law companies act final

8/4/2019 Law Companies Act Final

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A prospectus issued by or on behalf of a

company or in relation to an intendedcompany shall be dated, and that date

shall, unless the contrary is proved, be

taken as the date of publication of theprospectus.


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(1) Every prospectus issued

(a) by or on behalf of a company, or

(b) by or on behalf of any person who is

or has been engaged or interested in

the formation of a company.


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(2) A condition requiring or binding an applicant forshares in or debentures of a company to waivecompliance with any of the requirements of thissection, or purporting to affect him with notice for

any contract, document or matter not specificallyreferred to in the prospectus, shall be void.

(3) No one shall issue any form of application forshares in or debentures of a company, unless theform is accompanied 1[by a memorandumcontaining such salient features of a prospectus asmay be prescribed] which complies with therequirements of this section:


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(4) A director or other person responsible for the prospectus shall

not incur any liability by reason of any non-compliance with, or

contravention of, any of the requirements of this section, if

(a) as regards any matter not disclosed, he proves that he had no

knowledge thereof; or

(b) he proves that the non-compliance or contravention arose froman honest mistake of fact on his part; or

(c) the non-compliance or contravention was in respect of matters

which, in the opinion of the Court dealing with the case 4[were

immaterial] or was otherwise such as ought, in the opinion of thatCourt, having regard to all the circumstances of the case,

reasonably to be excused:


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(5) This section shall not apply

(a) to the issue to existing members or debenture-holders of

a company of a prospectus or form of application relating to

shares in or debentures of the company whether an applicant

for shares or debentures will or will not have the right to

renounce in favour of other persons;

(b) to the issue of a prospectus or form of application relating

to shares or debentures which are, or are to be, in all respects

uniform with shares or debentures previously issued and forthe time being dealt in or quoted on a recognised stock

exchange,


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A prospectus inviting persons to subscribe for shares in

or debentures of a company shall not include a statement

purporting to be made by an expert, unless the expert is

a person who is not, and has not been, engaged or

interested in the formation or promotion, or in the

management, of the company.


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A prospectus inviting persons to subscribe for shares in or

debentures of a company and including a statement purporting to

be made by an expert shall not be issued, unless -

(a) he has given his written consent to the issue thereof with the

statement included in the form and context in which it is included,and has not withdrawn such consent before the delivery of a copy

of the prospectus for registration; and

(b) a statement that he has given and has not withdrawn his

consent as aforesaid appears in the prospectus.


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(1) Every company, which accepts deposits from small depositors,

shall intimate to the (Tribunal) any default made by it in

repayment of any such deposits or part thereof or any interest

thereupon.

(2) The intimation under sub-section(1) shall,- (a) be given within sixty days from the date of default;

(b)include particulars in respect of the names and addresses of

each small depositor, the principal sum of deposits due to them

and interest acc.rued thereupon.


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(1) If any prospectus is issued in contravention of section 57 or 58,

the company, and every person, who is knowingly a party to the

issue thereof, shall be punishable with fine which may extend to

five thousand rupees.

(2) In section 57 and 58, the expression "expert" includes anengineer, a valuer, an accountant and any other person whose

profession gives authority to a statement made by him.


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(1) No prospectus shall be issued by or on behalf of a company or in relation

to an intended company unless, on or before the date of its publication, there

has been delivered to the Registrar for registration a copy thereof signed by

every person who is named therein as a director or proposed director of the

company or by his agent authorised in writing, and having endorsed thereon

or attached thereto (a) any consent to the issue of the prospectus required by section 58 from any

person as an expert; and

(b) in the case of a prospectus issued generally, also

(i) a copy of every contract required by clause 16 of Schedule II to be

specified in the prospectus or in the case of a contract not reduced into

writing, a memorandum giving full particulars thereof; and (ii) where the persons making any report required by Part II of that Schedule

have made therein, or, have, without giving the reasons, indicated therein, any

such adjustments as are mentioned in clause 32 of that Schedule, a written

statement signed by those persons setting out the adjustments and giving the

reasons therefore.


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(1) Any public financial institution, public sector bank or

scheduled bank whose main object is financing shall file a shelf

prospectus.

(2) A company filing a shelf prospectus with the Registrar shall not

be required to file prospectus afresh at every stage of offer ofsecurities by it within a period of validity of such shelf prospectus.


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(1) A public company making an issue of securities may circulate

information memorandum to the public prior to filing of a prospectus.

(2) A company inviting subscription by an information memorandum shall

be bound to file a prospectus prior to the opening of the subscription lists

and the offer as a red-herring prospectus, at least three days before the

opening of the offer. (3) The information memorandum and red-herring prospectus shall carry

same obligations as are applicable in the case of a prospectus.

(4) Any variation between the information memorandum and the red-

herring prospectus shall be highlighted as variations by the issuing

company.

Explanation.- For the purposes of sub-sections (2), (3) and (4), "red-

herring prospectus" means a prospectus which does not have complete

particulars on the price of the securities offered and the quantum of

securities offered.


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A company shall not, at any time, vary the terms of a contract

referred to in the prospectus or statement in lieu of prospectus,

except subject to the approval of, or except on authority given by,

the company in general meeting.


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1. CIVIL LIABILITY FOR MISSTATEMENTS INPROSPECTUS.

i. Person who is director of the company at time of issuingthe prospectus.

ii. Every person who is designated to be a director.iii. Promoter.iv. Everyone who has authorized the issue of the prospectus.

2. Person seizes to be liable if(not applicable to thoseunder 58 and 60)

i. He/she was not the director at that point in time.

ii. the prospectus was issued without their consent and apublic notice was issued of the same.

iii. The error was detected after the prospectus was issuedand he withdrew his consent. A public notice about this

withdrawal is also issued.


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Similar clauses for those under section 58 and 60. Sebi guidelines as to definition of promoter and

promoter group Meaning of promoter

x Person in control.

x Person in charge of planning issuance of securities to public.

x Named in the prospectus as promoters.

Meaning of promoter group

x Promoter.

x Immediate family.

x In case promoter is a company, all holding and subsidiary companies,companies in which the parent company has 10% equity or any company thathas 10% equity in the company and all companies in which a certain group of

people have a combined stake of20%.x In case the promoter is an individual, all companies in which he/she or

immediate family has 10% equity, all companies that have 10% equity in thecompanies mentioned, named in prospectus.

Rule not applicable to financial institutions in their normal course ofbusiness.


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Criminal liability for misstatement in prospectus

Everyone who authorized issuance of theprospectus.

Punishment includes imprisonment for upto 2 yearsand a fine of upto Rs.50,000 or both.

Section not applicable ifx Proved that statement is immaterial.

x If there was enough evidence at that time to believe that

statement was true. Under this section, a person who gives consent

under sections 58 and 60 is not to be held asauthority for issuance.


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Documents containing offer of shares or

debentures for sale to be deemed

prospectus. Any document by which the offer for sale ofshares or debentures of a company is made is

deemed as a prospectus.

All such documents need to conform with therequirements of a prospectus mentioned in

Section 60.


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1) For the purposes of the foregoing provisions of this Part

(a) a statement included in a prospectus shall be deemed to be

untrue, if the statement is misleading in the form and context in

which it is included; and

(b) where the omission from a prospectus of any matter iscalculated to mislead the prospectus shall be deemed, in respect of

such omission, to be a prospectus in which an untrue statement is

included

2) For the purposes of sections 61, 62 and 63 and clause (a) of sub-section (1) of this section, the expression included when used with

reference to a prospectus, means included in the prospectus itself

or contained in any report or memorandum appearing on the face

thereof or by reference incorporated therein or issued therewith.


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Where any prospectus is published as a

newspaper advertisement, it shall not benecessary in the advertisement to specify

the contents of the memorandum or the

signatories thereto, or the number of

shares subscribed for by them


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1) Any reference in this Act or in the articles of a company tooffering shares or debentures to the public shall, subject to anyprovision to the contrary contained in this Act and subject also tothe provisions of sub-sections (3) and (4), be construed asincluding a reference to offering them to any section of the public,

whether selected as members or debenture-holders of thecompany concerned or as clients of the person issuing theprospectus or in any other manner.

(2) Any reference in this Act or in the articles of a company toinvitations to the public to subscribe for shares or debenturesshall, subject as aforesaid, be construed as including a referenceto invitations to subscribe for them extended to any section of thepublic, whether selected as members or debenture-holders of thecompany concerned or as clients of the person issuing theprospectus or in any other manner.


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3) No offer or invitation shall be treated as made to the

public by virtue of sub-section (1) or sub-section (2), as the

case may be, if the offer or invitation can properly be

regarded, in all the circumstances

(a) as not being calculated to result, directly or indirectly, in

the shares or debentures becoming available for

subscription or purchase by persons other than those

receiving the offer or invitation; or(b) otherwise as being a domestic concern of the persons

making and receiving the offer or invitation:1[Provided that nothing contained in this sub-section shall

apply in a case where the offer or invitation to subscribe for

shares or debentures is made to fifty persons or more:Provided further that nothing contained in the first proviso

shall apply to the non-banking financial companies or

public financial institution specified in section 4A of the

Companies Act, 1956.]


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(3A) Not withstanding anything contained in sub-section (3),

the Securities and Exchange Board of India shall, in

consultation with the Reserve Bank of India, by notification in

the Official Gazette, specify the guidelines in respect of offeror invitation made to the public by a public financial

institution specified under section 4A or non-banking

financial companys referred to in clause (f) of section 45-I of

the Reserve Bank of India Act, 1934(2 of1934).]

(4)Without prejudice to the generality of sub-section (3), a

provision in a companys articles prohibiting invitations to

the public to subscribe for shares or debentures shall not be

taken as prohibiting the making to members or debenture-

holders of an invitation which can properly be regarded inthe manner set forth in that sub-section.

(5) The provisions of this Act relating to private companies

shall be construed in accordance with the provisions

contained in sub-sections (1) to (4).


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Any person who either by knowingly or recklessly makingany statement, promise or forecast which is false,deceptive or misleading or by any dishonest concealmentof material facts, induces or attempts to induce another

person to enter into, or to offer to enter into(a) any agreement for or with a view to acquiring,disposing of, subscribing for, or underwriting shares ordebentures; or(b) any agreement the purpose or pretended purpose of

which is to secure a profit to any of the parties from theyield of shares or debentures, or by reference tofluctuations in the value of shares or debentures,shall be punishable with imprisonment for a term whichmay extend to five years, or with fine which may extend to

1[one lakh rupees], or with both.


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No allotment shall be made of any share capital of a company offered to the public

for subscription, unless the amount in the prospectus as the minimum amount,

which, in the opinion of the Board of directors, must be raised by the issue of share

capital .This is amount referred to as minimum subscription

The amount payable on application on each share shall not be less than five per cent

of the nominal amount

All moneys received from applicants for shares shall be deposited and kept

deposited in a Scheduled Bank.

If the conditions aforesaid have not been complied with on the expiry of one

hundred and twenty days after the first issue of the prospectus, all moneys received

from applicants for shares shall be forthwith repaid to them without interest; and ifany such money is not so repaid within one hundred and thirty days after the issue

of the prospectus, the directors, of the company shall be jointly and severally liable

to repay that money with interest at the rate of six per cent per annum from the

expiry of the one hundred and thirtieth day .

Any condition purporting to require or bind any applicant for shares to waive

compliance the any requirement of this section shall be void.


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Any company which has not issued prospectus with its reference to its formation

or which has issued such a prospectus but has not proceeded to allot any of its

shares to public for subscription shall not allot any of its shares or debentures at

least 3 days before 1st allotment of shares or debentures to registrar for

registration a statement in lieu of prospectus signed by director or the proposed

director of the company or by his agent authorised in writing.

This clause doesnt apply to private companies.

If a company and every director of the company who willfully authorizes or

permits the contravention shall be punishable with fine up to Rs 1000/-.

statement in lieu of prospectus delivered to the Registrar under sub-section (1)includes any untrue statement, any person who authorised the delivery of the

statement in lieu of prospectus for registration shall be punishable with

imprisonment for a term which may extend to two years or with fine which may

extend to five thousand rupees or with both, unless he proves either that the

statement was immaterial or he had reasonable grounds to believe that the

statement was true.


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An allotment made by a company to an applicant in contravention of the provisions of section

69 or 70 shall be voidable at the instance of the applicant -

(a) within two months after the holding of the statutory meeting of the company, and not later, or

(b) in any case where the company is not required to hold a statutory meeting or where the

allotment is made after the holding of the statutory meeting, within two months after the date ofthe allotment, and not later.

The allotment shall be voidable as aforesaid, notwithstanding that the company is in course of

being wound up.

If any director of a company knowingly contravenes, or willfully authorizes or permits the

contravention of, any of the provisions of section 69 or 70 with respect of allotment, he shall be

liable to compensate the company and the allotment respectively for any loss, damages orcosts which the company or the allottee may have sustained or incurred thereby :


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Only after 5 days of issuance of prospectus can the allotment of shares or

debentures of company be made. This is referred to as time of opening

of the subscription list.

The prospectus must be issued as a NEWS paper advertisement.

The validity of an allotment shall not be affected by any contravention of

the foregoing provisions of this section but in the event of any such

contravention, the company, and every officer of the company who is in

default, shall be punishable with fine which may extend to five thousand

rupees.

An application for shares in, or debentures of, a company, which is made

in pursuance of a prospectus issued generally shall not be revocable until

after the expiration of the fifth day after the time of the opening of the

subscription lists.


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Allotment of shares and debentures to bedealt in on stock exchange. 1. Company needs to take permission from anyone of the

recognized stock exchange(s). 1(A). Provide name of exchange(s). Allotment made onan application will be void if permission is not granted.

2.Where the permission has not been granted all themoney received from applicants should be repaid withoutinterest.

2(A)&(B).When permission has been granted by stockexchange(s) and if more money is collected thanstipulated in application than the extra amount needs tobe repaid or it is punishable by law.


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3. All the money received should be kept in a

separate bank account maintained with the schedule

bank.

3(A). Money in this account can be used for 2purposes : adjustment against allotments and

repayment of moneys received from applications.

4. Any shares or debentures allotted which doesnt

meet all the requirements of this section will be void.

5. If application of permission is not completedwithin the time specified than it would be

considered as permission not granted.


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6. This section shall effect: the person who is buying

the shares or debentures and the prospectus

offering shares for sale.

7. No other stock exchange(s) will be stated inprospectus except recognized stock exchange(s)


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Manner of reckoning fifth,eighth and

tenth days in section 72 and section 73. If there is a public holiday according to Negotiable

Instruments Act in 5 day or 8 day period other than

5th or 8th day in section 72 or 73 respectively than it

will be disregarded.

If5th or the 8th day is the public holiday than the first

day thereafter which is not a public holiday will besubstituted.


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Return as allotments 1. Company making any allotment of its shares shall

within 30 days :

x File with the registrar a return of the allotments.

x In the case of shares allotted(not being bonus shares)all the consideration other than cash related to theallocation should be produce for the inspection andexamination of the Registrar in writing(contract).

x File with Registrar in 2 cases: in case of bonus share

and in the case of issue of shares at discount. 2.When the contract mentioned in sub-section 1 in

not reduced in writing the company needs to filewith the Registrar prescribed particulars of thecontract.


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3. If the Registrar is satisfied that in a particular case

the period of30 days is inadequate than period can

be extended by the Registrar as he thinks fit.

4. If default is made in complying with this section,than every officer of the company who is in default is

punishable with fine.


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Power to pay certain commissions and

prohibition of payment of all other

commissions, discounts, etc. A company may pay a commission to any person

in consideration of :

x his subscribing or agreeing to subscribe, whether

absolutely or conditionally for any shares in, or

debentures of the company, or

x his procuring or agreeing to procure subscriptions,

whether absolute or conditional, for any shares in, or

debentures of, the company


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x if the following conditions are fulfilled, namely:

x the payment of the commission is authorised by the articles;

x the commission paid or agreed to be paid does not exceed

in the case of shares, five per cent of the price at which the

shares are issued or the amount or rate authorised by thearticles, whichever is less, and in the case of debentures, two

and a half per cent of the price at which the debentures are

issued or the amount or rate authorised by the articles,

whichever is less.

xthe amount or rate per cent of the commission paid oragreed to be paid is

x in the case of shares or debentures offered to the public for

subscription, disclosed in the prospectus; and


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x in the case of shares or debentures not offered to the public

for subscription, disclosed in the statement in lieu of

prospectus, or in a statement in the prescribed form signed in

like manner as a statement in lieu of prospectus and filed

before the payment of the commission with the Registrar and,

where a circular or notice, not being a prospectus inviting

subscription for the shares or debentures, is issued, also

disclosed in that circular or notice.

x the number of shares or debentures which persons have

agreed for a commission to subscribe absolutely or

conditionally is disclosed in the manner aforesaid.x a copy of the contract for the payment of, the commission is

delivered to the Registrar at the time of delivery of the

prospectus or the statement in lieu of prospectus for

registration


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Where a company issues a securities a sum equal

to aggregate amount or value of the premium

should be transferred to an account called as the

premium account.


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A company cannot issue share at a discountexcept:

x The issue of the shares of discount is authorized by aresolution by the company in general meeting and sanctioned

by the Central government.x The resolution specifies the maximum rate of discount at

which the shares are issued.

x Not less than 1 year at the date of the issue has elapsed sincethe date on which company was entitled to commencebusiness.

x The shares to be issued at a discount are issued within 2months after the date on which the issue is sanctioned by theCentral government or within such extended time as Centralgovernment may allow.


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Redemption of shares issued by the

company is only out of the profits of the

company.