MCA alters share capital and debenture rules

2014 RULES

AMENDMENTS

Rule 4(1)(g) prohibits a company to issue equity shares with differential rights as to dividend, voting, or otherwise if it has defaulted in the payment of the dividend on preference shares or on repayment of any term loan from a public financial institution, state-level financial institution or scheduled bank which has become repayable or upon which interest has become payable, or any dues that have arisen with respect to statutory payments relating to the company’s employees or default in crediting the amount to the central government for the Investor Education and Protection Fund.

A company may issue equity shares with differential rights five years from the end of the financial year in which the default in terms of payment, as applicable, was made good.

Rule 8(4) restricts a company from issuing sweat equity shares in excess of 15% of the existing paid-up equity share capital in a year, or shares with an issue value of ₹50 million (US$747,000), whichever is higher. The issuance shall not exceed 25% of the paid-up equity capital at any time.

Startups are allowed to issue sweat equity shares not exceeding 50% of their paid-up capital up to five years from the date of incorporation or registration at any time while complying with the yearly limits under the 2014 rule.

Under rule 13(c), securities allotted through a preferential issue had to be paid up fully at the time of the allotment.

This requirement has been removed and companies are now permitted to issue even partly paid-up securities through a preferential issue.

Rule 13(h) stated that where convertible securities are offered on a preferential basis with an option to apply for and get equity shares allotted, the price of the resultant shares shall be determined beforehand on the basis of a valuation report of a registered valuer.

This has been amended so that where convertible securities are offered on a preferential basis, the price of the resultant shares pursuant to conversion shall be determined either upfront at the time of the issue or fixed 30 days in advance of the date by which the holder of such convertible securities becomes entitled to apply for shares, on the basis of a valuation report submitted by a registered valuer within 60 days of the date by which the holder becomes entitled to apply for shares.

Companies with share capital are required to file form SH-7 if their share capital is altered.

Companies with no share capital must also file form SH-7 when they increase their number of members.

Rule 18 referred to the creation of debenture redemption reserve to the “value of debentures”.

“Value of debentures” has been changed to “value of outstanding debentures”.