Page 141 - DCOM106_COMPANY_LAW

Company Law

Notes apply to a private company. Thus, a private company need not offer its further issue first to
existing shareholders and therefore its directors are free to offer them in the manner they deem
fit. Further, s.81 is not applicable in the case of issue of shares against conversion of loans or
debentures.
SEBI has issued following Guidelines regarding Rights Issues, 2000:

Applicability: These guidelines apply to rights issues made by existing listed companies
whose equity share capital is listed. These guidelines are not applicable to the rights issues
where the aggregate value of securities offered does not exceed 50 lacs.
Appointment of Registrar: Appointment of Registrars to the Issue shall be compulsory.
Withdrawal of a Rights Issue after Announcement: Where any company has withdrawn
the rights issue after announcing the record date, such a company shall not be permitted to
make application for listing of any of its securities for a minimum period of twelve
months from the announced record date.
Underwriting: Underwriting of rights issue is not mandatory. But, where it is underwritten,
the lead manager, if any, should make a statement in the letter of offer that, in their
opinion, assets of the underwriters are adequate to meet their obligation.
Appointment of Merchant Banker: For rights issues of listed companies exceeding 50
lakhs, the issue should be managed by a category-1 merchant banker, holding a valid
certification of registration issued by SEBI.
Partly Paid Shares to be Made Fully paid: Partly paid shares, if any must either be made
fully paid or forfeited.
Disclosure in Letter of Offer: It shall be the duty of the merchant banker, acting as the lead
manager, to ensure that the letter of offer contains all the matters specified by SEBI in this
regard and otherwise provides a true, correct and fair view of the state of affairs of the
company which are adequate for the investors to arrive at a well-informed decision.
Agreement with Depository: A company cannot make a right issue unless:
It enters into an agreement with a depository for dematerialisation of securities
already issued or proposed to be issued to the existing shareholders; and
The company gives an option to the subscribers/shareholders to receive the certificate
or hold securities in dematerialised form with a depository.

Filing Letter of Offer: The Merchant Banker, in case of rights issue exceeding 50 lakhs,
shall file the letter of offer with SEBI at least 21 days prior to the filing of the letter of offer
with Regional Stock Exchange. However, if within 21 days from the date of filing of draft
letter of offer, SEBI specifies any changes therein, the Issuer or the Lead Merchant Banker
shall carry out such changes before filing the draft letter of offer with Regional Stock
Exchange.
Closure of Rights Issue: A rights issue shall be kept open for at least 30 days but not more
than 60 days.
Minimum Subscription: SEBI requires the following clause in respect of minimum
subscription to be stated in the letter of offer.
“If the company does not receive the minimum subscription of 90% of the issue, the entire
subscription will be refunded to the applicants within 42 days from the date of closure of
the issue. If there is delay in the refund of the application money by more than 8 days after
the company becomes liable to pay the amount, i.e., forty-two days after closure of the

136 LOVELY PROFESSIONAL UNIVERSITY