Page 201 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes under s.81 (1)] or other specified securities within a period of 24 months except by way of

bonus issue or in the discharge of subsisting obligations such as conversion of warrants,
stock option schemes, sweat equity or conversion of preference shares or debentures into
equity shares.
7. Where a company buys-back the securities, it shall maintain a register of the securities so
bought, the consideration paid for the securities bought back, the date of cancellation of
securities, the date of extinguishing and physically destroying of securities and such other
particulars as may be prescribed.

8. A company shall, after the completion of the buy-back, file with the Registrar and SEBI,
a return containing such particulars relating to the buy-back within 30 days of such

completion as may be prescribed. However, no such return need be filed with SEBI, in the
case of a company whose shares are not listed on any recognised stock exchange.
9. If a company makes a default in complying with the above provisions, the company or

any officer of the company who is in default shall be punishable with imprisonment for a
term which may extend upto 2 years, or with fine which may extend upto ` 50,000 or with

both.
10. For the purposes of this Section – (i) ‘specified securities’ includes employees’ stock option

or other securities as may be notified by the Central Government from time to time, (ii)”
free reserves” shall have the meaning assigned to it in s.372A
11. Transfer of certain sums to capital redemption reserve account (s.77AA). Where a company
purchases its own shares out of free reserves, then a sum equal to the nominal value of the
shares so purchased shall be transferred to the capital redemption reserve account and
details of such transfer shall be disclosed in the balance sheet.
12. Prohibition for buy-back in certain circumstances (s.77B). This section provides that no

company shall directly or indirectly purchase its own shares or other specified securities (a)
through any subsidiary company including its own subsidiary companies, or (b) through
any investment company or group of investment companies; or (c) if a default, by the
company, in repayment of deposit or interest payable thereon, redemption of debentures,
or preference shares or payment of dividend to any shareholder or repayment of any term
loan or interest payable thereon to any financial institution or bank, is subsisting.

13. Further no company shall directly or indirectly purchase its own shares or other specifi ed
securities in case it has not complied with provisions of Ss. 159, 207 and 211.

10.2 Raising of Capital/Issue of Shares

Companies limited by shares have to issue shares to raise the necessary capital for their operations.
Issue of shares may be made in three ways. (i) By private placement of shares; (ii) By allotting
entire shares to an issue-house, which in turn, offers the shares for sale to the public; and (iii) By
inviting the public to subscribe for shares in the company through a prospectus.

Private placement of shares. A private company limited by shares is prohibited by the Act and
the Articles from inviting the public for subscription of shares or debentures. It also need not

file statement in lieu of prospectus. Its shares are issued privately to a small number of persons
known to the promoters or related to them by family connections.
A public company can also raise its capital by placing the shares privately and without inviting
the public for subscription of its shares or debentures. In this kind of arrangement, an underwriter
or broker finds persons, normally his clients who wish to buy the shares. He acts merely as an

agent and his function is simply to procure buyer for the shares, i.e., to place them. Since no
public offer is made for shares, there is no need to issue any prospectus. However, under s.70,

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