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THE COMPANIES BILL, 1997 PART III PROSPECTUS, ALLOTMENT, LISTING AND OTHER MATTERS RELATING TO THE ISSUE OF SECURITIES SECTIONS : 68-73
Buy-back 68 Power of company to purchase its own securities. –
(a) the company has authorised such buy-back by a special resolution in that behalf passed by it in general meeting: Provided that the notice of the meeting at which such resolution is proposed to be passed shall be accompanied by an explanatory statement which shall include a full and complete disclosure of all material facts and stating the necessity for such buy-back, the class of securities intended to be acquired, the amount to be invested, the time limit for completion of such buy-back which shall in no case exceed fifteen months from the date of passing of such resolution and whether it is proposed to be for the reduction of capital or for re-issue after a period specified in the statement. (b) the company shall, after completion of the buy-back under this section have a debt equity ratio not exceeding 2:1 or such higher equity ratio as may be prescribed. Explanation - In this sub-section "specified securities" includes, employees' stock option or other securities having such underlying voting rights as may be notified by the Central Government from time to time. (2) The buy-back under sub-section (1) may be – (a) from the existing security holders on a proportionate basis; or (b) from the open market; or (c) from odd lots, that is to say, where the lot of securities in a listed public company is smaller than such market lot as may be specified by the stock exchange; or (d) through negotiation or other arrangement, subject to the condition that no votes are cast in favour of the special resolution referred to in clause (a) of sub-section (1) by any person whose securities are proposed to be bought by such negotiation or other arrangement; or (e) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option. (3) Where a company has passed a special resolution to buy-back its own shares or securities under this section, it shall, before making such purchases, file with the Central Government a declaration of solvency in the form prescribed, verified by an affidavit to the effect that the Board has made a full inquiry into the affairs of the company as a result of which it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year of the date of declaration adopted by the Board, and signed by at least two directors of the company, one of whom shall be the managing director, if any. (4) Where a company buys back its own securities, it shall either cancel the securities so bought back or if it is proposed to re-issue such securities, they shall not be re-issued before the expiry of a period of twenty four months from the date of the last buy back of securities: Provided that no such restriction shall apply to securities bought under clause (c) or clause (e) of sub-section (2). Provided further that no bought back shares shall qualify for :- (a) any voting or dividend rights at any time; (b) the issue of any bonus or rights shares after the expiry of the said period, but before they are re-issued. (5) Where a company completes a buy-back of its securities under this section, it shall not make further issue of securities within a period of twelve months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes or conversion of preference shares into equity shares or debentures. (6) Where a company buys back its securities under this section, it shall maintain a register of the securities so bought, the consideration paid for the securities bought back, the date of cancellation of securities, or as the case may be, the re-issue of such securities and such other particulars as may be prescribed. (7) A company shall, after the completion of the buy-back under this section, file with the Registrar a return containing such particulars relating to the buy-back within such time, as may be prescribed. (8) If a company makes default in complying with the provisions of this section or any rules made thereunder, the company or any officer of the company who is in default, shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to ten thousand rupees, or with both.
Issue of shares at premium and discount 69 Application of premiums received on issue of shares.- (1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called "the share premium account"; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were the paid-up share capital of the company. (a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares; (b) in writing off of the preliminary expenses of the company; (c) in writing off of the expenses of, or the commission paid or discount allowed on, any issue of shares 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 buy-back of shares under section 68
70 Power to issue shares at a discount..- (1) A company shall not issue shares at a discount except as provided in this section. (2) A company may issue at a discount shares in the company of a class already issued, if the following conditions are fulfilled, namely:- (i) the issue of the shares at a discount is authorised by a resolution passed by the company in general meeting and sanctioned by the Company Law Tribunal; (ii) the resolution specifies the maximum rate of discount at which the shares are to be issued: (iii) not less than one year has at the date of the issue elapsed since the date on which the company was entitled to commence business; and (iv) the shares to be issued at a discount are issued within two months after the date on which the issue is sanctioned by the Company Law Tribunal, or within such extended time as that Tribunal may allow. (3) Where a company has passed a resolution authorising the issue of shares at a discount, it may apply to the Company Law Tribunal for an order sanctioning the issue; and on any such application, the Tribunal, if having regard to all the circumstances of the case, it thinks proper so to do, may make an order sanctioning the issue on such terms and conditions as it thinks fit. (4) Every prospectus relating to the issue of the shares shall contain particulars of the discount allowed on the issue of the shares or of so much of that discount as has not been written off at the date of the issue of the prospectus. (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 punishable with fine which may extend to five thousand rupees.
Issue and redemption of preference shares 71 Power to issue redeemable preference shares..- (1) Subject to the provisions of this section, a company limited by shares may, if so authorised by its articles, issue preference shares which are, or at the option of the company, liable, to be redeemed: Provided that- (a) no such shares shall be redeemed except out of profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; (b) no such shares shall be redeemed unless they are fully paid; (c) the premium, if any, payable on redemption shall have been provided for out of the profits of the company or out of the company's share premium account, before the shares are redeemed; (d) where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividend, be transferred to a reserve fund, to be called the capital redemption reserve account, a sum equal to the nominal amount of the shares redeemed; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the capital redemption reserve account were the paid-up share capital of the company. (2) Subject to the provisions of this section, the redemption of preference shares thereunder may be effected on such terms and in such manner as may be provided by the articles of the company. (3) The redemption of preference shares under this section by a company shall not be taken as reducing the amount of its authorised share capital. (4) Where in pursuance of this section, a company has redeemed or is about to redeem any preference shares, it shall have power to issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares had never been issued; and accordingly the share capital of the company shall not, for the purpose of calculating the fees payable under section 409, be deemed to be increased by the issue of shares in pursuance of this sub-section: (5) The capital redemption reserve account may, notwithstanding anything contained 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. (6) Notwithstanding anything contained in this Act, no company limited by shares shall, issue any preference share which is irredeemable or is redeemable after the expiry of a period of twenty years from the date of its issue. (7) If a company fails to comply with the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ten thousand rupees.
72 Redemption of certain preference shares. – (1) Notwithstanding anything contained in the terms of issue of any preference shares, every preference share issued before the commencement of this Act and which is not redeemable before the expiry of ten years from the date of issue thereon in accordance with the terms of its issue and which had not been redeemed before such commencement, shall be redeemed by the company on the date on which such share is due for redemption or before the 14th day of June, 1998, whichever is earlier : Provided that where a company is not in a position to redeem any such share within the period aforesaid and to pay the dividend, if any, due thereon (such shares being hereinafter referred to as unredeemed preference shares), it may, with the consent of the Company Law Tribunal , on a petition made by it in this behalf and notwithstanding anything contained in this Act, issue further redeemable preference shares equal to the amounts due (including the dividend thereon), in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed shares shall be deemed to have been redeemed. (2) Nothing contained in section 92 or any scheme referred to in sections 266 to 271, or in any scheme made under section 273, shall be deemed to confer power on any class of shareholders by resolution or on any Court or the Central Government to vary or modify the provisions of this section. (3) If default is made in complying with the provisions of this section,- (a) the company making such default shall be punishable with fine which may extend to one thousand rupees for every day during which such default continues; and (b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.
Further issue of capital 73 Further issue of capital...- (1) Where at any time after the expiry of two years of the formation of a company, it is proposed to increase the subscribed capital of the company by allotment of further shares, then,- (a) such further shares shall be offered to the persons who, at the date of the offer, are members holding equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on those shares at that date; (b) the offer aforesaid shall be made by notice containing such particulars as may be prescribed, and specifying the number of shares offered and limiting a time, not being less than fifteen days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined; (c) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (b) shall contain a statement of this right: (d) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of directors may dispose of them in such manner as they think most beneficial to the company. Explanation.-In this sub-section, "equity share capital" and "equity shares" have the same meaning as in section 76. (2) Where the moneys received from applicants for further shares are in excess of the aggregate of the application moneys relating to the further shares in respect of which allotments have been made, the company shall repay the moneys to the extent of such excess within eight days of such allotment without interest, and if such money is not repaid within that period, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate as may be prescribed. (3) Where further shares are offered to the members under sub-section(1) or to any other person at a premium, the amount of such premium shall be approved by the company by special resolution. (4) Notwithstanding anything contained in sub-section (1), further shares may be offered to any persons whether or not those persons include the persons referred to in clause (a) of sub-section(1) in any manner whatsoever - (i) if a special resolution to that effect, and approving the premium, if any, is passed by the company in general meeting, or (ii) if no such special resolution is passed, but the votes cast in favour of the proposal contained in the resolution moved in that general meeting (including the casting vote, if any, of the chairman), exceed the votes, if any, cast against the proposal by, members so entitled and voting and the Central Government is satisfied, on an application made by the company in this behalf, that the proposal is most beneficial to the company : Provided that no votes are cast in favour of the special resolution referred to in clause (i) by any person to whom shares are proposed to be offered. (5) Nothing in clause (c) of sub-section (1) shall be deemed- (a) to extend the time within which the offer should be accepted, or (b) to authorise any person to exercise the right of renunciation for a second time, on the ground that the person in whose favour the renunciation was first made has declined to take the shares comprised in the renunciation. (6) Notwithstanding anything contained in the foregoing provisions of this section, a public company may, at any time, increase its subscribed capital by causing the exercise of an option given to its employees, officers or working directors to purchase its securities (hereafter in this section referred to as "employees stock option"), pursuant to a scheme of option framed by the company in accordance with the provisions of this section. (7) A company shall be entitled to make an issue of employees stock option to the employees of the company of its securities at the prevailing market rate and subject to the terms of offer that an option to purchase them at a future date at the same price and at the same terms of offer agreed to at the time of issue notwithstanding any increase in the valuation of securities at the time of purchase. (8) A scheme of option under this section shall be made only after satisfying the conditions specified in clause (i) or clause (ii) of sub-section (4) and that the option shall be issued in such a manner that an option together with the existing capital shall not amount to a increase of more than five per cent of the existing capital. (9) A scheme of option made by a company shall also be subject to such other conditions as may be specified by rules made by the Central Government or the Securities and Exchange Board, as the case may be, which may provide for the valuation of securities, the terms of offer and for the creation of a trust for its administration and the management of such a trust. (10) Nothing in this section shall apply- (a) to a private company; or (b) to the increase of the subscribed capital of a public company caused by the exercise of an option attached to debentures issued or loans raised by the company- (i) to convert such debentures or loans into shares in the company, or (ii) to subscribe for shares in the company:
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