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Proposed Amendments in COMPANIES (SHARE CAPITAL AND DEBENTURE) RULES 2014

News and Press Release - Dated:- 2-2-2016 - Shares with Differential voting Rights 4.1 As per Rule 4(1) (g) of the Companies (Share Capital and Debentures) Rules, 2014, a company would be prohibited from issuing any shares with differential voting rights, if it has defaulted on the repayment of loans from banks and public financial institutions or interest thereon, payment of dividend on preference shares, payment of statutory dues for employees, or in depositing moneys into the Investor Educati .....

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of the Act, in order to allot bonus shares, a company should have taken authorisation from shareholders in the general meeting which need not be a special resolution. However, clause 5(e) of e-form PAS-3 requires the date of the special resolution and Service Request Number (SRN) of relevant form in which the special resolution was filed. In order to overcome this difficulty, the Committee recommended that clause 5(e) of PAS-3 be modified to replace the words special resolution with the word re .....

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ee company 4.4 The Committee noted that there is no requirement under the Act to intimate the Registrar of Companies of any change in the number of members of a Guarantee Company, which was earlier required under Section 97 of the Companies Act 1956. However, Rule 15 of the Companies (Share capital and Debentures) Rules, 2014 read with Section 64, prescribes filing of Form SH-7 with the ROC for any alteration of share capital and also provides a field for intimating any change in the number of m .....

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s for a period exceeding ten years but not exceeding thirty years. However, Housing Finance companies regulated by National Housing Bank (NHB) have not been allowed to issue secured debentures for a period exceeding 10 years, putting them at the risk of asset - liability mismatch. The Committee noted that Housing Finance Companies (HFCs) have already been allowed by way of notification GSR 841 (E) dated 06.11.2015. Creation of Debenture Redemption Reserve 4.6 Rule 18(7) (b) of the Companies (Sha .....

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the next one year. It also recommended that a proviso be inserted that companies be allowed to appropriate any amount in excess of the DRR required for immediate redemption. Maintenance of Liquid Funds for Redemption of Debentures 4.7 Rule 18(7)(c) of the Companies (Share Capital and Debentures) Rules, 2014 states that every company required to create DRR shall on or before the 30th day of April of each year, invest or deposit, as the case may be, a sum which shall not be less than fifteen perc .....

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ther a company has sufficient profits. Creation of Security for Debentures 4.8 The mandate to secure only company(s) assets as security for debentures is placing a restriction on raising funds through debentures vis-à-vis bank borrowings as the banks accept (in fact insists) that the assets of all companies which form part of company(s) consolidated balance sheet or any other collateral security as security. The Committee felt that Rule 18(1)(b) may be amended so as to enable issue of deb .....

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of the 1956 Act since RBI allows banks and systemically important NBFCs to issue such debentures. Section 71(13) gives broad rule making powers on matters relating to debentures. The Committee felt that enabling provision for issue of perpetual debentures may be provided in the Rules. Issue of sweat equity shares 4.10 Rule 8(4) of the Companies (Share Capital and Debentures) Rules, 2014 restricts the issue of sweat equity shares to twenty-five percent of paid up equity share capital. On suggesti .....

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rs or promoter directors even if they are employees of the company. The Committee felt that, in order to encourage start-ups, this rule may be relaxed to enable issuance of ESOPs to promoters who may be working as employees or employee directors or whole time directors which would help the promoters to gain from increase in future valuation of the company without in any way impacting finances of the company during its initial years. Preferential Allotments 4.12 Rule 13(2)(h) of the Companies (Sh .....

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