lecture - 4 - amended (section 62-68, 70-73)

8/14/2019 Lecture - 4 - Amended (Section 62-68, 70-73)

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Lecture 4 - A

[Section 62-68 & 70-73]

Issue of securities outside Pakistan (Section 62-A)

2[62A. Issue of securities outside Pakistan.-

No company shall, except with the prior approval of the Commission, issue any security outsidePakistan.]

63. Interpretation of provisions relating to prospectus.-

(1) For the purposes of the foregoing provisions relating to a prospectus,-(a) a statement included in a prospectus shall be deemed to be untrue, if the

statement is misleading in the form and context in which it is included; and(b) where the omission from a prospectus of any matter is calculated to mislead, the

prospectus shall be deemed, in respect of such omission, to be a prospectus inwhich an untrue statement is included. (2) For the purposes of sections. 59

and 60 and clause (a) of sub-section (1) of this section, the expression "included",when used in reference to a prospectus, means included in the prospectus itself or contained in any report or memorandum appearing on the face thereof or byreference incorporated therein or issued herewith.

64. Newspaper advertisement of prospectus.-

Where any prospectus is published as a newspaper advertisement, it shall not benecessary in the advertisement to comply with the requirements of sub-clause (1) of clause 1 of section 1 of Part I of the Second Schedule in so far as the said provisionsrequire the contents of the memorandum or the signatories thereto, or the number of shares subscribed for by them, to be specified.

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Lecture 4 - A

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

(1) Any reference in this Ordinance or in the articles of a company to offering of shares or debentures to the public, or to invitation to the public to subscribe for shares or debentures, shall, unless otherwise expressly provided in this Ordinance, include areference to offering of shares or debentures to any section of the public or to invitationto any section of public to subscribe for shares or debentures, as the case may be.

Explanation: The term "section of the public" includes existing members or debenture-holders of the company or clients of the persons issuing the prospectus.

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

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

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

(3) Without prejudice to the generality of sub-section (2), a provision in a company's articles prohibiting invitations to the public to subscribe for shares or debentures shall not betaken as prohibiting the making, to members or debenture-holders of an invitation whichcan properly be regarded in the manner set forth in that sub-section.

(4) The provisions of this Ordinance relating to private companies shall be construed inaccordance with the provisions contained in sub-sections (1) to (3).

66. 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 toenter 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 ' profitto any of the parties from the yield of shares or debentures, or by reference tofluctuations in the value of shares or debentures;

shall be punishable with imprisonment of either description for a term which mayextend to three years, or with fine which may extend to twenty thousand rupees,

or with both.

ALLOTMENT

67. Application for, and allotment of, shares and debentures.-

(1) No application for allotment of shares in and debentures of a company in pursuance of a prospectus shall be made for shares or debentures of less than such nominal amount asthe Commission may, form time to time, specify, either generally or in a particular case.

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Lecture 4 - A

(2) The Commission may specify the form of an application for subscription to shares in or debentures of a company which may, among other matters, contain such declarations or verifications as it may, in the public interest, deem necessary; and such form then shallform part of the prospectus.

(3) All certificates, statements and declarations made by the applicant shall be binding onhim.

(4) An application for shares in or debentures of a company which is made in pursuance of a prospectus shall be irrevocable.

(5) Whoever contravenes the provisions of sub-section (1) or sub-section (2), or makes anincorrect statement, declaration or verification in the application for allotment of shares,shall be liable to a fine which may extend to ten thousand rupees.

68. Restriction as to allotment.-

(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 inthe opinion of the directors must be raised by the issue of share capital in order to providefor the matters specified in clause 5 of section 1 of Part I of the Second Schedule has

been subscribed, and the full amount thereof has been paid to and received in cash by thecompany.

(2) The amount referred to in sub-section (1) as the amount stated in the prospectus shall bereckoned exclusively of any amount payable otherwise than in cash and is in thisOrdinance referred to as the minimum subscription.

(3) All moneys received from applicants for shares shall be deposited and kept in a separate bank account in a scheduled bank until returned in accordance with the provisions of sub-

section (5) or until the certificate to commence business is obtained under section 146.

(4) The amount payable on application on each share shall be the full nominal amount of theshare.

(5) If the conditions aforesaid have not been complied with on the expiration of forty daysafter the first issue of the prospectus, all money received from applicants for shares shall

be forthwith repaid to them without surcharge, and, if any such money is not so repaidwithin fifty days after the issue of the prospectus, the directors of the company shall be

jointly and severally liable to repay that money with surcharge at the rate of one and ahalf per cent for every month or part thereof from the expiration of the fiftieth day:

Provided that a director shall not be liable if he proves that the default in 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 compliancewith any requirement of this section shall be void.

(7) This section, except sub-section (4) thereof, shall not apply to any allotment of sharessubsequent to the first allotment of shares offered to the public for subscription.

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Lecture 4 - A

(8) In the case of the first allotment of shares capital payable in cash of a company whichdoes not issue any invitation to the public to subscribe for its shares, no allotment shall bemade unless the minimum subscription, that is to say,-

(a) the amount, if any, fixed by the memorandum or articles and specified in thestatement in lieu of prospectus as the minimum subscription referred to in sub-section (1) upon which the directors may proceed to allotment; or

(b) if no amount is so fixed and specified, the whole amount of the share capitalother than that issued or agreed to be issued as paid up otherwise than in cash;

has been subscribed and the full nominal amount of each share payable in cashhas been paid to and received by the company.

(9) Sub-section (8) shall not apply to a private company.

(10) In the event of any contravention of any provisions of this section, every promoter,director or other person knowingly responsible for such contravention shall be liable to afine not exceeding ten thousand rupees and in the case of a continuing contravention to afurther fine not exceeding two hundred rupees for every day after the first during whichthe contravention continues.

(11) For the purpose of this section, the expression "promoter" has the same meaning as insection 59.

Effect of irregular allotment (Section 70)

70. Effect of irregular allotment.-

(1) An allotment made by a company to an applicant in contravention of the provisions of section 68 or 69 shall be voidable at the instance of the applicant within thirty days after the holding of the statutory meeting of the company and not later, or in any casse wherethe company is not required to hold a statutory meeting or where the allotment is madeafter the holding of the statutory meeting, within thirty days after the date of theallotment, and not later, and shall be so voidable notwithstanding that the company is incourse of being wound up.

(2) If any officer of a company knowingly contravenes or permits or authorises thecontravention of any of the provisions of section 68 or 69 with respect to allotment, heshall, without prejudice to any other liability, be liable to compensate the company andthe allottee respectively for any loss, damages or costs which the company or the allotteemay have sustained or incurred thereby:

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

71. Repayment of money received for shares not allotted.-

(1) Where a company issues any invitation to the public to subscribe for its shares or other securities,' the company shall take a decision within ten days of the closure of the

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Lecture 4 - A

subscription lists as to what applications have been accepted or are successful and refundthe money in the case of the unaccepted or unsuccessful applications within ten days of the date of such decision.

(2) If the refund required by sub-section (1) is not made within the time specified therein, thedirectors of the company shall be jointly and severally liable to one and a half per centrepay that money with surcharge at the rate of one and a half per cent for every month or

part thereof from the expiration of the fifteenth day and, in addition, to a fine notexceeding five thousand rupees, and in the case of a continuing offence to a further finenot exceeding one hundred rupees for every day after the said fifteenth day on which thedefault continues:

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

(3) Any condition purporting to require or bind any applicant for shares or other securities towaive any requirement of this section shall be void.

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

(1) Where a prospectus, whether issued generally or not, states that application has been or will be made for permission for the shares or debentures offered thereby to be dealt in onany stock exchange, any allotment made on an application in pursuance of the prospectusshall, whenever made, be void if the permission has not been applied for before theseventh day after the first issue of the prospectus or if the permission has not beengranted before the expiration of twenty-one days from the date of the closing of thesubscription lists or such longer period not exceeding forty-two days as may, within thesaid twenty-one days, be notified to the applicant for permission by or on behalf of thestock exchange.

(2) Where the permission has not been applied for as aforesaid, or has not been granted asaforesaid, the company shall forthwith repay without surcharge all money received fromapplicants in pursuance of the prospectus, and, if any such money is not repaid withineight days after the company becomes liable to repay it, the directors of the companyshall be jointly and severally liable to repay that money from the expiration of the eightday together with surcharge at the rate of one and a half per cent for every month or partthereof from the expiration of the eighth day and, in addition, to a fine not exceeding fivethousand rupees and in the case of a continuing offence to a further fine of one hundredrupees for every day after the said eighth day on which the default continues:

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

(3) All moneys received as aforesaid shall be deposited and kept in a separate bank accountin a scheduled bank so long as the company may become liable to repay it under sub-section (2); and, if default is made in complying with this subsection, the company andevery officer of the company who knowingly and willfully authorises or permits thedefault shall be liable to a fine not exceeding five thousand rupees.

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

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Lecture 4 - A

(5) For the purposes of this section, permission shall not be deemed to be refused if it isintimated that the application for it, though not at present granted, will be given further consideration.

(6) This section shall have effect-(a) in relation to any shares or debentures agreed to be taken by a person

underwriting an offer thereof by a prospectus as if he had applied therefor in pursuance of the prospectus; and

(b) in relation to a prospectus offering shares for sale with the followingmodifications, that is to say,-(i) reference to sale shall be substituted for reference to allotment;(ii) the person by whom the offer is made and not the company, shall be

liable under sub-section (2) to repay the money received from applicantand reference to the company's liability under that sub-section shall beconstrued accordingly; and

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

Application for Listing of Shares on Stock Exchange: The application for listing of sharesis required to be made within 7 days.Grant of Permission by Stock Exchange: The stock exchanges are required^ to give

permission for trading of stocks within 21-42 days. If no permission is given within stipulated period, it is required to be notified to the applicants by the company.Refund of Moneys in case permission not granted: If the application is not made or the

permission is not granted by the stock exchanges, moneys become payable within 8 days.

Payment of Surcharge: If such money is not repaid within, eight days, the directors of thecompany are jointly and severally liable to repay that money from the expiration of the eightday together with surcharge at the rate of 1-1/2% per month.Separate Bank Account: All moneys received as aforesaid is deposited and kept in aseparate bank account in a scheduled bank so long as the company may become liable torepay it.Conditions to waive compliance void: Any condition purporting to require or bind anyapplicant for shares or debentures to waive compliance with any requirement of this sectionshall be void.

73. Return as to allotments.-

(1) Whenever a company having a share capital makes any allotment of its shares, thecompany shall, within thirty days thereafter,-

(a) file with the registrar a return of the allotment, stating the number and nominalamount of the shares comprised in the allotment 1[and such particulars as may be

prescribed] of each allottee, and the amount paid on each share; and(b) in the case of shares allotted as paid up otherwise than in cash, produce for the

inspection and examination of the registrar a contract in writing constituting thetitle of the allottee to the allotment together with any contract of sale, or for

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Lecture 4 - A

services or other consideration in respect of which that allotment was made, suchcontracts being duly stamped, and file with the registrar copies verified in the

prescribed manner of all such contracts and a return stating the number andnominal amount of shares so allotted, the amount to be treated as paid-up, and theconsideration for which they have been allotted; and

(c) file with the registrar-(i) in the case of bonus shares, a return stating the number and nominal

amount of such shares comprised in the allotment and 2[such particularsas may be prescribed] of each allottee together , with a copy of theresolution authorising the issue of such shares;

(ii) in the case of issue of shares at a discount, a copy of the resolution passed by the company authorising such issue together with a copy of theorder of the Commission sanctioning the issue, and where the maximumrate of discount exceeds ten per cent, a copy of the order of theCommission permitting the issue at the higher percentage.

Explanation:- Shares shall not be deemed to have been paid for in cash except tothe extent that the company shall actually have received cash therefore at thetime of, or subsequent to, the agreement to issue the shares, and where shares areissued to a person who has sold or agreed to sell property or rendered or agreedto render services to the company, or to persons nominated by him, the amount of any payment made for the property or services shall be deducted from theamount of any cash payment made for the shares and only the balance, if any,shall be treated as having been paid in cash for such shares, notwithstanding any

bill of exchange or cheques or other securities for money.

(2) Where such a contract as is mentioned in clause (b) of sub-section (1) is not reduced towriting, the company shall, within thirty days after the allotment, file with the registrar the prescribed particulars of the contract stamped with the same stamp duty as wouldhave been payable if the contract had been reduced to writing, and these particulars shall

be deemed to be an instrument within the meaning of the Stamp Act, 1899 (II of 1899),and the registrar may, as a condition of filing the particulars, require that the duty payablethereon 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 thirty days specified in sub-sections (1) and (2) for compliance with the requirements of this section is inadequate, he may extend that period as he thinks fit, and, if he does so,the provisions of sub-sections (1) and (2) shall have effect in that particular case as if for the said period of thirty days the extended period allowed by the registrar weresubstituted.

(4) If default is made in complying with any requirement of this section, the company and

every officer of the company who is knowingly a party to the default shall be liable to afine not exceeding five hundred rupees for every day during which the default continues.

1[(5) This section shall apply mutatis mutandis, to shares which are allotted or issued or deemed to have been issued to a scheduled bank or a financial institution in pursuance of any obligation of a company to issue shares to such scheduled bank or financialinstitution:

Provided that where default is made by a company in filing a return of allotment inrespect of the shares referred to in this sub-section, the scheduled bank or the financial

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institution to whom shares have been allotted or issued or deemed to have been issuedmay file a return of allotment in respect of such shares with the registrar together withsuch documents as may be specified by the Commission in this behalf, and such return of allotment shall be deemed to have been filed by the company itself and the scheduled

bank or the financial institution shall be entitled to recover from the company the amountof any fee properly paid by it to the registrar in respect of the return.]

Prescribed particulars of allotees are: Name, father's or husband's name, NIC or passportnumber, address, nationality and occupation and in case of legal person, name of company andaddress of the registered office and foregoing particulars of the chief executive.Relevant rules contained in the Companies (Issue of Capital) Rules, 1996 are appended asunder: -

Rule 6. Issue of bonus shares by listed companies.

A listed company may issue bonus shares subject to the following conditions namely:

i. The decision of the directors to issue bonus shares shall be communicated to theCommission and the respective stock exchange on the day of the intimation letter shall beaccompanied by the auditor's certificate as specified in clause (iii);

ii. The free reserves of the company calculated in the manner as specified in rule 5 shall besufficient to issue the bonus shares after retaining in the reserves 25% of the capital as itwill be increased by the proposed bonus shares;

iii. a certificate from the auditors shall be obtained to the effect that the free reserves d after the issue of the bonus shares will not be less than 25% of the increased capital; and

iv. all contingent liabilities disclosed in the audited account which may have been createdsubsequent to the audited accounts shall be deducted while calculated minimum residualreserve of 25%.

Rule 8. Issue of shares for consideration otherwise than in cash:-

A company may issue shares for consideration otherwise than in cash subject to the followingconditions. Namely:-

(i) The value of assets shall be determined by a consulting engineer registered with PakistanEngineering Council and borne on the panel of at least two financial institutions as avalue;

(ii) the value of assets taken over shall be reduced by depreciation charged on consistent basis;

(iii) the goodwill and other intangible assets shall be excluded from the consideration; and(iv) certificate from a practicing Chartered Accountant shall be obtained to the effect that the

above mentioned conditions have been complied with.

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lecture - 4 - amended (section 62-68, 70-73)

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