Crack Grade B 1

Companies Act 2013: It contains 29 chapters and 470 sections and 7 schedules and was
enacted on 29th August 2013.(Earlier was Company Act 1956)

The Companies Act 2013 is administered by the Government of India through the Ministry
of Corporate Affairs and the Offices of Registrar of Companies.

Mrs Neeta Ambani became first Women Director to be appointed on the Board of
Reliance Industries Ltd under the provisions of Companies Act, 2013.

CHAPTER -III

PART I— PROSPECTUS AND ALLOTMENT OF SECURITIES

Section - 23: Public offer and private placement:

(1) A public company may issue securities:
(a) Public offer (include Initial Public Offering (IPO), follow-on public offer (FPO), or Offer
for Sale (OFS) to the public through a prospectus).
(b) Through private placement through issue of a private placement offer letter (Sec.42 of
Company Act 2013).

(c) Through a rights issue or a bonus issue in accordance with the provisions of this Act
and in case of a listed company or a company which intends to get its securities listed also
with the provisions of the Securities and Exchange Board of India Act, 1992 and the rules
and regulations.
(2) A private company may issue securities:
(a) By way of rights issue or bonus issue.
(b) Through private placement.

Initial Public Offering is when a company is introduced into the publicly traded stock
markets for the very first time. In the IPO, the promoters of the company choose to offer a
certain percentage of shares to the public.

The primary reason for going public is to raise capital which would be to fund expansion
projects or cash out early investors. After the IPO is listed on the exchange and is traded
in the secondary market.

Offer for Sale (OFS): The promoters can choose to offer the secondary issue of shares to
the whole market, unlike a rights issue which is restricted to existing shareholders. The
Exchange provides a separate window through the stockbrokers for the Offer for Sale. The
exchange allows a company to route funds through OFS only if the Promoters want to sell
out their holdings and/or to maintain minimum public shareholding requirements (For
example, PSUs have a public shareholding requirement of 25%).

Further public offer (FPO): When an already listed company makes either a fresh issue
of securities to the public or an offer for sale to the public, it is called a FPO. FPOs are

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popular methods for companies to raise additional equity capital in the capital
markets through a stock issue.

Section - 24: Power of Securities and Exchange Board to Regulate Issue and Transfer
of Securities, etc.
a. Issue and transfer of securities; and non-payment of dividend, by listed
companies or those companies which intend to get their securities listed on any
recognised stock exchange in India, shall be administered by the Securities and
Exchange Board;

b. All powers relating to all other matters relating to prospectus return of allotment,
redemption of preference shares and any other matter specifically provided in this
Act shall be exercised by the Central Government, National Company Law Tribunal
or the Registrar, as the case may be.

Section - 25: Document Containing Offer of Securities for Sale to be Deemed

Prospectus: Any document by which securities are offered to public for sale, shall be
considered as deemed prospectus and all the provisions which apply to Prospectus will
apply to the deemed Prospectus issued by company.
And if any mis statement is there then it is liability of company.

Section - 26: Matters to be stated in Prospectus:

· Every Prospectus issued by /on behalf of company shall be dated and signed.

· names and addresses of the registered office of the company, company secretary,
Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any,
underwriters.

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· dates of the opening and closing of the issue, and declaration about the issue of
allotment letters and refunds within the prescribed time.

· a statement by the Board of Directors about the separate bank account where all
monies received out of the issue are to be transferred and disclosure of details of all
monies including utilised and unutilised monies out of the previous issue.

· details about underwriting of the issue.

· consent of the directors, auditors, bankers to the issue, expert‘s opinion.

· the authority for the issue and the details of the resolution passed.

· procedure and time schedule for allotment and issue of securities.

· capital structure of the company.

· main objects of public offer, terms of the present issue.

· main objects and present business of the company and its location, schedule of
implementation of the project.

· Information related to project such as risk factor in projects, progress of project and
deadline of completion and completion period of project.
· any litigation or legal action in projects pending or taken by a Government
Department or a statutory body during the last five years immediately preceding the
year of the issue of prospectus against the promoter of the company.

· minimum subscription, amount payable by way of premium, issue of shares

otherwise than on cash.

· details of directors including their appointments and remuneration, and such

particulars of the nature and extent of their interests in the company.

· Source of promoters’ Contribution also needs to be disclosed.

· Reports by Auditors relating to profits and losses for each of the five financial
years immediately preceding the financial year of the issue of prospectus
including such reports of its subsidiaries. If 5 years has not been completed then
reports of all financial years.

· Reports by Auditors relating to assets and liabilities of its business on the last
date to which the accounts of the business were made up, date of reports must

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not be earlier than one hundred and eighty days before the issue of the prospectus:
If 5 years not completed then reports for all financial years from the date of its
incorporation, and assets and liabilities of its business on the last date before the
issue of prospectus.

· reports about the business or transaction to which the proceeds of the securities
are to be applied directly or indirectly.

· a declaration about the compliance of the provisions of this Act and a statement
to the effect that nothing in the prospectus is contrary to the provisions of this
Act, the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the
Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules
and regulations.

· All the provisions given above shall apply to a prospectus or a form of application,
whether issued on or with reference to the formation of a company or subsequently.

· No prospectus to be issued before the date of Publication and unless delivered

to the Registrar for registration with the signature of Director or an authorized
person or proposed director. Explanation—The date indicated in the prospectus
shall be deemed to be the date of its publication.
· Statement of expert after his consent can be included in prospectus unless the
expert is a person who is not, and has not been, engaged or interested in the
formation or promotion or management, of the company and he will not withdraw
his consent.

· Registrar of Companies (RoC) will not register the prospectus unless the
requirements of Section 26 are complied with and prospectus is accompanied
with the consent of all persons who are named in prospectus.

· No prospectus shall be valid if it is issued more than 90 days after the date on
which a copy thereof is delivered to the Registrar of Companies (RoC) for
registration.

· If a prospectus is issued in contravention of the provisions of this section, the

company shall be punishable with fine which shall not be less than fifty thousand
rupees but which may extend to three lakh rupees.

· If a prospectus is issued in contravention of the provisions of this section,

then every person who is knowingly a party to the issue of such prospectus
shall be punishable with imprisonment for a term which may extend to three
years or with fine which shall not be less than fifty thousand rupees but which
may extend to three lakh rupees, or with both.

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Section - 27: Variation in Terms of Contract or Objects in Prospectus:

· If a company, having raised money from public, has not utilized amount so raised,
it shall not change its objects for which such money was raised unless approved
by way of a Special Resolution.
· The details of the notice in respect of such resolution to shareholders, shall
also be published in the newspapers (one in English and one in vernacular
language) in the city where the registered office of the company is situated indicating
clearly the justification for such variation.
· Such company shall not use any amount raised by it through prospectus for
buying, trading or otherwise dealing in equity shares of any other listed
company.
· The dissenting shareholders being those shareholders who have not agreed to the
proposal to vary the terms of contracts or objects referred to in the prospectus,
shall be given an exit offer by promoters or controlling shareholders at such exit
price and rules made by Securities and Exchange Board.

Section - 28: Offer of Sale of Shares by Certain Members of Company:

· The 2013 Act includes a new section under which members of a company, in
consultation with the board of directors, may offer a part of their holding of
shares to the public.
· The document by which the offer of sale to the public is made will be treated as
the prospectus issued by the company.
· The members, whether individuals or bodies corporate or both, whose shares are
proposed to be offered to the public, shall reimburse the company all expenses
incurred by it.

Section - 29: Public Offer of Securities to be in Dematerialised Form:

· Every company making public offer or other class of public companies shall
issue the securities in dematerilised form in accordance with the Depositories
Act, 1996 (22 of 1996).

· Any other Company may convert its securities into dematerialised form or issue its
securities in physical form in accordance with the provisions of this Act or in
dematerialised form in accordance with the Depositories Act, 1996 (22 of 1996).

Dematerialization is the process by which physical certificates of an investor are

converted to an equivalent number of securities in electronic form and credited to the
investor’s account with his Depository Participant (DP).

Section - 30: Advertisement of Prospectus:

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· Any advertisement of a prospectus shall contain contents of the memorandum,
liability of members; amount of share capital; names of the signatories to the
memorandum; number of shares subscribed for by the signatories & the
company’s capital structure.

Section - 31: Shelf Prospectus:

· Any class of companies, as prescribed by SEBI, may issue a shelf prospectus which
shall be valid for 1 year.
· Company filing a shelf prospectus shall file, with the ROC an Information
Memorandum containing all material facts relating to new changes created, changes
in the financial position of the company as have occurred between the first offer of
securities or the previous offer of securities and the succeeding offer of securities.
· The company or other person shall intimate the changes in shelf prospectus to
such applicants who have already submitted application by advance payment and
if they express a desire to withdraw their application, the company or other person
shall refund all the monies received as subscription within fifteen days.

*Shelf prospectus" means a prospectus in respect of which the securities or class of

securities included are issued for subscription in one or more issues (multiple issues) over
a certain period without the issue of a further prospectus.

*Red herring Prospectus is a prospectus which does not include complete particulars of
the quantum or price of the securities included therein. In simple terms a red herring
prospectus contains most of the information pertaining to the company’s operations and
prospects, but does not include key details of the issue such as its price and the number
of shares offered.

Section - 32: Red herring prospectus:

A company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus and shall file it with the Registrar at least
three days prior to the opening of the subscription list and the offer.

A red herring prospectus shall carry the same obligations as are applicable to a
prospectus and any variation between the red herring prospectus and a prospectus
shall be highlighted as variations in the prospectus.

Upon the closing of the offer of securities under this section, the prospectus stating
therein the total capital raised, whether by way of debt or share capital, and the closing
price of the securities and any other details as are not included in the red herring
prospectus shall be filed with the Registrar and the Securities and Exchange Board.

Section - 33: Issue of Application Forms for Securities:

· Every application form issued for securities in a public offer to be accompanied with
an abridged prospectus.

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· A copy of an abridged prospectus if requested by any person before the closing of
the subscription list and the offer, shall be furnished to him.
· If a company makes any default in complying with the provisions of this section, it
shall be liable to a penalty of fifty thousand rupees for each default.

*Abridged Prospectus is a shorter version of a prospectus containing all salient features

of a prospectus.

Section - 34: Criminal Liability for Mis-statements in Prospectus:

· Criminal liability for Untrue or Misleading statement equated with criminal liability
of ‘fraud’ (under section 447 of the act) & the liability shall be upon the person who
authorizes the issue of prospectus.
· Imprisonment for a term of six months but which may extend to ten years and
also liable to fine which shall not be less than the amount involved in the fraud,
but which may extend to three times the amount involved.

Section 35: Civil liability for misstatements in prospectus:

· Civil liability shall be attracted for ‘misleading statements’ on the director, promoter,
expert or any other authorized person.
· If it is proved that prospectus was issued with intention of defraud with applicants,
then all person responsible shall remain liable to pay compensation to every person
who has sustained such loss or damage.
· If any person who has given consent to become a director, withdraws his/her
consent before the issue of prospectus then he/she will not be liable.
· If prospectus was issued without his knowledge or consent then also, he/she will
not be liable.

Section 36: Punishment for Fraudulently Inducing Persons to Invest Money:

· Any person who makes any statement, promise or forcast which is false or
misleading induce another person to enter into any agreement
o for acquiring, disposing, subscribing, underwriting shares; or
o for securing profit to any parties from the yield of securities;
o to obtain credit facilities from any bank or financial institution
shall be liable under section 447 (Fraud).

Section 37: Action by affected persons:

· A suit may be filed or any other action may be taken under section 34 or
section 35 or section 36 by any person, group of persons or any association of
persons affected by any misleading statement or the inclusion or omission of any
matter in the prospectus.

Section 38: Punishment for personation for acquisition, etc., of securities:

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· If any person makes application under fictitious name, makes multiple applications
in different names or otherwise induces a company to allot or transfer securities in
fictitious name, shall be liable under section 447 (Fraud).
· The provisions given above of this clause shall be prominently reproduced in every
prospectus issued by a company and in every form of application for securities.
· Where a person has been convicted under this section, the Court may also order
disgorgement (repayment of ill-gotten gains) of gain, if any, made by, and seizure
and disposal of the securities in possession.
Disgorgement means repayment of ill-gotten gains.

· The amount received through disgorgement or disposal of securities as mentioned

above shall be credited to the Investor Education and Protection Fund.

Section 39: Allotment of Securities:

· Allotment of Securities in a public offering cannot be made unless:

• Minimum subscription, as stated in the prospectus, is received by cheque or
any other instrument.
• Minimum application amount cannot be less than 5% of the face value.

· If the stated minimum amount has not been subscribed and the sum payable on
application is not received within a period of thirty days from the date of issue of
the prospectus, or such other period as may be specified by SEBI, the amount
received, shall be returned within 15 days otherwise shall be liable to repay that
money with interest at the rate of fifteen percent per annum.

· The application money to be refunded shall be credited only to the bank

account from which the subscription was remitted.
· Whenever a company having a share capital makes any allotment of securities, it
shall file with the Registrar a return of allotment within 30 days.

· In case of any default the company and its officer who is in default in payment
refund and filing of return of allotment, shall be liable to a penalty, for each default,
of one thousand rupees for each day during which such default continues or
one lakh rupees, whichever is less.

Section 40: Securities to be Dealt with in Stock Exchanges:

· Every Company making public offer will make application to one or more stock
exchange(s) and obtain permission for securities to be dealt with in such stock
exchanges. Details of such exchange shall be mentioned in prospectus.

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· All monies received on application from the public for subscription to be kept in a
separate bank account in a scheduled bank and can be used only for refund to those
applicants where the company is for any other reason unable to allot securities.

· If a default is made in complying with the provisions of this section, the company
shall be punishable with a fine which shall not be less than five lakh rupees but
which may extend to fifty lakh rupees and every officer of the company who is
in default shall be punishable with imprisonment for a term which may extend
to one year or with fine which shall not be less than fifty thousand rupees but
which may extend to three lakh rupees, or with both.

· A company may pay commission to any person in connection with the subscription
or procurement of subscription to its securities.

Section 41: Global Depository Receipt (GDR):

· Company may issue depository receipts in any foreign country after passing a
special resolution in its general meeting.

*Global Depository Receipt (GDR) is an instrument in which a company located in

domestic country issues one or more of its shares or convertibles bonds outside the
domestic country. In GDR, an overseas depository bank i.e. bank outside the domestic
territory of a company, issues shares of the company to residents outside the domestic
territory. Such shares are in the form of depository receipt or certificate created by
overseas the depository bank.

CHPATER-III: PRIVATE PLACEMENT

PART II

Section 42: Offer or invitation for subscription of securities on private placement:

· The offer of securities or invitation to subscribe securities in a financial year shall

be made to such number of persons not exceeding 200 or such higher number as
may be prescribed {excluding qualified institutional buyers, and employees of the
company being offered securities under a scheme of employees stock option) in a
financial year and on such conditions (including the form and manner of private
placement).

To know about qualified institutional read primary market first.

Private placement" means any offer of securities or invitation to subscribe securities to

a select group of persons by a company (other than by way of public offer) through issue
of a private placement offer letter. As per SEBI guidelines private placement can not be
made to more than 200 persons.

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If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots,
or enters into an agreement to allot, securities to more than 200, the same shall be
deemed to be an offer to the public and shall accordingly be governed by the provisions of
Part I of this Chapter.

· No fresh private placement unless the allotments with respect to any earlier offer
or invitation may have been completed.

· All the money payable towards the subscription of securities shall be paid through
cheque, demand draft or any other banking channels but not by cash.

· Any offer or invitation not in compliance with the provisions of this section shall
be treated as a public offer and all provisions of this Act, and the Securities
Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange
Board of India Act, 1992 (15 of 1992) shall be required to be complied with.

· The offers shall be made only to such persons whose names are recorded by the
company prior to the invitation to subscribe, and that such persons shall receive
the offer by name.

· Private Placement application money to be kept in a separate bank account in a

scheduled bank till allotment and can be used only for adjustment for allotment of
securities and for the repayment of monies where the company is unable to allot
securities.

· Allotment of securities to be made within 60 days. If allotment is not made, the

application money to be refunded within 15 days from 60th day failing which
interest to be paid @ 12% from the expiry of 60th day.

· The company offering securities shall not release any advertisements or utilise any
media, marketing or distribution channels or agents to inform the public at large
about such an offer.

· Whenever a company makes any allotment of securities under this section, it shall
file with the Registrar a return of allotment in thirty days.

· If a company makes an offer or accepts monies in contravention of this section, the

company, its promoters and directors shall be liable for a penalty which may
extend to the amount involved in the offer or invitation or two crore rupees,
whichever is higher, and the company shall also refund all monies to
subscribers within a period of thirty days of the order imposing the penalty.

The Registrar of Companies (ROC) is an office under the Indian Ministry of Corporate
Affairs that deals with administration of the Companies Act, 2013 and vested with the
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primary duty of registering companies and LLPs floated in the respective states and the
Union Territories and ensuring that such companies and LLPs comply with statutory
requirements under the Act.

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