Prospectus and allotment and other matters relating to issue of shares or debentures

Companies Act – 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 enterintoan 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 contraventionarose from an honest mistake of fact on his part; or
(c)the non-compliance or contravention was in respect of matterswhich, 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 companyof a prospectus or form of applicationrelatingto shares in or debentures of the company, whether anapplicant for shares or debentures will or will not have the rightto 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 notbeen, engaged or interested in the formation or promotion, orin 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 suchconsentbeforethe 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 timebefore 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, unlessrenewed in accordance with clause (b),be repaidin 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 undersub-section(1) were in force at the time when the deposit wasinitially 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),withinthe 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 extendto 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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1Ins. 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 ofany deposit,withfine which shall not be less thananamount equal to the amount of the deposit so accepted,
(ii)where suchcontravention 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 inthis behalf.
(b)Except the provisions relating to advertisement contained in clause(b)of sub-section (2), nothing in this section shall apply to such closesoffinancialcompaniesas the CentralGovernment 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 specifiedperiodsubject tosuchconditionsasmaybe 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, acompany but shall not include such categories of amount as may beprescribed 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 prospectusrequired 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, withoutgiving the reasons, indicated therein, any such adjustments as are mentioned in clause 32 of that Schedule, a writtenstatement 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 whichspecifythose 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 thetime 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 theprospectus 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, hewithdrew 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,andthat on becoming aware of itsissue,he forthwith gave reasonable public notice that itwasissued without his knowledge or consent;
(c)that, after the issue of theprospectus and before allotmentthere 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 ofthe 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 tobelieve, and did up to the time of the allotment of the shares or debentures, as the casemaybe, believe,thatthe 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 expertor contained in what purports to be a copy of or an extractfroma report or valuation of an expert, it was a correctand fair representation of thestatement, or a correct copy of, or a correct and fairextract from, the report or valuation;and he hadreasonablegroundto believe, and did up tothe timeof 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 theprospectus 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 publicofficial document, it was a correct and fair representation of the statement, or a correct copy of, ora 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 issueofthe prospectus, he withdrew it in writingbefore 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 hadreasonable ground to believe, and did up to the timeof the allotment of the shares or debentures, believe, thatthe statement was true.
(4)Where –
(a)the prospectus specifies the name of aperson as a director ofthe company, or as having agreedto become a director thereof, and he has notconsentedtobecomea director,or has withdrawn his consent before theissueof theprospectus, and has not authorised or consentedto 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 bemadeliableby reasonof his name having been inserted in the prospectus or of the inclusion therein of a statement purporting to be made by himas 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 theinclusion 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 makethe same payment, unless the former personwas,andthe 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 capacityfor persons engaged in procuring theformation 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 requiredby 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 applywith 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, ofthe personsbywhomtheoffer ismadeinrespectof 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 Act65 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 receivedby 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 calculatedtomislead, the prospectus shall be deemed, in respect of such omission, to be a prospectusinwhichan 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 theshares or debentures becoming available for subscription or purchase by persons other than thosereceiving 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 inthatsub-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 withreference to its formation, or which has issued such a prospectus but has not proceeded to allotany of the shares offered to the public for subscription,shall not allot any of its shares or debentures unless atleast three days before the first allotment of eithershares or debentures, there has been delivered to the Registrar for registration a statement in lieu of prospectus signed by every person who isnamed therein as a director or proposed director of the company orby his agent authorisedin writing,intheformandcontaining the particularssetoutin Part I of Schedule III and, in the cases mentioned in Part II of that Schedule,settingoutthereports specifiedtherein, and the said Parts I and IIshall 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, anddidup tothe time of the deliveryfor registrationof 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 theform 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 whichanuntrue 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 statementin lieu of prospectus, means included in thestatementin lieu ofprospectus itself or contained in any report or memorandum appearing on the face thereof, or by reference incorporatedtherein, 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 onwhichit is first so issued as a newspaper advertisement:
Providedthat, 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 construedas 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, makean 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 exchangeor eachsuchstockexchange.]
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 morerecognizedstockexchanges, such prospectus, shall statethe name ofthestock exchange or, as the case may be, each such stockexchange,and any allotment made on an application in pursuance of such prospectusshall,whenever made,be void 4*** ifthe permission has not been granted by the stock exchange or each such stockexchange, as the case may be, before the expiryoften weeks from the date ofthe 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.8sub-section (1) (w.e.f. 1-2-1975) and renumbered assub-section(1A)by Act 31 of1988, 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 allmoneysreceived from applicants in pursuance of the prospectus, and, if any such money is not repaid withineight days after the company becomes liable to repay it 1[the company andevery director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liableto repay that money with interest at such rate, not less thanfourper cent. and notmore than fifteen per cent., asmaybeprescribed, 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 andevery director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liableto repay that money with interest at such rate, not less thanfourper cent. and notmore than fifteen per cent, as may beprescribed, having regardto the length of the period of delay inmakingthe 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 certainwords(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 withthissub-section, the company, and every officer of the company who is in default, shall be punishable with fine whichmayextendtofive 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 havebeen permitted to be dealt in on the stock exchange or each stock exchange specified in theprospectus; 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 makethe 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 ofthe 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 receivedfromapplicants, andreferences 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 throughwhom 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 soallotted, the extentto 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 thenumber and nominal amount of such shares comprised in theallotment 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 theresolution 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 exceedsten per cent., a copy of the orders of theCentralGovernment permitting the issue at the higher percentage.]
(2)Where a contract such as is mentioned in clause (b) of sub-section (1) isnot reduced to writing, thecompanyshall,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 theduty 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 iffor 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 duringwhich 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 bepunishable 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, whetherabsolute or conditional, for any shares in, or debentures of, the company,
if the following conditions are fulfilled, namely –
(i)the payment of the commission isauthorized 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 notoffered to the public for subscription, disclosed in the statement inlieu 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 commissionwith the Registrar and, where a circular or notice, not being a prospectus inviting subscription for thesharesor debentures,isissued, also disclosed in that circular or notice; 1* * *
(iv)the number of shares or debentures which persons haveagreed 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 Act65 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,thecompany 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 thatfact 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 paycommissiontothe 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 theordinarycourse 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 beissued 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 resolutionpassed 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 ofdiscount 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 asthe 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, maymake 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, shallbe 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.Certainwords 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).
4Subs. 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 thecompany which would otherwise be available fordividend 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 beenprovided 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]werepaid-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 beincreasedby the issue of shares in pursuance of this sub-section:
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1.Subs.by Act 65 of 1960, s. 23, for “thecapitalredemption 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 oftheold shares, the new shares shall not, so farasrelatesto stampduty, be deemed to have been issued in pursuance ofthissub-section unless the old shares are redeemed within one month afterthe 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)Notwithstandinganything contained in thisAct,nocompany limitedbysharesshall, after the commencementofthe Companies (Amendment)Act, 1988, issue any preference share which is irredeemable or is redeemable after the expiry of aperiodoften 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”Thecapitalredemption 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 aperiodnot exceeding five yearsfromsuchcommencement, 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 ofsuch further redeemable preference shares, the unredeemed shares shallbe 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 companymaking such default shall bepunishablewith finewhich 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 punishablewithimprisonment for a term which mayextendtothree 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, atthe 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 thoseshares at that date;
(b)the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not beingless than fifteen days from the date of the offer within which the offer, if not accepted, will be deemed to have beendeclined;
(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 sharesoffered to him or any of them in favour of anyother 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, oronreceipt of earlierintimation fromthe person towhomsuch 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 thosepersons 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 passedby 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 tothe 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 anypersontoexercise the right of renunciation for a second time, on the ground that the person in whose favour the renunciation was first made hasdeclined 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 causedbythe exercise of anoptionattached 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 loansor 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 anyinstitution specified by the CentralGovernmentin this behalf, has also been approved by a special resolution passed by the company in general meeting before the issueof 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 loansoranypart thereof shall be convertedintosharesinthe 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 includea 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 Parliamentwhile it is in session for a totalperiodof thirty days which may be comprised in one session or in twoormore 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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