lecture - 5 - amend - 79 sec

8/14/2019 Lecture - 5 - Amend - 79 Sec.

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Lecture - 5

Certificate of Shares and debentures (Sec. 74-78)

CERTIFICATE OF SHARES AND DEBENTURES

74. Limitation of time for issue of certificates.- (1) Every company shall, within ninetydays after the allotment of any of its shares, debentures or debenture stock, and within forty-

five days after the application for the registration of the transfer of any such shares,debentures or debenture stock, complete and have ready for delivery the certificates of all

shares, the debentures, and the certificates of all debenture stock allotted or transferred, and

unless sent by post or delivered to the person entitled thereto, within that period, shall give

notice of this fact to the shareholders or debenture-holders, as the case may be, immediatelythereafter in the manner prescribed, unless the conditions of issue of the shares, debentures or

debenture stock otherwise provide:

(1) [Provided that, the company shall, within five days after an application is made forthe registration of the transfer of any shares, debentures or debenture stock to a central

depository, register such transfer in the name of the central depository.]

Explanation: The expression "transfer", for the purposes of this sub-section, means atransfer duly stamped and otherwise valid, and does not include such a transfer as the

company is for any reason entitled to refuse to register and does not register.

(2) If default is made in complying with the requirements of sub-section (1) the

company, and every officer of the company who is knowingly a party to the default, shall beliable to a fine not exceeding one hundred rupees for every day during which the default

continues.

75. Issue of duplicate certificates.- (1) A duplicate of a certificate of shares, debentures ordebenture stock issued under section 74 shall be issued by the company within forty-five

days from the date of application if the original:

(a) is proved to have been lost or destroyed, or

(b) having been defaced or mutilated or torn is surrendered to the company.

(2) The company, after making such inquiry as to the loss, destruction, defacement ormutilation of the original, as it may deem fit to make, shall, subject to such terms and

conditions, if any, as it may consider necessary, issue the duplicate:

Provided that the company shall not charge fee exceeding the sum prescribed and the actual

expenses incurred on such inquiry.

(3) If the company for any reasonable cause is unable to issue duplicate certificate, itshall notify this fact, alongwith the reasons within thirty days from the date of the

application, to the applicant.

(4) If default is made in complying with the requirements 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.

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(6) In the case of a public company, a financial institution duly approved by theCommission may be appointed as the transfer agent on behalf of the company.

(7) If a company makes default in complying with any of the provisions of subsections

(1) to (4), it shall be liable to a fine not exceeding five thousand rupees and every officer of

the company who is knowingly or willfully a party to such default shall be liable to a like

penalty.

The transfer of shares is registered and share certificates duly transferred in favour of the

transferee is issued within 45 days from the date of the application for transfer of shares.

Transfer deeds duly executed and signed by the transferor and transferee and duly

witnessed on their behalf are delivered alongwith share certificates at registered office of

the company. The transfer deed is affixed with transfer fee stamps @ 1.375 % of their

face value. The company may also charge Rs. 5/- or so for the expenditure involving

transfer. The fee and cost are paid by transferee.

Transfer deeds are accepted and transfer is recorded at the back of the share certificates in

the 'memorandum of transfer' column and entered into the register of members of the

company. The shareholder or transferee holding the share certificate and transfer deed in due course

of time shall furnish the application to the company about loss, destruction or damage of

the share certificate and transfer deed with copies of FIR, if any, advertisement in the

newspapers and affidavit.

Open Share Certificates: The share certificates enclosed with transfer deeds duly signed

and verified are traded on the stock exchanges. The share certificates become open when

the transfer deed is signed by the transferor but not signed by the transferee. The shares

are sold from person to person and transferee-in-due-course keeps on changing from time

to time and the shares are transferred in the name of the person who lodges the certificate

with transfer deed duly signed, witnessed, stamped and completed in all respect.

This share certificate will become marketable only if the share certificate alongwith

transfer deed duly signed by the transferor is enclosed and the signatures are verified bythe company.

77. Directors not to refuse transfer of shares:- The directors of a company shall not refuseto transfer any fully paid shares or debentures unless the transfer deed is, for any reason,

defective or invalid:

Provided that the company shall within thirty days ' [or, where the transferee is a central

depository, within five days] from the date on which the instrument of transfer was lodged

with it notify the defect or invalidity to the transferee who shall, after the removal of such

defect or invalidity, be entitled to re-lodge the transfer deed with the company:

Provided further that the provisions of this section shall, in relation to a private company, besubject to such limitations and restrictions as may have been imposed by the articles of such

company.

78. Notice of refusal to transfer:- (1) If a company refuses to register a transfer of any

shares or debentures, the company shall, within thirty days after the date on which the

instrument of transfer was lodged with the company, send to the transferee notice of the

refusal indicating reasons for such refusal.

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(2) If default is made in complying with section 77 or this section, the company andevery officer of the company who is a party to the default shall be liable to a fine not

exceeding [twenty] thousand rupees and to a further fine not exceeding 3[one hundred] rupeesfor every day after the first during which the default continues.

[78-A. Appeal against refusal for registration of transfer. - (1) The transferor or

transferee, or the person who gave intimation of the transmission by operation of law, as the

case may be, may appeal to the Commission against any refusal of the company to register

the transfer or transmission, or against any failure on its part, within the period referred to insub-section (1) of section 78 either to register the transfer or transmission or to send notice of

its refusal to register the same.

(2) An appeal to the Commission under sub-section (1) may be preferred-

(a) in case the appeal is against the refusal to register a transfer or transmission,

within two months of the receipt by him of the notice of refusal; and(b) in case the appeal is against the failure referred to in sub-section (1) within

two months from the expiry of the period referred to in sub-section (1) of section 78.

(3) The Commission shall, after causing reasonable notice to be given to the company

and also to, the transferor and the transferee or, as the case may require, to the person givingintimation of the transmission by operation of law and the previous owner, if any, and giving

them a reasonable opportunity to make their representation, may, by an order in writing,direct either that the transfer or transmission shall be registered by the company or that it

need not be registered by it and in the former case, the company shall give effect to the

decision within fifteen days of the receipt of the order.

(4) Before making an order under sub-section (3) on an appeal against any refusal of the

company to register any transfer or transmission the Commission may require the companyto disclose to it the reasons for such refusal.

(5) The Commission may, in its aforesaid order, give such incidental and consequentialdirections as to the payment of costs or otherwise as it deems fit.

(6) If default is made in giving effect to the order of the Commission within the periodspecified in sub-section (3), every director and officer of the company who is in default, shall

be punishable with fine which may extend to five hundred rupees for every day after the firstduring which the default continues.]

79. Transfer to successor-in-interest:- The transfer of shares or debentures from, a

deceased member or holder to his lawful nominee successor-in-interest shall be made onapplication by such nominee successor duly supported by a document evidencing nomination

or lawful award of the relevant property to such nominee or successor and thereupon the

nominee or successor shall be entered as a member:Provided that the company may, on furnishing of a suitable indemnity by such nominee or

successor, proceed to transfer the security in his name and enter him in the register ofmembers.

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not merely sold through the broker or shall be paid at not more than such other rate per centas may from time to time be specified by the Commission, generally or in a particular case.

(4) A vendor, promoter, 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 thissection.

(5) If default is made in complying with the provisions of this section, the company and

every officer of the company who knowingly and willfully is in default shall-

(a) for non-compliance with the provisions of clause (b) of sub-section (1), beliable to a fine not exceeding two thousand rupees;

(b) for non-compliance with the provisions of clause (c) or clause (d) of that sub-section, be liable to a fine not exceeding one thousand rupees; and

(c) for non-compliance with any other provision of this section, be liable to a fine

not exceeding five hundred rupees.

Issue of shares on premium. A company issue shares to the public on premium

subject to the following conditions, namely:

(i) It shall have profitable operational record of at least one year;

(ii) the premium on public offering shall not exceed the amount of premium

charged on placements with foreign or local institutions and the names andaddresses of such institutions shall be disclosed in the prospectus;

(iii) the issue shall be fully underwriters, not being the associated companies

shall include at least two financial institutions, including commercial

banks and investment banks and the underwriters shall give fulljustification of the amount of premium in their independent due diligence

reports;

(iv) the due diligence report of the underwriters shall form part of the materialcontracts:

(v) full justification for premium shall be disclosed in the prospectus;

(vi) the employees of the company getting preferential allocation, if any, shallbe charged premium at the same rate as the public and

(vii) the shares allotted to any person on account of preferential allocation at

par, shall not be salable for a period of two years from the date of public

subscription These persons shall be issued jumbo certificates with

markings "not salable for two years. The particulars of each Jumbocertificate will be furnished to the respective stock exchange. Companies

while splitting jumbo certificates into marketable lots, after the prescribedperiod, shall inform the respective stock exchange.

Issue of Shares at Premium

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Shares can be issued at premium, which is reported as Premium on Paid up

Capital.

Premium can be used for writing off the preliminary expenses, commission paidor discount allowed, redemption of preference shares or debenture, paying of un-

issued shares. (Section 83)

83. Application of premium received on issue of shares.- (1) Where a company issuesshares at a premium, whether in cash or otherwise, a sum equal to the aggregate amount or

the 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 Ordinance relating to the reduction of the

share capital of a company shall, except as provided in this section, apply as if the sharepremium account were paid-up capital of the company.

(2) The share premium account may, notwithstanding anything contained in subsection(1), be applied by the company-

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

(b) in writing off the expenses of, or the commission paid or discount allowed on,

any issue of shares or debentures of the company;(c) in providing for the premium payable on the redemption of any redeemable

preference shares or debentures of the company; or(d) in paying up un-issued shares of the company to be issued to members of the

company as fully paid bonus shares.

(3) Where a company has, before the commencement of this Ordinance, issued any

shares at a premium, this section shall apply as if the shares had been issued after suchcommencement:

Provided that any part of the premium which has been so applied that it does not at the

commencement of this Ordinance form an identifiable part of the company's reserves withinthe meaning of the Fourth Schedule or the Fifth Schedule shall be disregarded in determiningthe sum to be included in the share premium account.

Issue of share at discount (sec. 84)

84. Power to issue shares at a discount.- (1) Subject to the provisions of this section,'

it shall be lawful for a company to issue shares in the company at a discount: Provided that-

(a) the issue of the shares at a discount must be authorised by resolution passed

in general meeting of the company and must be sanctioned by the

Commission;

(b) the resolution must specify the maximum rate of discount '[...] at whichshares are to be issued;

(c) not less than one year must at the date of issue have elapsed since the date onwhich the company was entitled to commence business; and

(d) the share to be issued at a discount must be issued within sixty days after the

date on which the issue is sanctioned by the Commission or within such

extended time as the Commission may allow.

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(2) Where a company has passed a resolution authorising the issue of shares at adiscount, it may apply to the Commission for an order sanctioning the issue; and on such

application the Commission may, if, having regard to all the circumstances of the case, itthinks propel so to do, make an order sanctioning the issue on such terms and conditions as it

thinks fit.

(3) Issue of shares at a discount shall not be deemed to be reduction of capital.

(4) Every prospectus relating to the issue of shares, and every balance-sheet issued by thecompany subsequent to the issue of 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 dateof the issue of the prospectus or balance-sheet.

(5) If default is made in complying with sub-section (4), the company and every officer

of the company who is in default shall be liable to a fine not exceeding two thousand rupees.

86. Further issue of capital.- (1) Where the directors decide to increase the capital of thecompany by the issue of further shares, such shares shall be offered to the members in

proportion to the existing shares held by each member, irrespective of class, and such offer

shall be made by notice specifying the number of shares to which the member is entitled, andlimiting a time within which the offer, if not accepted, will be deemed to be declined:

[Provided that the Federal Government may, on an application made by any public

company on the basis of a special resolution passed by it, allow such company to raise its

further capital without issue of right shares:]

[Provided further that a public company may reserve a certain percentage of furtherissue of its employees under "Employees Stock Option Scheme" to be approved by the

Commission in accordance with the rules made under this Ordinance.]

(2) The offer of new shares shall be strictly in proportion to the number of

existing shares held:

Provided that fractional shares shall not be offered and all fractions less than a shareshall be consolidated and disposed of by the company and the proceeds from such

disposition shall be paid to such of the entitled shareholders as may have acceptedsuch offer.

(3) The offer of new shares shall be accompanied by a circular duly signed by the

directors or an officer of the company authorised by them in this behalf in the form

prescribed by the Commission containing material information about the affairs of

the company, latest statement of the accounts and setting forth the necessity for issueof further capital.

(4) A copy of the circular referred to in sub-section (3) duly signed by thedirectors or an officer authorised as aforesaid shall be filed with the registrar before

the circular is sent to the shareholders.

(5) The circular referred to in sub-section (3) shall specify a date by which the

offer, if not accepted, will be deemed to be declined.

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[(7) If the whole or any part of the shares offered under sub-section (1) is declined oris not subscribed, the directors may allot and issue such shares in such manner as they

may deem fit.]

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Classis and Kinds of shares (sec. 90)

[90. Classes and kinds of share capital.-

ACompany limited by shares may have different kinds of share capital and classes therein as

provided by its memorandum and articles:

Provided that different rights and privileges in relation to the different classes of shares mayonly be conferred in such manner as may be prescribed.]

THE COMPANIES'SHARE CAPITAL (VARIATION IN RIGHTS AND

PRIVILEGES) RULES, 2000

3. Kinds and classes of share capital: - (I) A company limited by shares may have

more than one kind of share capital and may have different classes of shares under eachkind.

(2) Where a company intends to have different kinds of share capital and classes of

shares therein, it shall specifically so provide in its memorandum and articles.

4. Nature of rights and privileges.- Each kind of share capital of a company andclass or classes of its shares, if any, as specified in the memorandum and articles mayhave different rights and privileges, which shall be provided in the articles. The variation

in the rights and privileges of the shareholders in a kind of share capital or class or

classes therein may be of the nature, including the following, namely:-

(a) different voting rights; voting rights disproportionate to the paid up value

of shares held; voting rights for specific purposes only; or no voting rights

at all;(b) different rights for entitlement of dividend, right shares or bonus shares or

entitlement to receive the notices and to attend the general meetings; and

(c) rights and privileges for indefinite period, for a limited specified period orfor such periods as may from time to time be determined by the members

through special resolution.

5. Conditions.- (1) No company shall issue further share capital of any kind or class

carrying different rights and privileges except with prior approval of the Commission to

be obtained on the basis of a special resolution.

(2) Subject to the provisions of section 86 of the Ordinance, offer of further share

capital of any kind or class carrying different rights and privileges shall be made to each

existing shareholder proportionately without any discrimination.

(3) If any of the existing shareholders declines to accept the offer made under sub-

rule (2), the shares so declined shall be disposed of by the directors in such manner asmay be provided in the articles or in accordance with the special resolution passed by

shareholders.

(4) In case share capital of a company has different classes having different rights and

privileges and the same is to be offered to the general public, the fact shall be distinctly

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mentioned in the offering document and the difference in the rights and privileges of any

class of share capital shall be conspicuously mentioned in the offering document or

prospectus, etc."

Shareholders rights

1. Right to profits i.e. dividend.

2. Right to votes

3. Right to other benefits which includes right to the share of residual assets at thetime of liquidation of the company.

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lecture - 5 - amend - 79 sec

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