BRICS ACADEMY

CORPORATE AND OTHER LAW

Test- 4. (Lesson 4)
KEY ANSWER
1. Growmore Ltd. ‘s share capital is divided into different classes. Now, Growmore
Ltd. intends to vary the rights attached to a particular class of shares. Explain
the provisions of the Companies Act. 2013 to Growmore Ltd. as to obtaining
consent from the shareholders in relation to variation of rights.

Variation of Shareholder's Rights:

Sec. 48 of Companies Act, 2013 deals with the provisions relating to variation of
shareholder's rights.
(1) Conditions for Variation in Rights:
(a) The holders of not less than 3/4th of the issued shares of that class whose rights
are to be varied must give consent in writing or a special resolution passed at a
separate meeting of the holders of the issued shares of that class.
(b) The MOA/AOA of the company must contain a provision with respect of such
variation.
(c) In the absence of any such provision in the MOA/A0A, such variation must not
be prohibited by the terms of issue of the shares of that class.
(d) If variation by one class of shareholders affects the rights of any other class of
shareholders, the consent of 3/4th of such other class of shareholders shall also
be obtained and the provision of this Section shall apply to such variation.
(2) No consent for variation:
(a) The holders of not less than 10% of the issued shares of a class, who did not
consent to or vote in favour of the resolution for the variation, may apply to the
Tribunal to have the variation cancelled, and where any such application is
made, the variation shall not have effect unless & it is confirmed by the Tribunal.
(b) Application shall be made within 21 days after the date on which the consent
was given or the resolution was passed.
(c) The decision of NCLT on application shall be binding on the shareholders.
(d) The Company shall file copy of NCLT order to ROC within 30 days from date of
order of NCLT.

2. Moon Star Machineries Limited is authorised by its articles to accept the whole
or any part of the amount of remaining unpaid calls from any member even if no
part of that amount has been called up by it. Anand, a shareholder, deposits in
advance the remaining amount due on his partly paid-up shares without any calls
being made by company. Whether Company is permited to accept the advance
amount received on unpaid calls from Anand?

Acceptance of Calls in advance:

a) Sec. 50 of Companies Act. 2013 provides that a company may, if so authorised by
its articles, accept from any member, the whole or a part of the amount remaining
unpaid on any shares held by him, even if no part of that amount has been called
up. However, such members shall not be entitled to any voting rights in respect of
the amount so paid by him until that amount has been called up.

1 | Page CA- Intermediate

 BRICS ACADEMY

b) In the given case, company is authorised by its articles to accept the whole or any
part of the amount of remaining unpaid calls from any member even if no part of
that amount has been called up by it. Anand, a shareholder, deposits in advance
the remaining amount due on his partly paid-up shares without any calls being
made by company.
Conclusion: In view of the authorisation given by the Articles, Moon Star Machineries
Limited is permitted to accept the advance amount received on unpaid calls from
Anand. In other words, this is a valid transaction.

3. ARC Limited is a public company incorporated in New Delhi. The Board of

Directors of the company wants to bring a public issue of 1,00,000 equity shares
of Rs.10 each. The BOD has appointed an underwriter for this issue for ensuring
the minimum subscription of the issue. The underwriter advised the BOD that
due to current economic situation of the country it would be better if the
company offers these shares at a discount of Rs.1 per share to ensure full
subscription of this public issue. The Board of directors agreed to the suggestion
of underwriter and offered the shares at a discount of Rs.1 per share. The issue
was fully subscribed and the shares were allotted to the applicants in due course.
Decide whether the issue of shares as mentioned above is valid or not as per Sec.
53 of Companies Act, 2013. What would be your answer in the above case if the
shares are issued to employees as sweat equity shares?

Issue of Shares at a discount:

a) Sec. 53 of the Companies Act, 2013 provides that a company shall not issue shares
at a discount, except in the case of an issue of sweat equity shares given u/s 54 of
the Companies Act, 2013. Any share issued by a company at a discount shall be
void.
Conclusion: In accordance with the above provisions, issue of shares by ABC Limited
at a discount of Rs.1 per share is not valid.
In case the shares have been issued to employees as sweat equity shares, then the
issue of shares at discount is valid considering the provisions of Sec. 54 of the
Companies Act, 2013.

4. Himanshu has received notice from Chaitanya Progressive Books Private Limited
on 7th August. 2022 intimating that Shefali has submitted transfer deed duly
signed by her for transfer of 500 partly paid-up shares (Rs. 6 Paid up out of face
value of Rs.10 per share) in his name, Himanshu as transferee raise his objection
to the proposed transfer of partly paid-up shares on 21st August 2022. Whether
Such objection is Valid?

Transfer of Partly paid shares

a) As per Sec. 56(3) of Companies Act, 2013, where an application is made by the
transferor alone and to relates to partly paid shares, the transfer shall not be
registered, unless the company gives the notice of the application in Form No. SH-
5 to the transferee and the transferee gives no objection to the transfer within two
weeks from the receipt of notice.

2 | Page CA- Intermediate

 BRICS ACADEMY

b) In the given case, Shefali has submitted transfer deed duly signed by her for transfer
of 500 partly paid-up shares (Rs.6 Paid up out of face value of Rs.10 per share) in
the name of Himanshu. Himanshu as transferee raise his objection to the proposed
transfer of partly paid-up shares on 21st August 2022.
Conclusion: Objection is valid as objection was raised within the prescribed time.

5. Dhyan Dairy Ltd., a dairy product manufacturing company wants to set up a new
processing unit at Udaipur. Due to paucity of funds, the existing shareholders are
not willing to fund for expansion. Hence, the company approached Shyam Ltd.
for subscribing to the shares of the company for expansion purposes. Can Dhyan
Dairy Ltd. issues shares only to Shyam Ltd. under the provision of Companies
Act, 2013? if so, state the conditions.

Issue of Further Shares:

As per Sec. 62(1) of the Companies Act, 2013 if at any time, a company having a share
capital proposes to increase its subscribed capital by the issue of further shares, such
shares should be offered to:
(a) the existing equity shareholders of the company as at the date of the offer, in
proportion to the capital paid up on those shares.
(b) employees under a scheme of employees' stock option subject to a special resolution
passed by the company and subject to such conditions as may be prescribed.
(c) to any persons, if it is authorised by a special resolution, whether or not those
persons include the persons referred to in clause (a) or clause (b), either for cash or
for a consideration other than cash, if the price of such shares is determined by the
valuation report of a registered valuer subject to such conditions as may be
prescribed.
In the given case Dhyan Dairy Ltd. approached Shayam Ltd. for subscribing to the
shares of the company for its expansion and Shyam Ltd. is neither an existing equity
shareholder of the company nor an employee.
Conclusion: Dhyan Dairy Ltd., if it is authorised by a special resolution, may issues
shares to Shayam Ltd. either for cash or for a consideration other than cash, subject
to the condition that the price of such shares is determined by the valuation report of
a registered valuer.

6. As per the financial statement as at 31.03.2021 the Authorized and Issued share
capital of Manorama Travels Private Limited the Company) is of Rs.100 Lakh
divided into Rs.10 Lakh equity shares of Rs.10 each. The subscribed and paid-up
share capital on that date is Rs.80 Lakh divided into 8 Lakh equity shares of
Rs.10 each. The Company has reduced its share capital by cancelling 2 Lakh
issued but unsubscribed equity shares during the financial year 2021-22, without
obtaining the confirmation from the National Company Law Tribunal (the
Tribunal). It is noted that the Company has amended its Memorandum of
Association by passing the requisite resolution at the duly convened meeting for
the above purpose While filing the relevant e-form the Practicing Company
Secretary refused to certify the Form for the reason that the action of the
Company reducing the share capital without confirmation of the Tribunal is
invalid.

3 | Page CA- Intermediate

 BRICS ACADEMY

In light of the above facts and in accordance with the provisions of the Companies
Act, 2013, you are requested to (i) examine, the validity of the decision of the
Company and contention of the practicing company secretary and (ii) state, the
type of resolution required to be passed for amending the capital clause of the
Memorandum of Association.

Alteration of Share Capital:

a) As per Sec. 61 of the Companies Act, 2013, a limited company having a share capital
is empowered to alter its capital clause of the Memorandum of Association. In
accordance with Sec. 61(1) (e), a limited company having a share capital may, if so,
authorised by its articles, alter its memorandum in its general meeting by cancelling
shares which, at the date of the passing of the resolution in that behalf, have not
been taken or agreed to be taken by any person, and diminish the amount of its
share capital by the amount of the shares so cancelled. The cancellation of shares
shall not be deemed to be a reduction of share capital.
b) In the given case, company has reduced its share capital by cancelling 2 Lakh issued
but unsubscribed equity shares during the financial year 2021-22, without
obtaining the confirmation from the National Company Law Tribunal (the Tribunal).
Conclusion: Based on the above discussion, following conclusions may be drawn:
(i) Decision of the Company to alter the capital clause without obtaining confirmation
of NCLT is valid and contention of the practicing company secretary is not tenable.
(ii) Ordinary resolution will be required to be passed for amending the capital clause of
the Memorandum of Association.

7. Xgen Limited has a paid-up equity capital and free Reserves to the extent of Rs.
50,00,000. The Company is planning to buy-back shares to the extent of Rs.
4,50,000. The company approaches you for advice with regard to the following:
(i) Is special resolution required to be passed?
(ii) What is the time limit for completion of buy-back?
(iii) What should be ratio of aggregate debts to the paid up capital and free reserve
after buy-back?

Buy back of Securities:

a) As per Sec. 68(2) of Companies Act, 2013, the company shall not purchase its own
shares or other specified securities unless:
1) The buy-back is authorized by its articles;
2) A special resolution has been passed at a general meeting of the company
authorizing the buy-back except where:
(i) the buy-back is 10% or less of the total paid-up equity capital and free
reserves of the company; and
(ii) such buy-back has been authorised by the Board by means of a resolution
passed at its meeting:
b) As per Sec. 68(4) of the Companies Act, 2013, every buy-back shall be completed
within a period of 1 year from the date of passing of the special resolution, or as the
case may be, the resolution passed by the Board u/s 68(2).
c) As per Sec. 68(2) of Companies Act, 2013, ratio of the aggregate debts (secured and
unsecured) owed by the company after buy-back is not more than twice the paid up

4 | Page CA- Intermediate

 BRICS ACADEMY

capital and its free reserves. However, C.G. may prescribe higher ratio of the debt
for a class or classes of companies.
d) In the given case, Xgen Limited has a paid up equity capital and free reserves to the
extent of Rs. 50,00,000. The company planned to buy back shares to the extent of
Rs. 4,50,000.
Conclusion: Referring to the above provisions, following conclusions may be drawn:
(i) Special resolution will not be required as the buy-back is less than 10% of the total
paid-up equity capital and free reserves (50,00,000x10/100= 5,00,000) of the
company, but such buy-back must be authorized by the Board by means of a
resolution passed at its meeting.
(ii) Time limit for completion of buy-back will be a period of one year from the date of
passing of the resolution by the Board.
(iii)The ratio of the aggregate debts (secured and unsecured) owed by the company after
buy-back should not be more than twice the paid up capital and its free reserves.

*****

5 | Page CA- Intermediate