Page 269 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes 9. The company should not have been convicted of any offence under SEBI Act, 1992, Securities
Contract (Regulation) Act, 1956 and FEMA, 1999.
10. Members holding equity shares with differential rights shall be entitled to bonus and
rights issue of the same class.
The holders of equity shares carrying voting rights shall have voting rights in proportion to the
paid-up equity capital of the company [Section 87(1)].

11.3.6 Cumulative Convertible Preference Shares (CCPS)

The Government vide its guidelines dated 19th August, 1985 permitted issue of another class of
shares by public limited companies, called cumulative convertible preference shares.
The Guidelines issued by the Ministry of Finance in this regard are as follows:

1. Applicability. The guidelines will apply to the issue of CCPS by public limited companies
which propose to raise finance.
2. Objects of the issue. The objects of the issue of the above instruments should be for any of
the following purposes: (a) Setting-up of new projects; (b) Expansion or diversification of
existing projects; (c) Normal capital expenditure for modernisation; and (d) Working
capital requirements.
3. Quantum of issue. The amount of CCPS cannot exceed the equity shares offered to the
public for subscription. However, in case of projects assisted by financial institutions, the
quantum of issue would be approved by the financial institutions/banks.
4. Terms of issue. (i) CCPS would be deemed to be equity issue for the purpose of calculation
of debt equity ratio as may be applicable; (ii) The entire issue of CCP would be convertible
into equity shares between the end of 3 years and 5 years as may be decided by the
company and approved by the Controller of Capital Issue CCI (Now, SEBI); (iii) The
conversion of the CCP shares into equity would be deemed as being one resulting from
the process of redemption of the preference shares out of the proceeds of a fresh issue of
shares made for the purposes of redemption; (iv) The rate of preference dividend payable
on CCP would be 10%; (v) The guidelines in respect of preference shares regarding ratio
of 1:3 as between preference shares and equity shares would not be applicable to this new
instrument; (vi) On conversion of the preference shares into equity shares, the right to
receive arrears of the dividend, if any, on the preference shares up to the date of conversion
shall devolve on the holder of the equity shares on such conversion. The holder of the
equity shares shall be entitled to receive the arrears of dividend as and when the company
makes profit and is able to declare such dividend; (vii) The aforesaid CCP share would
have voting rights as applicable to preference share under the Companies Act; (viii) The
conversion of aforesaid preference shares into equity shares would be compulsory at the
end of 5 years and the aforesaid preference shares would not be redeemable at any stage.

5. Denomination. The face value of CCP share will ordinarily be ` 100 each.
6. Listing. CCP shares shall be listed on one or more stock exchange in the country.
7. Articles of association of the company and resolution of the general body. The articles of
association of the company proposing to issue CCPs should contain a provision for
issue of such shares. Further, the company must submit with the application to the
SEBI/a certified copy of a special resolution in this regard under s.81 (1A) of the Companies
Act, duly passed in the general meeting of the company. This resolution must approve the
issue of CCP shares and provide for compulsory conversion of the preference shares
between the 3rd to 5th year, as the case may be.

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