Class Notes on Company Law – Unit III
1. Issue of Shares
Definition:
- Issue of Shares: The process by which a company allocates its shares to investors in exchange for capital.
Types of Issue:
- Public Issue: Shares are offered to the general public through a prospectus.
- Private Placement: Shares are offered to a selected group of investors.
- Rights Issue: Existing shareholders are given the right to purchase additional shares at a discounted rate.
- Bonus Issue: Shares are issued to existing shareholders without any additional payment, often from retained earnings.
- Preferential Allotment: Shares are issued to specific investors on a preferential basis.
Regulation:
- Governed by the Companies Act, 2013 and rules set by the Securities and Exchange Board of India (SEBI).
Case Example: Ramaswamy v. Union of India [1950] 1 MLJ 188 – Discussed the regulation of public issues and rights issues.
2. Types of Shares
Equity Shares:
- Definition: Shares that represent ownership in the company and come with voting rights.
- Characteristics:
- Dividend: Dividends are not fixed and depend on the company’s profits.
- Risk: Higher risk as they are paid after all other liabilities and preferences.
Example: Ordinary shares held by individual investors.
Preference Shares:
- Definition: Shares that provide fixed dividends and have a priority claim on assets before equity shareholders in the event of liquidation.
- Types:
- Cumulative Preference Shares: Accumulate unpaid dividends.
- Non-Cumulative Preference Shares: Dividends do not accumulate if unpaid.
- Participating Preference Shares: Entitled to participate in surplus profits.
- Convertible Preference Shares: Convertible into equity shares after a certain period.
Example: Preference shares issued to institutional investors with fixed dividend rates.
3. Debentures
Definition:
- Debentures: A type of debt instrument issued by a company to raise capital, typically with a fixed interest rate and repayment schedule.
Types of Debentures:
- Secured Debentures: Backed by the company’s assets as collateral.
- Unsecured Debentures: Not backed by any specific asset.
- Convertible Debentures: Can be converted into equity shares at a future date.
- Non-Convertible Debentures: Cannot be converted into equity shares.
Features:
- Interest: Paid at fixed intervals.
- Repayment: Principal amount repaid on maturity.
- Priority: Debenture holders have a priority claim over shareholders in case of liquidation.
Case Example: In re: Oriel Securities Ltd [1995] 1 BCLC 600 – Addressed issues related to debenture holders’ rights and securities.
4. Procedure for Allotment of Shares and Debentures
Procedure:
- Application: Investors apply for shares or debentures through a formal application process.
- Allotment: Company allocates shares or debentures to applicants based on availability and application terms.
- Issue of Certificates: After allotment, share or debenture certificates are issued to the investors.
- Filing with Registrar: Necessary documents, including the list of allottees, are filed with the Registrar of Companies (RoC).
Regulations:
- Must comply with the Companies Act, 2013 and SEBI regulations.
- Disclosure: Full disclosure in the prospectus or offer document.
Case Example: Re: Electrosteel Castings Ltd [2010] 158 Comp Cas 1 (SC) – Discussed procedures related to allotment and issuance of shares.
5. Share Capital
Definition:
- Share Capital: The total value of shares issued by a company to its shareholders.
Types:
- Authorized Capital: Maximum amount of capital that a company is authorized to issue as per its MOA.
- Issued Capital: Portion of authorized capital that has been offered to shareholders.
- Subscribed Capital: Part of issued capital that has been subscribed to by shareholders.
- Paid-Up Capital: Amount actually paid by shareholders for their shares.
Changes in Share Capital:
- Increase: Can be increased by issuing new shares or through a bonus issue.
- Reduction: Can be reduced through a capital reduction scheme or buyback of shares.
Case Example: British American Tobacco Company Ltd v. London and Provincial Bank Ltd [1926] AC 173 – Discussed issues related to share capital and company financing.
6. Rights and Privileges of Shareholders
Rights:
- Voting Rights: Shareholders can vote on company resolutions, including the election of directors.
- Dividend Rights: Entitlement to dividends declared by the company.
- Rights to Information: Access to the company’s financial statements and reports.
- Rights to Attend Meetings: Ability to attend and participate in general meetings.
Privileges:
- Pre-Emptive Rights: Right to purchase new shares before they are offered to outsiders.
- Right to Transfer Shares: Ability to transfer shares to others, subject to the company’s AOA.
Case Example: Raj Kumar v. Union of India [1975] 45 Comp Cas 343 (Delhi) – Addressed shareholder rights and the ability to challenge decisions.
7. Prevention of Oppression and Mismanagement
Definition:
- Oppression and Mismanagement: Refers to unfair treatment of minority shareholders or improper management practices that harm the company.
Legal Provisions:
- Companies Act, 2013: Provides remedies for oppression and mismanagement.
- Section 241-246: Allows shareholders to file petitions with the National Company Law Tribunal (NCLT) for relief.
Remedies:
- Rescission of Decisions: Invalidating decisions taken under oppressive circumstances.
- Appointment of New Management: Replacing directors or managers involved in mismanagement.
- Compensation: Financial compensation for loss caused by oppression or mismanagement.
Case Example: S. K. Gupta v. Union of India [1975] 45 Comp Cas 231 – Addressed issues related to oppression and mismanagement and the remedies available under the Companies Act.
8. Different Modes of Winding Up of Companies
Definition:
- Winding Up: The process of dissolving a company and distributing its assets.
Modes:
- Voluntary Winding Up:
- Members’ Voluntary Winding Up: Initiated by the members when the company is solvent.
- Creditors’ Voluntary Winding Up: Initiated when the company is insolvent, and creditors are involved.
- Compulsory Winding Up:
- By Court Order: Ordered by the court under circumstances such as insolvency, inability to pay debts, or improper conduct.
Procedure:
- Resolution: A resolution must be passed for winding up.
- Appointment of Liquidator: A liquidator is appointed to manage the winding-up process.
- Settlement of Debts: All company debts must be settled before distributing remaining assets to shareholders.
Case Example: Re: Anglo-Indian Oil Company Ltd [1937] 7 Comp Cas 457 – Examined the procedures and principles involved in the winding-up of companies.
