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  CHAPTER IV  

SHARE CAPITAL AND DEBENTURES

 

 

 
43.Kinds of share capital.
 
The share capital of a company limited by shares shall be of two kinds, namely:—
(a) equity share capital—
(i) with voting rights; or
(ii) with differential rights as to dividend, voting or otherwise in accordance
with such rules as may be prescribed; and
(b) preference share capital:
Provided that nothing contained in this Act shall affect the rights of the preference
shareholders who are entitled to participate in the proceeds of winding up before the
commencement of this Act.
Explanation.—For the purposes of this section,—
(i) ‘‘equity share capital’’, with reference to any company limited by shares,
means all share capital which is not preference share capital;
(ii) ‘‘preference share capital’’, with reference to any company limited by shares,
means that part of the issued share capital of the company which carries or would carry
a preferential right with respect to—
(a) payment of dividend, either as a fixed amount or an amount calculated
at a fixed rate, which may either be free of or subject to income-tax; and
(b) repayment, in the case of a winding up or repayment of capital, of the
amount of the share capital paid-up or deemed to have been paid-up, whether or
not, there is a preferential right to the payment of any fixed premium or premium
on any fixed scale, specified in the memorandum or articles of the company;
(iii) capital shall be deemed to be preference capital, notwithstanding that it is
entitled to either or both of the following rights, namely:—
(a) that in respect of dividends, in addition to the preferential rights to the
amounts specified in sub-clause (a) of clause (ii), it has a right to participate,
whether fully or to a limited extent, with capital not entitled to the preferential
right aforesaid;
(b) that in respect of capital, in addition to the preferential right to the
repayment, on a winding up, of the amounts specified in sub-clause (b) of clause
( ii), it has a right to participate, whether fully or to a limited extent, with capital
not entitled to that preferential right in any surplus which may remain after the
entire capital has been repaid.
 
 
 
44.Nature of shares or debentures.
 
The shares or debentures or other interest of any member in a company shall be
movable property transferable in the manner provided by the articles of the company.
 
 
 
45.Numbering of shares.
 
Every share in a company having a share capital shall be distinguished by its
distinctive number:
Provided that nothing in this section shall apply to a share held by a person whose
name is entered as holder of beneficial interest in such share in the records of a depository.
 
 
 
46.Certificate of shares.
 
(1) A certificate, issued under the common seal of the company, specifying the
shares held by any person, shall be prima facie evidence of the title of the person to such
shares.
(2) A duplicate certificate of shares may be issued, if such certificate —
(a) is proved to have been lost or destroyed; or
(b) has been defaced, mutilated or torn and is surrendered to the company.
(3) Notwithstanding anything contained in the articles of a company, the manner of
issue of a certificate of shares or the duplicate thereof, the form of such certificate, the
particulars to be entered in the register of members and other matters shall be such as may be
prescribed.
(4) Where a share is held in depository form, the record of the depository is the prima
facie evidence of the interest of the beneficial owner.
(5) If a company with intent to defraud issues a duplicate certificate of shares, the
company shall be punishable with fine which shall not be less than five times the face
value of the shares involved in the issue of the duplicate certificate but which may
extend to ten times the face value of such shares or rupees ten crores whichever is
higher and every officer of the company who is in default shall be liable for action under
section 447.
 
 
 
47.Voting rights.
 
(1) Subject to the provisions of section 43 and sub-section (2) of section 50,—
(a) every member of a company limited by shares and holding equity share
capital therein, shall have a right to vote on every resolution placed before the company;
and
(b) his voting right on a poll shall be in proportion to his share in the paid-up
equity share capital of the company.
(2) Every member of a company limited by shares and holding any preference
share capital therein shall, in respect of such capital, have a right to vote only on
resolutions placed before the company which directly affect the rights attached to his
preference shares and, any resolution for the winding up of the company or for the
repayment or reduction of its equity or preference share capital and his voting right on
a poll shall be in proportion to his share in the paid-up preference share capital of the
company:
Provided that the proportion of the voting rights of equity shareholders to the
voting rights of the preference shareholders shall be in the same proportion as the
paid-up capital in respect of the equity shares bears to the paid-up capital in respect of
the preference shares:
Provided further that where the dividend in respect of a class of preference shares has
not been paid for a period of two years or more, such class of preference shareholders shall
have a right to vote on all the resolutions placed before the company.
 
 
 
48.Variation of shareholders’ rights.
 
(1) Where a share capital of the company is divided into different classes of
shares, the rights attached to the shares of any class may be varied with the consent in
writing of the holders of not less than three-fourths of the issued shares of that class or by
means of a special resolution passed at a separate meeting of the holders of the issued
shares of that class,—
(a) if provision with respect to such variation is contained in the memorandum or
articles of the company; or
(b) in the absence of any such provision in the memorandum or articles, if such
variation is not prohibited by the terms of issue of the shares of that class:
Provided that if variation by one class of shareholders affects the rights of any other
class of shareholders, the consent of three-fourths of such other class of shareholders shall
also be obtained and the provisions of this section shall apply to such variation.
(2) Where the holders of not less than ten per cent. of the issued shares of a class did
not consent to such variation or vote in favour of the special resolution for the variation,
they may apply to the Tribunal to have the variation cancelled, and where any such application
is made, the variation shall not have effect unless and until it is confirmed by the Tribunal:
Provided that an application under this section shall be made within twenty-one days
after the date on which the consent was given or the resolution was passed, as the case may
be, and may be made on behalf of the shareholders entitled to make the application by such
one or more of their number as they may appoint in writing for the purpose.
(3) The decision of the Tribunal on any application under sub-section (2) shall be
binding on the shareholders.
(4) The company shall, within thirty days of the date of the order of the Tribunal, file a
copy thereof with the Registrar.
(5) Where any default is made in complying with the provisions of this section, the
company shall be punishable with fine which shall not be less than twenty-five thousand
rupees but which may extend to five lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which may extend to six months or
with fine which shall not be less than twenty-five thousand rupees but which may extend to
five lakh rupees, or with both.
 
 
 
49.Calls on shares of same class to be made on uniform basis.
 
 Where any calls for further share capital are made on the shares of a class, such
calls shall be made on a uniform basis on all shares falling under that class.
Explanation.—For the purposes of this section, shares of the same nominal value
on which different amounts have been paid-up shall not be deemed to fall under the same class.
 
 
 
50.Company to accept unpaid share capital, although not called up.
 
(1) A company may, if so authorised by its articles, accept from any member, the
whole or a part of the amount remaining unpaid on any shares held by him, even if no part of
that amount has been called up.
(2) A member of the company limited by shares shall not be entitled to any voting
rights in respect of the amount paid by him under sub-section (1) until that amount has been
called up.
 
 
 
 
51.Payment of dividend in proportion to amount paidup.
 
A company may, if so authorised by its articles, pay dividends in proportion to the
amount paid-up on each share.
 
 
 
52.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 of the premium received on those shares shall be
transferred to a “securities premium account” and the provisions of this Act relating to
reduction of share capital of a company shall, except as provided in this section, apply as if
the securities premium account were the paid-up share capital of the company.
(2) Notwithstanding anything contained in sub-section (1), the securities premium
account may be applied by the company—
(a) towards the issue of unissued shares of the company to the 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;
(d) in providing for the premium payable on the redemption of any redeemable
preference shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.
(3) The securities premium account may, notwithstanding anything contained in
sub-sections (1) and (2), be applied by such class of companies, as may be prescribed and
whose financial statement comply with the accounting standards prescribed for such class
of companies under section 133,—
(a) in paying up unissued equity shares of the company to be issued to members
of the company as fully paid bonus shares; or
(b) in writing off the expenses of or the commission paid or discount allowed on
any issue of equity shares of the company; or
(c) for the purchase of its own shares or other securities under section 68.
 
 
 
53.Prohibition on issue of shares at discount.
 
(1) Except as provided in section 54, a company shall not issue shares at a discount.
(2) Any share issued by a company at a discounted price shall be void.
(3) Where a company contravenes the provisions of this section, the company shall
be punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees and every officer who is in default shall be punishable with imprisonment
for a term which may extend to six months or with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees, or with both.
 
 
 
54. Issue of sweat equity shares.
 
(1) Notwithstanding anything contained in section 53, a company may issue sweat
equity shares of a class of shares already issued, if the following conditions are fulfilled,
namely:—
(a) the issue is authorised by a special resolution passed by the company;
(b) the resolution specifies the number of shares, the current market price,
consideration, if any, and the class or classes of directors or employees to whom such
equity shares are to be issued;
(c) not less than one year has, at the date of such issue, elapsed since the date
on which the company had commenced business; and
(d) where the equity shares of the company are listed on a recognised stock
exchange, the sweat equity shares are issued in accordance with the regulations made
by the Securities and Exchange Board in this behalf and if they are not so listed, the
sweat equity shares are issued in accordance with such rules as may be prescribed.
(2) The rights, limitations, restrictions and provisions as are for the time being applicable
to equity shares shall be applicable to the sweat equity shares issued under this section and
the holders of such shares shall rank pari passu with other equity shareholders.
 
 
 
55.Issue and redemption of preference shares.
 
(1) No company limited by shares shall, after the commencement of this Act, issue
any preference shares which are irredeemable.
(2) A company limited by shares may, if so authorised by its articles, issue preference
shares which are liable to be redeemed within a period not exceeding twenty years from the
date of their issue subject to such conditions as may be prescribed:
Provided that a company may issue preference shares for a period exceeding twenty
years for infrastructure projects, subject to the redemption of such percentage of shares as
may be prescribed on an annual basis at the option of such preferential shareholders:
Provided further that—
(a) no such shares shall be redeemed except out of the profits of the company
which would otherwise be available for dividend or out of the proceeds of a fresh issue
of shares made for the purposes of such redemption;
(b) no such shares shall be redeemed unless they are fully paid;
(c) where such shares are proposed to be redeemed out of the profits of the
company, there shall, out of such profits, be transferred, a sum equal to the nominal
amount of the shares to be redeemed, to a reserve, to be called the Capital Redemption
Reserve Account, and the provisions of this Act relating to reduction of share capital
of a company shall, except as provided in this section, apply as if the Capital Redemption
Reserve Account were paid-up share capital of the company; and
(d) (i) in case of such class of companies, as may be prescribed and whose
financial statement comply with the accounting standards prescribed for such class of
companies under section 133, the premium, if any, payable on redemption shall be
provided for out of the profits of the company, before the shares are redeemed:
Provided also that premium, if any, payable on redemption of any preference
shares issued on or before the commencement of this Act by any such company shall
be provided for out of the profits of the company or out of the company’s securities
premium account, before such shares are redeemed.
(ii) in a case not falling under sub-clause (i) above, the premium, if any, payable
on redemption shall be provided for out of the profits of the company or out of the
company’s securities premium account, before such shares are redeemed.
(3) Where a company is not in a position to redeem any preference shares or to pay
dividend, if any, on such shares in accordance with the terms of issue (such shares hereinafter
referred to as unredeemed preference shares), it may, with the consent of the holders of
three-fourths in value of such preference shares and with the approval of the Tribunal on a
petition made by it in this behalf, issue further redeemable preference shares equal to the
amount due, including the dividend thereon, in respect of the unredeemed preference shares,
and on the issue of such further redeemable preference shares, the unredeemed preference
shares shall be deemed to have been redeemed:
Provided that the Tribunal shall, while giving approval under this sub-section, order
the redemption forthwith of preference shares held by such persons who have not consented
to the issue of further redeemable preference shares.
Explanation.—For the removal of doubts, it is hereby declared that the issue of further
redeemable preference shares or the redemption of preference shares under this section shall
not be deemed to be an increase or, as the case may be, a reduction, in the share capital of the
company.
(4) 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.
Explanation.—For the purposes of sub-section (2), the term ‘‘infrastructure projects’’
means the infrastructure projects specified in Schedule VI.
 
 
 
56.Transfer and transmission of securities.
 
(1) A company shall not register a transfer of securities of the company, or the
interest of a member in the company in the case of a company having no share capital, other
than the transfer between persons both of whose names are entered as holders of beneficial
interest in the records of a depository, unless a proper instrument of transfer, in such form as
may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and
the transferee and specifying the name, address and occupation, if any, of the transferee has
been delivered to the company by the transferor or the transferee within a period of sixty
days from the date of execution, along with the certificate relating to the securities, or if no
such certificate is in existence, along with the letter of allotment of securities:
Provided that where the instrument of transfer has been lost or the instrument of
transfer has not been delivered within the prescribed period, the company may register the
transfer on such terms as to indemnity as the Board may think fit.
(2) Nothing in sub-section (1) shall prejudice the power of the company to register, on
receipt of an intimation of transmission of any right to securities by operation of law from any
person to whom such right has been transmitted.
(3) Where an application is made by the transferor alone and relates to partly paid
shares, the transfer shall not be registered, unless the company gives the notice of the
application, in such manner as may be prescribed, to the transferee and the transferee gives
no objection to the transfer within two weeks from the receipt of notice.
(4) Every company shall, unless prohibited by any provision of law or any order of
Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred
or transmitted—
(a) within a period of two months from the date of incorporation, in the case of
subscribers to the memorandum;
(b) within a period of two months from the date of allotment, in the case of any
allotment of any of its shares;
(c) within a period of one month from the date of receipt by the company of the
instrument of transfer under sub-section (1) or, as the case may be, of the intimation of
transmission under sub-section (2), in the case of a transfer or transmission of securities;
(d) within a period of six months from the date of allotment in the case of any
allotment of debenture:
Provided that where the securities are dealt with in a depository, the company shall
intimate the details of allotment of securities to depository immediately on allotment of such
securities.
(5) The transfer of any security or other interest of a deceased person in a company
made by his legal representative shall, even if the legal representative is not a holder
thereof, be valid as if he had been the holder at the time of the execution of the instrument
of transfer.
(6) Where any default is made in complying with the provisions of sub-sections (1) to
(5), the company shall be punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh rupees and every officer of the company
who is in default shall be punishable with fine which shall not be less than ten thousand
rupees but which may extend to one lakh rupees.
(7) Without prejudice to any liability under the Depositories Act, 1996, where any
depository or depository participant, with an intention to defraud a person, has transferred
shares, it shall be liable under section 447.
 
 
 
57. Punishment for personation of shareholder.
 
If any person deceitfully personates as an owner of any security or interest in a
company, or of any share warrant or coupon issued in pursuance of this Act, and thereby
obtains or attempts to obtain any such security or interest or any such share warrant or
coupon, or receives or attempts to receive any money due to any such owner, he shall be
punishable with imprisonment for a term which shall not be less than one year but which may
extend to three years and with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees.
 
 
 
58.Refusal of registration and appeal against refusal.
 
(1) If a private company limited by shares refuses, whether in pursuance of any
power of the company under its articles or otherwise, to register the transfer of, or the
transmission by operation of law of the right to, any securities or interest of a member in the
company, it shall within a period of thirty days from the date on which the instrument of
transfer, or the intimation of such transmission, as the case may be, was delivered to the
company, send notice of the refusal to the transferor and the transferee or to the person
giving intimation of such transmission, as the case may be, giving reasons for such refusal.
(2) Without prejudice to sub-section (1), the securities or other interest of any member
in a public company shall be freely transferable:
Provided that any contract or arrangement between two or more persons in respect of
transfer of securities shall be enforceable as a contract.
(3) The transferee may appeal to the Tribunal against the refusal within a period of
thirty days from the date of receipt of the notice or in case no notice has been sent by the
company, within a period of sixty days from the date on which the instrument of transfer or
the intimation of transmission, as the case may be, was delivered to the company.
(4) If a public company without sufficient cause refuses to register the transfer of
securities within a period of thirty days from the date on which the instrument of transfer or
the intimation of transmission, as the case may be, is delivered to the company, the transferee
may, within a period of sixty days of such refusal or where no intimation has been received
from the company, within ninety days of the delivery of the instrument of transfer or
intimation of transmission, appeal to the Tribunal.
(5) The Tribunal, while dealing with an appeal made under sub-section (3) or subsection
(4), may, after hearing the parties, either dismiss the appeal, or by order—
(a) direct that the transfer or transmission shall be registered by the company and
the company shall comply with such order within a period of ten days of the receipt of
the order; or
(b) direct rectification of the register and also direct the company to pay damages,
if any, sustained by any party aggrieved.
(6) If a person contravenes the order of the Tribunal under this section, he shall be
punishable with imprisonment for a term which shall not be less than one year but which may
extend to three years and with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees.
 
 
 
59.Rectification of register of members.
 
(1) If the name of any person is, without sufficient cause, entered in the register of
members of a company, or after having been entered in the register, is, without sufficient
cause, omitted therefrom, or if a default is made, or unnecessary delay takes place in entering
in the register, the fact of any person having become or ceased to be a member, the person
aggrieved, or any member of the company, or the company may appeal in such form as may
be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central
Government by notification, in respect of foreign members or debenture holders residing
outside India, for rectification of the register.
(2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by
order, either dismiss the appeal or direct that the transfer or transmission shall be registered
by the company within a period of ten days of the receipt of the order or direct rectification
of the records of the depository or the register and in the latter case, direct the company to
pay damages, if any, sustained by the party aggrieved.
(3) The provisions of this section shall not restrict the right of a holder of securities,
to transfer such securities and any person acquiring such securities shall be entitled to
voting rights unless the voting rights have been suspended by an order of the Tribunal.
(4) Where the transfer of securities is in contravention of any of the provisions of the
Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India
Act, 1992 or this Act or any other law for the time being in force, the Tribunal may, on an
application made by the depository, company, depository participant, the holder of the
securities or the Securities and Exchange Board, direct any company or a depository to set
right the contravention and rectify its register or records concerned.
(5) If any default is made in complying with the order of the Tribunal under this
section, the company shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which may extend to one year or
with fine which shall not be less than one lakh rupees but which may extend to three lakh
rupees, or with both.
 
 
 
60.Publication of authorised, subscribed and paid-up capital.
 
1) Where any notice, advertisement or other official publication, or any business
letter, billhead or letter paper of a company contains a statement of the amount of the
authorised capital of the company, such notice, advertisement or other official publication,
or such letter, billhead or letter paper shall also contain a statement, in an equally prominent
position and in equally conspicuous characters, of the amount of the capital which has been
subscribed and the amount paid-up.
(2) If any default is made in complying with the requirements of sub-section (1), the
company shall be liable to pay a penalty of ten thousand rupees and every officer of the
company who is in default shall be liable to pay a penalty of five thousand rupees, for each
default.
 
 
 
61. Power of limited company to alter its share capital.
 
(1) A limited company having a share capital may, if so authorised by its articles,
alter its memorandum in its general meeting to—
(a) increase its authorised share capital by such amount as it thinks expedient;
(b) consolidate and divide all or any of its share capital into shares of a larger
amount than its existing shares:
Provided that no consolidation and division which results in changes in the
voting percentage of shareholders shall take effect unless it is approved by the Tribunal
on an application made in the prescribed manner;
(c) convert all or any of its fully paid-up shares into stock, and reconvert that
stock into fully paid-up shares of any denomination;
(d) sub-divide its shares, or any of them, into shares of smaller amount than is
fixed by the memorandum, so, however, that in the sub-division the proportion between
the amount paid and the amount, if any, unpaid on each reduced share shall be the
same as it was in the case of the share from which the reduced share is derived;
(e) cancel shares which, at the date of the passing of the resolution in that
behalf, have not been taken or agreed to be taken by any person, and diminish the
amount of its share capital by the amount of the shares so cancelled.
(2) The cancellation of shares under sub-section (1) shall not be deemed to be a
reduction of share capital.
 
 
 
62. Further issue of share capital.
 
(1) Where at any time, a company having a share capital proposes to increase its
subscribed capital by the issue of further shares, such shares shall be offered—
(a) to persons who, at the date of the offer, are holders of equity shares of the
company in proportion, as nearly as circumstances admit, to the paid-up share capital
on those shares by sending a letter of offer subject to the following conditions,
namely:—
(i) the offer shall be made by notice specifying the number of shares
offered and limiting a time not being less than fifteen days and not exceeding
thirty days from the date of the offer within which the offer, if not accepted, shall
be deemed to have been declined;
(ii) 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 (i) shall contain a statement of this right;
(iii) 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 which is not dis-advantageous to the shareholders and the
company;
(b) to employees under a scheme of employees’ stock option, subject to special
resolution passed by company and subject to such conditions as may be prescribed;
or
(c) to any persons, if it is authorised by a special resolution, whether or not
those persons include the persons referred to in clause (a) or clause (b), either for cash
or for a consideration other than cash, if the price of such shares is determined by the
valuation report of a registered valuer subject to such conditions as may be prescribed.
(2) The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be
despatched through registered post or speed post or through electronic mode to all the
existing shareholders at least three days before the opening of the issue.
(3) Nothing in this section shall apply to the increase of the subscribed capital of a
company caused by the exercise of an option as a term attached to the debentures issued or
loan raised by the company to convert such debentures or loans into shares in the company:
Provided that the terms of issue of such debentures or loan containing such an option
have been approved before the issue of such debentures or the raising of loan by a special
resolution passed by the company in general meeting.
(4) Notwithstanding anything contained in sub-section (3), where any debentures
have been issued, or loan has been obtained from any Government by a company, and if that
Government considers it necessary in the public interest so to do, it may, 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 the Government to be reasonable in the
circumstances of the case even if terms of the issue of such debentures or the raising of such
loans do not include a term for providing for an option for such conversion:
Provided that where the terms and conditions of such conversion are not acceptable
to the company, it may, within sixty days from the date of communication of such order,
appeal to the Tribunal which shall after hearing the company and the Government pass such
order as it deems fit.
(5) In determining the terms and conditions of conversion under sub-section (4), the
Government shall have due regard to the financial position of the company, the terms of
issue of debentures or loans, as the case may be, the rate of interest payable on such
debentures or loans and such other matters as it may consider necessary.
(6) Where the Government has, by an order made under sub-section (4), directed that
any debenture or loan or any part thereof shall be converted into shares in a company and
where no appeal has been preferred to the Tribunal under sub-section (4) or where such
appeal has been dismissed, the memorandum of such company shall, where such order has
the effect of increasing the authorised share capital of the company, stand altered and the
authorised share capital of such company shall stand increased by an amount equal to the
amount of the value of shares which such debentures or loans or part thereof has been
converted into.
 
 
 
63.Issue of bonus shares.
 
(1) A company may issue fully paid-up bonus shares to its members, in any manner
whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account:
Provided that no issue of bonus shares shall be made by capitalising reserves created
by the revaluation of assets.
(2) No company shall capitalise its profits or reserves for the purpose of issuing fully
paid-up bonus shares under sub-section (1), unless—
(a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised in the general
meeting of the company;
(c) it has not defaulted in payment of interest or principal in respect of fixed
deposits or debt securities issued by it;
(d) it has not defaulted in respect of the payment of statutory dues of the
employees, such as, contribution to provident fund, gratuity and bonus;
(e) the partly paid-up shares, if any outstanding on the date of allotment, are
made fully paid-up;
(f) it complies with such conditions as may be prescribed.
(3) The bonus shares shall not be issued in lieu of dividend.
 
 
 
64.Notice to be given to Registrar for alteration of share capital.
 
(1) Where—
(a) a company alters its share capital in any manner specified in sub-section (1)
of section 61;
(b) an order made by the Government under sub-section (4) read with
sub-section (6) of section 62 has the effect of increasing authorised capital of a
company; or
(c) a company redeems any redeemable preference shares,
the company shall file a notice in the prescribed form with the Registrar within a period of
thirty days of such alteration or increase or redemption, as the case may be, along with an
altered memorandum.
(2) If a company and any officer of the company who is in default contravenes the
provisions of sub-section (1), it or he shall be punishable with fine which may extend to one
thousand rupees for each day during which such default continues, or five lakh rupees,
whichever is less.
 
 
 
65.Unlimited company to provide for reserve share capital on conversion into limited company.
 
An unlimited company having a share capital may, by a resolution for registration
as a limited company under this Act, do either or both of the following things, namely—
(a) increase the nominal amount of its share capital by increasing the nominal
amount of each of its shares, subject to the condition that no part of the increased
capital shall be capable of being called up except in the event and for the purposes of
the company being wound up;
(b) provide that a specified portion of its uncalled share capital shall not be
capable of being called up except in the event and for the purposes of the company
being wound up.
 
 
 
66. Reduction of share capital.
 
(1) Subject to confirmation by the Tribunal on an application by the company, a
company limited by shares or limited by guarantee and having a share capital may, by a
special resolution, reduce the share capital in any manner and in particular, may—
(a) extinguish or reduce the liability on any of its shares in respect of the share
capital not paid-up; or
(b) either with or without extinguishing or reducing liability on any of its
shares,—
(i) cancel any paid-up share capital which is lost or is unrepresented by
available assets; or
(ii) pay off any paid-up share capital which is in excess of the wants of the
company,
alter its memorandum by reducing the amount of its share capital and of its shares
accordingly:
Provided that no such reduction shall be made if the company is in arrears in the
repayment of any deposits accepted by it, either before or after the commencement of this
Act, or the interest payable thereon.
(2) The Tribunal shall give notice of every application made to it under sub-section
(1) to the Central Government, Registrar and to the Securities and Exchange Board, in the
case of listed companies, and the creditors of the company and shall take into consideration
the representations, if any, made to it by that Government, Registrar, the Securities and
Exchange Board and the creditors within a period of three months from the date of receipt
of the notice:
Provided that where no representation has been received from the Central Government,
Registrar, the Securities and Exchange Board or the creditors within the said period, it shall
be presumed that they have no objection to the reduction.
(3) The Tribunal may, if it is satisfied that the debt or claim of every creditor of the
company has been discharged or determined or has been secured or his consent is obtained,
make an order confirming the reduction of share capital on such terms and conditions as it
deems fit:
Provided that no application for reduction of share capital shall be sanctioned by the
Tribunal unless the accounting treatment, proposed by the company for such reduction is in
conformity with the accounting standards specified in section 133 or any other provision of
this Act and a certificate to that effect by the company’s auditor has been filed with the
Tribunal.
(4) The order of confirmation of the reduction of share capital by the Tribunal under
sub-section (3) shall be published by the company in such manner as the Tribunal may
direct.
(5) The company shall deliver a certified copy of the order of the Tribunal under subsection
(3) and of a minute approved by the Tribunal showing—
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
(d) the amount, if any, at the date of registration deemed to be paid-up on each
share,
to the Registrar within thirty days of the receipt of the copy of the order, who shall register
the same and issue a certificate to that effect.
(6) Nothing in this section shall apply to buy-back of its own securities by a company
under section 68.
(7) A member of the company, past or present, shall not be liable to any call or
contribution in respect of any share held by him exceeding the amount of difference, if any,
between the amount paid on the share, or reduced amount, if any, which is to be deemed to
have been paid thereon, as the case may be, and the amount of the share as fixed by the order
of reduction.
(8) Where the name of any creditor entitled to object to the reduction of share capital
under this section is, by reason of his ignorance of the proceedings for reduction or of their
nature and effect with respect to his debt or claim, not entered on the list of creditors, and
after such reduction, the company is unable, within the meaning of sub-section (2) of section
271, to pay the amount of his debt or claim,—
(a) every person, who was a member of the company on the date of the registration
of the order for reduction by the Registrar, shall be liable to contribute to the payment
of that debt or claim, an amount not exceeding the amount which he would have been
liable to contribute if the company had commenced winding up on the day immediately
before the said date; and
(b) if the company is wound up, the Tribunal may, on the application of any such
creditor and proof of his ignorance as aforesaid, if it thinks fit, settle a list of persons so
liable to contribute, and make and enforce calls and orders on the contributories
settled on the list, as if they were ordinary contributories in a winding up.
(9) Nothing in sub-section (8) shall affect the rights of the contributories among
themselves.
(10) If any officer of the company—
(a) knowingly conceals the name of any creditor entitled to object to the reduction;
(b) knowingly misrepresents the nature or amount of the debt or claim of any
creditor; or
(c) abets or is privy to any such concealment or misrepresentation as aforesaid,
he shall be liable under section 447.
(11) If a company fails to comply with the provisions of sub-section (4), it shall
be punishable with fine which shall not be less than five lakh rupees but which may extend
to twenty-five lakh rupees.
 
 
 
67.Restrictions on purchase by company or giving of loans by it for purchase of its shares.
 
(1) No company limited by shares or by guarantee and having a share capital shall
have power to buy its own shares unless the consequent reduction of share capital is
effected under the provisions of this Act.
(2) No 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.
(3) Nothing in sub-section (2) shall apply to—
(a) the lending of money by a banking company in the ordinary course of its
business;
(b) the provision by a company of money in accordance with any scheme
approved by company through special resolution and in accordance with such
requirements as may be prescribed, for the purchase of, or subscription for, fully paidup
shares in the company or its holding company, if the purchase of, or the subscription
for, the shares held by trustees for the benefit of the employees or such shares held by
the employee of the company;
(c) the giving of loans by a company to persons in the employment of the
company other than its directors or key managerial personnel, for an amount not
exceeding their salary or wages for a period of six months with a view to enabling them
to purchase or subscribe for fully paid-up shares in the company or its holding company
to be held by them by way of beneficial ownership:
Provided that disclosures in respect of voting rights not exercised directly by the
employees in respect of shares to which the scheme relates shall be made in the Board's
report in such manner as may be prescribed.
(4) Nothing in this section shall affect the right of a company to redeem any preference
shares issued by it under this Act or under any previous company law.
(5) If a company contravenes the provisions of this section, it shall be punishable with
fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh
rupees and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years and with fine which shall not be less
than one lakh rupees but which may extend to twenty-five lakh rupees.
 
 
 
68.Power of company to purchase its own securities.
 
(1) Notwithstanding anything contained in this Act, but subject to the provisions
of sub-section (2), a company may purchase its own shares or other specified securities
(hereinafter referred to as buy-back) out of—
(a) its free reserves;
(b) the securities premium account; or
(c) the proceeds of the issue of any shares or other specified securities:
Provided that no buy-back of any kind of shares or other specified securities shall be
made out of the proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities.
(2) No company shall purchase its own shares or other specified securities under
sub-section (1), unless—
(a) the buy-back is authorised by its articles;
(b) a special resolution has been passed at a general meeting of the company
authorising the buy-back:
Provided that nothing contained in this clause shall apply to a case where—
(i) the buy-back is, ten per cent. or less of the total paid-up equity capital and
free reserves of the company; and
(ii) such buy-back has been authorised by the Board by means of a resolution
passed at its meeting;
(c) the buy-back is twenty-five per cent. or less of the aggregate of paid-up
capital and free reserves of the company:
Provided that in respect of the buy-back of equity shares in any financial year, the
reference to twenty-five per cent. in this clause shall be construed with respect to its total
paid-up equity capital in that financial year;
(d) the ratio of the aggregate of secured and unsecured debts owed by the
company after buy-back is not more than twice the paid-up capital and its free reserves:
Provided that the Central Government may, by order, notify a higher ratio of the
debt to capital and free reserves for a class or classes of companies;
(e) all the shares or other specified securities for buy-back are fully paid-up;
(f) the buy-back of the shares or other specified securities listed on any recognised
stock exchange is in accordance with the regulations made by the Securities and
Exchange Board in this behalf; and
(g) the buy-back in respect of shares or other specified securities other than
those specified in clause (f) is in accordance with such rules as may be prescribed:
Provided that no offer of buy-back under this sub-section shall be made within a
period of one year reckoned from the date of the closure of the preceding offer of buy-back,
if any.
(3) The notice of the meeting at which the special resolution is proposed to be passed
under clause (b) of sub-section (2) shall be accompanied by an explanatory statement stating—
(a) a full and complete disclosure of all material facts;
(b) the necessity for the buy-back;
(c) the class of shares or securities intended to be purchased under the buy-back;
(d) the amount to be invested under the buy-back; and
(e) the time-limit for completion of buy-back.
(4) Every buy-back shall be completed within a period of one year from the date of
passing of the special resolution, or as the case may be, the resolution passed by the Board
under clause (b) of sub-section (2).
(5) The buy-back under sub-section (1) may be—
(a) from the existing shareholders or security holders on a proportionate basis;
(b) from the open market;
(c) by purchasing the securities issued to employees of the company pursuant
to a scheme of stock option or sweat equity.
(6) Where a company proposes to buy-back its own shares or other specified securities
under this section in pursuance of a special resolution under clause (b) of sub-section (2) or a
resolution under item (ii) of the proviso thereto, it shall, before making such buy-back, file with
the Registrar and the Securities and Exchange Board, a declaration of solvency signed by at
least two directors of the company, one of whom shall be the managing director, if any, in such
form as may be prescribed and verified by an affidavit to the effect that the Board of Directors
of the company has made a full inquiry into the affairs of the company as a result of which they
have formed an opinion that it is capable of meeting its liabilities and will not be rendered
insolvent within a period of one year from the date of declaration adopted by the Board:
Provided that no declaration of solvency shall be filed with the Securities and Exchange
Board by a company whose shares are not listed on any recognised stock exchange.
(7) Where a company buys back its own shares or other specified securities, it shall
extinguish and physically destroy the shares or securities so bought back within seven days
of the last date of completion of buy-back.
(8) Where a company completes a buy-back of its shares or other specified securities
under this section, it shall not make a further issue of the same kind of shares or other
securities including allotment of new shares under clause (a) of sub-section (1) of section 62
or other specified securities within a period of six months except by way of a bonus issue or
in the discharge of subsisting obligations such as conversion of warrants, stock option
schemes, sweat equity or conversion of preference shares or debentures into equity shares.
(9) Where a company buys back its shares or other specified securities under this
section, it shall maintain a register of the shares or securities so bought, the consideration
paid for the shares or securities bought back, the date of cancellation of shares or securities,
the date of extinguishing and physically destroying the shares or securities and such other
particulars as may be prescribed.
(10) A company shall, after the completion of the buy-back under this section, file with
the Registrar and the Securities and Exchange Board a return containing such particulars
relating to the buy-back within thirty days of such completion, as may be prescribed:
Provided that no return shall be filed with the Securities and Exchange Board by a
company whose shares are not listed on any recognised stock exchange.
(11) If a company makes any default in complying with the provisions of this section
or any regulation made by the Securities and Exchange Board, for the purposes of clause (f)
of sub-section (2), the company shall be punishable with fine which shall not be less than
one lakh rupees but which may extend to three lakh rupees and every officer of the company
who is in default shall be punishable with imprisonment for a term which may extend to three
years or with fine which shall not be less than one lakh rupees but which may extend to three
lakh rupees, or with both.
Explanation I.—For the purposes of this section and section 70, “specified securities”
includes employees’ stock option or other securities as may be notified by the Central
Government from time to time.
Explanation II.—For the purposes of this section, “free reserves” includes securities
premium account.
 
 
 
69.Transfer of certain sums to capital redemption reserve account.
 
(1) Where a company purchases its own shares out of free reserves or securities
premium account, a sum equal to the nominal value of the shares so purchased shall be
transferred to the capital redemption reserve account and details of such transfer shall be
disclosed in the balance sheet.
(2) The capital redemption reserve account may 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.
 
 
 
70.Prohibition for buy-back in certain circumstances.
 
(1) No company shall directly or indirectly purchase its own shares or other specified
securities—
(a) through any subsidiary company including its own subsidiary companies;
(b) through any investment company or group of investment companies; or
(c) if a default, is made by the company, in the repayment of deposits accepted
either before or after the commencement of this Act, interest payment thereon,
redemption of debentures or preference shares or payment of dividend to any
shareholder, or repayment of any term loan or interest payable thereon to any financial
institution or banking company:
Provided that the buy-back is not prohibited, if the default is remedied and a
period of three years has lapsed after such default ceased to subsist.
(2) No company shall, directly or indirectly, purchase its own shares or other specified
securities in case such company has not complied with the provisions of sections 92, 123,
127 and section 129.
 
 
 
71.Debentures.
 
(1) A company may issue debentures with an option to convert such debentures
into shares, either wholly or partly at the time of redemption:
Provided that the issue of debentures with an option to convert such debentures into
shares, wholly or partly, shall be approved by a special resolution passed at a general
meeting.
(2) No company shall issue any debentures carrying any voting rights.
(3) Secured debentures may be issued by a company subject to such terms and
conditions as may be prescribed.
(4) Where debentures are issued by a company under this section, the company shall
create a debenture redemption reserve account out of the profits of the company available
for payment of dividend and the amount credited to such account shall not be utilised by the
company except for the redemption of debentures.
(5) No company shall issue a prospectus or make an offer or invitation to the public or
to its members exceeding five hundred for the subscription of its debentures, unless the
company has, before such issue or offer, appointed one or more debenture trustees and the
conditions governing the appointment of such trustees shall be such as may be prescribed.
(6) A debenture trustee shall take steps to protect the interests of the debentureholders
and redress their grievances in accordance with such rules as may be prescribed.
(7) Any provision contained in a trust deed for securing the issue of debentures, or in
any contract with the debenture-holders secured by a trust deed, shall be void in so far as it
would have the effect of exempting a trustee thereof from, or indemnifying him against, any
liability for breach of trust, where he fails to show the degree of care and due diligence
required of him as a trustee, having regard to the provisions of the trust deed conferring on
him any power, authority or discretion:
Provided that the liability of the debenture trustee shall be subject to such exemptions
as may be agreed upon by a majority of debenture-holders holding not less than threefourths
in value of the total debentures at a meeting held for the purpose.
(8) A company shall pay interest and redeem the debentures in accordance with the
terms and conditions of their issue.
(9) Where at any time the debenture trustee comes to a conclusion that the assets of
the company are insufficient or are likely to become insufficient to discharge the principal
amount as and when it becomes due, the debenture trustee may file a petition before the
Tribunal and the Tribunal may, after hearing the company and any other person interested in
the matter, by order, impose such restrictions on the incurring of any further liabilities by the
company as the Tribunal may consider necessary in the interests of the debenture-holders.
(10) Where a company fails to redeem the debentures on the date of their maturity or
fails to pay interest on the debentures when it is due, the Tribunal may, on the application of
any or all of the debenture-holders, or debenture trustee and, after hearing the parties
concerned, direct, by order, the company to redeem the debentures forthwith on payment of
principal and interest due thereon.
(11) If any default is made in complying with the order of the Tribunal under this
section, every officer of the company who is in default shall be punishable with imprisonment
for a term which may extend to three years or with fine which shall not be less than two lakh
rupees but which may extend to five lakh rupees, or with both.
(12) A contract with the company to take up and pay for any debentures of the
company may be enforced by a decree for specific performance.
(13) The Central Government may prescribe the procedure, for securing the issue of
debentures, the form of debenture trust deed, the procedure for the debenture-holders to
inspect the trust deed and to obtain copies thereof, quantum of debenture redemption
reserve required to be created and such other matters.
 
 
 
 
 
72.Power to nominate.
 
(1) Every holder of securities of a company may, at any time, nominate, in
the prescribed manner, any person to whom his securities shall vest in the event of his
death.
(2) Where the securities of a company are held by more than one person jointly, the
joint holders may together nominate, in the prescribed manner, any person to whom all the
rights in the securities shall vest in the event of death of all the joint holders.
(3) Notwithstanding anything contained in any other law for the time being in force or
in any disposition, whether testamentary or otherwise, in respect of the securities of a
company, where a nomination made in the prescribed manner purports to confer on any
person the right to vest the securities of the company, the nominee shall, on the death of the
holder of securities or, as the case may be, on the death of the joint holders, become entitled
to all the rights in the securities, of the holder or, as the case may be, of all the joint holders,
in relation to such securities, to the exclusion of all other persons, unless the nomination is
varied or cancelled in the prescribed manner.
(4) Where the nominee is a minor, it shall be lawful for the holder of the securities,
making the nomination to appoint, in the prescribed manner, any person to become entitled
to the securities of the company, in the event of the death of the nominee during his
minority.

 

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