LegalCrystal – Blog

SCHEDULE III

(See section 70)

FORM OF STATEMENT IN LIEU OF PROSPECTUS TO BE DELIVERED TO REGISTRAR BY A COMPANY WHICH DOES NOT ISSUE A PROSPECTUS OR WHICH DOES NOT GO TO ALLOTMENT ON A PROSPECTUS ISSUED, AND REPORTS TO BE SET OUT THERE-IN

FORM OF STATEMENT AND PARTICULARS TO BE CONTAINED THEREIN

PART I

THE COMPANIES ACT, 1956

Statement in lieu of Prospectus delivered for registration by [Insert the name of the company.] Pursuant to section 70 of the Companies Act, 1956

Delivered for registration by the nominal share capital of the Rs…… company.

Divided into…………………..shares of Rs…….each.

“     ”  Rs…….each.

“     ”  Rs…….each.

Amount (if any) of above capital…shares of Rs…….each. which consists of redeemable preference shares.

The earliest date on which the company has power to redeem these shares.

Names, addresses, descriptions and occupations of –

(a)        directors or proposed directors;

(b)        managing director or proposed managing director;

(c)        managing agent or proposed managing agent;

(d)        secretaries  and  treasurers  or proposed secretaries and treasurers;

(e)        manager or proposed manager.

Any  provision in the articles of the company,  or in any contract irrespective of the time when  it was   entered  into, as to  the appointment  of  and remuneration payable to the persons referred  to in  (a),  (b),  (c),  (d)  and  (e) above.

If the share capital of the company is  divided into different  classes of  shares, the right of voting  at meetings  of the company conferred by, and  the rights in  respect of capital and dividends attached  to, the several classes of shares respectively.

Number and amount of shares and             1    shares of Rs.. fully paid debentures agreed to be issued as fully or partly paid up otherwise

2    shares upon which Rs. per than in cash.

share credited as paid. The consideration for the intended              3    debentures     Rs……..

issue of those shares and debentures.Number, description and amount of any shares or debentures which any person has or is entitled to be given an option to subscribe for, or to                  4    Consideration:

acquire from, a person to whom                        1.   ….shares of Rs… and

they have been allotted or agreed                           debentures of Rs……

to be allotted with a view to his

offering them for sale.

Period during which the option is exercisable.    2.   Until

Price to be paid for shares or                           3.

debentures subscribed for or

acquired under the option.

Consideration for the option or the                    4.   Consideration:

right to option.

Persons to whom the option or the                   5.   Names and  addresses –

right  to  option was given or, if given to existing shareholders or debenture holders as such, the relevant shares or debentures. Names, occupations and addresses of vendors of property purchased or acquired, or proposed to  be  purchased  or acquired by the company except  where the contract for its purchase or acquisition was entered into in the ordinary course of the business intended to be carried on by the company or the amount of the purchase money is not material.

Amount (in cash, shares or debentures) payable to each separate vendor.

Amount (if any) paid or payable (in Total purchase price Rs. cash, shares or debentures) for Cash                 Rs .   each such property, specifying                         Shares              Rs. amount (if any) paid or payable                         Debentures        Rs. for goodwill.                                                                            ————- Goodwill            Rs.

Short particulars of every transaction relating to each such property which was completed within the two preceding years and in which any vendor to the company or any person who is, or was at the time thereof a promoter director or proposed director of the company had any interest, direct or indirect.

Amount (if any) paid or payable as                    Amount paid . . .

commission for subscribing or                          payable

agreeing to subscribe or procuring

or agreeing to procure subscriptions

for any shares or debentures in the

company; or

Rate of the commission…………                       Rate per cent………..

The number of shares, if any, which persons  have agreed  to  subscribe for a commission. If it is proposed to acquire any business, the amount, as certified by the persons by whom the accounts of the business have been audited, of the net profits of the business in respect of each of the five years immediately preceding the date of this statement, provided that in the case of a business which has been carried on for less than five years and the accounts of which have only been made up in respect of four years, three years, two  years or one year, the above requirements shall have effect as if references to four years, three years, two years or one year, as the case may be, were substituted for references to five years, and in any such case the statement shall say how long the business to be acquired has been carried on. Where the financial year with respect to which the accounts of the business have been made up is greater or less than a year, references to five years, four years, three years, two years, and one year in this paragraph shall have effect as if references to such number of financial years as in the aggregate, cover a period of not less than five years, four years, three years, two years or one year, as the case may be, were substituted for references to three years,  two  years  and  one year respectively.

Estimated amount of preliminary Rs……………. expenses.

By whom those expenses have been paid or are payable.

Amount paid or intended to be paid             Name of promoter.

to any promoter.                                       Amount Rs.

Consideration for the payment                    Consideration:

Any other benefit given or intended             Name of promoter:

to be given to any promoter.                       Nature and value of benefit:

Consideration for the benefit.                      Consideration:

Dates of, parties to, and general nature of –

(a)        contract  appointing or fixing the remuneration of directors, managing director, managing agent, secretaries   and  treasurers,  or manager; and

(b)        every other material  contract (other  than (i) contracts entered into in the ordinary course of the business intended to be carried on by the company or (ii) entered into more than  two  years  before the delivery of this statement).

Time  and  place at which  (1)  the contracts or copies thereof or (2)

(i) in the case of a contract not reduced into writing, a memorandum giving full particulars  thereof, and (ii) in the case of a contract wholly or partly in a language other than  English, a copy  of  a translation thereof in English or embodying a translation in English of the parts in the other language, as the case may be, being a translation certified in the prescribed  manner to be a correct translation, may be inspected.

Names and addresses of the auditors of the company (if any).

Full particulars of the nature and extent of the interest of every director, managing director, managing agent, secretaries and treasurers or manager in the promotion of or  in the property proposed to be acquired by the company, or where the interest of such a  director consists  in being a partner in a firm, the nature and extent of the interest of the firm, with a statement of all sums paid or agreed  to be  paid to him or to the  firm  in cash  or shares, or  otherwise,  by any person either to induce him  to become, or to qualify him  as, a director, or otherwise for services rendered  by him or by the firm in connection  with the  promotion  or formation of the company.

(Signatures  of the persons  above-

named  as  directors  or   proposed         ———————————————————-

directors,   or  of  their   agents               ———————————————————-

authorized in writing.)                             ———————————————————-

Date

REPORTS TO BE SET OUT

PART II

1.         Where it is proposed to acquire a business, a report made by accountants (who shall be named in the statement) upon –

(a)        the profits or losses of the business in respect of each of the five  financial years immediately preceding the delivery of the statement to the Registrar; and

(b)        the  assets and liabilities of the business as at the last date to which the accounts of the business were made up.

2.         (1)        Where it is proposed to acquire  shares in a body corporate which by reason of the acquisition or anything to be done in consequence thereof or in  connection  therewith will become a subsidiary of the company, a report made by accountants (who shall be named in the statement) with respect to the profits and  losses  and assets and liabilities of the other body corporate in accordance with sub-clause (2) or (3)  of this clause, as the case may require, indicating how the profits or losses of the other body corporate dealt with by the report would, in respect of the shares to be acquired, have concerned members of the company, and what allowance would have fallen to be made, in relation to assets and  liabilities so dealt with, for holders of other shares, if the company had at all  material times held the shares to be acquired.

(2)        If the other body corporate has no subsidiaries, the  report referred to in sub-clause (1) shall –

(a)        so far as regards profits and losses, deal with the profits or losses of the body corporate in respect of each of the five financial years immediately preceding the  delivery of the statement to the Registrar; and

(b)        so far as regards assets and liabilities, deal with the assets and liabilities of the body corporate as at the last date to which the accounts of the body corporate were made up.

(3)        If the other body corporate has subsidiaries, the report referred to in sub-clause (1) shall –

(a)        so far as regards profits and losses, deal separately with the other body corporate profits or losses as  provided by sub-clause (2) and in addition deal either –

(i)         as  a whole with the combined profits or losses of  its subsidiaries so far as they concern members of the other body corporate; or

(ii)         individually with  the  profits or losses of each subsidiary, so far as they concern members of the other  body corporate;

or, instead of dealing separately with the other body corporate’s profits  or  losses, deal as a  whole  with the profits or losses of the other body corporate and, so far  as they concern members of the other body corporate,  with  the combined profits or losses of its subsidiaries; and

(b)        so far as regards assets and liabilities,  deal separately with the  other body corporate’s assets and liabilities  as provided by sub-clause (2) and, in addition, deal either –

(i)         as a whole with the combined assets and liabilities of its subsidiaries, with or without the other body  corporate’s assets and liabilities; or

(ii)         individually with the assets and liabilities of each subsidiary; and shall indicate, as respects the assets and liabilities of the subsidiaries, the allowance to be made for persons other than members of the company.

PROVISIONS APPLYING TO PARTS I AND II OF THIS SCHEDULE

PART III

3.         (1)        In  this Schedule, the expression “vendor” includes a vendor as defined in Part III of Schedule II.

(2)        Clause 31 of Schedule II shall apply to the interpretation of Part II of this Schedule as it applies to the  interpretation  of Part II of Schedule II.

4.         If in the case of a business which has been carried on, or of a body corporate which has been carrying on business, for less than five financial years, the accounts of the business or body corporate have only been made up in respect of four such  years,  three  such years, two such years or one such year, Part II of this Schedule shall have effect as if references to four financial years, three  financial years, two financial years or one financial year, as the case may be, were substituted for references to five financial years.

5.         Any report required by Part II of this Schedule shall either –

(a)        indicate by way of note any adjustments as respects the figures of any profits or losses or assets  and  liabilities dealt with  by  the report which appear to the  person  making  the report necessary; or

(b)        make those adjustments and indicate that adjustments have been made.

6.         Any report by accountants required by Part II of this Schedule –

(a)        shall be made by accountants qualified under this Act for appointment as auditors of a company; and

(b)       shall not be made by any accountant who is an officer or servant, or a partner or in the employment of an officer  or servant,  of  the company or of the company’s  subsidiary or holding  company or of a subsidiary of the company’s  holding company.

For  the purposes of this clause, the expression “officer”  shall include a proposed director but not an auditor.

FORM OF STATEMENT AND PARTICULARS TO BE CONTAINED THEREIN

SCHEDULE IV

[See section 44(2)(b)]

FORM OF STATEMENT IN LIEU OF PROSPECTUS TO BE DELIVERED TO REGISTRAR BY A PRIVATE COMPANY ON BECOMING A PUBLIC COMPANY AND REPORTS TO BE SET OUT THEREIN

PART I

FORM OF STATEMENT AND PARTICULARS TO BE CONTAINED THEREIN

THE COMPANIES ACT, 1956

Statement in lieu of Prospectus delivered for registration by [Insert the name of the company.]

Pursuant to clause (b) of sub-section (2) of section 44 of the Companies Act, 1956.

Delivered for registration by

The nominal share capital of the  Rs………… company.

Divided into…                           shares of Rs…each.

“      ” Rs…each.

“     ” Rs…each.

Amount (if any) of above capital shares of Rs….each. which consists of redeemable

preference share.

The earliest date on which the company has power to redeem these shares.

Names, addresses, descriptions and occupations of –

(a)        directors or proposed directors;

(b)        managing director or  proposed managing director;

(c)        managing agent or proposed managing agent;

(d)        Secretaries and treasurers or proposed secretaries and treasures;

(e)        manager or proposed manager.

Any  provision in the  articles of the company, or in any contract irrespective  of the time  when it was entered  into, as to the appointment of and remuneration payable to the persons referred to in (a), (b), (c), (d) and (e) above.

Amount of shares issued  Shares  .  .  .  ………..Shares.

Amount  of commission paid or payable in connection therewith.

Amount of discount, if any, allowed on the issue of any shares, or so much thereof as has not been written off at the date of the statement.

Unless more than two years have lapsed since the date on which the company  was entitled  to commence business –

Amount of preliminary expenses                          Rs………….

By whom those expenses have been

paid or are payable.

Amount paid or intended to be paid                     Name of promoter:

to any promoter.                                               Amount Rs …….

Consideration for the payment.                            Consideration:

Any other benefit given or intended                      Name of promoter:

to be given to any promoter.                                Nature and value of benefit:

Consideration for the benefit.                               Consideration:

If the share capital of the company

is divided into different classes of

shares, the right of voting at

meetings of the company conferred by,

and the rights in respect of capital

and dividends attached to, the

several classes  of shares respectively.

Number and amount of shares and                      1. shares of Rs….fully paid.

debentures issued within the two

years preceding the date of this                           2.   …shares    upon which Rs….

statement as fully or partly paid up                            per share credited as paid.

otherwise than for cash or agreed

to be so issued at the date of this

statement.

Consideration for the issue of those                     3.   debentures. for Rs….. each.

shares or debentures

4.   Consideration:

Number, description and amount of                      1 shares of Rs….. and debentures

any shares or debentures which                          of Rs……

any person has or is entitled to be given an option to subscribe for, or to acquire from, a person to whom they have been allotted or agreed

to be allotted with a view to his offering them for sale.

Period during which the option                                   2.   Until

is exercisable.

Price to be paid for shares                                        3.

or debentures subscribed for or acquired under the option.

Consideration for the option                                       4.   Consideration: or right to option.

Persons to whom the option or the                            5.   Names and addresses: right  to  option was given or, if given to existing shareholders or debenture holders as such, the relevant shares or debentures. Names, addresses, descriptions  and occupations of vendors of  property

(1)purchased or—-acquired by the company within  the   two   years preceding   the   date   of    this statement or (2) agreed or proposed to be purchased or acquired by  the company, except where the  contract for its purchase or acquisition was entered into in the ordinary course of business and there is no connection between the  transaction  and the company ceasing to be a private company or where the amount of  the purchase  money  is  not  material.

Amount  (in cash, shares or  debentures) paid  or  payable  to  each separate vendor.

Amount paid or payable in cash,                               Total purchase price Rs……

shares  or  debentures for each

such property, specifying the                                    Cash                 Rs….

amount paid or payable for good                                Shares              Rs. …

will.                                                                         Debentures       Rs….

Goodwill             Rs….

Short  particulars of every  trans-action   relating  to   each   such property which was completed within the two  preceding years and in which any  vendor to the company or any person  who is, or was at the  time thereof,  a promoter,  director  or proposed  director of  the  company

had any interest direct or indirect.

Amount (if any) paid or payable as                            Amount paid………..

commission for subscribing or                                  Amount payable …….

agreeing to subscribe or procuring                            Rate per cent……… or  agreeing to procure subscriptions for any shares or debentures in the company; or rate of the commission.

The number of shares, if any, which persons have agreed to subscribe for a commission.

If  it is proposed to  acquire  any business, the amount, as certified by the persons by whom the accounts of the business have been audited, of the net profits of the business in respect of each of the five years immediately  preceding   the date of this  statement,  provided that  in  the case of a  business which has been carried on for  less than five years, and the  accounts of which have only been made up in respect of four years, three years, two  years or one year,  the  above requirements  shall have effect as if references to four years,  three years,  two years or one  year, as the  case may be, were  substituted for  references to five years,  and in  any  such case,  the statement shall say how long the business  to be  acquired has been  carried  on. Where the financial year with respect to which the  accounts of the business have been  made  up is greater or  less than  a  year, references  to  five years, four years, three years, two years  and one year in this  paragraph shall have effect  as if references   to  such number of financial years as, in the aggregate, cover a period of  not less  than five years, four  years, three years, two years or one year, as the case may be, were substituted for references to three years,  two  years  and  one  year respectively.

Dates  of, parties to, and  general nature of –

(a)        Contract appointing or fixing the remuneration of directors, managing director, managing  agent, secretaries and treasurers or manager; and

(b)        every other material  contract other  than (i)  contracts  entered into in the ordinary course of the business intended to be carried on by the company or (ii) entered into more than  two  years  before  the delivery of this statement.

Time  and  place at which  (1) the contracts  or copies thereof; or (2) (i) in the case of a  contract not reduced into writing, a memorandum giving full  particulars thereof, and (ii) in the case of a contract  wholly  or partly in a language other than English, a copy of  translation thereof in English or   embodying  a  translation   in English of the parts in the other language, as the case may be,  being a translation  certified in  the prescribed manner to  be a correct translation, may be inspected.

Names and addresses of the auditors of the company.

Full particulars of the nature and extent of the interest of every director, managing director, managing agent, secretaries and treasurers or manager,  in   any property purchased or acquired by the company within the two years preceding   the date of this statement or proposed to be purchased or acquired   by the company or, where the interest of such a director consists in being a partner in a firm, the nature and extent of the interest of the firm, with a statement of all sums  paid or agreed to be paid to him or  to the  firm  in cash  or  shares,  or otherwise, by any person either to induce him to become or to qualify him as, a director,  or  otherwise for services rendered or to be rendered to the company by him or by the firm.

Rates  of  the dividends (if any) paid  by the company in respect  of each class of shares in the company in each of the five financial years immediately preceding the date of this statement or since the incorporation of the company, whichever period is shorter.

Particulars  of the cases in which no dividends have been paid in respect of any class of shares in  any of these years.

—————————————————————————–

(Signatures  of the persons  above named as directors or proposed

directors or of their agents authorized in writing.)

Date………………….

PART V

REGISTRATION OF CHARGES

124. “Charge” to include mortgage in this Part.

In this Part, the expression “charge” includes a mortgage.

125. Certain charges to be void against liquidator or creditors unless registered.

(1) Subject to the provisions of this Part, every charge created on or after the 1st day of April, 1914, by a company and being a charge to which this section applies shall, so far as any security on the company’s property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge, together with the instrument, if any, by which the charge is created or evidenced, or a copy thereof verified in the prescribed manner, are filed with the Registrar for registration in the manner required by this Act within 1[thirty] days after the date of its creation:

2[Provided that the Registrar may allow the particulars and instrument or copy as aforesaid to be filed within thirty days next following the expiry of the said period of thirty days on payment of such additional fee not exceeding ten times the amount of fee specified in Schedule X as the Registrar may determine, if the company the Registrar that it had sufficient cause for not filing the particulars and instrument or copy within that period.]

(2) Nothing in subsection (1) shall prejudice any contract or obligation for the repayment of the money secured by the charge.

(3) When a charge becomes void under this section, the money secured thereby shall immediately become payable.

(4) This section applies to the following charges –

(a) a charge for the purpose of securing any issue of debentures;

(b) a charge on uncalled share capital of the company;

(c) a charge on any immovable property, wherever situate, or any interest therein;

(d) a charge on any book debts of the company;

(e) a charge, not being a pledge, on any movable property of the company;

(f) a floating charge on the undertaking or any property of the company including stock-in-trade;

(g) a charge on calls made but not paid;

(h) a charge on a ship or any share in a ship;

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1. Subs. by Act 31 of 1965, s. 62 and Sch., for “twenty-one” (w.e.f. 15-10-1965).

2. Subs. by Act 31 of 1988, s.18 (w.e.f. 15-6-1988).

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(i) a charge on goodwill, on a patent or a licence under a patent, on a trade mark, or on a copyright or a licence under a copyright.

(5) In the case of a charge created out of India and comprising solely property situate outside India, 1 [thirty] days after the date on which the instrument creating or evidencing the charge or a copy thereof could, in due course of post and if despatched with due diligence, have been received in India, shall be substituted for 1[thirty] days after the date of the creation of the charge, as the time within which the particulars and instrument or copy are to be filed with the Registrar.

(6) Where a charge is created in India but comprises property outside India, the instrument creating or purporting to create the charge under this section or a copy thereof verified in the prescribed manner, may be filed for registration, notwithstanding that further proceedings may be necessary to make the charge valid or effectual according to the law of the country in which the property is situate.

(7) Where a negotiable instrument has been given to secure the payment of any book debts of a company, the deposit of the instrument for the purpose of securing an advance to the company shall not, for the purposes of this section, be treated as a charge on those book debts.

(8) The holding of debentures entitling the holder to a charge on immovable property shall not, for the purposes of this section, be deemed to be an interest in immovable property.

Date of notice of charge

126. Date of notice of charge.

Where any charge on any property of a company required to be registered under section 125 has been so registered, any person acquiring such property or any part thereof, or any share or interest therein, shall be deemed to have notice of the charge as from the date of such registration.

127. Registration of charges on properties acquired subject to charge.

(1) Where a company acquires any property which is subject to a charge of any such kind as would, if it had been created by the company after the acquisition of the property, have been required to be registered under this Part, the company shall cause the prescribed particulars of the charge, together with a copy (certified in the prescribed manner to be a correct copy) of the instrument, if any, by which the charge was created or is evidenced, to be delivered to the Registrar for registration in the manner required by this Act within 1[thirty] days after the date on which the acquisition is completed:

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1. Subs. by Act 31 of 1965. s. 62 and Sch., for “twenty-one” (w.e.f. 15-10-1965),

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Provided that, if the property is situate, and the charge was created, outside India, 1[thirty] days after the date on which a copy of the instrument could, in due course of post and if despatched with due diligence, have been received in India shall be substituted for 1[thirty] days after the completion of the acquisition as the time within which the particulars and the copy of the instrument are to be delivered to the Registrar.

(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.

128. Particulars in case of series of debentures entitling holders pari passu.

Where a series of debentures containing, or giving by reference to any other instrument, any charge to the benefit of which the debenture holders of that series are entitled pari passu is created by a company, it shall, for the purposes of section 125, be sufficient, if there are filed with the Registrar, within 1[thirty] days after the execution of the deed containing the charge or, if there is no such deed, after the execution of any debentures of the series, the following particulars –

(a) the total amount secured by the whole series;

(b) the dates of the resolutions authorising the issue of the series and the date of the covering deed, if any, by which the security is created or defined;

(c) a general description of the property charged; and

(d) the names of the trustees, if any, for the debenture holders; together with the deed containing the charge, or a copy of the deed verified in the prescribed manner, or if there is no such deed, one of the debentures of the series:

Provided that, where more than one issue is made of debentures in the series, there shall be filed with the Registrar, for entry in the register, particulars of the date and amount of each issue; but an omission to do this shall not affect the validity of the debentures issued.

129. Particulars in case of commission, etc., on debentures.

Where any commission, allowance or discount has been paid or made either directly or indirectly by a company to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any debentures of the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any such debentures, the particulars required to be filed for registration under sections 125 and 128 shall include particulars as to the amount or rate per cent. of the commission, discount or allowance so paid or made; but an omission to do this shall not affect the validity of the debentures issued:

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1. Subs. by Act 31 of 1965, s. 62 and Sch., for “twenty-one” (w.e.f. 15-10-1965).

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Provided that the deposit of any debentures as security for any debt of the company shall not, for the purposes of this section, be treated as the issue of the debentures at a discount.

130. Register of charges to be kept by Registrar.

1[(1) The Registrar shall, in respect of each company, cause to be kept a register containing the particulars of all the charges requiring registration under this Part.

(1A) Every company shall forward to the Registrar for being entered in the register kept under sub-section (1) the particulars of all the charges requiring registration under this Part in such form and manner, and after payment of, such fees as may be prescribed.

(1B) The particulars of the charges referred to in sub-section (1) shall relate to –

(a) in the case of a charge to the benefit of which the holders of a series of debentures are entitled, such particulars as are specified in sections 128 and 129;

(b) in the case of any other charge –

(i) if the charge is a charge created by the company, the date of its creation, and if the charge was a charge existing on property acquired by the company, the date of the acquisition of the property;

(ii) the amount secured by the charge;

(iii) short particulars of the property charged; and

(iv) the persons entitled to the charge.

(1C) The pages of the register shall be consecutively numbered and the Registrar shall –

(a) cause to be kept in such register in the prescribed form, the documents of charges filed in such form and manner as may be prescribed; and

(b) sign or initial every page of such register.

(2) After entering the particulars of all the charges required under sub-section (1), the Registrar shall return the instrument, if any, or the verified copy thereof, as the case may be, filed in accordance with the provisions of this Part to the person filing it].

(3) The Registrar kept in pursuance of this section shall be open to inspection by any person on payment of 1[such fee as may be prescribed] for each inspection.

Index to register of charges

131. Index to register of charges.

The Registrar shall keep a chronological index, in the prescribed form and with the prescribed particulars, of the charges registered with him in pursuance of this Part.

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1. Subs. by Act 31 of 1988, s.19 (w.e.f. 17-4-1989).

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132. Certificate of registration.

The Registrar shall give a certificate under his hand of the registration of any charge registered in pursuance of this Part, stating the amount thereby secured; and the certificate shall be conclusive evidence that the requirements of this Part as to registration have been complied with.

133. Endorsement of certificate of registration on debenture or certificate of debenture stock.

(1) The company shall cause a copy of every certificate of registration given under section 132, to be endorsed on every debenture or certificate of debenture stock which is issued by the company and the payment of which is secured by the charge so registered:

Provided that nothing in this sub-section shall be construed as requiring a company to cause a certificate of registration of any charge so given to be endorsed on any debenture or certificate of debenture stock issued by the company before the charge was created.

(2) If any person knowingly delivers, or willfully authorises or permits the delivery of, any debenture or certificate of debenture stock which, under the provisions of sub-section (1), is required to have endorsed on it a copy of a certificate of registration without the copy being so endorsed upon it, he shall, without prejudice to any other liability, be punishable with fine which may extend to one thousand rupees.

134. Duty of company as regards registration and right of interested party.

(1) It shall be the duty of a company to file with the Registrar for registration the particulars of every charge created by the company, and of every issue of debentures of a series, requiring registration under this Part; but registration of any such charge may also be effected on the application of any person interested therein.

(2) Where registration is effected on the application of some person other than the company, that person shall be entitled to recover from the company the amount of any fees properly paid by him to the Registrar on the registration.

135. Provisions of Part to apply to modification of charges.

Whenever the terms or conditions, or the extent or operation, of any charge registered under this Part are or is modified, it shall be the duty of the company to send to the Registrar the particulars of such modification, and the provisions of this Part as to registration of a charge shall apply to such modification of the charge.

136. Copy of instrument creating charge to be kept by company at registered office.

Every company shall cause a copy of every instrument creating any charge requiring registration under this Part to be kept at the registered office of the company:

Provided that, in the case of a series of uniform debentures, a copy of one debenture of the series shall be sufficient.

137. Entry in register of charges of appointment of receiver or manager.

(1) If any person obtains an order for the appointment of a receiver of, or of a person to manage, the property of a company, or if any person appoints such receiver or person under any powers contained in any instrument, he shall, within 1[thirty] days from the date of the passing of the order or of the making of the appointment under the said powers, give notice of the fact to the Registrar; and the Registrar shall, on payment of the prescribed fee, enter the fact in the Register of charges.

(2) Where any person so appointed under the powers contained in any instrument ceases to act as such, he shall, on so ceasing, give to the Registrar notice to that effect; and the Registrar shall enter the notice in the Register of charges.

(3) If any person makes default in complying with the requirements of sub-section (1) or (2), he shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.

138. Company to report satisfaction and procedure thereafter.

(1) The company shall give intimation to the Registrar of the payment or satisfaction 2[in full], of any charge relating to the company and requiring registration under this Part, within 3[thirty] days from the date of such payment or satisfaction.

(2) The Registrar shall, on receipt of such intimation, cause a notice to be sent to the holder of the charge calling upon him to show cause within a time (not exceeding fourteen days) specified in such notice, why payment or satisfaction should not be recorded as intimated to the Registrar.

(3) If no cause is shown, the Registrar shall order that a memorandum of satisfaction 4* * * shall be entered in the register of charges.

(4) If cause is shown, the Registrar shall record a note to that effect in the register, and shall inform the company that he has done so.

(5) Nothing in this section shall be deemed to affect the power of the Registrar to make an entry in the register of charges under section 139 otherwise than on receipt of an intimation from the company.

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1. Subs. by Act 31 of 1965, s. 62 and Sch., for “fifteen” (w.e.f. 15-10-1965).

2. Subs. by Act 65 of 1960, s. 30, for ” in whole or in part “.

3. Subs. by Act 31 of 1965, s. 62 and Sch., for “twenty-one” (w.e.f. 15-10-1965).

4. The words ” in whole or in part, as the case may be,” omitted by Act 65 of 1960, S. 30.

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139. Power of Registrar to make entries of satisfaction and release in absence of intimation from company.

The Registrar may, on evidence being given to his satisfaction with respect to any registered charge –

(a) that the debt for which the charge was given has been paid or satisfied in whole or in part; or

(b) that part of the property or undertaking charged has been released from the charge or has ceased to form part of the company’s property or undertaking; enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking, as the case may be, notwithstanding the fact that no intimation has been received by him from the company.

140. Copy of memorandum of satisfaction to be furnished to company.

Where the Registrar enters a memorandum of satisfaction in whole or in part, in pursuance of section 138 or 139, he shall furnish the company with a copy of the memorandum.

141. Rectification by Company Law Board of register of charges.

1[(1) The 2[Company Law Board], on being satisfied –

(a) that the omission to file with the Registrar the particulars of any charge created by a company or of any charge subject to which any property has been acquired by the company or of any modification of any such charge or of any issue of debentures of a series, or that the omission to register any charge within the time required by this Part, or that the omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required by this Part, or that the omission or misstatement of any particular with respect to any such charge, modification or issue of debentures of a series or with respect to any memorandum of satisfaction or other entry made in pursuance of section 138 or 139, was accidental or due to inadvertence or to some other sufficient cause or is not of a nature to prejudice the position of creditors or shareholders of the company; or

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1. Subs. by Act 65 of 1960, s. 31, for sub-section (1).

2. Subs. by Act 41 of 1974, s. 13, for “Court” (w.e.f. 1-2-1975).

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(b) that on other grounds it is just and equitable to grant relief; may, on the application of the company or any person interested and on such terms and conditions as seem to the 1[Company Law Board] just and expedient, direct that the time for the filing of the particulars or for the registration of the charge or for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or mis-statement shall be rectified.]

(2) The 1[Company Law Board] may make such order as to, the costs of an application under sub-section (1) as it thinks fit.

(3) Where the 1[Company Law Board] 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.

Penalties

142. Penalties.

(1) If default is made in filing with the Registrar for registration the particulars –

(a) of any charge created by the company;

(b) of the payment or satisfaction, 2* * * of a debt in respect of which a charge has been registered under this Part; or

(c) of the issues of debentures of a series; requiring registration with the Registrar under the provisions of this Part, then, unless the registration has been effected on the application of some other person, the company, and every officer of the company or other person who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.

(2) Subject as aforesaid, if any company makes default in complying with any of the other requirements of this Act as to the registration with the Registrar of any charge created by the company or of any fact connected therewith, the company, and every officer of the company who is in default, shall, without prejudice to any other liability, be punishable with fine which may extend to one thousand rupees.

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1. Subs. by Act 41 of 1974, s. 13, for “Court” (w.e.f. 1-2-1975).

2. The words “in whole or in part” omitted by Act 65 of 1960, s. 32.

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143. Company’s register of charges.

(1) Every company shall keep at its registered office a register of charges and enter therein all charges specifically affecting property of the company and all floating charges on the undertaking or on any property of the company, giving in each case –

(i) a short description of the property charged;

(ii) the amount of the charge; and

(iii) except in the case of securities to bearer, the names of the persons entitled to the charge.

(2) If any officer of the company knowingly omits, or willfully authorises or permits the omission of, any entry required to be made in pursuance of sub-section (1), he shall be punishable with fine which may extend to five hundred rupees.

144. Right to inspect copies of instruments creating charges and company’s register of charges.

(1) The copies of instruments creating charges kept in pursuance of section 136, and the register of charges kept in pursuance of section 143, shall be open during business hours (but subject to such reasonable restrictions as the company in general meeting may impose, so that not less than two hours in each day are allowed for inspection) to the inspection of any creditor or member of the company without fee, at the registered office of the company.

(2) The register of charges kept in pursuance of section 143 shall also be open, during business hours but subject to the reasonable restrictions aforesaid, to the inspection of any other person on payment of a fee of 1[such sum as may be prescribed]for each inspection, at the registered office of the company.

(3) If inspection of the said copies or register is refused the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees and with a further fine which may extend to twenty rupees for every day during which the refusal continues.

(4) The 2[Company Law Board] may also by order compel an immediate inspection of the said copies or register.

145. Application of Part to charges requiring registration under it but not under previous law.

In respect of 1[any charge created before, and remaining unsatisfied at, the commencement of this Act,] which, if this Act had been in force at the relevant time, would have had to be registered by the company in pursuance of this Part but which did not require registration under the Indian Companies Act, 1913, (7 of 1913). and in respect of all matters relating to such charge, the provisions of this Part shall apply and have effect in all respects, as if the date of commencement of this Act had been substituted therein for the date of creation of the charge, or the date of completion of the acquisition of the property subject to the charge, as the case may be.

Nothing contained in this section shall be deemed to affect the relative priorities as they existed immediately before the commencement of this Act, as between charges on the same property.

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1. Subs. by Act 31 of 1988, s.67 (w.e.f. 15-7-1988).

2. Subs. by s.67, ibid. (w.e.f. 31-5-1991).

3. Subs. by Act 65 of 1960, s, 33, for “any charge created before the commencement of this Act”.

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PROVISIONS APPLICABLE TO EVERY MODE OF WINDING UP

CHAPTER V

Proof and ranking of claims

528.      Debts of all descriptions to be admitted to proof.

In every winding up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act of the law of insolvency), all debts payable on a contingency, and all claims against  the company,  present or future, certain  or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as  possible, of  the value  of  such debts or claims as  may  be subject  to any contingency, or may sound only in damages, or for some  other reason may not bear a certain value.

529.      Application of insolvency rules in winding up of insolvent companies.

(1)        In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to –

(a)        debts provable;

(b)        the valuation of annuities and future  and  contingent liabilities; and

(c)        the respective  rights of secured  and unsecured creditors; as are in force for the time being under the  law of insolvency with respect to the estates of persons adjudged insolvent:

1[Provided that the security of every secured creditor shall be deemed  to be subject to a pari passu charge in favour of the  workmen  to  the extent of the workmen's portion therein, and, where a  secured creditor, instead of relinquishing his security and proving his  debt, opts to realise his security –

(a)        the liquidator  shall  be entitled to represent the workmen    and enforce such charge;

(b)        any amount realised by the liquidator by way of enforcement  of such charge shall be applied ratably for  the discharge of workmen's dues; and

(c)        so much  of the debt due to such creditor as could  not  be realised by him by virtue  of  the  foregoing provisions  of  this proviso or the amount of  the workmen's portion in his security, whichever is less, shall rank  pari passu  with  the workmen's dues for the purposes  of  section 529A.]

(2)        All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section,

2[Provided  that if a secured creditor instead of relinquishing his  security  and proving  for his  debt  proceeds  to  realise  his security,  he shall be liable to 3[pay his portion of the expenses] incurred by the liquidator(including a provisional liquidator, if any) for the preservation of the security before its realization  by  the secured creditor.]

1[Explanation.-For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less amount which bears to such expenses the same proportion as the workmen's portion in relation to the security bears to the value of the security.]

1[(3)      For the purposes of this section, section 529A and section 530 –

(a)        "workmen",  in  relation  to  a  company,   means   the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947(14 of 1947);

(b)        "workmen's dues", in relation to a company, means the aggregate  of the following sums due from the company to  its workmen, namely –

(i)         all  wages or salary including wages payable  for time  or piece work and salary earned wholly or in  part by way of commission of any workman, in respect of services  rendered to the company and  any  compensation payable  to any workman under any of the  provisions of the Industrial Disputes Act, 1947 (14 of 1947);

(ii)         all accrued holiday remuneration becoming  payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of the winding up  order or resolution;

(iii)        unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such contract with insurers as is mentioned in section 14 the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of  the  death or disablement of any workman of the company;

(iv)        all sums due to any workman from a provident  fund, a  pension fund, a gratuity fund or any other  fund  for the welfare of the workmen, maintained by the company;

(c)        "workmen's portion", in relation to the security of any secured  creditor of a company, means the amount which  bears to the  value  of the security the same  proportion  as the amount of the workmen's dues bears to the aggregate of –

(i)         the amount of workmen's dues; and

(ii)         the amounts of the  debts  due  to  the secured creditors.

Illustration

The value of the security of a secured creditor of a company is Rs. 1,00,000.  The total amount of the workmen's dues is Rs. 1,00,000 The amount of the  debts due  from  the company to its secured creditors is Rs. 3,00,000.  The aggregate of the amount of workmen's dues and of the amounts of debts due to secured creditors is Rs. 4,00,000. The workmen's portion of the security is, therefore, one-fourth of the value of the security, that is Rs. 25,000.]

Overriding preferential payment

529A.    Overriding preferential payment.

Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force in the winding up of a company –

(a)        workmen’s dues; and

(b)        debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts.

(2)        The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.]

530.      Preferential payments.

(1)        In a winding up, 5[subject to the provisions of section 529A, there shall be paid] in priority to all other debts –

(a)        all revenues, taxes, cesses and rates  due  from  the company  to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8), and having become due and payable  within  the twelve months next before that date;

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1.   Ins.  by Act 35 of 1985, s.4.

2.   Ins. by Act 65 of 1960, s. 183.

3.   Subs. by s.4, ibid.

4.   Ins. by s.5, ibid.

5.   Subs. by s.6, ibid.

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(b)        all wages or salary (including wages payable for time or piece work and salary earned wholly or in part by way of commission) of any employee, in respect of services rendered to the company and due for a period not exceeding four months within the twelve months next before the relevant date 1* ** subject to the limit specified in sub-section (2);

(c)        all accrued holiday remuneration becoming  payable to any employee, or in the case of his death to any other person in his right, on the termination of his employment before or by the effect of, the winding up order or resolution;

(d)       unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, all amounts due, in respect of contributions payable during the twelve months next before  the  relevant date,  by the company as the employer of any  persons, under the  Employees’ State Insurance Act, 1948 ( 34 of  1948.)  or any other law for the time being in force;

(e)       unless the company is being wound up voluntarily merely for the purposes of reconstruction or of  amalgamation  with another  company,  or  unless  the  company  has, at the commencement of the winding up, under such a  contract  with insurers as  is  mentioned in section 14  of  the  Workmen’s Compensation Act, 1923, (8 of 1923.) rights capable of  being transferred to and vested in the workman, all amounts due in respect  of  any compensation or liability for compensation under the said Act in respect of the death or disablement  of any employee of the company;

(f)         all sums due to any employee from a  provident  fund, a pension  fund a gratuity fund-or any other  fund  for the welfare of the employees, maintained by the company; and

(g)        the expenses of any investigation held in pursuance  of section  235  or 237, in so far as they are  payable  by  the company.

PART III

PROSPECTUS AND ALLOTMENT, AND OTHER MATTERS RELATING TO ISSUE OF SHARES OR DEBENTURES

Prospectus

55.        Dating of prospectus.

A prospectus issued by or on behalf of a company or in relation to an intended company shall be dated, and that date shall, unless the contrary is proved, be taken as the date of publication of the prospectus.

Matters to be stated and reports to be set out in prospectus

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

(1)        Every prospectus issued –

(a)        by or on behalf of a company, or

(b)        by or on behalf of any person who is or has been engaged or interested in the formation of a company, shall state the matters specified in Part I of Schedule II and set out the reports specified in Part II of that Schedule; and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule.

(2)        A condition requiring or binding an applicant for shares in or debentures of a company to waive compliance with any of the requirements of this section, or purporting to affect him with notice of any contract, document or matter not specifically referred to in the prospectus, shall be void.

(3)        No one shall issue any form of application for shares in or debentures of a company, unless the form is accompanied 1[by memorandum containing such salient features or a prospectus as may be prescribed] which complies with he requirements of this section:

1[Provided that a copy of the prospectus shall, on a request being made by any person before the closing of the subscription list, be furnished to him:

Provided further that this sub-section shall not apply if it is shown that the form of application was issued either-

(a)        in connection with a bona fide invitation to a person to enter  into  an underwriting agreement with respect to the shares or debentures; or

(b)        in relation to shares or debentures which were not offered to the public.

If any person acts in contravention of the provisions of this sub-section, he shall be punishable with fine which may extend to five thousand rupees.

(4)        A director or other person responsible for the prospectus shall not incur any liability by reason of any non-compliance with, or contravention of, any of the requirements of this section, if –

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1.   Subs. by Act 31 of 1988, s. 8 (w.e.f.31-5-1991).

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(a)        as regards any matter not disclosed, he proves that he had no knowledge thereof; or

(b)        he proves that the non-compliance or contravention  arose from an honest mistake of fact on his part; or

(c)        the non-compliance or contravention was in respect of matters  which, in the opinion of the Court dealing with the case 1[were immaterial], or was otherwise such as ought, in the opinion of that Court, having regard to all the circumstances of the case, reasonably to be excused:

Provided that no director or other person shall incur any liability in respect of the failure to include in a prospectus a statement with respect to the matters specified in clause 18 of Schedule II, unless it is proved that he had knowledge of the matters not disclosed.

(5)        This section shall not apply –

(a)        to the issue to existing members or debenture holders of a company  of a prospectus or form of application  relating  to shares in or debentures of the company, whether an applicant for shares or debentures will or will not have the right  to renounce in favour of other persons; or

(b)        to the issue of a prospectus or form of application relating to shares or debentures which are, or are to be, in all respects uniform with shares or debentures previously issued and for the time being dealt in or quoted on a recognised stock exchange; but subject as aforesaid, this section shall apply to a prospectus or a form of application, whether issued on or with reference to the formation of a company or subsequently.

(6)        Nothing in this section shall limit or diminish any liability which any person may incur under the general law or under this Act apart from this section.

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

A prospectus inviting persons to subscribe for shares in or debentures of a company shall not include a statement purporting to be made by an expert, unless the expert is a person who is not, and has not  been, engaged or interested in the formation or promotion, or  in the management, of the company.

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1.   Subs. by Act 52 of 1964 s. 3 and Sch.  II, for “was immaterial”.

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

A prospectus inviting persons to subscribe for shares in or debentures of a company and including a statement purporting to be made by an expert shall not be issued, unless –

(a)        he has given his written consent to the issue thereof with the statement included in the form and context in which it is included, and has not withdrawn such  consent  before  the delivery of a copy of the prospectus for registration; and

(b)        a statement that he has given and has not withdrawn his consent as aforesaid appears in the prospectus.

Deposits not to be invited without issuing an advertisement

1[58A.   Deposits not to be invited without issuing an advertisement.

(1)        The Central Government may, in consultation with the Reserve Bank of India, prescribe the limits up to which, the manner in which and the conditions subject to which deposits may be invited or accepted by a company either from the public or from its members.

(2)        No company shall invite, or allow any other person to invite or cause to be invited on its behalf, any deposit unless –

(a)        such deposit is invited or is caused to be invited in accordance with the rules made under sub-section (1), and

(b)       an advertisement, including therein a statement showing the financial position of the company, has been issued by the company in such form and in such manner as may be prescribed.

(3)        (a)        Every deposit accepted by a company at any time  before the commencement of the Companies (Amendment) Act, 1974, (41 of 1974). in accordance with the directions made by the Reserve Bank of India under Chapter IIIB of the Reserve Bank of India Act, 1934, (2 of 1934) shall, unless  renewed in accordance with clause (b),  be repaid  in accordance with the 2[terms and conditions of such deposit.]

(b)        No deposit referred to in clause (a) shall be renewed by the company after the expiry of the term thereof unless the deposit is such that it could have been accepted if the rules made under  sub-section  (1) were in force at the time when the deposit was  initially accepted by the company.

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1.   Ins. by Act 41 of 1974, s. 7 (w.e.f. 1-2-1975).

2.   Subs. by Act 31 of 1988, s. 9 (w.e.f. 1.9.1989).

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(c)        Where, before the commencement of the Companies (Amendment) Act, 1974 (41 of 1974), any deposit was received by a company in contravention any direction made under Chapter IIIB of the Reserve Bank of India Act, 1934(2 of 1934), repayment of such deposit shall be made in full on or before the 1st day of April, 1975 and such repayment shall be without prejudice to any action that may be taken under the Reserve bank of India Act, 1934 for the acceptance of such deposit in contravention of such direction.

1[(3A)   Every deposit accepted by a company after the commencement of the Companies (Amendment) Act, 1988, shall, unless renewed in accordance with the rules made under subsection (1), be repaid in accordance with the terms and conditions of such deposit.]

(4)        Where any deposit is accepted by a company after the commencement of the Companies (Amendment) Act, 1974(41 of 1974), in contravention of the rules made under sub-section (1), repayment of such deposit shall be made by the company within thirty days from the date of acceptance of such deposit or within such further time, not exceeding thirty days, as the Central Government may, on sufficient cause being shown by the company, allow.

(5)        Where a company omits or fails to make repayment of a deposit in accordance with the provisions of clause (c) of sub-section (3), or in the case of a deposit referred to in sub-section (4),  within  the time specified in that sub-section –

(a)  the company shall be punishable with fine which shall not be less than twice the amount in relation to which the repayment of the deposit has not been made, and out of the fine, if realized, an amount equal to the amount in relation to which the repayment of deposit has not been made, shall be paid by the Court, trying the offence, to the person to whom repayment of the deposit was to be made, and on such payment, the liability of the company to make repayment of the deposit shall, to the extent of the amount paid by the Court,  stand discharged;

(b)        every officer of the company who is in default shall be punishable with imprisonment for a term which may extend  to five years and shall also be liable to fine.

(6)        Where a company accepts or invites, or allows or causes any other person to accept or invite on its behalf, any deposit in excess of the limits prescribed under sub-section (1) or in contravention of the manner or condition prescribed under that sub-section or in contravention of the provisions of subsection (2), as the case may be –

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1    Ins. by Act 31 of 1988, s. 9 (w.e.f. 1.9.1989).

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(a)        the company shall be punishable –

(i)         where such contravention relates to the acceptance of  any deposit,  with  fine which shall not be less than  an  amount equal to the amount of the deposit so accepted,

(ii)         where such  contravention relates to the invitation of any deposit, with fine which may extend to one lakh rupees but shall not be less than five thousand rupees;

(b)        every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to five years and shall also be liable to fine.

(7)        (a)        Nothing contained in this section shall apply to –

(i)         a banking company, or

(ii)         such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in  this behalf.

(b)        Except the provisions relating to advertisement contained in clause  (b)  of sub-section (2), nothing in this section shall apply to such closes  of  financial  companies  as the Central  Government may after consultation with the Reserve Bank of India, specify in this behalf.

1[(8)     The Central Government may, if it considers it necessary for avoiding any hardship or for any other just and sufficient reason by order issued either prospectively or retrospectively from a date not earlier than the commencement of the Companies (Amendment) Act, 1974 (41 of 1974), grant extension of time to a company or class of companies to comply with, or exempt any company or class of companies from, all or any of the provisions of this section either generally or for any specified  period  subject to  such  conditions  as  may  be specified in the order:

Provided that no order under this sub-section shall be issued in relation to a class of companies except after consultation with the Reserve Bank of India.]

2[(9)      Where a company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board may, if it is satisfied, either on its own motion or on the application of the depositor, that it is necessary so to do to safeguard the interests of the company, the depositors or in the public interest, direct, by order, the company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order:

Provided that the Company Law Board may, before making any order under this sub-section, give a reasonable opportunity of being heard to the company and the other persons interested in the matter.

(10)       Whoever fails to comply with any order made by the Company Law Board under sub-section (9) shall be punishable with imprisonment which may extend to three years and shall also be liable to a fine of not less than rupees fifty for every day during which such noncompliance continues.]

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1.   Ins. by Act 46 of 1977, s. 3.

2.   Ins. by Act 31 of 1988, s. 9 (w.e.f. 1.9.1989).

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Explanation.- For the purposes of this section “deposit” means any deposit of money with, and includes any amount borrowed by, a  company but shall not include such categories of amount as may be  prescribed in consultation with the Reserve Bank of India.

58B.     Provisions relating to prospectus to apply to advertisement.

The provisions of this Act relating to a prospectus shall, so far as may be, apply to an advertisement referred to in section 58A.

59.        Penalty and interpretation.

(1)        If any prospectus is issued in’ contravention of section 57 or 58, the company, and every person, who is knowingly a party to the issue thereof, shall be punishable with fine which may extend to five thousand rupees.

(2)        In sections 57 and 58, the expression “expert” includes an engineer, a valuer, an accountant and any other person whose profession gives authority to a statement made by him.

Registration of prospectus

60.        Registration of prospectus.

(1)        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, there has been delivered to the Registrar for registration a copy thereof signed by every person who is named therein as a director or proposed director of the company or by his agent authorized in writing, and having endorsed thereon or attached thereto –

(a)        any consent to the issue of the prospectus  required by section 58 from any person as an expert; and

(b)        in the case of a prospectus issued generally, also –

(i)         a copy of every contract required by clause 16 of Schedule II to be specified in the prospectus or in the case of a contract not reduced into writing, a memorandum giving full particulars thereof; and

(ii)         where the persons making any report required by Part II of that Schedule have made therein, or, have, without  giving the reasons, indicated therein, any such adjustments as are mentioned in clause 32 of that Schedule, a written  statement signed by those persons setting out the adjustments and giving the reasons therefore.

(2)        Every prospectus to which sub-section (1) applies shall, on the face of it –

(a)        state that a copy has been delivered for registration as required by this section; and

(b)        specify any documents required by this section to be endorsed on or attached to the copy so delivered, or refer to statements included in the prospectus which  specify those documents,

1[(3)      The Registrar shall not register a prospectus unless the requirements of sections 55, 56, 57 and 58 and sub-sections (1) and (2) of this section have been complied with and the prospectus is accompanied by the consent in writing of the person, if any, named therein as the auditor, legal adviser, attorney, solicitor, banker or broker of the company or intended company, to act in that capacity.]

(4)        No prospectus shall be issued more than ninety days after the date on which a copy thereof is delivered for registration; and if a prospectus is so issued, it shall be deemed to be a prospectus a copy of which has not been delivered under this section to the Registrar.

(5)        If a prospectus is issued without a copy thereof being delivered under this section to the Registrar or without the copy so delivered having endorsed thereon or attached thereto the required consent or documents, the company, and every person who is knowingly a party to the issue of the prospectus, shall be punishable with fine which may extend to five thousand rupees.

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

A company shall not, at any time, vary the terms of a contract referred to in the prospectus or statement in lieu of prospectus, except subject to the approval of, or except on authority given by, the company in general meeting.

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1.   Subs. by Act 65 of 1960, s. 17, for sub-section (3).

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62.        Civil liability for misstatements in prospectus.

(1)        Subject to the provisions of this section, where a prospectus invites persons to subscribe for shares in or debentures of a company, the following persons shall be liable to pay compensation to every person who subscribes for any shares or debentures on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement included therein, that is to say –

(a)        every person who is a director of the company at the  time of the issue of the prospectus;

(b)        every person who has authorised himself to be named and is named in the prospectus either as a director, or as having agreed to become a director, either immediately or after an interval of time;

(c)        every person who is a promoter of the company; and

(d)        every person who has authorised the issue of the prospectus:

Provided that where, under section 58, the consent of a person is required to the issue of a prospectus and he has given that consent, or where, under 1* *   *  sub-section (3) of section 60, the consent of a person named in a prospectus is required and he has given that consent, he shall not, by reason of having given such consent, be liable under this sub-section as a person who has authorised the issue of the  prospectus except in respect of an untrue statement, if any, purporting to be made by him as an expert.

(2)        No person shall be liable under sub-section (1), if he proves –

(a)        that, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent;

(b)        that the prospectus was issued without his knowledge or consent,  and that on becoming aware of its  issue,  he forthwith gave reasonable public notice that it  was issued without his knowledge or consent;

(c)        that, after the issue of the  prospectus and before allotment  there under, he, on becoming aware of any untrue statement therein, withdrew his consent to the prospectus and gave reasonable public notice of the withdrawal and of  the reason therefore; or

(d)        that –

(i)         as regards, every untrue statement not purporting to be made on the authority of an expert or of a public official document or statement, he had reasonable ground to  believe, and did up to the time of the allotment of the shares or debentures, as the case  may be, believe,  that  the statement was true; and

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1.   The words, brackets and letter “clause (b) of ” omitted by Act 65 of 1960, S. 18.

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(ii)         as regards every untrue statement purporting to be a statement by an expert  or contained in what purports to be a copy of or an extract  from  a report or valuation of an expert, it was a correct  and fair representation of the  statement, or a correct copy of, or a correct and fair  extract from, the report or valuation;  and he had  reasonable  ground  to believe, and did up to  the time  of the issue of the prospectus believe, that the person making the statement was competent to make it and that that person had given the consent required by section 58 to the issue of the prospectus and had not withdrawn that consent before delivery of a copy of the  prospectus for registration or, to the defendant’s knowledge, before allotment there under: and

(iii)        as regards every untrue statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the document:

Provided that this sub-section shall not apply in the case of a person liable, by reason of his having given a consent required of him by section 58, as a person who has authorized the issue of the prospectus in respect of an untrue statement purporting to be made by him as an expert.

(3)        A person who, apart from this sub-section, would, under sub-section (1), be liable by reason of his having given a consent required of him by section 58 as a person who has authorized the issue of a prospectus in respect of an untrue statement purporting to be made by him as an expert shall not be so liable, if he proves –

(a)        that, having given his consent under section 58 to the issue  of  the prospectus, he withdrew it in writing  before delivery of a copy of the prospectus for registration;

(b)        that, after delivery of a copy of the prospectus for registration and before allotment thereunder, he on becoming aware of the untrue statement, withdrew his consent in writing and gave reasonable public notice of the withdrawal and of the reason therefore; or

(c)        that he was competent to make the statement and that he had reasonable ground to believe, and did up to the time  of the allotment of the shares or debentures, believe, that  the statement was true.

(4)        Where –

(a)        the prospectus specifies the name of a  person as a director of  the company, or as having agreed  to become a director thereof, and he has not  consented  to become  a director,  or has withdrawn his consent before the  issue  of the  prospectus, and has not authorised or consented  to the issue thereof; or

(b)        the consent of a person is required under section 58 to the issue of the prospectus and he either has not given that consent or has withdrawn it before the issue of the prospectus; the directors of the company excluding those without whose knowledge or consent the prospectus was issued, and every other person who authorised the issue thereof, shall be liable to indemnify the person referred to in clause (a) or clause (b), as the case may be, against all damages, costs and expenses to which he may be  made  liable  by reason  of his name having been inserted in the prospectus or of the inclusion therein of a statement purporting to be made by him  as an expert, as the case may be, or in defending himself against any suit or legal proceeding brought against him in respect thereof:

Provided that a person shall not be deemed for the purposes of this sub-section to have authorized the issue of a prospectus by reason only of his having given the consent required by section 58 to the  inclusion therein of a statement purporting to be made by him as an expert.

(5)        Every person who, becomes liable to make any payment by virtue of this section, may recover contribution, as in cases of contract, from any other person who, if sued separately, would have been liable to make  the same payment, unless the former person  was,  and  the latter person was not, guilty of fraudulent misrepresentation.

(6)        For the purposes of this section –

(a)        the expression “promoter” means a promoter who was a party to the preparation of the prospectus or of the portion thereof containing the untrue statement but does not include any person by reason of his acting in a professional capacity  for persons engaged in procuring the  formation of the company; and

(b)        the expression “expert” has the same meaning as in section 58.

Criminal liability for mis-statements in prospectus

63.        Criminal liability for mis-statements in prospectus.

(1)        Where a prospectus issued after the commencement of this Act includes any untrue statement, every person who authorized the issue of the prospectus shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both, unless he proves either that the statement was immaterial or that he had reasonable ground to believe, and did, up to the time of the issue of the prospectus believe, that the statement was true.

(2)        A person shall not be deemed for the purposes of this section to have authorized the issue of a prospectus by reason only of his having given –

(a)        the consent required by section 58 to the inclusion therein of a statement purporting to be made by him as an expert, or

(b)        the consent required  by 1* * *  sub-section (3) of section 60.

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

(1)        Where a company allots or agrees to allot any shares in or debentures of the company with a view to all or any of those shares or debentures being offered for sale to the public, any document by which the offer for sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company; and all enactments and rules of law as to the contents of prospectuses and as to liability in respect of statements in and omissions from prospectuses, or otherwise relating to prospectuses, shall apply  with the modifications specified in sub-sections (3), (4) and (5), and have effect accordingly, as if the shares or debentures had been offered to the public for subscription and as if persons accepting the offer in respect of any shares or debentures were subscribers for those shares or debentures, but without prejudice to the liability, if any, of  the persons  by  whom  the  offer is  made  in  respect  of misstatements contained in the document or otherwise in respect thereof.

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1.   The words, brackets and letter ” clause (b) of ” omitted by Act  65 of 1960, S. 19.

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(2)        For the purposes of this Act, it shall, unless the contrary is proved, be evidence that an allotment of, or an agreement to allot, shares or debentures was made with a view to the shares or debentures being offered for sale to the public if it is shown –

(a)        that an offer of the shares or debentures or of any of them for sale to the public was made within six months after the allotment or agreement to allot; or

(b)        that at the date when the offer was made, the whole consideration to be received by the company in respect of the shares or debentures had not been received by it.

(3)        Section 56 as applied by this section shall have effect as if it required a prospectus to state in addition to the matters required by that section to be stated in a prospectus –

(a)        the net amount of the consideration received or to be received  by the company in respect of the shares or debentures to which the offer relates; and

(b)        the place and time at which the contract under which the said shares or debentures have been or are to be allotted may be inspected.

(4)        Section 60 as applied by this section shall have effect as if the persons making the offer were persons named in a prospectus as directors of a company.

(5)        Where a person making an offer to which this section relates is a company or a firm, it shall be sufficient if the document referred to in sub-section (1) is signed on behalf of the company or firm by two directors of the company or by not less than one-half of the partners in the firm, as the case may be; and any such director or partner may sign by his agent authorized in writing.

65.        Interpretation of provisions relating to prospectuses.

(1)        For the purposes of the foregoing provisions of this Part –

(a)        a statement included in a prospectus shall be deemed to be untrue,  if the statement is misleading in the form be untrue and context in which it is included; and

(b)        where the omission from a prospectus of any matter is calculated  to mislead, the prospectus shall be deemed, in respect of such omission, to be a prospectus  in which  an untrue statement is included.

(2)        For the purposes of sections 61, 62 and 63 and clause (a) of sub-section (1) of this section, the expression “included” when used with reference to a prospectus, means included in the prospectus itself or contained in any report or memorandum appearing on the face thereof or by reference incorporated therein or issued therewith.

66.        Newspaper advertisements of prospectus.

Where any prospectus is published as a newspaper advertisement, it shall not be necessary in the advertisement to specify the contents of the memorandum or the signatories thereto, or the number of shares subscribed for by them.

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

(1)        Any reference in this Act or in the articles of a company to offering shares or debentures to the public shall, subject to any provision to the contrary contained in this Act and subject also to the provisions of sub-sections (3) and (4), be construed as including a reference to offering them to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner.

(2)        Any reference in this Act or in the articles of a company to invitations to the public to subscribe for shares or debentures shall, subject as aforesaid, be construed as including a reference to invitations to subscribe for them extended to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner.

(3)        No offer or invitation shall be treated as made to the public by virtue of sub-section (1) or sub-section (2), as the case may be, if the offer or invitation can properly be regarded, in all the circumstances –

(a)        as not being calculated to result, directly or indirectly, in the  shares or debentures becoming available for subscription or purchase by persons other than those  receiving the offer or invitation; or

(b)        otherwise as being a domestic concern of the persons making and receiving the offer or invitation.

(4)        Without prejudice to the generality of sub-section (3), a provision in a company’s articles prohibiting invitations to the public to subscribe for shares or debentures shall not be taken as prohibiting the making to members or debenture holders of an which can properly be regarded in the manner set forth in  that  sub-section.

(5)        The provisions of this Act relating to private companies shall be construed in accordance with the provisions contained in sub-sections (1) to (4).

Penalty for fraudulently inducing persons to invest money

68.        Penalty for fraudulently inducing persons to invest money.

Any person who, either by knowingly or recklessly making any statement, promise or forecast which is false, deceptive or misleading, or by any dishonest concealment of material facts, induces or attempts to induce another person to enter into, or to offer to enter into –

(a)        any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting shares or debentures; or

(b)        any agreement the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of shares or debentures, or by reference to fluctuations in the value of shares or debentures; shall be punishable with imprisonment for a term which may extend to five years, or with fine which may extend to ten thousand rupees, or with both.

1[68A.   Personation for acquisition, etc., of shares.

(1)        Any person who –

(a)        makes in a fictitious name an application to a company for acquiring, or subscribing for, any shares therein, or

(b)        otherwise induces a company to allot, or register any transfer of, shares therein to him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years.

(2)        The provisions of sub-section (1) shall be prominently reproduced in every prospectus issued by the company and in every form of application for shares which is issued by the company to any person.]

Allotment

69.        Prohibition of allotment unless minimum subscription received.

(1)       No allotment shall be made of any share capital of a company offered to the public for subscription, unless the amount stated in the prospectus as the minimum amount which, in the opinion of the Board of directors, must be raised by the issue of share capital in order to provide for the matters specified in clause 5 of Schedule II has been subscribed, and the sum payable on application for the amount so stated has been paid to and received by the company, whether in cash or by a cheque or other instrument which has been paid.

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1.   Ins. by Act 31 of 1965, s. 8 (w.e.f. 15-10-1965).

(2)        The amount so stated in the prospectus shall be reckoned exclusively of any amount payable otherwise than in money, and is in this Act referred to as “the minimum subscription”.

(3)        The amount payable on application on each share shall not be less than five per cent. of the nominal amount of the share.

1[(4)     All moneys received from applicants for shares shall be deposited and kept deposited in a Scheduled Bank –

(a)        until the certificate to commence business is obtained under section 149; or

(b)        Where such certificate has already been obtained, until the entire amount payable on applications for shares in respect of the minimum subscription has been received by the company, and where such amount has not been received by the company within the time or the expiry of which the moneys received from the applicants for shares are required to be repaid without interest under sub-section (5), all moneys received from applicants for shares shall be returned in accordance with the provisions of that sub-section.

In the event of any contravention of the provisions of this sub-section, every promoter, director or other person who is knowingly responsible for such contravention shall be punishable with fine which may extend to five thousand rupees.]

(5)        If the conditions aforesaid have not been complied with on the expiry of one hundred and twenty days after the first issue of the prospectus, all moneys received from applicants for shares shall be forthwith repaid to them without interest; and if any such money is not so repaid within one hundred and thirty days after the issue of the prospectus, the directors of the company shall be jointly and severally liable to repay that money with interest at the rate of six per cent. per annum from the expiry of the one hundred and thirtieth day:

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1.   Subs. by Act 31 of 1965, s. 9, for sub-section (4)  (w.e.f. 15-10-1965).

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Provided that a director shall not be so liable if he proves that the default in the repayment of the money was not due to any misconduct or negligence on his part.

(6)        Any condition purporting to require or bind any applicant for shares to waive compliance with any requirement of this section shall be void.

(7)        This section, except sub-section (3) thereof, shall not apply in relation to any allotment of shares subsequent to the first allotment of shares offered to the public for subscription.

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

(1)        A company having a share capital, which does not issue a prospectus on or with reference to its formation, or which has issued such a prospectus but has not proceeded to allot any of the shares offered to the public for subscription,  shall not allot any of its shares or debentures unless at  least three days before the first allotment of either  shares or debentures, there has been delivered to the Registrar for registration a statement in lieu of prospectus signed by every person who is  named therein as a director or proposed director of the company or  by his agent authorised  in writing,  in  the  form  and  containing the particulars  set  out  in Part I of Schedule III and, in the cases mentioned in Part II of that Schedule,  setting  out  the  reports specified  therein, and the said Parts I and II  shall have effect subject to the provisions contained in Part III of that Schedule.

(2)        Every statement in lieu of prospectus delivered under sub-section (1), shall, where the persons making any such report as aforesaid have made therein, or have without giving the reasons indicated therein, any such adjustments as are mentioned in clause 5 of Schedule III, have endorsed thereon or attached thereto a written statement signed by those persons, setting out the adjustments and giving the reasons thereof.

(3)        This section shall not apply to a private company.

(4)        If a company acts in contravention of sub-section (1) or (2), the company, and every director of the company who willfully authorises or permits the contravention, shall be punishable with fine which may extend to one thousand rupees.

(5)        Where a statement in lieu of prospectus delivered to the Registrar under sub-section (1) includes any untrue statement, any person who authorised the delivery of the statement in lieu of prospectus for registration shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to five thousand rupees or with both, unless he proves either that the statement was immaterial or that he had reasonable ground to believe, and did  up to  the time of the delivery  for registration  of the statement in lieu of prospectus believe, that the statement was true.

(6)        For the purposes of this section –

(a)     a statement included in a statement in lieu of prospectus shall be deemed to be untrue if it is misleading in the  form and context in which it is included; and

(b)     where the omission from a statement in lieu of prospectus of any matter is calculated to mislead, the statement in lieu of prospectus shall be deemed, in respect of such omission, to be a statement in lieu of prospectus in which  an  untrue statement is included.

(7)                   For the purposes ‘of sub-section (5) and clause (a) of sub-section (6), the expression “included”, when used with reference to a statement  in lieu of prospectus, means included in the  statement  in lieu of  prospectus itself or contained in any report or memorandum appearing on the face thereof, or by reference incorporated  therein, or issued therewith.

Effect of irregular allotment

71.        Effect of irregular allotment.

(1)        An allotment made by a company to an applicant in contravention of the provisions of section 69 or 70 shall be voidable at the instance of the applicant –

(a)        within two months after the holding of the statutory meeting of the company, and not later, or

(b)        in any case where the company is not required to hold a statutory meeting or where the allotment is made after the holding of the statutory meeting, within two months after the date of the allotment, and not later.

(2)        The allotment shall be voidable as aforesaid, notwithstanding that the company is in course of being wound up.

(3)        If any director of a company knowingly contravenes, or willfully authorises or permits the contravention of, any of the provisions of section 69 or 70 with respect to allotment, he shall be liable to compensate the company and the allottee respectively for any loss,  damages or costs which the company or the allottee may have sustained or incurred thereby :

Provided that proceedings to recover any such loss, damages or costs shall not be commenced after the expiration of two years from the date of the allotment.

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

(1)        (a)        No allotment shall be made of any shares in or debentures of a company in pursuance of a prospectus issued generally, and no proceedings shall be taken on applications made in pursuance of a prospectus so issued, until the beginning of the fifth day after that on which the prospectus is first so issued or such later time, if any, as may be specified in the prospectus:

Provided that where, after a prospectus is first issued generally, a public notice is given by some person responsible under section 62 for the prospectus which has the effect of excluding, limiting or diminishing his responsibility, no allotment shall be made until the beginning of the fifth day after that on which such public notice is first given.

(b)        Nothing in the foregoing proviso shall be deemed to exclude, limit or diminish any liability that might be incurred in the case referred to therein under the general law or this Act.

(c)        The beginning of the fifth day or such later time as is mentioned in the first paragraph of clause (a), or the beginning of the fifth day mentioned in the second paragraph of that clause, as the case may be, is hereinafter in this Act referred to as “the time of the opening of the subscription lists”.

(2)        In sub-section (1), the reference to the day on which the prospectus is first issued generally shall, be construed as referring to the day on  which  it is first so issued as a newspaper advertisement:

Provided   that, if it is not so issued as a newspaper advertisement before the fifth day after that on which it is first so issued in any other manner, the said reference shall be construed  as referring to the day on which it is first so issued in any manner.

(3)        The validity of an allotment shall not be affected by any contravention of the foregoing provisions of this section; but, in the event of any such contravention, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.

(4)        In the application of this section to a prospectus offering shares or debentures for sale, sub-sections (1) to (3) shall have effect with the substitution of references to sale for references to allotment, and with the substitution for the reference to the company and every officer of the company who is in default of a reference to any person by or through whom the offer is made and who is knowingly guilty of, or willfully authorizes or permits, the contravention.

(5)        An application for shares in, or debentures of, a company, which is made in pursuance of a prospectus issued generally shall not be revocable until after the expiration of the fifth day after the time of the opening of the subscription lists, or the giving, before the expiry of the said fifth day by some person responsible under section 62 for the prospectus, of a public notice having the effect under that section of excluding, limiting or diminishing the responsibility of the person giving it.

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

[(1)       Every company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make  an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange  or each  such  stock  exchange.]

2[1A]    Where a prospectus, whether issued generally or not, state that an 3[application under sub-section (1) has been] made for permission for the shares or debentures offered thereby to be dealt in one or more  recognized  stock  exchanges, such prospectus, shall state  the name of the  stock exchange or, as the case may be, each such stock  exchange,  and any allotment made on an application in pursuance of such prospectus  shall,  whenever made,  be void 4*  *  * if  the permission has not been granted by the stock exchange or each such stock  exchange, as the case may be, before the expiry  of  ten weeks from the date of  the closing of the subscription lists:

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1.   Ins. by Act 31 of 1988, s.10(w.e.f.15-6-1988).

2.   Subs. by Act 41 of 1974, s.8  sub-section (1) (w.e.f. 1-2-1975) and renumbered as  sub-section  (1A)  by Act 31 of  1988, s.10 (w.e.f. 15-6-1988).

3.   Subs. by Act 31 of 1988, s.10 (w.e.f. 15-6-1988).

4.   Omitted by s.10, ibid.(w.e.f. 15-6-1988).

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Provided that where an appeal against the decision of any recognized stock exchange refusing permission for the shares or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regulation) Act,1956 (42 of 1956),such allotment shall not be void until the dismissal of the appeal.]

(2)        Where the permission has not been 1[applied under sub-section(1)]  2[or, such permission, having been applied for, has not been granted as aforesaid], the company shall forthwith repay without interest all  moneys  received from applicants in pursuance of the prospectus, and, if any such money is not repaid within  eight days after the company becomes liable to repay it 1[the company and  every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable  to repay that money with interest at such rate, not less than  four  per cent. and not  more than fifteen per cent., as may  be  prescribed, having regard to the length of the period of delay in making the repayment of such money.]

3*  *  *  *   *

4[(2A)   Where permission has been granted by the recognized stock exchange or stock exchanges for dealing in any shares or debentures in such stock exchange or each such stock exchange and the moneys received from applicants for shares or debentures are in excess of the aggregate of the application moneys relating to the shares or debentures in respect of which allotments have been made, the company shall repay the moneys to the extent of such excess forthwith without interest, and if such money is not repaid within eight days, from the day the company becomes liable to pay it, 1[the company and  every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable  to repay that money with interest at such rate, not less than  four  per cent. and not  more than fifteen per cent, as may be  prescribed, having regard  to the length of the period of delay in making  the repayment of such money.]

3*   *  *  *    *

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1.   Subs. by Act 31 of 1988, s.10  (w.e.f. 15-6-1988).

2.   Subs.  by Act 41 of 1974, s. 8, for certain  words  (w.e.f. 1-2-1975).

3.   Omitted by Act 31 of 1988, s.10 (w.e.f. 15-6-1988).

4.   Ins. by Act 41 of 1974, s.8 (w.e.f. 1-2-1975).

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(2B)      If default is made in complying with the provisions of sub-section (2A), the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees, and where repayment is not made within six months from the expiry of the eighth day, also with imprisonment for a term which may extend to one year.]

(3)        All moneys received as aforesaid shall be kept in a separate bank account maintained with a Scheduled Bank 1[until the permission has been granted, or where an appeal has been preferred against the refusal to grant such. permission, until the disposal of the appeal, and the money standing in such separate account shall, where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section (2)]; and if default is made in complying with  this  sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which  may  extend  to five thousand rupees.

2[(3A)   Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilised for any purpose other than the following purposes, namely –

(a)        adjustment against allotment of shares, where the shares have  been permitted to be dealt in on the stock exchange or each stock exchange specified in the  prospectus; or

(b)        repayment of moneys received from applicants in pursuance of the prospectus, where shares have not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or where the company is for any other reason unable to make  the allotment of share.]

(4)        Any condition purporting to require or bind any applicant for shares or debentures to waive compliance with any of the requirements of this section shall be void.

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1.   Subs. by Act 41 of 1974, s. 8, for certain words (w.e.f. 1-2-1975).

2.   Ins. by s. 8, ibid. (w.e.f. 1-2-1975).

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1[(5)      For the purposes of this section, it shall be deemed that permission has not been granted if the application for permission, where made, has not been disposed of within the time specified in sub-section (1).]

(6)        This section shall have effect –

(a)        in relation to any shares or debentures agreed to be taken by a person underwriting an offer thereof by a prospectus, as if he had applied therefor in pursuance of  the prospectus; and

(b)        in relation to a prospectus offering shares for sale, with the following modifications, namely –

(i)         references to sale shall be substituted for references to allotment;

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1.         Subs. by Act 41 of 1974, s.8, for sub-section (5) (w.e.f.  1-2-1975).

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(ii)         the persons by whom the offer is made, and not the. company, shall be liable under sub-section (2) to ‘repay money received  from  applicants, and  references to the company’s liability under that sub-section shall be construed accordingly; and

(iii)        for the reference in sub-section (3) to the company and every officer of the company who is in default, there shall be substituted a reference to any person by or through  whom the offer is made and who is knowingly guilty of, or willfully authorises or permits, the default.

(7)        No prospectus shall state that application has been made for permission for the shares or debentures offered thereby to be dealt in on any stock exchange, unless it is a recognized stock exchange.

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

In reckoning for the purposes of sections 72 and 73, the fifth day 1[or the eighth day] another day, any intervening day which is a public holiday under the Negotiable Instruments Act, 1881 (36 of 1881), shall be disregarded, and if the fifth, or eighth day (as so reckoned) is itself such a public holiday, there shall for the said purposes be substituted the first day thereafter which is not such a holiday.

Return as to allotments

75.        Return as to allotments.

(1)        Whenever a company having a share capital makes any allotment of its shares, the company shall, within 2[thirty days] thereafter –

(a)        file with the Registrar a return of the allotments, stating the number and nominal amount of the shares comprised in the allotment, the names, addresses and occupations of the allottees, and the amount, if any, paid or due and payable on each share:

3[Provided that the company shall not show in such return any shares as having been allotted for cash if cash has not actually been received in respect of such allotment.]

(b)        in the case of shares (not being bonus shares) allotted as fully or partly paid up otherwise than in cash, produce for the inspection and examination of the Registrar a contract in writing constituting the title of the allottee to the allotment together with any contract of sale, or a contract for services or other consideration in respect of which that allotment was made, such contracts being duly stamped, and file with the Registrar copies verified in the prescribed manner of all such contracts and a return stating the number and nominal amount of shares so allotted, the extent  to which they are to be treated as paid up, and the consideration for which they have been allotted; and

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1.   Subs. by Act 31 of 1988, s.11 (w.e.f. 15-6-1988).

2.   Subs. by Act 31 of 1965, s. 62 and Sch., for “one month” (w.e.f. 15-10-1965).

3.   Added by s. 11, ibid. (w.e.f. 15-10-1965).

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1[(c)      file with the Registrar –

(i)         in the case of bonus shares, a return stating the  number and nominal amount of such shares comprised in the  allotment and the names, addresses and occupations of the allottees and a copy of the resolution authorizing the issue of such shares;

(ii)         in the case of issue of shares at a discount a copy of the resolution passed by the company authorizing such issue together with a copy of the order of the Court sanctioning the issue and where the maximum rate of discount exceeds  ten per cent., a copy of the orders of the  Central  Government permitting the issue at the higher percentage.]

(2)        Where a contract such as is mentioned in clause (b) of sub-section (1) is  not reduced to writing, the  company  shall,  within 2[thirty days] after the allotment, file with the Registrar the prescribed particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing; and those particulars shall be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899,(2 of 1899.) and the Registrar may, as a condition of filing the particulars, require that the  duty payable thereon be adjudicated under section 31 of that Act.

(3)        If the Registrar is satisfied that in the circumstances of any particular case the period of 2 [thirty days] specified in subsections (1) and (2) for compliance with the requirements of this section 3[is or was inadequate, he may, on application made in that behalf by the company, whether before or after the expiry of the said period, extend that period as he thinks fit] ; and if he does so, the provisions of sub-sections (1) and (2) shall have effect in that particular case as if  for the said period of 1[thirty days] the extended period allowed by the Registrar were substituted.

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1.         Subs. by Act 65 of 1960, s. 21, for cl. (c).

2.         Subs.  by Act 31 of 1965, s. 62 and Sch., for “one month” (w.e.f. 15-10-1965).

3.         Subs. by s. 11, ibid., for certain words, (w.e.f. 15-10-1965).

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(4)        If default is made in complying with this section, every officer of the company who is in default shall be punishable with fine which may. extend to five hundred rupees for every day during  which the default continues:

2[Provided that in case of contravention of the proviso to clause (a) of sub-section (1), every such officer, and every promoter of the company who is guilty of the contravention shall be  punishable with fine which may extend to five thousand rupees.]

(5)        Nothing in this section shall apply to the issue and allotment by a company of shares which under the provisions of its articles were forfeited for non-payment of calls.

Commissions and Discounts

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

(1)        A company may pay a commission to any person in consideration of –

(a)        his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in, or debentures of, the company, or

(b)        his procuring or agreeing to procure subscriptions, whether  absolute or conditional, for any shares in, or debentures of, the company,

if the following conditions are fulfilled, namely –

(i)         the payment of the commission is  authorized by the articles;

(ii)         the commission paid or agreed to be paid does not exceed in the case of shares, five per cent. of the price at which the shares are issued or the amount or rate authorized by the articles,  whichever is less, and in the case of debentures, two and a half per cent. of the price at which the debentures are issued or the amount or rate authorized by the articles, whichever is less;

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1.   Subs.  by Act 31 of 1965, s. 62 and Sch., for “one month” (w.e.f. 15-10-1965).

2.   Subs. by s. 11, ibid., for the proviso (w.e.f. 15-10-1965).

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(iii)        the amount or rate per cent. of the commission paid or agreed to be paid is –

in the case of shares or debentures offered to the public for subscription, disclosed in the prospectus; and in the case of shares or debentures not  offered to the public for subscription, disclosed in the statement in  lieu of prospectus, or in a statement in the prescribed form signed in like manner as a statement in lieu of prospectus and filed before the payment of the commission  with the Registrar and, where a circular or notice, not being a prospectus inviting subscription for the   shares  or debentures,  is  issued, also disclosed in that circular or notice; 1* * *

(iv)       the number of shares or debentures which persons have  agreed for a commission to subscribe absolutely or conditionally is disclosed in the manner aforesaid 2 [and]

2[(V)    a copy of the contract for the payment of the commission is delivered to the Registrar at the time of delivery of the prospectus or the statement in lieu of prospectus for registration.]

(2)        Save as aforesaid and save as provided in section 79, no company shall allot any of its shares or debentures or apply 3[any of its moneys], either directly or indirectly, in payment of any commission, discount or allowance, to any person in consideration of –

(a)        his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in, or debentures of, the company, or

(b)        his procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in, or debentures of, the company, whether the shares, debentures or money be so allotted or applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise.

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1.   The word “and” omitted by Act 31 of 1965, s. 12 (w.e.f. 15-10-1965).

2.   Ins. by s. 12, ibid. (w.e.f. 15-10-1965).

3.   Subs.  by Act  65 of 1960, s. 22, for  ”any of its capital moneys”.

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(3)        Nothing in this section shall affect the power of any company to pay such brokerage as it has heretofore been lawful for a company to pay.

(4)        A vendor to promoter of, or other person who receives payment in shares, debentures or money from, a company shall have and shall be deemed always to have had power to apply any part of the shares, debentures or money so received in payment of any commission the payment of which, if made directly by the company, would have been legal under this section.

1[(4A)   For the removal of doubts it is hereby declared that no commission shall be paid under clause (a) of sub-section (1) to any person on shares or debentures which are not offered to the public for subscription:

Provided that where a person has subscribed or agreed to subscribe under clause (a) of sub-section (1) for any shares in, or debentures of,  the  company and before the issue of the prospectus or statement in lieu thereof any other person or persons has or have subscribed for any or all of those shares or debentures and that  fact together with the aggregate amount of commission payable under this section in respect of such subscription is disclosed in such prospectus or statement, then, the company may pay  commission  to  the first-mentioned person in respect of such subscription.]

(5)        If default is made in complying with the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.

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

(1)        No company limited by shares, and no company limited by guarantee and having a share capital, shall have power to buy its own shares, unless the consequent reduction of capital is effected and sanctioned in pursuance of sections 100 to 104 or of section 402.

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1.   Ins. by Act 31 of 1965, s. 12 (w.e.f. 15-10-1965).

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(2)        No public company, and no private company which is a subsidiary of a public company, shall give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or in its holding company:

Provided that nothing in this sub-section shall be taken to prohibit –

(a)        the lending of money by a banking company in the  ordinary           course of its business; or

(b)        the provision by a company, in accordance with any scheme for the time being in force, of money for the purchase of, or subscription for, fully paid shares in the company or its holding company, being a purchase or subscription by trustees of or for shares to be held by or for the benefit of employees of the company, including any director holding a salaried office or employment in the company; or

(c)        the making by a company of loans, within the limit laid down in sub-section (3), to persons (other than directors, managing agents, secretaries and treasurers or managers) bona fide in the employment of the company with a view to enabling those persons to purchase or subscribe for fully paid shares in the company or its holding company to be held by themselves by way of beneficial ownership.

(3)        No loan made to any person in pursuance of clause (c) of the foregoing proviso shall exceed in amount his salary or wages at that time for a period of six months.

(4)        If a company acts in contravention of sub-sections (1) to (3), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one thousand rupees.

(5)        Nothing in this section shall affect the right of a company to redeem any shares issued under section 80 or under any corresponding provision in any previous companies law.

Application of premiums received on issue of shares

78.        Application of premiums received on issue of shares.

(1)        Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called “the share premium account”; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid-up share capital of the company.

(2)        The share premium account may, notwithstanding anything in sub-section (1), be applied by the company –

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

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

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

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

(3)        Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this Act:

Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company’s reserves within the meaning of Schedule Vl, shall be disregarded in determining the sum to be included in the share premium account.

79.        Power to issue shares at a discount.

(1)        A company shall not issue shares at a discount except as provided in this section.

(2)        A company may issue at a discount shares in the company of a class already issued, if the following conditions are fulfilled, namely –

(i)         the issue of the shares at a discount is authorised by a resolution  passed by the company in general meeting, and sanctioned by the 1 [Company Law Board];

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1.   Subs. by Act 41 of 1974, s. 9, for “Court” (w.e.f. 1-2-1975).

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(ii)         the resolution specifies the maximum, rate of  discount 1*  *  *   at which the shares are to be issued:

2[Provided that no such resolution shall be sanctioned by the Company Law Board if the maximum rate of discount specified in the resolution exceeds ten per cent., unless that Board is of opinion that a higher percentage of discount may be allowed in the special circumstances of the case;]

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

(iv)        the shares to be issued at a discount are issued within two months after the date on which the issue is sanctioned by the 3[Company Law Board] or within such extended time as  the 3[Company Law Board] may allow.

(3)        Where a company has passed a resolution authorizing the issue of shares at a discount, it may apply to the 3[Company Law Board] for an order sanctioning the issue; and on any such application, the 3[Company Law Board], if, having regard to all. the circumstances of the case, it thinks proper so to do, may  make an order sanctioning the issue on such terms and conditions as it thinks fit.

(4)        Every prospectus relating to the issue of the shares shall contain particulars of the discount allowed on the issue of the shares or of so much of that discount as has not been written off at the date of the issue of the prospectus. If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall   be punishable with fine which may extend to fifty rupees.

Issue and Redemption of Preference Shares

80.        Power to issue redeemable preference shares.

(1)        Subject to the provisions of this section, a company limited by shares may, if so authorized by its articles, issue preference shares which are, or at the option of the company are to be liable, to be redeemed:

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1.   Certain  words omitted by Act 41 of 1974, s.  9  (w.e.f.  1-2-1975).

2.   Ins. by s. 9, ibid. (w.e.f. 1-2-1975).

3.   Subs. by s. 9, ibid.. for “Court” (w.e.f. 1-2-1975).

4    Subs. by Act 31 of 1988, s. 12 (w.e.f. 15.6.1988).

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Provided that –

(a)        no such shares shall be redeemed except out of profits of the  company which would otherwise be available for  dividend or out of the proceeds of a fresh issue of shares made or the purposes of the redemption;

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

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

(d)       where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividend, be transferred to a reserve fund, to be called 1[the capital redemption reserve account], a sum equal to the nominal amount of the shares redeemed; and the provisions of this Act relating to the reduction of the share capital of a company shall,  except as provided in this section, apply as if 1[the capital redemption reserve account]  were  paid-up share capital of the company.

(2)        Subject to the provisions of this section, the redemption of preference shares there under may be effected on such terms and in such manner as may be provided by the articles of the company.

(3)        The redemption of preference shares under this section by a company shall not be taken as reducing the amount of its authorized share capital.

(4)        Where in pursuance of this section, a company has redeemed or is about to redeem any preference shares, it shall have power to issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares had never been issued; and accordingly the share capital of the company shall not, for the purpose of calculating the fees payable under 2[section 611], be deemed to be  increased  by the issue of shares in pursuance of this sub-section:

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1.   Subs.  by Act 65 of 1960, s. 23, for “the  capital  redemption reserve fund”.

2.   Subs. by s. 23, ibid., for “section 601″.

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Provided that, where new shares are issued before the redemption of  the  old shares, the new shares shall not, so far  as  relates  to stamp  duty, be deemed to have been issued in pursuance of  this  sub-section unless the old shares are redeemed within one month after  the issue of the new shares.

(5)       1[The capital redemption reserve account] may, notwithstanding anything in this section, be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.

2[(5A)   Notwithstanding  anything contained in this  Act,  no  company limited  by  shares shall, after the commencement  of  the Companies (Amendment)   Act, 1988, issue any preference share which is irredeemable or is redeemable after the expiry of a  period  of  ten years from the date of its issue]

(6)        If a company fails to comply with the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one thousand rupees.

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1.   Subs. by Act 65 of 1960, s. 23, for  ”The  capital  redemption reserve fund”.

2.   Ins. by Act 31 of of 1988, s. 13 (w.e.f 15.6.1988).

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Redemption of irredeemable preference shares, etc.

4[80A.   Redemption of irredeemable preference shares, etc.

(1)        Notwithstanding anything contained in the terms of issue of any preference shares, every preference share issued before the commencement of the Companies (Amendment) Act, 1988 –

(a)        which is irredeemable, shall be redeemed by the company within a  period  not exceeding five years  from  such  commencement, or

(b)        which is not redeemable before the expiry of ten years from the date of issue there-on in accordance with the terms of its issue and which had not been redeemed before such commencement, shall be redeemed by the company on the date on which such share is due for redemption or within a period not exceeding ten years from such commencement, whichever is earlier:

Provided that where a company is not in a position to redeem any such share within the period aforesaid and to pay the dividend, if any, due thereon (such shares being hereinafter referred to as unredeemed preference shares), it may, with the consent of the Company Law Board, on a petition made by it in this behalf and notwithstanding anything contained in this Act, issue further redeem-able preference shares equal to the amounts due (including the dividend thereon), in respect of the unredeemed preference shares, and on the issue of  such further redeemable preference shares, the unredeemed shares shall  be deemed to have been redeemed.

(2)        Nothing contained in section 106 or any scheme referred to in sections 391 to 395, or in any scheme made under section 396, shall be deemed to confer power on any class of shareholders by resolution or on any court or the Central Government to vary or modify the provisions of this section.

(3)        If any default is made in complying with the provisions of this section –

(a)        the company  making such default shall be  punishable  with fine  which may extend to one thousand rupees for every day during which such default continues; and

(b)        every officer of the company who is in default shall be punishable  with imprisonment for a term which may  extend  to  three years and shall also be liable to fine.]

Further issue of Capital

81.        Further issue of capital.

(1)        2[Where at any time after the expiry of two years from the formation of a company or at any time after the expiry of one year from the allotment of shares in that company made for the first time after its formation, whichever is earlier, it is proposed to increase the subscribed capital of the company by allotment of further shares, then,]

(a)        such 3[further]  shares shall be offered to the persons who, at  the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid up on those  shares at that date;

(b)        the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not being  less than fifteen days from the date of the offer within which the offer, if not accepted, will be deemed to have been  declined;

(c)        unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares  offered to him or any of them in favour of any  other person; and the notice referred to in clause (b) shall contain a statement of this right;

(d)       after the expiry of the time specified in the notice aforesaid, or  on  receipt of earlier  intimation from  the person to  whom  such notice is given that he declines to accept the shares offered, the Board of directors may dispose of them in such manner as they think most beneficial to the company.

Explanation.-In this sub-section, “equity share capital” and “equity shares” have the same meaning as in section 85.

4[(1A)  Notwithstanding anything contained in sub-section (1), the further shares aforesaid may be offered to any persons [whether or not those  persons include the persons referred to in clause  (a)  of subsection (1)] in any manner whatsoever –

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1.   Ins. by Act 31 of 1988, s. 14 (w.e.f. 15.6.1988).

2.   Subs. by Act 65 of 1960, s. 24, for certain words.

3.   Subs. by s. 24, ibid., for “new”.

4.   Ins. by s. 24, ibid.

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(a)        if a special resolution to that effect is passed  by the company in general meeting, or

(b)       where no such special resolution is passed, if the votes cast (whether on a show of hands, or on a poll, as the case moved in that general meeting (including the casting vote, if any, of the Chairman) by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy, exceed the votes, if any, cast against the proposal by members so entitled and voting and the Central Government is satisfied, on an application made by the Board of directors in this behalf, that the proposal is most beneficial to  the company.]

(2)        Nothing in clause (c) of sub-section (1) shall be deemed –

(a)        to extend the time within which the offer should be accepted, or

(b)        to authorize any  person  to  exercise the right of renunciation for a second time, on the ground that the person in whose favour the renunciation was first made has  declined to take the shares comprised in the renunciation.

(3)        Nothing in this section shall apply –

(a)        to a private company; or

(b)        to the increase of the subscribed capital of a public company caused  by  the exercise of an  option  attached to debentures issued or loans raised by the company –

(i)         to convert such debentures or loans into shares in the company, or

(ii)         to subscribe for shares in the company:

2[Provided that the terms of issue of such debentures or the terms of such loans include a term providing for such option and such term –

(a)        either has been approved by the Central Government before the issue of debentures or the raising of the loans  or is in conformity with the rules, if any, made by that Government in this behalf; and

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1.   Subs. by Act 65 of 1960, s. 24, for sub-section (3).

2.   Subs.  by Act 53 of 1963, s. 5, for the proviso  (w.e.f.  1-1-1964).

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(b)        in the case of debentures or loans other than debentures issued to, or loans obtained from, the Government or any  institution specified by the Central  Government in this behalf, has also been approved by a special resolution passed by the company in general meeting before the issue  of the debentures or the raising of the loans.]

1[(4)     Notwithstanding anything contained in the foregoing provisions of this section, where any debentures have been issued to, or loans have been obtained from, the Government by a company, whether such debentures have been issued or loans have been obtained before or after the commencement of the Companies (Amendment) Act, 1963, the Central Government may, if in its opinion it is necessary in the public interest so to do, by order, direct that such debentures or loans  or  any  part thereof shall be converted  into  shares  in  the company on such terms and conditions as appear to that Government to be reasonable in the circumstances of the case, even if the terms of issue of such debentures or the terms of such loans do not include  a term providing for an option for such conversion.

(5)        In determining the terms and conditions of such conversion, the Central Government shall have due regard to the following circumstances, that is to say, the financial position of the company, the terms of issue of the debentures or the terms of the loans, as the case may be, the rate of interest payable on the debentures or the loans, the capital of the company, its loan liabilities, its reserves, its profits during the preceding five years and the current market price of the shares in the company.

(6)        A copy of every order proposed to be issued by the Central Government under sub-section (4) shall be laid in draft before each House of Parliament  while it is in session for a total period  of thirty days which may be comprised in one session or in two  or  more successive sessions.

(7)        If the terms and conditions of such conversion are not acceptable to the company, the company may, within thirty days from the date of communication to it of such order or within such further time as may be granted by the Court, prefer an appeal to the Court in regard to such terms and conditions and the decision of the Court on such appeal and, subject only to such decision, the order of the Central Government under sub-section (4) shall be final and conclusive.]

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1.   Ins. by Act 53 of 1963, s. 5 (w.e.f. 1-1-1964).

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POWERS OF CENTRAL GOVERNMENT TO REMOVE MANAGERIAL PERSONNEL FROM OFFICE ON THE RECOMMENDATION OF THE COMPANY 4[Company Law Board]

388B. Reference to Company Law Board of cases against managerial personnel.

(1) Where in the opinion of the Central Government there are circumstances suggesting

(a) that any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or breach of trust; or

(b) that the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; or

(c) that a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or

(d) that the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest, the Central Government may state a case against the person aforesaid and refer the same to the 4[Company Law Board.] with a request that the 1[Company Law Board] may inquire into the case and 2[record a decision] as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

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1. Subs. by Act 65 of 1960, s. 148, for ” 310″

2. Ins. by s. 149, ibid.

3. Ins. by Act 53 of 1963, s. 9 (w.e.f. 1-1-1964).

4. Subs. by Act 31 of 1988, s. 67 (w.e.f. 31.5.1991)

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(2) Every case under sub-section (1) shall be stated in the form of an application which shall be presented to the 1[Company Law Board] or such officer thereof as it may appoint in this behalf.

(3) The person against whom a case is referred to the 1[Company Law Board] under this section shall be joined as a respondent to the application.

(4) Every such application

(a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purpose of the inquiry, and

(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908, (5 of 1908.) for the signature and verification of a plaint in a suit by the Central Government.

(5) The 1[Company Law Board] may at any stage of the proceedings allow the Central Government to alter or amend the application in such manner and no such terms as may be just, and all such alterations or amendments shall be made as may be necessary for the purpose of determining the real questions in the inquiry.

Interim order by Company Law Board

388C. Interim order by Company Law Board.

(1) Where during the pendency of a case before the 1[Company Law Board] it appears necessary to the 1[Company Law Board] so to do in the interest of the members or creditors of the company or in the public interest, the 1[Company Law Board] may on the application of the Central Government or on its own motion by an order

(a) direct that the respondent shall not discharge any of the duties of his office until further orders of the 1[Company Law Board], and

(b) appoint a suitable person in place of the respondent to discharge the duties of the office held by the respondent subject to such terms and conditions as the 1[Company Law Board] may specify in the order.

(2) Every person appointed under clause (b) of sub-section (1) shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code (45 of 1860).

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1. Subs. by Act 31 of 1988, s.67 (w.e.f.31.5.1991).

2. Subs. by Act 17 of 1967), s. 4 and Sch., for record a finding (w.e.f. 1-7-1967).

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388D. Decision of the Company Law Board.

At the conclusion of the hearing of the case, the 7[Company Law Board] shall record its decision] stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

388E. Power of Central Government to remove managerial personnel on the basis of Company Law Board’s decisions.

(1) Notwithstanding any other provision contained in this Act, the 2[Central Government shall], by order, remove from office any director, or any other person concerned in the conduct and management of the affairs, of a company, against whom there is a 3[decision of the 1[Company Law Board under this Chapter]:

Provided that where a firm or a body corporate is concerned in the conduct and management of the affairs of a company as its managing agent or secretaries and treasurers, and the 4[decision of the1[Company Law Board] is against any partner in such firm, or any director of, or any person holding a general power of attorney from, such body corporate, the Central Government may also remove from the office of managing agent or secretaries and treasurers, such firm or body corporate.

5[(2) No order removing a firm or body corporate from the office of managing agents or secretaries and treasurers shall be made in pursuance of the proviso to sub-section (1) unless such firm or body corporate has been given a reasonable opportunity of showing cause against the same:

Provided that no matter shall be raised by such firm or body corporate before the Central Government if such matter has been decided by the 1[Company Law Board].

(3) The person against whom an order of removal from office is made under this section shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company during a period of five years from the date of the order of removal:

Provided that the Central Government may, with the previous concurrence of the 1[Company Law Board] permit such person to hold any such office before the expiry of the said period of five years.

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1. Subs. by Act 31 of 1988, s.67 (w.e.f. 31-5-1991).

2. Subs. by Act 17 of 1967, s. 4 and Sch., for “Central Government may “(w.e.f. 1-71967).

3. Subs. by s. 4 and Sch., ibid., for ” finding of the Tribunal under this Chapter or a decision of a High Court thereon ” (w.e.f 1-7-1967).

4. Subs. S. 4 and Sch., ibid., for “finding of the Tribunal or the decision of a High Court” (w.e.f. 1-7-1967).

5. Subs. by s. 4 and Sch., ibid., for sub-section (2) (w.e.f. 1-7-1967).

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(4) Notwithstanding anything contained in any other provision of this Act or any other law or any contract, memorandum or articles, on the removal of a person from the office of a director or, as the case may be, any other office connected with the conduct and management of the affairs of the company, that person shall not be entitled to, or be paid, any compensation for the loss or termination of office.

(5) On the removal of a person from the office of a director or, as the case may be, any other office connected with the conduct and management of the affairs of the company, the company may, with the previous approval of the Central Government, appoint another person to that office in accordance with the provision of this Act.