of deeds:

a) Authorize any person to execute deeds on its behalf in any place

b) A deed signed by such an attorney on behalf of the company shall bind the company




Authentication of documents, proceedings and contracts: may be signed by

a) any key managerial personnel, or

b) an officer of the company duly authorized

Holding of investments in the name of others

1. Co. shall make and hold it in its own name. 2. Exceptions:

a) Qualification Shares: appoint any persons as directors of any other Co., shares held by Company in names of such directors.

b) To maintain minimum no.of SH’s in 100% subsidiary, share are held in its nominees.

c) This does not apply to investments made by an investment company.

d) Deposit shares etc by way of security for the repayment of any loan

e) Deposit shares etc. with banker for collection of dividend

Service of documents on a company, the registrar of companies and the members

1. Serving of document to company: by sending it to company/officer at registered office by- Post,

courier service, or hand delivery or electronic mode 2. Serving of document to registrar or member: by- courier service, or hand delivery or electronic mode.

A member may request for delivery in a particular mode Delivery by post: deemed to have been effected:

a) notice of a meeting- at expiration of 48 hours and

b) other case- time required in ordinary course of post

Relative

Relative - means any one who is related to another, if

a) they are members of a Hindu Undivided Family;

b) they are husband and wife; or

c) one person is related to the other in such manner as may be prescribed

Objective and Scope of MCA 21 Project

MCA initiated MCA 21 program for easy and secure access to MCA services Goals:

a) Business: enable to register and file statutory documents quickly and easily

b) Public: easy access to records and grievances redressal

c) Professionals: able to offer efficient services to client

d) Financial Institutions: easily find charges registration and verification

e) Employees: proactive and effective compliance of relevant laws




Program Scope: It will include:

a) Development of application system

b) Setting up of IT infrastructure

c) Setting up the Digital Signature

d) Setting up of Physical Front Offices (PFOs)

e) digitization of paper documents to the new system

f) Service Oriented Approach

Key benefits of MCA 21 project

Key Benefits:

a) Expeditious incorporation of Companies.

b) Simplified and ease of convenience in filing of Forms / Returns.

c) Better compliance management.

d) Total transparency through e-Governance.

e) Customer-centric approach.

f) Increased usage of professional certificate for ensuring authenticity and reliability of Forms / Returns.

g) Building up a centralized database repository of corporate data.

h) Enhanced service level fulfillment.

i) Inspection of public documents of companies anytime from anywhere.

j) Registrations as well as verification of charges anytime from anywhere.

k) Timely redressal of investor grievances.

l) Availability of more time for MCA employees for monitoring and supervision.

Steps for offline e-filing

The following are the steps for e-filing:

1. Select a category to download an e-Form from the My MCA portal with or without the instruction kit.

2. At any time, you can read the related instruction kit.

3. You have to fill the downloaded e-Form.

4. You have to attach the necessary documents as attachments.

5. There is an option of Pre-fill facility in the e-form

6. The applicant shall sign the document using a digital signature.

7. You need to click the Check Form then System will check the mandatory fields.

8. You need to upload the e-Form for Pre-scrutiny.

The system will verify (pre-scrutinise) the documents. And the user will be asked to rectify the mistakes.

9. The system will calculate the fee, including late payment fees based on the due date of filing, if applicable.




10. Manner of Payment:

a) Payments will have to be made through appropriate mechanisms - electronic or traditional.

b) Electronic payments can be made at the Virtual Front Office (VFO) or at PFO

c) If the user selects the traditional payment option, the system will generate 3 copies of pre-filled challan in the prescribed format.

11. Acceptance or rejection of any transaction will be explicitly communicated

12. MCA 21 will provide a unique transaction number, the Service Request Number (SRN).

The applicants will be provided an acknowledgement.

Annual Return

1. Particulars stated in the annual return: shall contain on the close of financial year—

a) its registered office, principal business also holding and subsidiary

b) shareholding pattern, its indebtedness;

c) members and debenture-holders and changes

d) promoters, directors, key managerial personnel since previous year

e) meetings of members Board and committees

f) remuneration of directors etc

g) penalty or punishment imposed on the company and directors etc.

h) details of certification of compliances, disclosures as may be prescribed;

i) details of Foreign Institutional Investors

j) signed by a director and CS One Person Company and small company be signed by CS or by the director 2. Certified by CS stating facts are correct and adequate and company has complied with all provisions

of this Act. 3. Extract shall form part of the Board’s report 4. Filing of copy with the registrar: file with the Registrar within 60 days of AGM or

Last date that should have been held + reasons for not holding 5. Failure to file annual return:

a) company fine not be less than 50,000 rupees but up to 5 lakhs and

b) every officer with imprisonment up to 6M or fine 6. Certification otherwise than in conformity with section fine which not be less than 50,000

rupees but Upto 5 lakh

Changes in promoter’s stake in a Company

Companies Act: every listed company shall file a return with the Registrar for change shares held by promoters and top ten shareholders within 15 days Rules: every listed company shall file with the Registrar, a return for increase or decrease of 2% or more in shareholding within 15 days




Place of keeping and inspection of registers, returns etc. and its related matters

1. Shall be kept at the registered office of the company.

2. any other place in India in which more than 1/10th of the total reside if - approved by SR No of years to be kept - as may be prescribed. Inspection of registers etc.:

1. Allowing for inspection:

a) by any member or securities holders without payment of any fees and

b) by any other person on payment of fees 2. Copies and extracts: may take extracts or copies 3. Penalty for refusal 4. Remedy to person requiring inspection CG may direct an immediate inspection Rules relating to inspection:

Allowing for Inspection: Registers open for inspection members without fees and others fees not exceeding 50 rupees for each inspection Copies/Extracts: on payment of such fee as may be specified not exceeding 10 rupees for each page

THE END


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