THE COMPANIES (AMENDMENT) BILL, 2003

BILL

further to amend the Companies Act, 1956.

Be it enacted by Parliament in the Fifty-fourth Year of the Republic of India as
follows:—

1. (1) This Act may be called the Companies (Amendment) Act, 2003.

(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:

Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the commencement of that provision.

2. In section 2 of the Companies Act, 1956 (hereinafter referred to as the principal Act),—

(a) for clause (1A), the following clauses shall be inserted, namely:—

‘(1A) “accounting standards” means the standards of accounting, recommended by the Institute of Chartered Accountants of India, constituted under the Chartered Accountants Act, 1949, and which may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards constituted under sub-section (1) of section 210A;

(1AA) “alter” and “alteration” shall include the making of additions and omissions;’;

(b) for clause (8), the following clause shall be substituted, namely:—

‘(8) “book and paper” and “book or paper” include accounts, deeds, vouchers, writings and documents, maintained on paper or computer network, floppy, diskette, magnetic cartridge tape, CD-rom or any other computer readable media;’;

‘(9A) “chartered accountant” means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 and who has obtained a certificate of practice under sub-section (1) of section 6 of that Act;

(9B) “chief accounts officer” means the chief accounts officer, of a company appointed under section 215A, by whatever name called;’;

(d) after clause (10A), the following clause shall be inserted, namely:—

‘(10B) “cost accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who has obtained a certificate of practice under sub-section (1) of section 6 of that Act;’;

(e) clause (14) shall be omitted;

(f) for clause (15), the following clause shall be substituted, namely:—

‘(15) “document” includes summons, notice, requisition, order, other legal process, and registers, whether issued, sent or kept in pursuance of this Act or any other law for the time being in force, whether maintained in any medium capable of being retrieved by any electronic means or in any other manner;’;

(g) for clause (19AA), the following clauses shall be substituted, namely:—

‘(19AA) “independent director” means a director referred to in section 252A;’

(19AAA) “industrial company” means a company which owns one or more industrial undertakings;

(h) for clause (19AB), the following clause shall be substituted, namely:—

‘(19AB) “industrial undertaking” means any undertaking, pertaining to any of the industries specified for the time being in the First Schedule to the Industries (Development and Regulation) Act, 1951, carried on in one or more factories by any company; and includes ancillary industrial undertaking as defined in clause (aa) of section 3 of that Act but does not include a small-scale industrial undertaking as defined in clause (j) of that section;’.

(i) for clause (22), the following clause shall be substituted, namely:—

‘(22) “issued generally”, in relation to a prospectus or an abridged prospectus, or any other like document, means issued to persons irrespective of their being existing members or debenture-holders of the body corporate to which the prospectus or abridged prospectus or such other like document relates;’;

(j) clause (27) shall be omitted;

(k) in clause (30), for the words “or secretary”, the words “secretary or chief accounts officer” shall be substituted;

(l) for clause (33), the following clause shall be substituted, namely:—

‘(33) “prescribed” means prescribed by rules made under this Act;’;

(m) for clause (36), the following clause shall be substituted, namely:—

‘(36) “prospectus” means any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate, but does not include an information memorandum or like document issued prior to the issue of a prospectus;’;

(n) after clause (39), the following clause shall be inserted, namely:—

‘(39A) “register” means the register of members of a company and includes the register of debenture-holders or holders of other securities maintained on paper or computer network, floppy, diskette, magnetic cartridge tape, CD-rom or any other computer readable media;’.

3. In section 3 of the principal Act, after sub-section (5), the following proviso shall be inserted, namely:—

Provided that in case the private company or a public company,—

(i) fails to enhance its paid up capital in accordance with the provisions of this section; or

(ii) is not carrying on business or in operation referred to in section 560, the liability of every director or manager or shareholder of such company shall beocme unlimited.

4. In section 4 of the principal Act,—

(a) in sub-section (1),—

(i) for clause (b), the following clause shall be substituted, namely:—

“(b) that the other exercises or controls more than one-half of its total voting power in a case where it has issued securities and such securities have the same voting rights as equity shares;or”;

(ii) for clause (c) and Illustration, the following clause shall be substituted, namely:—

“(c) that the other holds more than one-half in value of its paid-up capital, in any other case.”;

(b) after sub-section (1), the following sub-section shall be inserted, namely:—

“(1A) No company which is a subsidiary of another company shall, after the commencement of the Companies (Amendment)Act, 2003, become a holding company.”;

(c) in sub-section (7), for the words “the entire share capital”, the words “not less than ninety-nine per cent. of the share capital” shall be substituted.

5. In section 5 of the principal Act, after clause (b), the following clauses shall be inserted, namely:—

“(ba) any other director in respect of contravention of any of the provisions of this Act which had been committed with his consent or connivance or is attributable to any neglect on his part;

(bb) the chief accounts officer;

(bc) every employee, who is in receipt of remuneration more than the remuneration drawn by the managing director or any whole-time director in the company in which such an employee is employed and who himself or along with his spouse and dependent children holds not less than two per cent. of the equity share capital of the company;

(bd) the share transfer agents, bankers, registrars to the issue, merchant bankers, in respect of the issue or transfer of any securities of the company;

(be) debenture trustee;”.

6. In section 10 of the principal Act, in sub-section (2), clause (b) shall be omitted.

7. In section 11 of the principal Act,—

(a) in sub-section (1), for the words “some other Indian law”, the words “any other law for the time being in force” shall be substituted;

(b) in sub-section 2,—

(i) for the words “some other Indian Law”, the words “any other law for the time being in force” shall be substituted;

(ii) the following proviso shall be inserted, namely:—

“Provided that in the case of an association of persons or partnership formed for the purpose of carrying on the profession of advocates, chartered accountants, cost accountants, company secretaries, doctors, architects or such other profession, as may be specified, by notification in the Official Gazette in this behalf by the Central Government, this sub-section shall have effect as if for the words “twenty persons”, the words “fifty persons” had been substituted.”;

8. For section 13 of the principal Act, the following section shall be substituted, namely:—

“13. (1) The memorandum of every company formed after the companies (Amendment) Act, 2003 shall state—

(a) the name of the company with “Limited” as the last word of the name in the case of a public limited company, and with “Private Limited” as the last words of the name in the case of a private limited company;

(b) the State in which the registered office of the company is to be situate;

(ii) other objects of the company not included in sub-clause (i);

(d) that the liability of the members is limited by shares or by guarantee and, if so, it shall state that the liability of its members is limited;

(e) the share capital of the company;

(f) the name of each subscriber, his address, description and occupation, if any, who shall sign in the presence of at least one witness who shall attest the signature and likewise add his address, description and occupation, if any.

(2) The memorandum of a company limited by guarantee shall also state that each member undertakes to contribute to the assets of the company in the event of its being wound up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company, or of such debts and liabilities of the company as may have been contracted before he ceases to be a member, as the case may be, and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.

(3) In the case of a company having a share capital—

(a) unless the company is an unlimited company, the memorandum shall state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount;

(b) no subscriber of the memorandum shall take less than one share; and

(4) There shall be affixed two clear copies of recent photographs of all subscribers to the memorandum and the witness and each such photograph shall be signed by the subscriber and the witnesses alongwith proof of the identity of the subscribers”.

(5) The memorandum shall—

(a) be printed electronically or otherwise as may be prescribed;

(b) be divided into paragraphs numbered consecutively.

9. Sections 15, 15A and 15B of the principal Act shall be omitted.

10. In section 22 of the principal Act, in sub-section (1), for the proviso, the following provisos shall be substituted, namely:—

“Provided that the Central Government may, on the ground of the security of the State or public interest, direct any company, within twelve months of its first registration or at any time thereafter, to change its name and such company shall forthwith change its name:

Provided further that no application under clause (ii) made by a registered proprietor of a trademark after five years of coming to notice of registration of the company shall be considered by the Central Government.”.

11. In section 25 of the principal Act,—

(a) in sub-section (1), in clause (a), for the words “useful object, and”, the words “useful object, not confined to one state, and” shall be substituted;

(b) for sub-section (6), the following sub-section shall be substituted, namely:—

“(6) The Central Government may, by general or special order and to the extent specified in such order, exempt a body to which a licence is granted under this section, from such of the provisions of this Act as may be specified therein.”.

12. For section 30 of the principal Act, the following section shall be substituted,
namely:—

“30. (1) Articles shall—

(a) be printed, either electronically or in such manner, as may be prescribed;

(b) be divided into paragraphs numbered consecutively;

(c) state the name of each subscriber, his address, description and occupation, if any, who shall sign in the presence of at least one witness who shall attest the signature and shall likewise add his address, description and occupation, if any.

(2) There shall be affixed two clear copies of recent photographs of all the subscribers of the memorandum and the witness and each such photograph shall be signed by the subscriber and the witnesses alongwith proof of the identity of the subscribers.”.

13. In section 32 of the principal Act,—

(a) in sub-section (1), in clause (b), after the words “under this Act”, the words “as an unlimited company” shall be inserted;

(b) in sub-section (3), for the words “limited company”, the words “limited company or registration of a limited company as an unlimited company” shall be substituted.

14. In section 39 of the principal Act,—

(a) in sub-section (1), for the words “a fee of one rupee”, the words “such fee as may be prescribed” shall be substituted;

(b) in sub-section (2), for the words “five hundred rupees”, the words “one thousand rupees” shall be substituted.

15. In section 40 of the principal Act, in sub-section (2), for the words “one hundred rupees”, the words “one thousand rupees” shall be substituted.

16. In section 42 of the principal Act,—

(a) in sub-section (3), the words “either at the commencement of this Act or” shall be omitted;

(b) after sub-section (3), the following sub-section shall be inserted, namely:—

“(3A) Where a subsidiary company continues to be a member of a holding company under sub-section (3), nothing in this section shall prejudice its rights to be allotted bonus shares of such holding company.”.

17. In section 51 of the principal Act,—

(a) for the words “leaving it at its registered office”, the words “leaving it at its registered office or by means of electronic mode or by such other means as may be prescribed” shall be substituted;

(b) in the proviso, for the words “floppies or discs”, the words “floppies or discs or by such other means as may be prescribed” shall be substituted.

18. In section 52 of the principal Act, for the words “ for, him at his office”, the words “for, him at his office or by such other means as may be prescribed” shall be substituted.

19. For section 53 of the principal Act, the following section shall be substituted, namely:—

“53. (1) A document may be served by a company on any member or a holder of any other security thereof either personally, or by sending it in the manner provided in section 51 to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him or by advertising it in a newspaper circulating in the neighbourhood of the registered office of the company.

(2) Where a document is sent by post,—

(a) service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document:

Provided that where a member or a holder of any other security has intimated to the company in advance that documents should be sent to him under a certificate of posting or by registered post with or without acknowledgment due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the documents shall not be deemed to be effected unless it is sent in the manner intimated by the member; and

(b) such service shall be deemed to have been effected—

(i) in the case of a notice of a meeting, at the expiration of forty-eight hours after the letter containing the same is posted; and

(ii) in any other case, at the time at which the letter would be delivered in the ordinary course of post.

(3) A document advertised under sub-section (1) shall be deemed to be duly served on the day, on which the advertisement appears, on every member or a holder of any security of the company who has no registered address in India and has not supplied to the company an address within India for giving of notices to him.

(4) A document may be served by the company on the joint-holders of a security by serving it on the joint-holder named first in the register in respect of the security.

(5) A document may be served by the company on the person or persons entitled to a security in consequence of the death or insolvency of a member by sending it through the post in a pre-paid letter addressed to him or them by name, or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied, by serving the document in any manner in which it might have been served if the death or insolvency had not occurred.”.

20. In section 56 of the principal Act,—

(a) in sub-section (2), for the words “shares in or debentures of”, the words “securities of” shall be substituted;

(b) after sub-section (2), the following sub-section shall be inserted, namely:—

“(2A) Where any prospectus is published as a newspaper advertisement, or in any other manner, it shall be in the form of an abridged prospectus.”;

(i) for the words “for shares in or debentures of”, the words “for securities of” shall be substituted;

(ii) for the words “shares or debentures”, the word “securities” shall be substituted;

(d) for sub-section (5), the following shall be substituted, namely:—

“(5) This section shall not apply—

(a) to the issue to the existing members or the holders of securities of a company of a prospectus, letter of offer or form of application relating to securities of the company, whether an applicant for securities will or will not have the right to renounce the securities in favour of other persons; or

(b) to the issue of a prospectus or form of application relating to securities which are, or are to be, in all respects uniform with securities previously issued and for the time being dealt in or quoted on a recognised stock exchange,

but, subject as aforesaid, this section shall apply to a prospectus or a form of application, whether issued on or with reference to the formation of a company or subsequently.”.

21. In sections 57 and 58 of the principal Act, for the words “shares in or debentures of”, the words “securities of” shall respectively be substituted.

22. For section 60 of the principal Act, the following section shall be substituted, namely:—

“60. (1) No prospectus shall be issued by or on behalf of a company or in relation to an intended company unless, on or before the date of its publication, there has been delivered to the Registrar for registration, a copy thereof signed by every person who is named therein as a director or proposed director of the company or by his agent authorised in writing, and having endorsed thereon or attached thereto—

(a) any consent to the issue of prospectus and statement of an expert required under section 58; and

(b) in the case of a prospectus issued generally, also—

(i) a copy of every contract required by Schedule II to be specified in the prospectus, or, in the case of a contract not reduced into writing, a memorandum giving full particulars thereof; and

(ii) where the persons making any report required by Part II of that Schedule have made therein, or have, without giving the reasons indicated therein, any such adjustments as are mentioned in that Schedule, a written statement signed by those persons setting out the adjustments and giving the reasons therefor;

(iii) and such other documents as may be prescribed:

Provided that where a company issues any foreign or Indian Depository Receipt, circular, information memorandum or prospectus containing—

(A) price of the depository receipt issued or proposed to be issued;

(B) amount subscribed or expected to be subscribed;

(D) other information and particulars of such Indian Depository Receipt, circular, information memorandum or prospectus,

such circular, information memorandum or prospectus shall also be filed along with the prospectus by the company or foreign company proposing to issue the Indian Depository Receipt:

Provided further that the information memorandum or the prospectus issued for subscription by Indian Depository Receipt, shall be governed by the law of the country in which the registered office of the company is situated.

(2) Every prospectus to which sub-section (1) applies shall, on the face of it,—

(a) state that a copy has been delivered for registration as required by this section; and

(b) specify any documents required by this section to be endorsed on or attached to the copy so delivered, or refer to statements included in the prospectus which specify those documents.

(3) The Registrar shall not register a prospectus unless the requirements of sections 55, 56, 57 and 58 and sub-sections (1) and (2) of this section have been complied with and the prospectus is accompanied by the consent in writing of the person, if any, named therein as the auditor, legal adviser, attorney, solicitor, banker or broker of the company or intended company, to act in that capacity.

(4) A copy of every prospectus which has been filed for registration with the Registrar shall simultaneously be filed with the Securities and Exchange Board of India.

(5) No prospectus shall be issued more than ninety days after the date on which a copy thereof is delivered for registration; and if a prospectus is so issued, it shall be deemed to be a prospectus, a copy of which has not been delivered under this section to the Securities and Exchange Board of India or the Registrar.

(6) If a prospectus is issued without a copy thereof being delivered under this section to the Securities and Exchange Board of India or the Registrar or without the copy so delivered having endorsed thereon or attached thereto the required consent or documents, the company, and every person who is knowingly a party to the issue of the prospectus, shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees.”.

23. For section 61 of the principal Act, the following section shall be substituted, namely:—

“61. A company shall not, at any time, vary the terms of a contract referred to in the prospectus except subject to the approval of, or except on authority given by the company in general meeting.”.

24. In section 62 of the principal Act,—

(a) in sub-section (1), for the words “shares in or debentures of”, the words “securities of” shall be substituted;

(b) for the words “shares or debentures”, wherever they occur, the word “securities” shall be substituted.

25. In section 63 of the principal Act, in sub-section (1), for the words “two years, or with fine which may extend to fifty thousand rupees or with both”, the words “two years, and with fine which may extend to one lakh rupees” shall be substituted.

26. In section 64 of the principal Act,—

(a) in sub-section (1),—

(i) for the words “any shares in or debentures of”, the words “any securities of” shall be substituted;

(ii) for the words “shares or debentures”, wherever they occur, the word “securities” shall be substituted;

(b) in sub-sections (2) and (3), for the words “shares or debentures” wherever they occur, the word “securities” shall be substituted.

27. For section 67 of the principal Act, the following section shall be substituted, namely:—

“67. (1) Any reference in this Act or in the articles of a company to offering securities to the public or to invitations to the public to subscribe for securities shall, subject to any provision to the contrary contained in this Act and subject also to the provisions of sub-sections (3) and (5), be construed as including a reference to offering them or to invitations to subscribe for them to any section of the public, whether selected as members or holders of the securities of the company concerned or as clients of the person issuing the prospectus or in any other manner.

(2) Any reference in this Act or in the articles of a company to invitations to the public to subscribe for securities shall, subject as aforesaid, be construed as including a reference to invitations to subscribe for them extended to any section of the public, whether selected as members or holders of the securities of the company concerned or as clients of the person issuing the prospectus or in any other manner.

(3) No offer or invitation shall be treated as made to the public by virtue of sub-section (1) or sub-section (2), as the case may be, if the offer or invitation can properly be regarded, in all the circumstances—

(a) as not being calculated to result, directly or indirectly, in the securities becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or

(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation:

Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for securities is made to fifty persons or more:

Provided further that nothing contained in the first proviso shall apply to the non-banking financial companies or public financial institutions specified in section 4A.

(4) Notwithstanding anything contained in sub-section (3), the Securities and Exchange Board of India shall, in consultation with the Reserve Bank of India, specify, by notification in the Official Gazette, the guidelines in respect of offer or invitation made to the public by a public financial institution specified under section 4A or non-banking financial company referred to in clause (f) of section 45-I of the Reserve Bank of India, 1934.

(5) Without prejudice to the generality of sub-section (3), a provision
in a company’s articles prohibiting invitations to the public to subscribe for
securities shall not be taken as prohibiting the making to members or debenture-holders of an invitation which can properly be regarded in the manner set-forth in that sub-section.

(6) Where any question arises as to the offer of any securities by a company, including the right to restrain any offer or issue it shall be decided by the company.

(7) The provisions of this Act relating to private companies shall be construed in accordance with the provisions of this section.”.

28. For section 68 of the principal Act, the following section shall be substituted, namely:—

“68. (1) Any person who either by knowingly or recklessly making any statement, promise or forecast which is false, deceptive or misleading or by any dishonest concealment of material facts, induces or attempts to induce another person to enter into, or to offer to enter into,—

(a) any agreement for or with a view to acquiring, disposing of, subscribing for, or underwriting securities; or

(b) any agreement the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities, or by reference to fluctuations in the value of securities,

shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to five years, and also with fine which may extend to one lakh rupees.

(2) Without prejudice to the provisions contained in sub-section (1) or any other law for the time being in force, the person referred to in that sub-section who makes any statement, a promise or forecast which is false, deceptive or misleading or makes dishonest concealment referred to in that sub-section may, on an order made by the Tribunal or on an application made by the Central Government, be liable to a penalty which shall not be less than twice the amount raised on account of such statement, promise forecast or inducement made to persons under sub-section (1) and such penalty may be recovered from such person and his liability for this purpose shall be unlimited.

(3) The Tribunal shall refund the money to the person or persons who entered into an agreement under sub-section (1) out of the amount of penalty so recovered under sub-section (2).”.

29. For section 68A of the principal Act, the following section shall be substituted, namely:—

“68A. (1) Any person who—

(a) makes, in a fictitious name or description, an application to a company for acquiring, or subscribing for, any securities therein; or

(b) makes multiple applications to a company in different names or in different combinations of his name or his surname for acquiring or subscribing for, any securities of such company; or

(c) otherwise induces a company to allot, or register any transfer of securities therein to him or any other person in a fictitious name or description,

shall be punishable with imprisonment for a term which shall not be less than six months but which may extend up to five years and also with fine which may extend to fifty thousand rupees.

(2) The provisions of sub-section (1) shall be prominently reproduced in every prospectus issued by the company and in every form of application for securities, which is issued by the company to any person.”.

30. For section 69 of the principal Act, the following section shall be substituted, namely:—

‘69. (1) No allotment shall be made of any securities of a company offered to the public for subscription, unless the amount stated in the prospectus as the minimum amount which, in the opinion of the Board of directors, has been subscribed, and the sum payable on an application for the amount so stated has been paid to, and received by, the company, whether in cash or by cheque, or other instrument which has been paid by the applicant.

(2) In the event of any contravention of sub-section (1), every promoter, director or other person who is knowingly responsible for such contravention, shall be punishable with imprisonment for a term, which may extend to two years and shall also be liable to fine which may extend to ten thousand rupees.

(3) The amount so stated in the prospectus shall be reckoned exclusively of any amount payable otherwise than in money, and is in this Act referred to as “the minimum subscription”.

(4) The amount payable on an application on each security shall not be less than twenty-five per cent. of the nominal amount of the security.

(5) All moneys received from applicants for securities shall be deposited and shall continue to be kept deposited in a separate account in a scheduled bank until the entire amount payable on applications for securities in respect of the minimum subscription has been received by the company, and where such amount has not been received by the company within the period specified for repayment of amount without interest under sub-section (7), all moneys received from applicants for shares shall be returned in accordance with the provisions of that sub-section.

(6) In the event of any contravention of the provisions of sub-section (5), the company and every promoter and officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees and if, any such money is not so repaid within six months from the expiry of the eighth day also with imprisonment for a term which may extend to two years.

(7) If the minimum subscription is not received on the expiry of such period as may be prescribed after the first issue of the prospectus, all moneys received from applicants for securities shall forthwith be repaid to them without interest; and if any such money is not so repaid within eight days thereafter, the company, every promoter and every officer of the company who is in default shall be jointly and severally liable to repay that money with interest at such rate as may be prescribed which shall not be lower than the prevailing bank rate, being the standard rate made public under section 49 of the Reserve Bank of India Act, 1934.

(8) Any condition purporting to require or bind any applicant for securities to waive compliance with any requirement of this section shall be void.

(9) Nothing in this section shall apply to a public financial institution.’.

31. In section 70 of the principal Act, after sub-section (7), the following sub-section shall be inserted, namely:—

“(8) Nothing contained in this section shall apply on or after the commencement of the Companies (Amendment) Act, 2003.”.

32. For section 71 of the principal Act, the following section shall be substituted, namely:—

“71. (1) An allotment made by a company to an applicant, in contravention of the provisions of section 69, shall be voidable at the instance of the applicant, within two months from the date of such allotment.

(2) The allotment shall be voidable as aforesaid, notwithstanding that the company is in the course of being wound up.

(3) If any director of a company knowingly contravenes, or wilfully authorises or permits the contravention of, any of the provisions of section 69 with respect to allotment, he shall, without prejudice to his being liable for fine under that section, be liable to compensate the company and the allottee respectively for any loss, damages or costs which the company or the allottee may have sustained or incurred thereby:

Provided that proceedings to recover any such loss, damages or costs shall not be commenced after the expiration of two years from the date of the allotment.”.

33. For section 72 of the principal Act, the following section shall be substituted, namely :—

“72. (1) (a) No allotment shall be made of any securities of a company in pursuance of a prospectus issued generally, and no proceedings shall be taken on applications made in pursuance of a prospectus so issued, until the beginning of the fifth day after the date on which the prospectus is first so issued or such later time, if any, as may be specified in the prospectus:

Provided that where, after a prospectus is first issued generally, a public notice is given by some person responsible under section 56 for the prospectus which has the effect of excluding, limiting or diminishing his responsibility, no allotment shall be made until the beginning of the fifth day after the date on which such public notice is first given.

(b) Nothing in the foregoing proviso shall be deemed to exclude, limit or diminish any liability that might be incurred in the case referred to therein under the general law or this Act.

(c) The beginning of the fifth day or such later time as is mentioned in the first paragraph of clause (a), or the beginning of the fifth day mentioned in the proviso to that clause, as the case may be, is hereinafter in this Act referred to as “ the time of the opening of the subscription lists”.

(2) In sub-section (1), the reference to the day on which the prospectus is first issued generally, shall be construed as referring to the day on which it is first so issued as a newspaper advertisement or in any other manner in accordance with the provisions of sub-section (3) of section 56.

(3) The validity of an allotment shall not be affected by any contravention of the foregoing provisions of this section, but, in the event of any such contravention, the company and every officer of the company, who is in default, shall be punishable with fine which may extend to fifty thousand rupees.

(4) In the application of this section to a prospectus offering securities for sale, sub-sections (1) to (3) shall have effect with the substitution of references to sale for references to allotment, and with the substitution for the reference to the company and every officer of the company who is in default of a reference to any person by or through whom the offer is made and who is knowingly guilty of, or wilfully authorises or permits, the contravention.

(5) An application for the securities of a company, which is made in pursuance of a prospectus issued generally shall be revocable—

(a) within five days of making an application but not later the that date of closure of the public issue; or

(b) within five days of issue of public notice having the effect under section 62 of excluding, limiting or diminishing the responsibility of the person responsible for its issue.

(6) Notwithstanding anything contained in sub-section (5), the promoters as defined in clause (a) of sub-section (6) of section 62 or directors or relatives or associates of such promoters or directors as mentioned in the prospectus, if they have applied in pursuance of the prospectus, shall not be entitled to revoke such applications.”.

34. For section 73 of the principal Act, the following section shall be substituted, namely:—

“73. (1) Every company, intending to offer securities to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchanges for permission for such securities to be dealt with in on the stock exchange or each such stock exchange.

(2) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the securities offered thereby to be dealt in one or more recognised stock exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void, if the permission has not been granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists:

Provided that where an appeal against the decision of any recognised stock exchange refusing permission for the securities to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regulation) Act, 1956, such allotment shall not be void until the dismissal of the appeal.

(3) Where the permission has been granted by a recognised stock exchange for dealing in any securities, the company shall make the allotment of securities within such period as may be prescribed by the Securities and Exchange Board of India.

(4) Where permission has not been applied for under sub-section (1) or, such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than six per cent. and not more than twenty per cent. as may be prescribed, having regard to the length of the period of delay in making the repayment of such money.

(5) Where permission has been granted by a recognised stock exchange or stock exchanges for dealing in any securities in such stock exchange or each such stock exchange and the moneys received from applicants for securities are in excess of the aggregate of the application moneys relating to the securities in respect of which allotments have been made, the company shall repay the moneys to the extent of such excess forthwith without interest, and if such money is not repaid within eight days from the day the company becomes liable to pay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than six per cent. and not more than twenty per cent. as may be prescribed, having regard to the length of the period of delay in making the repayment of such money.

(6) All moneys received as aforesaid shall be kept in a separate bank account maintained with a scheduled bank only until the permission has been granted, or where an appeal has been preferred against the refusal to grant such permission, until the disposal of the appeal, and the money standing in such separate account shall, where the permission has not been applied for as aforesaid, or has not been granted, be repaid within the time and in the manner specified in sub-section (4).

(7) If default is made in complying with the provisions of sub-section (5), the company and every officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees, and where repayment is not made within six months from the expiry of the eighth day, also with imprisonment for a term which may extend to two years.

(8) If default is made in complying with sub-section (6), the company and every officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees and where repayment is not made within six months from the expiry of the eighth day, also with imprisonment for a term which may extend to two years.

(9) Moneys standing to the credit of the separate bank account referred to in sub-section (6) shall not be utilised for any purpose other than the following purposes, namely:—

(a) adjustment against allotment of securities, where the securities have been permitted to be dealt in on the stock exchange specified in the prospectus; or

(b) repayment of moneys received from applicants in pursuance of the prospectus, where securities have not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allotment of securities:

Provided that the money standing to the credit of the separate bank account shall not be utilised for any of the purposes specified in clause (a) or clause (b) unless a charge is created on the assets of the company in favour of the debenture holder in case such company has issued debenture.

(10) Any condition purporting to require or bind any applicant for securities to waive compliance with any of the requirements of this section shall be void.

(11) For the purposes of this section, it shall be deemed that permission has not been granted if the application for permission, where made, has not been disposed of within the time specified in sub-section (2).

(12) If default is made in complying with the proviso to sub-section (9),
every officer of the company who is in default shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to five
years and also with fine which shall not be less than that amount raised by the
issue of the debentures but which may extend to three times the amount raised by the debentures.

(13) This section shall have effect—

(a) in relation to any securities agreed to be taken by a person underwriting an offer thereof by a prospectus, as if he had applied therefor in pursuance of the prospectus; and

(b) in relation to a prospectus offering securities for sale, with the following modifications, namely:—

(i) references to sale shall be substituted for references to allotment;

(ii) the persons by whom the offer is made, and not the company, shall be liable under sub-section (4) to repay money received from applicants, and references to the company’s liability under that sub-section shall be construed accordingly; and

(iii) for the reference in sub-section (7) to the company and every officer of the company who is in default, there shall be substituted a reference to any person by or through whom the offer is made and who is knowingly guilty of, or willfully authorises or permits, the default.

(14) No prospectus shall state that application has been made for permission for the securities offered thereby to be dealt in on any stock exchange, unless it is a recognised stock exchange.”.

35. In section 75 of the principal Act,—

(a) in sub-section (1),—

(i) in the opening portion, for the words “its shares”, the words “its securities” shall be substituted;

(ii) in clause (a),—

(a) for the words “shares comprised”, the words “securities comprised” shall be substituted;

(b) for the words “each share”, the words “each security” shall be substituted;

(iii) in clause (b),—

(A) for the words “in the case of shares”, the words, “in the case of securities” shall be substituted;

(B) for the words “amount of shares so allotted”, the words “amount of securities so allotted” shall be substituted;

(iv) in clause (c),—

(A) in sub-clause (i), for the words “shares comprised”, the words “securities comprised” shall be substituted;

(B) for sub-clause (ii), the following sub-clause shall be substituted, namely:—

“(ii) in the case of issue of securities at a discount, a copy of the resolution passed by the company authorising such issue together with a copy of the order of the Tribunal sanctioning the issue.”;

(b) for sub-section (5), the following sub-section shall be substituted, namely:—

“(5) Nothing in this section shall apply to the issue and allotment by a company of securities which under the provisions of its articles were forfeited or cancelled for non-payment of calls.”.

36. For section 76 of the principal Act, the following section shall be substituted, namely:—

“76. (1) A company may pay a commission which shall not exceed such percentage as may be prescribed, to any person in consideration of—

(a) his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any securities of the company; or

(b) his procuring or agreeing to procure subscriptions, whether absolute or conditional, for any securities of the company.

(2) Save as aforesaid and save as provided in section 79, no company shall allot any of its securities or apply any of its moneys, either directly or indirectly, in payment of any commission, discount or allowance, to any person in consideration of commission specified in sub-section (1).

(3) Nothing in this section shall affect the power of any company to pay such brokerage as it had so far been lawful for a company to pay.

(4) A vendor to, promoter of, or other person who receives payment in securities, or money from, a company shall have and shall be deemed always to have had power to apply any part of the securities, or money so received in payment of any commission the payment of which, if made directly by the company, would have been legal under this section.

(5) For the removal of doubts, it is hereby declared that no commission shall be paid under sub-section (1) to any person on securities which are not offered to the public for subscription:

Provided that where a person has subscribed or agreed to subscribe under sub-section (1) for any securities of the company and before the issue of the prospectus, any other person or persons has or have subscribed for any or all of those securities and that fact together with the aggregate amount of commission payable under this section in respect of such subscription is disclosed in such prospectus, then, the company may pay commission to the first-mentioned person in respect of such subscription.

(6) If default is made in complying with the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.”.

37. In section 77 of the principal Act,—

(a) in sub-section (1), the for the words “shall have power to buy its own shares” the words “shall have power to buy directly or indirectly its own shares” shall be substituted;

(b) after sub-section (1), the following sub-section shall be inserted, namely:—

“(1A) A company (hereafter referred to as purchasing company) shall be deemed to have purchased its own shares if—

(a) the purchasing company makes payment to a stock broker or sub-broker referred to in section 12 of the Securities and Exchange Board of India Act, 1992 for purchase of securities of another company; and

(b) such stock broker or sub-broker purchases the securities of the purchasing company,—

(i) out of the payments so received by such stock broker or sub-broker from the purchasing company; or

(ii) at any time during the period when such payments were received by the broker or sub-broker from the purchasing company and such payments were not returned to the purchasing company and no separate account of funds of the purchasing company so received was kept by such broker or sub-broker.”.

(d) for sub-section (4), the following sub-section shall be substituted, namely:—

“(4) If a company acts in contravention of sub-section (1) or sub-section (2) or sub-section (3), the company, and every officer of the company who is in default, shall be punishable with fine which shall be three times the aggregate price of its securities purchased by the company or face value of its securities, whichever is higher, and every such officer in default shall also be punishable with imprisonment for a term not less than three months, which may extend to two years.”.

38. In section 78 of the principal Act, in sub-section (2), after clause (d), the following clause shall be inserted, namely:—

“(e) for buy back of securities under section 77.”.

39. For section 79 of the principal Act, the following section shall be substituted, namely:—

“79. (1) A company shall not issue securities at a discount except as provided in this section.

(2) A company may issue at a discount securities in the company of a class already issued, if the following conditions are fulfilled, namely:—

(i) the issue of the securities at a discount is authorised by a resolution passed by the company in a general meeting, and sanctioned by the Central Government;

(ii) the resolution specifies the maximum rate of discount at which the securities are to be issued:

Provided that no such resolution shall be sanctioned by the Central Government if the maximum rate of discount specified in the resolution exceeds ten per cent. unless the Central Government is of opinion that a higher percentage of discount may be allowed in the special circumstances of the case;

(iii) not less than one year has at the date of the issue elapsed since the date on which the company was entitled to commence business; and

(iv) the securities to be issued at a discount are issued within two months after the date on which the issue is sanctioned by the Central Government or within such extended time as the Central Government may allow.

(3) Where a company has passed a resolution authorising the issue of securities at a discount it may apply to the Central Government for an order sanctioning the issue; and on any such application, the Central Government, having regard to all the circumstances of the case, if it thinks proper so to do, may make an order sanctioning the issue on such terms and conditions as it thinks fit:

Provided that in the case of revival and rehabilitation of sick industrial companies under Chapter VIA, the provisions of this section shall have effect as if for the words “Central Government”, the word “Tribunal” had been substituted.

(4) Every prospectus relating to the issue of the securities shall contain particulars of the discount allowed on the issue of the securities or of so much of that discount as has not been written off at the date of the issue of the prospectus.

(5) If default is made in complying with the provision of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.”.

40. In section 80 of the principal Act, in sub-section (6), for the words “which may extend to ten thousand rupees,” the words “which shall not be less than ten thousand rupees but which may extend to three times, the face value of the preference shares in respect of which the default has been made shall be substituted.

41. In section 80A of the principal Act, for sub-section (1), the following sub-section shall be substituted, namely:—

“(1) Notwithstanding anything contained in the terms of issue of any preference shares, every preference share issued before the commencement of the Companies (Amendment) Act, 1996 and which is not redeemable before the expiry of ten years from the date of issue thereon in accordance with the terms of its issue and which has not been redeemed before such commencement, shall be redeemed by the company on the date on which such share is due for redemption or within a period not exceeding ten years from the date of such commencement, whichever is earlier:

Provided that where a company is not in a position to redeem any such share within the period aforesaid and to pay the dividend, if any, due thereon (such shares being hereinafter referred to as unredeemed preference shares), it may, with the consent of the tribunal, on a petition made by it in this behalf and notwithstanding anything contained in this Act, issue further redeemable preference shares equal to the amounts due (including the dividend thereon), in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed shares shall be deemed to have been redeemed.”.

42. For section 81 of the principal Act, the following section shall be substituted, namely:—

“81. (1) Where at any time after the expiry of two years of the formation of a company, it is proposed to increase the subscribed capital of the company by allotment of further shares, then,—

(a) such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on those shares at that date;

(b) the offer aforesaid shall be made by notice containing such particulars as may be prescribed, and specifying the number of shares offered and limiting a time, not being less than fifteen days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(c) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include 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 referred to in clause (b) shall contain a statement of this right;

(d) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of directors may dispose of same in such manner as they think most beneficial to the company.

Explanation.—For the purposes of this sub-section, “equity share capital” and “equity shares” have the same meaning as in section 85.

(2) Where further shares are offered to the members under sub-section (1) or to any other person at a premium, the amount of such premium shall be approved by the company by special resolution.

(3) Notwithstanding anything contained in sub-section (1), further shares may be offered to any person whether or not those persons include the persons referred to in clause (a) of sub-section (1) in any manner whatsoever—

(i) if a special resolution to that effect, and approving the premium, if any, is passed by the company in general meeting, or

(ii) where no such special resolution is passed if the votes cast in favour of the proposal contained in the resolution moved in that general meeting (including the casting vote, if any, of the chairman), exceed the votes, if any, cast against the proposal by, members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy and the Tribunal is satisfied, on an application made by the company in this behalf, that the proposal is beneficial to the company:

Provided that no vote shall be cast by any person in favour of the special resolution referred to in clause (i) when shares are proposed to be offered to such person.

(4) Nothing in clause (c) of sub-section (1) shall be deemed—

(a) to extend the time within which the offer should be accepted; or

(b) to authorise any person to exercise the right of renunciation for a second time, on the ground that the person in whose favour the renunciation was first made has declined to take the shares comprised in the renunciation.

(5) Notwithstanding anything contained in the foregoing provisions of this section, a company may, at any time, increase its subscribed capital by giving an option to its employees, officers or working directors to purchase its securities (hereafter in this section referred to as the “employees, stock option”, pursuant to a scheme of option framed by the company in accordance with the provisions of this section and such other conditions as may be prescribed.

(6) A company shall be entitled to make an issue of its securities to the persons referred to in sub-section (5), under the scheme of employees’ stock option at prevailing market price or price specified in the offer.

(7) Every employees’ stock option shall be made,—

(a) after the conditions specified in clauses (i) and (ii) of sub-section (3) are satisfied;

(b) in such a manner that the amount of issue of shares under the employees’ stock option and the share in the capital does not exceed more than five per cent. of the amount of total capital after such issue;

(d) in the case of listed companies, in accordance with such conditions which may be specified in the regulations made under the Securities and Exchange Board of India Act, 1992.

(8) Nothing in this section shall apply—

(a) to the increase of subscribed capital when—

(i) such increase is by conversion of debentures or loans into shares;

(ii) subscription of share in the company is under a scheme of employees’ stock option.

(b) to the increase of subscribed capital of a public company caused by the exercise of an option attached to debentures issued or loans raised by the company—

(i) to convert such debentures or loans into shares in the company, or

(ii) to subscribe for shares in the company:

Provided that the terms of issue of such debentures or the term of such loans include a term providing for such option and such term,—

(a) either has been approved by the Central Government before the issue of debentures or the raising of the loans, or is in conformity with the rules, if any, made by that Government in this behalf; and

(b) in the case of debentures or loans other than debentures issued to, or loans obtained from, the Government or any institution specified by the Central Government in this behalf, has also been approved by a special resolution passed by the company in general meeting before the issue of the debentures or the raising of the loans:

Provided further that no approval under clauses (a) and (b) of the first
proviso shall be required in the case of scheduled banks and public financial institutions.”.

43. For section 82 of the principal Act, the following section shall be substituted, namely:—

“82. The securities (including shares, debentures or other interest of any member in a company) shall be movable property, transferable in the manner provided by the articles of the company.”.

44. For section 83 of the principal Act, the following section shall be substituted, namely:—

“83. Each security of a company (including a share in a company having a share capital) shall be distinguished by its appropriate number:

Provided that nothing in this section shall apply to the securities held with a depository.”.

45. After section 83 of the principal Act, the following section shall be inserted, namely :—

“83A. (1) Every company shall reconcile, within such period as may be prescribed the securities issued by it with the securities distinguished by its appropriate number and securities held with a depository and the total number of securities distinguished by its appropriate number and securities held with the depository shall not exceed the total number of securities issued by such companies.

(2) If default is made in complying with the provisions of this section the company and every officer of the company who is in default shall be punishable with, fine not less than fifty thousand rupees but which may extend to three times the face value of securities found in excess of the issued capital of the company.”.

46. In section 84 of the principal Act,—

(a) in sub-section (3),—

(i) for the words “ten thousand rupees”, the words “one lakh rupees” shall be substituted;

(ii) for the words “six months,” the words “two years,” shall be substituted;

(b) after sub-section (4), the following sub-section shall be inserted, namely:—

“(5) The provisions of this section shall also apply to derivatives, options and shares with differential voting rights.”.

47. In section 87 of the principal Act, for sub-section (1), the following shall be substituted, namely:—

“(1) Subject to the provisions of section 89 and sub-section (2) of section 92, every member of a company limited by shares and holding any equity share capital therein,—

(a) shall have a right to vote, in respect of such capital, on every resolution placed before the company; and

(b) his voting right on a poll shall be in proportion to his share of the paid up equity capital of the company or in accordance with the rules made under sub-clause (ii) of clause (a) of section 86:

Provided that the Central Government may, by rules made in this behalf, specify a class or classes of companies in which the voting right in respect of preference shares shall not accrue or accrue subject to such conditions as may be prescribed.”.

48. In section 93 of the principal Act, the following proviso shall be inserted, namely:—

“Provided that a company may pay different dividends on the shares in the equity share Capital with differential rights as to dividends, voting or otherwise referred to in sub-clause (ii) of clause (a) of section 86.”.

49. In section 94 of the principal Act, in sub-section (1),—

(i) for clause (a), the following clause shall be substituted, namely:—

“(a) increase its authorised share capital by such amount as it thinks expedient by creating new shares;”;

(ii) clause (c) shall be omitted.

50. In section 95 of the principal Act,—

(a) in sub-section (1), clause (b) shall be omitted;

(b) for sub-section (3), the following sub-section shall be substituted, namely:—

“(3) If default is made in complying with the provisions of sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine equivalent to the fee payable along with the notice or five thousand rupees, whichever is more.”.

51. In section 97 of the principal Act, in sub-section (1), the words “whether its shares have or have not been converted into stock” shall be omitted.

52. In section 107 of the principal Act, in sub-section (5), for the words “five hundred rupees”, the words “five thousand rupees” shall be substituted.

53. For section 108 of the principal Act, the following section shall be substituted, namely:—

“108. (1) A company shall not register a transfer of securities of the company, unless a proper instrument of transfer duly stamped, dated and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company, within six months (excluding the period of book closure) from the date of execution, along with the certificate relating to the securities, or if no such certificate, is in existence, along with the letter of allotment of the securities :

Provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the Board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee along with or without the certificate relating to securities or if no such certificate is in existence, along with the letter of allotment of the securities has been lost, the company may register the transfer on such terms as to indemnity as the Board may think fit:

Provided further that nothing in this section shall prejudice any power of the company to register any person as holder of security to whom the right to any security of the company has been transmitted by operation of law but no such transmission shall be refused to be registered except on the ground that it will result in contravention of the provisions contained in sub-clause (b) of clause (iii) of sub-section (1) of
section 3.

(2) In the case of a company having no share capital, sub-section (1), shall apply as if the references therein to shares were references to the interest of the member in the company.

(3) Nothing contained in this