TREATEMENT OF SECURITIES UNDER COMPANY ACT 2012

INTRODUCTION:
Company Act, 2013 has brought in number of new compliance norms for listed companies.
The Act imbibes the spirit of listed agreement and lays strict ruled for the listed entities to
traverse in the coming times.
Responding to the Companies Act, 2013 SEBI has its board meeting held on February 13,
2014 reviewed the Corporate Governance norms for listed Companies. SEBI vide a press
release has announced that the Board has approved the Proposals to amend the Listing
Agreement with respect to corporate governance norms for listed companies. The
amendments, inter-alia, propose to align the provisions of listing agreement with the
provisions of the newly enacted companies Act, 2013 and also provide additional
requirements to strengthen the corporate governance framework for listed companies in India.
The amendments shall be made applicable to all listed companies with effect from October
01, 2014.

DEFINITION:
Listed company means a company which has any of its securities listed on any recognized
stock exchange (Section 2(52))
Securities means the securities as defines in clause (h) of section 2 of the Securities
Contracts (Regulation) Act, 1956.
As per clause (h) of section 2 of SCRA, 1956 Securities include:
Shares, scrip, stocks, bonds, debentured, debenture stock or other marketable securities of
like nature in or any incorporated company or other corporate;
(ia) derivative;
(ib) units or any other instrument issued by any collective investments scheme to the
investors in such schemes;
(ic) security receipt as defines in clause (zg) of section 2 of the Securisation and
Reconstruction of Finance Assets and Enforcement of Security Interest Act, 2002;

(id) units or any other such instrument issued to the investors uder any mutual fund scheme;
Government securities;
Such other instruments as may be declared by the central Government to be securities; and
Rights or interest in securities.

ALLOTMENT OF SECURITIES BY COMPANY (SECTION 39):

After public offer, any allotment shall be made only if the amount stated in the prospectus as
minimum amount. The sum payable on application for the amount so stated as minimum
amount has been paid to and received by the company by cheque or other instrument.
There is no clarity yet, what will be these instrument and why the term other banking channel
has not been included.
The amount payable on application on every security shall not be less than five percent of he
nominal amount of security or such other percentage or amount as may be specified.
If the stated minimum amount has not been subscribed and the sum payable on application is
not received within a period of thirty days from the date of issue of the prospectus, all amount
received shall be returned within prescribed time and in prescribed manner.
The company shall file with the Registrar of Companies a Return of Allotment in
prescribed manner.
In case of any default, the company and its officer who is in default shall be liable to a
penalty, for each default, of one thousand rupees for each day during which such default
continues or one lakh rupees, whichever is less.

LISTING OF SHARES (SECTION 40):

Every company making public offer shall make an application to at least one stock exchange
before making the public offer. This is duty of company to obtain permission of stock
exchange or stock exchanges for the dealing of securities there.
Prospectus for the public offer shall also state the name or names of the stock exchange in
which application for dealing of the securities has been made.
All money received on application from the public for subscription of the securities shall be
kept in a separate bank account in a schedule bank. This money shall not be utilised for any
purpose other than
For adjustment against allotment of securities where the permission from the stock exchanges
named in prospectus has been received; or
For repayment of money within the time specified by the Securities and Exchange Board,
where the company is for any other reason unable to allot securities.
A company may pay commission to any person in connection with the subscription to its
securities subject to such conditions as may be prescribed.
Any condition which require or bind any applicant for securities to waive compliance with
any of the requirement of this section shall be void.
If a default is made in complying with the provisions of this section, the company shall be
punishable with a fine which shall not be less than five lakh rupees but which may extend to
fifty lakh rupees and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall not be less
than fifty thousand rupees but which may extend to three lakh rupees, or with both.

TRANSFER AND TRANSMISSION OF SECURITIES (SECTION 56):

A company shall register a transfer of securities or interest of members only when such a
proper instrument of transfer; duly stamped, dated and executed by or on behalf of the
transferor and transferee and specifying the name, address and occupation has been delivered
to the company by either party within a period of sixty days from date of execution, along
with the certificate of security or the letter of allotment of securities.

Where, instrument of transfer has been lost or has not been delivered, the company may
register the transfer on an indemnity bond.
On receipt of intimation, a company has power to register transmission of any right to
securities by operation of law from any person to whom such right has been transmitted.
Where an application is made by transferor alone and relates to partly paid shares, the transfer
shall be registered by the company only after giving notice of the application to the
transferee, and transferee gives no objection to the transfer within two weeks from the receipt
of notice.
The transfer of any security or other interest of a deceased person in a company made by his
legal representative shall be valid as if he had been the holder at the time of the execution of
the instrument of transfer.

DELIVERY OF CERTIFICATE OF SECURITIES:

Every company shall, unless prohibited by any provision of law or any order of court,
Tribunal or other authority, deliver the certificate of all securities allotted, transferred or
transmitted
(a) Within a period of two months from the date of incorporation, in case of subscribers to
the memorandum;
(b) Within a period of two months from the date of allotment, in case of any allotment of any
of its shares;
(c) Within a period of one month from the date of receipt by the company of the instrument
of transfer or intimation of transmission; and
(d) Within a period of six month from the date of allotment in case of any allotment of
debentures.
However, where the securities are dealt with in a depository; the company shall intimate the
details of allotment of securities to depository immediately on allotment of such securities.

PENAL PROVISION:
Where any default is made under this section, the company shall be punishable with fine
which shall not be less than twenty-five thousand rupees but which may extend to five lakh
rupees and every officer of the company who is in default shall be punishable with fine which
shall not be less than ten thousand rupees but which may extend to one lakh rupees.
Without prejudice to any liability under the Depositories Act, 1996, where any depository or
depository participant, with an intention to defraud a person, has transferred shares, it shall be
liable under section 447.

PUNISHMENT FOR PERSONATION OF SHAREHOLDER (SECTION 57):

If any person deceitfully personates as an owner of any security or interest in a company, or
of any share warrant or coupon issued in pursuance of this Act, and thereby obtains or
attempts to obtain any such security or interest or any such share warrant or coupon, or
receives or attempts to receive any money due to any such owner, he shall be punishable with
imprisonment for a term which shall not be less than one year but which may extend to three
years and with fine which shall not be less than one lakh rupees but which may extend to five
lakh rupees.
Simply, any person, who deceitfully represent himself as holder of any security or interest in
a company shall be punishable with imprisonment and with fine. Yes, minimum fine is one
lakh rupees.

REFUSAL OF REGISTRATION AND APPEAL (SECTION 58):

The securities and other interest of any member in a public company shall be freely
transferable.
Any contract or arrangement between two or more persons in respect of transfer of securities
shall be enforceable as a contract. This means any shareholders agreement restricting
transferability of shares in a public company shall be a private contract among contracting
members.

If a private company limited by shares refuses to register the transfer or transmission of any
securities or interest of a member in the company, it shall, send a notice of the refusal to
transferor, transferee or person sending intimation giving reason for such refusal. This
intimation shall be send within a period of thirty days from the date of receipt of instrument
of transfer or intimidation for transmission.
The transferee may appeal to the tribunal against the refusal within a period of thirty days
from the date of receipt of the notice. Where no notice has been send by the company,
transferee may appeal to the tribunal within a period of sixty days from the date on which the
instrument of transfer or intimation of transmission was delivered to the company.
If a public company without sufficient cause refuses to register the transfer of securities
within a period of thirty days from the date on which the instrument of transfer or the
intimation of transmission, as the case may be, is delivered to the company, the transferee
may, within a period of sixty days of such refusal or where no intimation has been received
from the company, within ninety days of the delivery of the instrument of transfer or
intimation of transmission, appeal to the Tribunal.
The tribunal after hearing the parties, may either dismiss the appeal or by order
(a) Direct that the transfer or transmission shall be registered by the company and company
shall comply with such order within a period of ten days of receipt of the order; or
(b) Direct rectification of the register and also direct the company to pay damages sustained
by any party.
If a person contravenes the order of the Tribunal under this section, he shall be punishable
with imprisonment for a term which shall not be less than one year but which may extend to
three years and with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees.

RECTIFICATION OF REGISTER OF MEMBERS (SECTION 59):

The person aggrieved, or any member of the company, or the company may appeal to the
Tribunal, or to a competent court outside India, specified by the Central Government by
notification, in respect of foreign members or debentures holders residing outside India, for
rectification of the register in following circumstances
(i)

If the name of any person is without sufficient cause entered in the register of

members of a company; or
(ii)

If the name of any person after having been entered in the register is without

sufficient cause omitted; or

(iii)

If a default is made or unnecessary delay takes place in entering in the register, the

fact of any person having become or ceased to be a member.

The tribunal after hearing the parties, may either dismiss the appeal or by order
(a) Direct that the transfer or transmission shall be registered by the company within a period
of ten days of receipt of the order; or
(b) Direct rectification of the register or record of depository and may, in case of register, also
direct the company to pay damages sustained by party aggrieved.
The provisions of this section shall not restrict the right of a holder of securities, to transfer
such securities and any person acquiring such securities shall be entitled to voting rights
unless the voting rights have been suspended by an order of the Tribunal.
Where the transfer of securities is in contravention of any of the provisions of the Securities
Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 or
this Act or any other law for the time being in force, the Tribunal may, on an application
made by the depository, company, depository participant, the holder of the securities or the
Securities and Exchange Board, direct any company or a depository to set right the
contravention and rectify its register or records concerned.
If any default is made in complying with the order of the Tribunal under this section, the
company shall be punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to one year or with fine which

shall not be less than one lakh rupees but which may extend to three lakh rupees, or with
both.

POWER TO NOMINATE (SECTION 72):

Every holder of securities of a company may at any time nominate any person to whom his
securities shall vest in the event of death of that holder.
In case of joint holding, the joint holders may together nominate any person to whom all the
rights in the securities shall vest in the event of death of all the joint holders.
In respect of the securities of a company, where a nomination made purports to confer on any
person the right to vest the securities of the company, the nominee shall, on the death of the
holder of securities or, as the case may be, on the death of the joint holders, become entitled
to all the rights in the securities, of the holder or, as the case may be, of all the joint holders,
in relation to such securities, to the exclusion of all other persons, unless the nomination is
varied or cancelled in the prescribed manner.
This is very important because usually nominee hold property in trust for benefit of all other
legal heirs.
Where the nominee is a minor, it shall be lawful for the holder of the securities, making the
nomination to appoint any person to become entitled to the securities of the company, in the
event of the death of the nominee during his minority.

DELISTING
As stated above delisting of securities means removal of the securities of a listed company
from the stock exchange. It may happen either when the company does not comply with the
guidelines of the stock exchange, or that the company has not witnessed trading for years, or
that it voluntary wants to get delisted or in case of merger or acquisition of a company
with/by some other company. So, broadly it can be classified under two head:
1. Compulsory delisting.
2. Voluntary delisting.

Compulsory delisting refers to permanent removal of securities of a listed company from a

stock exchange as a penalizing measure at the behest of the stock exchange for not making
submissions/comply with various requirements set out in the Listing agreement within the
time frames prescribed. In voluntary delisting, a listed company decides on its own to
permanently remove its securities from a stock exchange. This happens mainly due to merger
or amalgamation of one company with the other or due to the non-performance of the shares
on the particular exchange in the market.
A stock exchange may compulsorily delist the shares of a listed company under certain
circumstances like:
non-compliance with the Listing Agreement. for a minimum period of six months.
failure to maintain the minimum trading level of shares on the exchange.
promoters' Directors' track record especially with regard to insider trading, manipulation of
share prices, unfair market practices (e.g. returning of share transfer documents under
objection on frivolous grounds with a view to creating scarcity of floating stock, in the
market causing unjust aberrations in the share prices, auctions, close-out, etc. (Depending
upon the trading position of directors or the firms).
The company has become sick and unable to meet current debt obligations or to adequately
finance operations, or has not paid interest on debentures for the last 2-3 years, or has become
defunct, or there are no employees, or liquidator appointed, etc
Where the securities of the company are delisted by an exchange under this method, the
promoter of the company shall be liable to compensate the security-holders of the company
by paying them the fair value of the securities held by them and acquiring their securities,
subject to their option to remain security-holders with the company. In such a case there is no
provision for an exit route for the shareholders except that the stock exchanges would allow
trading in the securities under the permitted category for a period of one year after delisting.
Companies may upon request get voluntarily delisted from any stock exchange other than the
regional stock exchange, following the delisting guidelines. In such cases, the companies are
required to obtain prior approval of the holders of the securities sought to be delisted, by a
special resolution at a General Meeting of the company.

The shareholders will be provided with an exit opportunity by the promoters or those who are
in the control of the management.
Companies can get delisted from all stock exchanges following the substantial acquisition of
shares. The regulation state that if the public shareholding slides to 10 per cent or less of the
voting capital of the company, the acquirer making the offer, has the option to buy the
outstanding shares from the remaining shareholders at the same offer price.
An exit price mechanism called the book-building method is used by the delisted companies
to derive to the price at which the share will be brought into and that which will be paid to the
shareholders. However, an exit opportunity need not be given in cases where securities
continue to be listed in a stock exchange having nation wide trading terminals.
Under the existing SEBI takeover code, an acquirer is required to make an offer to buy
securities at the same offer price. However, here the exit price is based on the average of the
preceding 26-week high and low prices.
The acquirer is required to allow a further period of 6 months for any of the remaining
shareholders to tender securities at the same price. The stock exchange monitors the
possibility of any price manipulation and keeps under special watch the securities for which
announcement for delisting has been made.
This mechanism however is not seen as beneficial in depressed Indian market conditions as
the price arrived through this principle may not adequately compensate the shareholder for
the permanent loss of investment opportunity, especially in a company whose shares are
regarded as value investment.
The SEBI (Delisting of Securities) Guidelines- 2003 is the regulating Act framing the
guidelines and the procedure for delisting of securities. Under this the prescribed procedure
is:
1. The decision on delisting should be taken by shareholders though a special resolution in
case of voluntary delisting & though a panel to be constituted by the exchange comprising the
following in case of compulsory delisting:
Two directors/ officers of the exchange (one director to be a public representative).
One representative of the investors.
One representative from the Central government (Department of Company Affairs) /
regional director/ Registrar of Companies.

 Executive Director/ secretary of the Exchange.

2. Due notice of delisting and intimation to the company as well as other Stock Exchanges
where the companys securities are listed to be given.
3. Notice of termination of the Listing Agreement to be given.
4. Making an application to the exchange in the form specified, annexing a copy of the
special resolution passed by the shareholders in case of voluntary delisting.
5. Public announcement to be made in this regard with all due information.

CONCLUSION
There was a time not very long ago when there was no regulating agency like SEBI. Trading
was done then also but then it was a one way route. Every company that issues shares to the
public is required to have its shares listed on a recognised stock exchange. In 1956, the
Government of India enacted a law called Securities Contracts (Regulations), 1956, which
came into force with effect from February 1957. Among other things, this law regulated
operations of stock exchanges and listing of public issues. The Controller of Capital Issues
fixed the price of shares issued by any company. Normally, the Controller used to permit a
small premium that could be charged by a company while issuing shares to the public.
However, with the changing economic scenario and with the opening up of the Indian
economy, the country witnessed huge influx of foreign capital. This resulted in growth in the
number of listing of companies on the stock exchanges. Alternatively it also laid to demand
from several India-based MNCs that they should be permitted to delist their shares. The
reason remains the non-performance of the shares on the stock exchange and in case of
merger and acquisition of one company with the other. To consider the prevailing position in
respect of delisting, SEBI appointed a committee to study the whole issue and, as a result,
issued guidelines for delisting of securities in 2003.
However, in the present scenario, if the market is studied minutely many MNC seeks to get
their shares delisted at the expense of those investor who themselves are worried seeing their
hard earned money whooping in number game. The reason being, the exist route method
applied in case of voluntary delisting. Under the present norms the exist price is decided on
the basis of price of companys shares on 26 weeks highs and lows and in this market
condition these companies are finding it profitable to buy back their shares at this price. In

this scenario SEBI should look after any such possibility of playing fraud on the investors by
these big companies.