Guide to SHARE APPLICATION MONEY & BORROWING POWERS FOR PRIVATE COMPANIES

Chapter 1: SHARE APPLICATION MONEY 

UNDER COMPANIES ACT, 2013

1. Introduction

2. Abuse of Private Placement under Companies Act, 1956 dealt in by the Supreme Court in Sahara’s case

3. Enshrining the provisions for Private Placement under the Companies Act, 2013

4. Share Application Money to be received only through banking channels and the securities shall be allotted with prescribed time

5. Share/security application money to the extent of allotment within 2 months is exempted to be classified as deposits under Companies (Acceptance of Deposits) Rules, 2014

6. Share application money accepted before the Companies Act, 2013 vis-a-vis Companies (Acceptance of Deposits) Rules, 2014

7. Punishment for contravention:

8. Punishment for contravention of section 73 or section 76 [Section 76A]

9. Share Application Money Pending Allotment – Disclosures under Schedule III of the Companies Act, 2013

10. Diluted Earnings Per Share and Share Application Money

11. Accounting treatment of share application money pending for allotment invested by holding company in subsidiaries

12. Net worth does not include non-refundable share application money pending allotment

13. Power of Securities and Exchange Board to regulate issue and transfer of securities, etc.

Chapter 2: SHARE APPLICATION MONEY UNDER FOREIGN EXCHANGE MANAGEMENT ACT, 1999

1. Mode of payment for shares issued to person resident outside India

2. Share Application Money to be received only through banking channels and the securities shall be allotted with prescribed time — FEMA compliance at the command of Companies Act, 2013

Chapter 3: SHARE APPLICATION MONEY 

VIS-À-VIS INCOME TAX ACT, 1961

1. Mode of taking or accepting certain loans, deposits and specified sum

2. Mode of repayment of certain loans or deposits

3. Section 14A/Rule 8D does not apply to share application money

4. If the identity and other details of the share applicants are available, the share application money cannot be treated as undisclosed income in the hands of the Co. The addition, if at all, should be in the hands of the applicants if their creditworthiness cannot be proved

Chapter 4: INVITATION AND ACCEPTANCE OF 

DEPOSITS BY COMPANIES

1. Acceptance of deposits

2. Meaning of Depositor

3. Meaning of eligible company

4. Distinction between Loan and Deposit

5. 'Deposit' – meaning thereof

6. Amounts received by a company which are exempted and not included in the category of deposits

7. Conditions for acceptance of deposits

8. Acceptance of deposits from public by eligible companies

9. Creation of security for secured deposits

10. Appointment and Removal of deposit trustees

11. Duties of deposit trustees

12. Meeting of Depositors

13. Application Form for deposits

14. Declaration by the depositors that the amount deposited is not from the borrowed funds 

15. Depositor may appoint nominees 

16. Furnishing of deposit receipts to depositors

17. Maintenance of liquid assets and creation of Deposit Repayment Reserve Account

18. Registers of deposits

19. Premature repayment of Deposits

20. Return of deposits to be filed with the Registrar

21. Penal rate of interest

22. Power of Central Government to decide certain questions

23. Applicability of sections 73, 74 and 75 to eligible companies

24. Deposit accepted before the Companies Act, 2013

26. Punishment for contravention

27. Damages for fraud

28. Punishment for contravention of section 73 or section 76 [Section 76A]

29. Disclosure of particulars of deposits in the Boards’ Report

30. Provision to make online complaint to the MCA by the deposit holders

Chapter 5: POWERS OF THE BOARD

POWERS OF BOARD

1. Validity of acts of directors

2. Board should act as a collective body

3. Distribution of powers of the company

4. General power of the Board of directors

5. Manner in which the powers can be exercised by the Board

6. Powers exercisable by the Board only if authorised by Articles

Chapter 6: RESTRICTIONS ON THE POWERS OF 

THE BOARD 

1. Powers to be exercised by the Board only on the approval given by the members in general meeting by way of special resolution

2. Meaning of Undertaking

3. Meaning of Temporary Loans

4. Powers to be exercised by the members in the general meeting by way of special resolution

5. Powers to be exercised with the approval of the Tribunal

6. Certain powers which can be exercised by the Board of directors only with the approval of the members and the Central Government

7. Other major restrictions on the powers of the Board

8. Prohibition on charitable contribution

9. Prohibitions and restrictions regarding political contributions

10. Powers to make contribution to national defence funds, etc.

Chapter 7: DISCLOSURE OF INTEREST, 

RELATED PARTY TRANSACTIONS, OFFICE OR PLACE OF PROFIT AND REGISTERS THEREOF

DISCLOSURE OF INTEREST BY DIRECTOR

1. Object of disclosure of interest

2. Requirement for disclosure of nature of interest whether direct or indirect

3. Requirement for disclosure of interest is applicable to all companies

4. Applicability for disclosure

5. Requirement of disclosure if a director becomes concerned or interested after entering into contract by the Company

6. Contracts without disclosure of interest by a director shall be voidable at the option of the company

7. Non-applicability of section 184

8. General guidelines for disclosure of the nature of interest

9. Contract may be oral or written

10. Burden of proof of non-disclosure of interest

11. Interested directors shall not participate in such Board Meeting in which the relevant contract or arrangement is discussed

12. Consequences and penalties for non disclosure of interest

13. Status of contract, where a director has not disclosed his interest before the Board

14. Contracts or arrangements not covered by section 184

RELATED PARTY TRANSACTIONS

15. Applicability

16. Scope of section 188

17. Approval of contracts by the Board

18. Interested director is not entitled to present in the Board meeting while considering the contracts by the Board

19. Requirement for previous approval of the members by ordinary resolution at general meeting for arrangement or contracts with the related party

20. Non-applicability of section 188

21. Requirement for providing disclosure of related party transaction in the Directors’ Report

22. Voidable contract

23. Penalty for violation of section 188

OFFICE OR PLACE OF PROFITS

24. Appointment of a related party to any office or place of profits

25. Applicability

26. Circumstances under which a ordinary resolution is required to be passed

27. Circumstances under section 188(1)(f) under which ordinary resolution is not applicable

28. Section not applicable for appointment of Managing Director, manager or whole-time director

29. Provision of section 188(1)(f) shall not apply to any appointment of firm of professionals on case to case basis in which a director is partner

30. Payment of bonus, leave encashment, reimbursements of medical expenses are not included in computing the prescribed remuneration

31. Consent of members in general meeting may be taken subsequently

32. Increase in the remuneration of a person appointed in the Office or Place of Profit

33. Section 188(1)(f) not applicable if the relatives were appointed before his appointment as a director in the company

34. Consequences on non-compliance with the provisions of section 188(1)(f)

REGISTER OF CONTRACTS OR ARRANGEMENTS IN WHICH DIRECTORS ARE INTERESTED

35. Applicability and scope of the section

36. Requirement to keep Register of contracts or arrangements in which directors are interested

37. Disclosure has to be made by Director or KMP within 30 days

38. Register of contracts has to be kept at the Registered office and its inspection

39. Penalty on contravention of section 189

Chapter 8: LOAN TO DIRECTORS, LOAN AND 

INVESTMENT BY A COMPANY

LOAN TO DIRECTORS

1. Restrictions on providing loan to a director or to a person connected with a director

2. Meaning of “to any other person in whom director is interested”

3. Applicability

4. Restrictions apply only at the time of entering into the transaction

5. Certain loans not covered/exempted under section 185

6. Exemption from the provisions of section 185 to the holding company for the loans, guarantee and security provided to its subsidiary company

7. Penalty for contravention

LOAN AND INVESTMENT BY COMPANY

8. Meaning of certain terms for the purpose of section 186

9. Restrictions on making investment through not more than 2 layers of investment companies

10. Restriction on providing loans, guarantee and investment to other body corporate or person

11. Approval of shareholders through special resolution is necessary where the Board of directors needs to make loans, guarantee, security, investment in excess of the prescribed limits

12. Unanimous consent of all the directors at the Board meeting and prior approval of the public financial institution is required

13. No requirement for prior approval of financial institutions within the limits subject to no default of repayment of loans and interest thereon

14. Limitation on the powers of a company

15. Exemptions from the limits prescribed under section 186(3) for a loan or guarantee given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company

16. Register of Loans, investment, guarantee or security provided by the Company

17. Exemption for the applicability of section 186(1)

18. Special Resolution for taking approval under section 186

19. Requirement of disclosure in the financial statements

20. Penalty under section 186

INVESTMENTS OF COMPANY TO BE HELD IN ITS OWN NAME

21. Investments in property, security or other assets of company to be held in its own name

22. Shares held by the company in its subsidiary may be held in the names of the nominees to ensure compliance of the minimum number of members

23. Exemptions from the requirement of section 187

24. Register of investments made by a company and not held by it in its own name

25. Penalty for contravention of section 187

Chapter 9: REGISTRATION AND 

MODIFICATION OF CHARGE

1. Charges requiring Registration

2. Responsibility for filing particulars for registration of charge

3. Effects of registration of charge by the Registrar

4. Certificate of registration or modification of charges

5. Consequences and penalties of non-filing/registration of particulars of charge with Registrar

6. Modification of charge

7. Satisfaction of charge

8. Register of charges

9. Punishment for contravention

10. Powers of the Registrar to condone delay in filing of the particulars for creation or modification of charges upto 300 days

11. Power of the Central Government to issue order for extension for filing charge beyond 300 days for creation or modification or beyond 30 days from satisfaction of charge

12. Appointment or cessation of manager or receiver

13. Penalty for contravention

Chapter 10: DORMANT COMPANY 

1. Introduction

2. Procedure for getting status of a Dormant Company

3. Application for obtaining status from Dormant Company to active company

4. Striking off name of Dormant Company

5. Powers of the Registrar to remove the name of Dormant Company

Chapter 11: MISCELLANEOUS PROVISIONS

1. Power of Central Government to direct companies to furnish information or statistics [Section 405]

2. Nidhi Companies

3. Offences to be non-cognizable [Section 439]

4. Power of Central Government to appoint company prosecutors [Section 443]

5. Appeal against acquittal [Section 444]

6. Compensation for accusation without reasonable cause [Section 445]

7. Application of fines [Section 446]

8. Punishment for fraud [Section 447]

9. Punishment for false statement [Section 448]

10. Punishment for false evidence [Section 449]

11. Punishment where no specific penalty or punishment is provided [Section 450]

12. Punishment in case of repeated default [Section 451]

13. Punishment for wrongful withholding of property [Section 452]

14. Punishment for improper use of "Limited" or "Private Limited" [Section 453]

15. Protection of action taken in good faith [Section 456]

16. Non-disclosure of information in certain cases [Section 457]

17. Delegation by Central Government of its powers and functions [Section 458]

18. Powers of Central Government or Tribunal to accord approval, etc., subject to conditions and to prescribe fees on applications [Section 459]

19. Condonation of delay in certain cases [Section 460]

20. Annual report by Central Government [Section 461]

21. Power to exempt class or classes of companies from provisions of this Act [Section 462]

22. Power of court to grant relief in certain cases [Section 463]

23. Power of Central Government to amend Schedules [Section 467]

24. Powers of Central Government to make rules relating to winding up [Section 468]

25. Power of Central Government to make rules [Section 469]

26. Power to remove difficulties [Section 470]

27. Compounding of Offences [Section 621A of the Companies Act, 1956]

28. Registration offices [Section 396 of the Companies Act, 2013]

29. Admissibility of certain documents as evidence [Section 397 of the Companies Act, 2013]

30. Provisions relating to filing of applications, documents, inspection, etc., in electronic form [Section 398 of the Companies Act, 2013]

31. Inspection, production and evidence of documents kept by Registrar [Section 399 of the Companies Act, 2013]

32. Electronic form to be exclusive, alternative or in addition to physical form [Section 400 of the Companies Act, 2013]

33. Fee for filing, etc. [Section 403 of the Companies Act, 2013]

34. Mediation and Conciliation Panel [Section 442 of the Companies Act, 2013]

35. Power of Central Government to appoint company prosecutors [Section 443 of the Companies Act, 2013]

36. Adjudication of penalties [Section 454 of the Companies Act, 2013]

37. Appeal against the order of adjudicating officer

38. Prohibition of association or partnership of persons exceeding certain number

Appendix 1 Definitions under Companies Act, 2013

Appendix 2 Sections 407 To 414, Companies Act, 2013