Companies Act, 2013- Shares, debentures and Deposits

THE COMPANIES ACT, 2013

IMPORTANT PROVISIONS RELATING TOSHARES, DEBENTURES AND DEPOSITS

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CS Kalidas Vanjpe Practising Company Secretary

FEATURES

No change in basic concepts.

Emphasis on rules. Objective: to bring flexibility and adoption of

internationally accepted practices, self regulation with more disclosures, stringent punishment for violation etc.


FEATURES (Contd.)

Most of the privileges, concessions and exemptions of a private company will go.e.g. Rights issue, private placement of shares.

Will be on par with public companies for most of the matters.


SHARE CAPITAL Two types of share capital: equity and

preference. Equity shares can be issued with

differential rights. Variation of rights, if affecting the rights of

another class , then consent of three fourths of such other class required.


SHARE CERTIFICATES Share certificates to subscribers to M/A within two

months. (new). Minimum subscribed capital to be brought in

within two months as share certificates need to be issued within that time.

Other cases of allotment two months as against three earlier.

One month in case of transfer/ transmission against two.


ISSUE OF SHARES/SECURITIES A public company: A) Public Offer B) Private Placement C) Rights Issue D) Bonus Issue A private company: A) Rights Issue B) Bonus Issue C) Private Placement (sec 23) Both can issue under Emp Stock Option scheme or

preferential issue (sec 62)


TRANSFER/TRANSMISSION OF SHARES Instrument of transfer duly stamped,

dated and executed to be delivered within sixty days of execution.

Applicable to all companies including listed ones.

No need to present to prescribed authority.


TRANSFER/TRANSMISSION (Contd.) In case of refusal by pvt co, time limit for

sending notice is thirty days (earlier 2 m) Appeal in such case- thirty days (earlier 2

m). If no notice is sent then sixty days (earlier 4 m)

Only transferee can appeal (earlier transferor or the person who gave intimation of transmission were also there)


TEANSFER/TRANSMISSION (contd.) If a public co refuses to transfer within 30

days (2 m), then appeal within 60 days (earlier 2 m). If no notice is sent, then 90 days (no period earlier).

Important penal provision: Contravention of order of the Tribunal punishable with imprisonment of not less than one year and may be upto three years and fine mini 1 lakh maxi 5 lakh (earlier only fine)


PROSPECTUS Not much changes in disclosures. Any variations in the terms of the contract

referred to in prospectus or objects for which the prospectus was issued shall be made only with the approval of the members accorded by way of a special resolution.

Notice of meeting in 2 newspapers.


PROSPECTUS (Contd.) Detailed explanatory statement to include: original object total amount raised and utilised, extent of

achievement of the object unutilised amount details of variation reason and justification time limit within which it will be achieved


PROSPECTUS (Contd.) Such cos cannot use such amount for

buying , trading or otherwise dealing in equity shares of any other listed company.

Dissenting shareholders should be given exit offer – terms etc to be decided by SEBI


RIGHTS ISSUE Earlier applicable to public companies.

Now applicable to private also. Liberty to issue shares to anyone at any

time at such price is gone. All conditions like letter of offer,

renunciation etc will apply. Easy target for takeover or entry of outside shareholders possible.


FURTHER ISSUE OF CAPITAL Earlier applicable to public cos, now to all

cos. Earlier applicable only if the Company, at

any time after the expiry of two years from the formation of the Company or after one year from the allotment of shares in that company made for the first time after its formation, wants to increase capital.

Now any time it wants to increase.


FURTHER ISSUE OF CAPITAL (Contd.) Further shares may be offered on rights

basis or to employees under stock option, if special resolution is passed and subject to prescribed conditions or to any person including these two categories if special resolution is passed and valuation by a registered valuer is done and subject to rules.


PRIVATE PLACEMENT OF SECURITIES private placement means any offer of

securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in section 42.

Thus applicable to all securities.


PRIVATE PLACEMENT -REQUIREMENTS Special resolution for each offer.

Explanatory statement to give justification of price

Private placement offer letter List of persons to whom the letter to be

sent No offer to more than 200 persons in a fin

year excl qualified institutional buyers or employees under stock option scheme


REQUIREMENTS (Contd.) Application form serially numbered addressed to

a specific person. form to be sent in writing or electronic form no right of renunciation. Only that person has to

apply and from his own bank a/c Co to file details with ROC including the names of

persons etc. Also SEBI if co. is listed. Co to maintain all records including PAN, Bank

account details


PRIVATE PLACEMENT (Contd.) No fresh offer unless previous offer

completed/withdrawn/abandoned. This is applicable even if earlier offer is for different kind of security.

Minimum investment size Rs. 20,000/- face value.

Separate bank account for application money.

No advt, no distribution channel.


ALLOTMENT Time limit 60 days Otherwise refund within next 15 days from the

same account. Delay in refund beyond this period : 12% interest.

Also the amount will be treated as deposit. So penalty under those provisions.

Penalty for contravention of sec 42: Higher of amount involved in the offer or Rs. 2 cr and also refund all money to subscribers


ALLOTMENT (Contd.) Return of Allotment PAS 3- thirty days. complete list of all security holders

containing the full name, address, Permanent Account Number (PAN) and E-mail ID of such security holder, the class of security held, the date of allotment etc.

No benami holding in view of PAN


PREFERNTIAL ISSUE May be issued as further issue of capital. Elaborate disclosures in the expl st e.g. price

band, basis for pricing, relevant date with reference to which price is arrived at , class or classes of persons to whom allotment is proposed to be made, justification for allotment proposed to be made for consideration other than cash, pre and post shareholding pattern etc

also to comply with the conditions in sec 42 i.e. provisions applicable to Private placement.


DEBENTURES The Co can issue debentures with an

option to convert. For such option special resolution is necessary

No debentures with voting rights Only secured debentures or compulsorily

convertible debentures can be issued. Secured debentures maximum tenure 10

yrs. But for infra it is 30 yrs


DEBENTURES (Contd.) Appointment of debenture trustee.

Elaborate rules. Trust deed form SH 12 Debenture redemption reserve Maintenance of liquid assets of 15% of

debentures maturing during the year. Inv by 30th April. This can be used only for redemption and should not fall below 15%


DEPOSITS

In private company's definition, the clause of prohibition of invitation or acceptance of deposits from persons other than members, directors or their relatives is gone

Now private companies can accept deposits from Directors under exempted category. Director cannot take loan and place the same as deposit.

They have to comply with the conditions and procedure in case of deposits from members.

The term deposit includes any receipt of money by way of deposit or loan or in any other form by the company but excludes such categories as may be prescribed. CS Kalidas Vanjpe

Practising Company Secretary

DEPOSITS (Contd.) All cos can accept deposits from members. Limit 25% of the aggregate of the paid up

capital and free reserves. For companies covered under sec 76, limit is 10%

Period mini 6 m maxi 36 m. To meet short term requirements they can accept deposits of shorter tenure of not less than 3 m. such dep should not exceed 10% of puc and free reserves.


DEPOSITS (Contd.) public companies having a net worth of

not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees (eligible companies) can accept deposits from public (sec 76 companies)

Special resolution required. Ordinary resolution will do if aggregate of borrowings do not exceed the aggregate of puc and free reserves


LIMIT ON PUBLIC DEPOSITS Sec 76 cos can borrow up to 10% from

members and 25% from public. For Govt co., the limit is 35%


PROCEDURE Every co to issue a circular to members by

RPAD/Speed post or electronic mode (form DPT1). In addition, advt of circular in two newspapers for sec 76 cos

Credit rating must. In case of adverse change in rating,

depositors to be given exit option Sec 76 co to follow the procedure of advt,

filing the text with ROC etc


DEPOSIT INSURANCE Compulsory for all companies. at least thirty days before the issue of

circular or advertisement or at least thirty days before the date of renewal. The amount deemed to include principal and int.

maximum cover Rs. 20,000/- Premium to be borne by the Co and cannot

be recovered from depositors


DEPOSIT INSURANCE (Contd.) If defect in insurance due to non payment,

the Co to rectify the defect or enter into a fresh contract within 30 days. If not , the co to repay the deposits and int covered by such insurance within next 15 days. Fi not, int at 15% applicable for period of default and also penal provisions.


SECURITY FOR DEPOSITS Concept of secured deposits introduced. Although the Act makes it optional, the

rules make it compulsory for companies accepting deposits from members, if shortfall in insurance cover.

All companies accepting deposits from members shall create a charge on their assets excl intangible assets to the extent amount remaining unsecured by insurance.


DEPOSITS (Contd.) For sec 76 co., the provisions of creation of

security will apply only in case of secured deposits

In case of deposits which are secured, the amount of such deposits and the interest payable thereon shall not exceed the market value of such assets as assessed by a registered valuer

Security to be created in favour of trustee (similar to debenture trustee)


DEPOSITS (Contd.) Creation of Deposit Repayment Reserve

mandatory. This is in the form of liquid assets. Amount equivalent to 15% of deposits maturing during the year and next year.

Earlier Private companies were not required to maintain liquid assets. Now even for deposits from members, it is compulsory.

They also have to file return of deposits. CS Kalidas Vanjpe


DEPOSITS (Contd.) In case of deposits held by existing

companies, they have to be repaid within the due date or one year.

National Company Law Tribunal can extend time for repayment.

Rules however have given respite to cos. They can repay the deposit and interest as per the terms on which they are accepted. That will be sufficient compliance. But if they fail, then penal provisions will apply.


DEPOSITS (Contd.) A statement of deposits to be filed with

ROC within 3 months of commencement of Act or from the date on which such payment is due.

Practical problem for Pvt cos. Statement to be certified by auditor May lead to cash flow problems or

disputes among shareholders


DEPOSITS – EXEMPTION CRITERIA Some Exemptions: Advance for supply of goods/services should be

appropriated within 365 days Advance for sale of property should be adjusted

against property Supply of capital goods exempted but if any of

the above all cases, if the company has to refund money as the Co did not have necessary permissions/approvals to deal in the goods etc, then the amount will be treated as deposit.

Security deposit for performance of contract.CS Kalidas Vanjpe


EXEMPTION (Contd.) Unsecured loan from promoters/relatives

in the form of quasi equity. Security deposit from employee not

exceeding his annual salary and it should be non-interest bearing.

Govt loans or govt guaranteed loans Inter corporate deposits, bank loans etc Bonds or debentures either secured or

compulsorily convertible into eq sharesCS Kalidas Vanjpe


EXTREMELY IMPORTANT PENAL PROVISION:

If existing deposit is not repaid within due date or one year or extended time, minimum penalty Rs. 1 cr., may go to Rs. 10 cr.

Officer in default liable to imprisonment upto 7 years or fine (min Rs. 25 lakhs, Maximum Rs. 2 cr) or both.

If fraud in acceptance is proved, every officer accepting deposit, is personally responsible for losses, damages.


OTHER POINTS Enhancement in penalty, appointment of

prosecutors for courts and adjudicating officers for trying offences. This means enforcement of the provisions would be done seriously.

Hence, a change in mindset necessary. “Chalta Hai” attitude needs to be abandoned.

Likely effects: a) cost of compliance b) increase in business of insurance co. c) increase in litigation, cash flow problems for

private cos.CS Kalidas Vanjpe


THANK YOU.
