Share Capital & Debenture – As per Companies Act, 2013

The chapter
on share capital and debentures introduces some key changes in the 2013 Act. To
illustrate, the 2013 Act does not give any cognizance to the existing
requirement of section 90 of the 1956 Act that provided some saving grace to
private companies. Therefore, the applicability of following sections of the
2013 Act is no longer restricted to public companies and private companies
which are subsidiaries of a public company and are now applicable to private
companies also.
               ·    Two kinds of shares capital
               ·    New issue of shares capital to be only of two
               ·    Voting rights 

Voting rights
provisions of 2013 Act regarding voting rights are similar to the existing
section 87 of the 1956 Act. The only change noted in the 2013 Act is the
removal of distinction provided by the 1956 Act with respect to the entitlement
to vote in case the company fails to pay dividend to its cumulative and
non-cumulative preference share holders [section 47 of 2013 Act]
The provisions regarding private placement and additional
disclosures in prospectus will also help to strengthen the capital markets.
The 2013 Act proposes to re-instate the existing concept of shares
with differential voting rights. Pursuant to this section the company may face
hardship with regards to computation of proportionate voting rights.
Variation of shareholder’s rights
Similar to
the other provisions of the 1956 Act, the 2013 Act acknowledges the
requirements of section 106 of the 1956 Act with an additional requirement in
respect of those classes of share holders whose rights are affected pursuant to
any variation. The proviso to section 48(1) of 2013 Act states that if the
variation by one class of shareholders affects the rights of any other class of
shareholders, the consent of three-fourths of such other class of shareholders
shall also be obtained and the provisions of this section shall apply to such
Application of premiums received on issue of shares
The 2013
Act lays down a similar requirement in section 52 as that of the section 78 of
the 1956 Act in respect of application of premiums received on issue of shares;
however, the section of 2013 Act has a non-obstante provision in respect of
certain class of companies which would be prescribed at a later date. The 2013
Act states that these classes of companies would not be able to apply the
securities premium towards the below specified purposes, unless the financial
statements are in compliance with the accounting standards issued under section
133 of 2013 Act:
                  ·               Paying up un-issued equity shares of the
company as fully paid bonus shares
·              Writing off the expenses of or the commission paid
or discount allowed on any issue              of equity    shares of the company
                  ·               Purchase of its own shares or other securities
 The 2013 Act restricts the application of securities premium for a
certain class of companies if they fail to comply with the accounting
standards. The 2013 Act continues to state that securities premium amount can
be utilised for purpose of writing off preliminary expenses. However, in view
of the requirements of accounting standard 26, intangible asset, the
requirement of this sub-section appears to be superfluous.
Prohibition on issue of shares at a discount
explanations I and II to the existing section 79A of the 1956 Act that
prescribe the provisions in respect of sweat equity have not been included in
the 2013 Act. Explanation I defined company for the purpose of this section and
explanation II defined sweat equity.
Issue and redemption of preference shares
The existing requirement of sections 80 and 80A of the 1956 Act
with respect to the issue and redemption of preference shares continues to be
acknowledged by the 2013 Act. The 2013 Act reiterates the existing requirement
that a company cannot issue preference shares with a redemption date of beyond
20 years. However, it gives an exemption for cases where preference shares have
been issued in respect of infrastructure projects. Infrastructure projects have
been defined in Schedule VI of the 2013 Act and these shares would be subject
to redemption at such percentage as prescribed on an annual basis at the option
of such preference shareholders.
Further, the 2013 Act adds another administrative requirement of
obtaining special resolution with respect to the preference shares which could
not be redeemed by a company. The 2013 Act states that where a company is not
in a position to redeem any preference shares or to pay dividend, if any, on
such shares in accordance with the terms of issue, it may, with the consent of
the holders of three-fourths in value of such preference shares and with the
approval of the Tribunal issue further redeemable preference shares equal to
the amount due, including the dividend thereon, with respect to the unredeemed
preference shares. On the issue of such further redeemable preference shares,
the unredeemed preference shares shall be deemed to have been redeemed.
The 2013 Act does not envisage any penalty in respect of
non-compliance with the provision of this section, as was prescribed in
sub-section (6) and (3) of section 80 and 80A of the 1956 Act respectively
[section 55 of 2013 Act].
6. Refusal of registration and appeal against registration
provision relating to refusal of registration of transfer or transmission of
securities by private and public companies has been separately clarified in the
2013 Act. The private and public companies are required to send notice of
refusal within 30 days of the receipt of instrument of transfer, and aggrieved
party may appeal to the Tribunal against the refusal within the specified
number of days [section 58(2) of 2013 Act].
Further issue of share capital
existing requirement of section 81 of the 1956 Act in regard to further issue
of capital would no longer be restricted to public companies and would be
applicable to private companies also, since sub-section 3 of section 81 of the
1956 Act has not been acknowledged in the 2013 Act.
the 2013 Act provides that a rights issue can also be made to the employees of
the company who are under a scheme of employees’ stock option, subject to a
special resolution and subject to conditions as prescribed. Further, the price
of such shares should be determined using the valuation report of a registered
valuer, which would be subject to conditions as prescribed [section 62 of 2013
Issue of bonus shares
existing 1956 Act does not have any specific provision dealing with issue of
bonus shares although it has referred to the concept of bonus shares at many
places. The 2013 Act includes a new section that provides for issue of fully
paid-up bonus shares out of its free reserves or the securities premium account
or the capital redemption reserve account, subject to the compliance with
certain conditions such as authorization by the articles, approval in the
general meeting and so on [section 63 of 2013 Act].
Unlimited company to provide for reserve share capital on conversion into
limited company
section corresponds to section 32 of the 1956 Act and seeks to provide that an
unlimited company having a share capital may be re-registered as a limited
company by increasing the nominal amount of each share, subject to the
condition that no part of the increased capital shall be capable of being
called up, except in the event and for the purposes of the company being wound
up. The 2013 Act further provides that a specified portion of its uncalled
share capital shall not be capable of being called up except in the event and
for the purposes of the company being wound up[section 65 of 2013 Act].
Reduction of share capital
The 2013
Act gives cognizance to one of the amendments made in the listing agreement by
SEBI. A new clause 24(i) was inserted to the listing agreement which provided
that a scheme of amalgamation or merger or reconstruction, should comply with
the requirements of section 211(3C) of the 1956 Act. A similar requirement has been
introduced in section 66 of 2013 Act, which states that no an application for
reduction of share capital shall be sanctioned by the Tribunal unless the
accounting treatment, proposed by the company for such a reduction is in
conformity with the accounting standards specified in section 133 or any other
provision of the 2013 Act and a certificate to that effect by the company’s
auditor has been filed with the Tribunal.
the 2013 Act clarifies that no such reduction shall be made if the company is
in arrears in repayment of any deposits accepted by it, either before or after
the commencement of the 2013 Act, or the interest payable thereon.
Power of the company to purchase its own securities
existing provision of section 77A of the 1956 Act has been acknowledged by the
2013 Act. The only difference is that the option available to company for a
buy-back from odd lots is no longer available [section 68].

The 2013 Act provides flexibility
in management and administration by recognizing the electronic mode for notices
and voting, which is in line with the MCA’s efforts to give cognizance to use of electronic media as
evident from a number of green initiatives’ introduced recently, maintenance of
registers and returns at a place other than the registered office.

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