Thursday, 1 May 2014


Every business run on finance and share capital is base finance, hence life blood of a company.
Where any communication or publication of a company contains a statement of the amount of the authorise capital of the company, it shall also contain a statement in an equally prominent position and in equally conspicuous characters of the amount of the capital which has been subscribed and the amount paid – up.
If any default is made in complying with this requirement the company shall be liable to pay a penalty of ten thousand rupees and every officer of the company who is in default shall be liable to pay a penalty of five thousand rupees, for each default.
A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to—
(a) increase its authorised share capital by such amount as it thinks expedient; or
(b) consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares. No consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal.
(c) convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination;
(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;
(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.
Cancellation of these shares shall not be deemed to be a reduction of share capital.
Where a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered –
(a) to person who at the date of the offer are holders of equity shares of the company in proportion to the paid – up shares capital on those shares, by sending a letter of offer subject to following conditions, namely:-
  1. the offer shall be made by notice specifying the number of shares offered and limiting a time not less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted shall be deemed to have been declined;
  2. unless the article of the company otherwise provide, the offer shall be deemed to including a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person and the notice shall contain a statement of this right;
  3. after the expiry of the time specified in the notice or receipt of earlier intimation from the person to whom the notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis – advantageous to the shareholders and the company;
(b) to employees under a scheme of employees’ stock option to special resolution passed by company and subject to such conditions as may be prescribed; or
(c) to any person, 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.
The notice of letter of offer shall be despatched through registered post or speed post or electronic mode to all the existing shareholders at least three days before opening of the issue.
These conditions shall not apply to the increase of the subscribed capital of a company caused by the exercise of an option as a term attached to the debentures issued or loan raised by the company to convert such debentures or loan into share in the company. The terms of issue of such debentures or loan containing such an option to convert have been approved before the issue of such debentures or raising of loan by a special resolution passed by the company in general meeting.
Where any debentures have been issued, or loan has been obtained from any Government by a company, and if that Government considers it necessary in the public interest so to do, it may, by order, direct that such debentures or loans or any part thereof shall be converted into shares in the company on such terms and conditions as appear to the Government to be reasonable in the circumstances of the case even if terms of the issue of such debentures or the raising of such loans do not include a term for providing for an option for such conversion.
In determining the terms and conditions of conversion, the Government shall have due regard to the financial position of the company, the terms of issue of debentures or loans, as the case may be, the rate of interest payable on such debentures or loans and such other matters as it may consider necessary.
Where the terms and conditions of such conversion are not acceptable to the company, it may, within sixty days from the date of communication of such order, appeal to the Tribunal which shall after hearing the company and the Government pass such order as it deems fit.
Where the Government has, directed that any debentures or loan or any part thereof shall be converted into shares in a company and where no appeal has been preferred to the Tribunal or where such appeal has been dismissed, the memorandum of such company shall, where such order has the effect of increasing the authorised share capital of the company, stand altered and the authorised share capital of such company shall stand increased by an amount equal to the amount of the value of shares which such debentures or loans or part thereof has been converted into.
A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account.
No issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares under sub-section (1), unless—
(a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
(d) it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
(e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up; and
(f) it complies with such conditions as may be prescribed.
The bonus shares shall not be issued in lieu of dividend.
(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.
If a company and any officer of the company who is in default contravene the provisions of sub-section (1), it or he shall be punishable with fine which may extend to one thousand rupees for each day during which such default continues, or five lakh rupees, whichever is less.
An unlimited company having a share capital may, by a resolution for registration as a limited company under this Act, do either or both of the following things, namely—
(a) increase the nominal amount of its share capital by increasing the nominal amount of each of its shares, 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; and/or
(b) provide 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.

We will discuss reduction of share capital in next post.

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