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Unit 13: Borrowing and Debentures

No one shall issue any form of application for shares in or debentures of a company, unless the Notes
form is accompanied by memorandum containing such salient features or a prospectus as may
be prescribed which complies with the requirements in connection with a bona fide invitation to
a person to enter into an underwriting agreement with respect to the shares or debentures; or in
relation to shares or debentures which were not offered to the public. If any person acts in
contravention of the provisions of this sub-section, he shall be punishable with fine which may
extend to five thousand rupees.

13.1 Investments

13.1.1 Meaning of Investment

The Act does not define the term ‘investment’ though it uses the same in a number of sections
which are discussed below. In common parlance, it includes any property or right in which
money is put. However, the word ‘investment’ in the following sections is confined to the act of
a company in buying securities, viz., shares and debentures of another company.

13.1.2 Investments to be in Company’s Own Name (s.49)

All investments made by a company on its own behalf shall be made and held by it in its own
name. There are, however, certain exceptions to this rule. These exceptions are as follows:
1. If any other law, for the time being in force, permits, the investments of the company may
be made and held by it in any other name.
2. Where the company has a right to appoint any person or persons as a director or directors
of any other body corporate, shares in such other body corporate, up to an amount not
exceeding the nominal value of the qualification shares, may be registered or held by the
body corporate jointly in the names of the company itself and of each such person or
nominee or in the name of each such director.
3. A company may hold any shares in its subsidiary in the name or names of any nominee or
nominees of the company to ensure that the number of members of any subsidiary is not
reduced, where it is a public company, below seven and where it is a private company,
below two.
4. If the investments are made by a company, whose principal business consists of the buying
and selling of shares or securities, the company may hold its investments in any other
name. Securities include stock and debentures.
5. A company may deposit with a bank, being the bankers of the company, any shares or
securities for the collection of any dividend or interest payable thereon.
6. A company may deposit, or transfer to, or hold in the name of, the State Bank of India or
a Scheduled Bank, being the bankers of the company, shares or securities, in order to
facilitate the transfer thereof. The company can do so only for a period of 6 months. If the
transfer of such shares or securities does not take place within 6 months, the company
shall, as soon as practicable after the expiry of that period of 6 months, have the shares or
securities re-transferred to it from the State Bank of India or the Scheduled Bank or, as the
case may be, and again hold the shares or securities in its own name.
7. A company may deposit with, or transfer to, any person any shares or securities, by way
of security for the repayment of any loan advanced to the company for the performance of
any obligation undertaken by it.

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