Share Capital and Debentures
Presentation
By
CA Anil Sharma
Share Capital and Debentures
• Chapter IV
• Sections 43 to 72
• the Companies (Share Capital and Debentures) Rules,
2014.
• All sections are effective from 1.4.2014 except Section
57 which was effective from 12.9.2013 and section 66
which is not yet effective.)
• Corresponding to:
• Part IV – Share Capital and Debentures
• Sections 82 to 123 of the CA, 1956.
Section 52- Securities Premium Account
• Corresponding to section 78 of CA, 1956 which
permitted utilisation of securities premium account for :
– 1) issue of unissued shares to the members as bonus shares
– 2)writing off preliminary expenses,
– 3)commission paid or discount allowed on issue of shares or
debentures or
– 4)premium payable on redemption of preference shares or
debentures
• Section 52 adds for the purchase of its own securities
• However, for the purpose referred in (1), (3) and the fifth
one, it shall be available to prescribed companies only.
Rules does not provide anything yet.
Sec. 53- Issue of shares at discount
• Prohibits issue of shares at discount except
issue of sweat equity shares under section 54.
• Earlier section 79 of CA, 1956 permitted issue
of shares at discount subject to certain
conditions.
Sec. 54-Issue of Sweat Equity Shares
• Corresponding to section 79A of CA, 1956 which
contained an explanation II that for the purpose
of the section ‘company’ means a company
formed and registered under this Act and its
subsidiary incorporated outside India.
• This explanation is not there in Section 54 and
therefore, conditions in the section shall not be
applicable on issue of sweat equity shares issued
by overseas subsidiaries of the company.
Rule 8-Issue of Sweat Equity Shares by
unlisted companies
• Conditions are similar to Unlisted Companies( Issue
of Sweat Equity Shares) rules, 2003 except that
Rule provides for valuation of sweat equity as well
as know how/IPR to be done by Registered Valuer.
• For the purposes of Rule 8 ‘‘Employee’’ means– (a) a permanent employee of the company who has
been working in India or outside India, for at least last
one year; or
– (b) a director of the company, whether a whole time
director or not or
– (c) an employee or a director as defined in sub-clauses
(a) or (b) above of a subsidiary, in India or outside India,
or of a holding company of the company.
Sec 55- Issue and Redemption of
Preference Shares
• Corresponding to section 80 of the CA, 1956.
• However, the section, read with Rule 10, permits
a company engaged in the setting up and dealing
with of infrastructural projects to issue preference
shares for a period exceeding twenty years but not
exceeding thirty years, subject to the redemption
of a minimum ten percent of such preference
shares per year from the twenty first year onwards
or earlier, on proportionate basis, at the option of
the preference shareholders.
Sec 56- Transfer and Transmission
• Corresponding to sections 108,109,110 and 113
of the CA, 1956.
• No change except that the CA, 1956 did not
provide any procedure or mechanism for transfer
of a member in a company having no share
capital. The same was transferable under the
Transfer of Property Act ,1882.
• Now section 56 provides for transfer of interest
of the member in the company on the same lines
as transfer of securities. Rule 11 prescribes Form
SH-4 for both the cases of transfer.
Sec. 57- Punishment for personation of
shareholder
• Corresponding to Section 116 of the CA, 1956.
• Applicable w.e.f. 12.9.2013 itself.
• Section 116 of CA, 1956 did not specify any
fine that could be imposed for personation of
shareholder.
• Section 57 specify that fine shall not be less
than Rs. 1,00,000 /-but which may extend to
Rs. 5,00,000/-.
Sec 62- Further Issue of Share Capital
• Corresponding to Sections 81 and 94A of the CA, 1956.
• Section 81 was not applicable to private companies
whereas Section 62 in now applicable to them also.
• Rule of pre-emptive right of existing shareholders to
further shares under CA, 1956 was available only in
respect of issues made after 2 years of it incorporation
or after one year from the first allotment , no such
condition in Section 62 now.
• Option to make preferential allotment with ordinary
resolution and permission of the Central Government
is not available in Section 62 now.
Rule 13- Further Issue of Share Capital
• Where the preferential offer of shares or other securities is
made by a company whose share or other securities are
listed on a recognized stock exchange, such preferential
offer shall be made in accordance with the provisions of the
Act and regulations made by the Securities and Exchange
Board .
• In case of unlisted companies, the price of the shares or
other securities to be issued on a preferential basis, either
for cash or for consideration other than cash, shall be
determined on the basis of valuation report of a registered
valuer only.
• where convertible securities are offered on a preferential
basis with an option to apply for and get equity shares
allotted, the price of the resultant shares shall be
determined beforehand on the basis of a valuation report
of a registered valuer.
Sec 63- Issue of Bonus Shares
• There was no corresponding provision in the CA, 1956.
• However, section 205(3) of the CA, 1956 provided that a
company can utilise profit or reserves of the company for
issue of fully paid up bonus shares.
• Section 205 was interpreted as allowing issue of bonus
shares out of reserves created from revaluation of shares
also. But SEBI (ICDR) Regulations, 2009 prohibits such issue
but unlisted companies were doing that.
• Now section restrict all companies not to utilise revaluation
reserve for issue of bonus shares.
• The bonus shares shall not be issued in lieu of dividend.
• Rule 14 provides that the company which has once
announced the decision of its Board recommending a
bonus issue, shall not subsequently withdraw the same.
Sec 66- Reduction of share capital
• Corresponding to sections 100 to 105 of the CA,
1956. Not yet notified.
• Section specifically provides that the provisions of
reduction of capital shall not apply to buy-back of
its own shares under section 68. Earlier section
100 did not have such provisions and was being
interpreted differently by courts.
• Reduction of capital not permitted id deposit
and/or interest thereon are in arrears. There was
no such bar in section 100 earlier.
Sec 68- Power of company to purchase its
own shares
• Corresponding to Section 77A of the CA, 1956.
• No changes in the provisions except:
– ‘No offer to buy back within a period of 365 days
from the date of preceding offer of buy back’ has
been replaced with ‘ No offer to buy back within a
period of one year from the date of closure of the
preceding offer of buy back’.
• Rule 17 contained detailed procedure to be
followed.
Section 70- Prohibition for buy-back in
certain circumstances
• Corresponding to section 77B of the CA, 1956.
• Under Section 77B default in repayment of
deposit and/or interest there on , redemption of
debentures or preference shares, payment of
dividend, repayment of any term loan or interest
to banks and financial institutions prohibited
companies to buy back till the default continued.
• Section 70 is more strict on this issue, the
company can not buy back for next three years
from the date when default ceased to subsist.
Sec 71 - Debentures
• Corresponding to Sections 117, 117A, 117B,
117C, 118, 119 and 122 of the CA, 1956.
• Section 71 makes clear reference to secured
debentures and optionally convertible
debentures in to shares.
– It requires a company to pass special resolution for
optionally convertible debenture.
– It also make provision for providing terms and
conditions for issue of secured debentures. These
provisions were not there earlier.
• Section requires appointment of debenture
trustee mandatorily only when prospect is issued
to more than 500 persons for subscription.