issue of shares on preferential basis companies act 2013

Posted on 09-04-2016        By ADMIN

Time Limit for allotment of securities under the new Companies Act,2013:

Underthe new Companies Act, Sections 62 & 42 and Rule 13 ofCompanies (Share Capital and Debentures) Rules, 2014 deals with issue ofshares on preferential basis. Rule 13 prescribes that any such issue onpreferential basis has to comply with conditions laid down in section 42of the Companies Act, 2013. Section 42(6) further provides that-

“(6)A company making an offer or invitation under this section shall allot itssecurities within sixty days from the date of receipt of the applicationmoney for such securities and if the company is not able to allot thesecurities within that period, it shall repay the application money to thesubscribers within fifteen days from the date of completion of sixty daysand if the company fails to repay the application money within the aforesaidperiod, it shall be liable to repay that money with interest at the rate oftwelve per cent. per annum from the expiry of the sixtieth day:

Providedthat monies received on application under this section shall be kept in aseparate bank account in a scheduled bank and shall not be utilised for anypurpose other than—

(a)for adjustment against allotment of securities; or

(b)for the repayment of monies where the company is unable to allot securities.”

Whether such timelimitation apply to convertible instruments as well.

Explanation to Rule 13of Companies (Share Capital and Debentures) Rules, 2014 providesthat-

 “Explanation.-For the purposes of this rule, (i) the expression ‘Preferential Offer’ means anissue of shares or other securities, by a company to any select personor group of persons on a preferential basis and does not include shares orother securities offered through a public issue, rights issue, employee stockoption scheme, employee stock purchase scheme or an issue of sweat equityshares or bonus shares or depository receipts issued in a country outside Indiaor foreign securities;

(ii)the expression, “shares or other securities” means equity shares,fully convertible debentures, partly convertible debentures or anyother securities, which would be convertible into or exchanged withequity shares at a later date.”

Thus,it is clear that the restriction regarding the number of days permitted for allotmentof securities, as mentioned in Section 42(6) of the new Act will beapplicable for convertible instruments as well. It is also to be noted that theprovisions for private placement under Section 42 applies to the issue of“securities” and not “shares”.

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