Page 253 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes invitation to existing members or debenture holders to subscribe to shares or debenture
by way of right is not a prospectus [s.56 (5)].
2. An invitation shall not be an invitation to the public if it cannot be calculated to result,
directly or indirectly, in the shares or debentures becoming available for subscription or
purchase by persons other than those receiving the invitation. Thus, it will not be an invitation
to public where B, a friend of A who receives the invitation, also desires to subscribe, but his
offer shall be refused because he was not invited to make the same. On the other hand, it will
become an invitation to public where his (B’s) offer shall also be accepted.
The offering of shares of kith and kin of a director is not an invitation to the public to buy shares.
Further, the learned judge in this case held that in all cases the determination of the question of
an offer being made to the public depends upon the facts and language of the notice and the
particular circumstance of each case.
If a company (other than non-banking finance company and Public Financial Institution) makes
an offer to 50 or more persons, it will be treated as a public issue. In other words, private
placement by a company shall come under the purview of a ‘public issue’.

11.1.8 Small Depositors (S.58AA)

To protect small depositors, sections 58AA and 58AAA provide:
(i) A small depositor is one who has deposited, in a financial year a sum not exceeding `
20000 in a company and includes his successors, nominees and legal representatives.
However, the term does not include those small depositors (a) who renewed their deposits
voluntarily; or (b) whose repayment is not made due to death or stay order of a competent
court or authority.

(ii) Any company accepting deposits shall have to inform the Tribunal, on monthly basis, the
names and addresses of each small depositor about its default in repayment of deposit or
payment of interest thereon. A period of 60 days is prescribed for intimation of any
default to the Central Government which shall, after giving the depositor an opportunity
of being heard, pass an appropriate order within 30 days from the date of receipt of such
intimation from the defaulting company.
Such a defaulting company is prohibited to accept further deposits from small depositors
at any time until the defaults are made good.
(iii) The total numbers of small depositors and the amount due to them in respect of which
default is made the fact of whatever of interest accrued on deposits shall be stated in all
future advertisements and application forms inviting deposits from the public. Further
every application form for accepting deposits shall contain a statement that the applicant
has been apprised or every past default of the company in repayment of deposits and for
payment of interest thereon to the small depositors.

(iv) Every director of such a defaulting company shall be prohibited to be appointed as a
director of any public company for 5 years from the date of the default.
(v) No such defaulting company shall directly or indirectly make any loan to any body
corporate, give guarantee or provide security or acquire security of any body corporate
till such default continues.
(vi) Every non-compliance is punishable with imprisonment up to 3 years and also fine not
less than ` 500 for everyday.

(vii) An aggrieved depositor is also entitled to make an application to Tribunal for redressal of
his grievance against the company.

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