Tag Archives: The Companies (Share Capital and Debentures) Rules 2014

Amendment in Buyback Law


The Ministry of Corporate Affairs bring out two draft notifications to be published in Official Gazette of India to amend the Act by a draft order under proviso to Section 68(2)(d) and by a draft amendment in the Companies (Share Capital and Debentures) Rules, 2014.

Post Buyback Debt – Equity Ratio:

As we discussed earlier here, Section 68(2)(d) read as under:

“The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves:

Provided that the Central Government may, by order, notify a higher ratio of the debt to capital and free reserves for a class or classes of companies;”

Now draft notification read as under:

In exercise of the powers conferred under the proviso to clause (d) of sub-section (2) of section 68 of the Companies Act, 2013, the Central Government has notified that –

The debt to capital and free reserves ratio shall be 6:1 for government companies within the meaning of clause (45) of Section 2 of the Companies Act, 2013 which carry on Non Banking Finance Institution activities and Housing Finance activities.

This order give effect that for all companies post buyback Debt Equity Ratio shall be 2:1 except government companies which are Non banking Finance companies or Housing Finance companies.

Unaudited Accounts limited reviewed:

As we discussed earlier here, Rule 17(1)(n)(iii) of the companies (Share Capital and Debentures) Rules, 2014 read as under:

“That the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document;”

The draft of the companies (Share Capital and Debentures) Amendment Rules 2016 insert following proviso to this sub – clause:

“Provided that where the audited accounts are more than six months old, the calculations with reference to buy back shall be on the basis of un-audited accounts not older than six months from the date of offer document which are subjected to limited review by the auditors of the company.”

This is a removal of practical difficulty. Due to present clause, for practical purpose buyback resolution is possible only within six month from date of audited annual account. Now, buyback resolution may be possible any time on the basis of unaudited accounts limited reviewed by the auditors of the company.

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.

YEAR’S SECOND AMENDMENT IN SHARE CAPITAL RULES


The Ministry of Corporate Affairs placed here on its website a draft of the Companies (Share Capital and Debentures) Second Amendment Rules, 2015. These amendment Rules will come into force from the date of its publication in Official Gazette.

These amendment rules proposed to amend Rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014. Earlier this sub – rule was amended in 18th March 2015 by the Companies (Share Capital and Debentures) Amendment Rules, 2015. Before comment, I read this copy of amended Rule 5(3), with amendment by this amendment rule in bold letters:

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SH – 11


Return in respect of buy-back of securities
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SH – 8


Letter of offer
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SH – 7


Notice to Registrar of any alteration of share capital
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RETURN IN RESPECT OF BUYBACK OF SECURITIES


The company is required to file a return of buyback as discussed earlier here. The Return shall be filed in Form SH – 11.

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REGISTER OF BOUGHT-BACK SECURITIES


The Register of shares and other securities bought back shall in Format given in
Form SH – 10. We have discussed rules related to Register of bought back securities earlier here.

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DECLARATION OF SOLVENCY FOR BUYBACK


Form SH – 9 is a declaration for solvency related to buyback of securities. We have discussed rules related to declaration of solvency earlier here. Here, we will discuss contents of the declaration.

Following information is required to be given in this form:

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FORMAT FOR LETTER OF OFFER FOR BUYBACK


Letter of offer for buyback is a E – form to be filed with the Registrar of Companies as discussed by this blog earlier here. Form SH – 8 is format for Letter of offer.

The company need to fill in this form following important information:

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LETTER OF OFFER FOR BUY-BACK OF SHARES OR OTHER SECURITIES


Buyback is an important provision related to Share Capital of a company. We discussed provisions related to buyback under the Companies Act 2013 earlier here. In last post, we have discussed approval of the company through Special Resolution for buyback.

Rule 17 of the Companies Act set out norms for buyback of securities by the private companies and unlisted public companies. Rule 17 shall read with Section 67 – 70 of the Companies Act 2013.

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RESOLUTION FOR BUY-BACK OF SHARES OR OTHER SECURITIES


Buyback is an important provision related to Share Capital of a company. We discussed provisions related to buyback under the Companies Act 2013 earlier here.

Rule 17 of the Companies Act set out norms for buyback of securities by the private companies and unlisted public companies. Rule 17 shall read with Section 67 – 70 of the Companies Act 2013.

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DEBENTURE TRUST DEED


 

In last post we discussed Debenture Trust. Now we will discuss format for debenture trust deed as given in Form SH -12.

The debenture trust deed shall, inter alia, contain the following:-

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DEBENTURE TRUST AND TRUSTEES


In last post here, we discussed some provisions relating to Debentures. Now, we will study other provisions related to Debenture Trust under the Companies (Share Capital and Debentures) Rules 2014.

Debenture Trustee:

The company shall appoint debenture trustees, after complying with the following conditions, namely:-

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DEBENTURES


A Company may raise a debt capital, which is not a nature of Deposits, by issue of debentures under Section 71 of the Companies Act 2013 as we discussed earlier here.

Debenture under the Companies Act 2013 is wide and inclusive terms and considered to Promissory Notes also. This is play of mind, imagination and requirement to design a debenture within boundaries of law.

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NOMINATION BY SECURITIES HOLDERS


We have discussed Section 72 of the Companies Act, 2013 dealing with power to nominate by a security holder earlier here.

Rule 7 of the Companies (Share Capital and Debentures) Rules 2014 makes detailed provision for this purpose.

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MONEY BY COMPANY FOR PURCHASE OF ITS OWN SHARES


According to Section 67 of the Companies Act, 2013, No public company shall give any financial assistance for the purpose of or in connection with a purchase or subscription made. This restriction on financial assistance shall not apply to the purchase of or subscription for the shares held by trustees for the benefit of the employees or such shares held by the employees of the company. The Provision has been discussed earlier here. The Rule 16 of the Companies (Share Capital and Debentures) Rules 2014 makes detailed provision for this purpose.

Conditions:

The company shall not make a provision of money for the purchase of, or subscription for, shares in the company or its holding company, for the purchase of, or the subscription for, the shares by trustees is for the shares to be held by or for the benefit of the employees of the company, unless it complies with the following conditions, namely:-

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NOTICE TO REGISTRAR FOR ALTERATION OF SHARE CAPITAL


According to Section 64 of the Companies Act, 2013 as discussed earlier here, Where—

(a)  a company alters its share capital in any manner specified in sub-section (1) of section 61;

(b) an order made by the Government under sub-section (4) read with sub-section (6) of section 62 has the effect of increasing authorised capital of a company; or

(c)  a company redeems any redeemable preference shares,

the company shall file a notice the prescribed form with the Registrar within a period of thirty days of such alteration or increase or redemption, as the case may be, along with an altered memorandum.

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ISSUE OF SHARES ON PREFERENTIAL BASIS


Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares may be offered to any persons, if it is authorised by a special resolution, either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed [Section 62(c) of the Companies Act, 2013]. These persons may include equity shareholders of the company referred to in clause (a) or employees of the company referred to clause (b). Section 62 of the Companies Act 2013 was discussed earlier here,

Rules 13 of the Companies (Share Capital and Debentures) Rules 2014 give us detailed procedure. Before discussing provisions in details, we may understand expression “Preferential Offer”.

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ISSUE OF EMPLOYEE STOCK OPTIONS


According to Section 62 of the Companies Act 2013 as discussed earlier here, where a company having share capital propose to increase its subscribed share capital by issue of further shares, such shares maybe offer to employees under a scheme of employees’ stock options to special resolution passed by company and subject to such conditions as may be prescribed.

A company, other than a listed company which is not required to comply with Securities and Exchange Board of India Employee Stock Option Scheme Guidelines shall not offer shares to its employees under a scheme of employees’ stock option (hereinafter referred to as “Employees Stock Option Scheme”), unless it complies with Rule 12 of the Companies (Share Capital and Debentures) Rules 2014.

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INSTRUMENT OF TRANSFER


A company shall register a transfer of securities or interest of members only when a proper instrument of transfer is delivered as per Section 56 of the Companies Act, 2013 as we have already discussed earlier here.

Rule 11 of the Companies (Share Capital and Debentures) Rules 2014 describe detail procedure.

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