A Guide to the Companies (Share Capital and Debentures) Rules, 2014

A Guide to the Companies (Share Capital and Debentures) Rules, 2014

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The Companies (Share Capital and Debentures) Rules, 2014 has been enacted to provide procedures for share capital and debentures.

These rules apply on the following-

  1. All unlisted public companies.
  2. All private companies.
  3. Listed companies so far as they do not contradict or conflict with any other regulation framed in this regard by the Securities and Exchange Board of India (SEBI)

Brief History of the Rules

The Companies (Share Capital and Debenture) Rules, 2014 has been prescribed by the Central Government by powers given under Sections 43, 54, 55, 56, 62, 63, 64, 67, 68, 71 and 72 read with Section 469 of the Companies Act, 2013.

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The Companies (Share Capital and Debenture) Rules, 2014

List of Amendments

  • SEBI (Share Based Employees Benefits) Regulations, 2014
  • Companies (Share Capital and Debentures) Amendment Rules, 2014
  • Companies (Share Capital and Debentures) Amendment Rules, 2015
  • Companies (Share Capital and Debentures) Second Amendment Rules, 2015
  • Companies (Share Capital and Debentures) Third Amendment Rules, 2015
  • Companies (Share Capital and Debentures) Amendment Rules, 2016
  • Companies (Share Capital and Debentures) Second Amendment Rules, 2016
  • Companies (Share Capital and Debentures) Third Amendment Rules, 2016
  • Companies (Share Capital and Debentures) Fourth Amendment Rules, 2016
  • Companies (Share Capital and Debentures) Amendment Rules, 2018
  • Companies (Share Capital and Debentures) Amendment Rules, 2019

1. Important Definitions

Act means the Companies Act, 2013.

Fees mean the fees as specified in the Companies (Registration Offices and Fees) Rules, 2014.

Regional Director means the person appointed by the Central Government in the
Ministry of Corporate Affairs as a Regional Director.

Section means a section of the Companies Act, 2013.


2. Procedures under the Rules

2.1 Conditions for Company Limited by Shares to Issue Equity Shares with Differential Rights

  1. The articles of association of the company has to authorize the issue of shares with differential rights
  2. The issue of shares is authorized by an ordinary resolution passed at a general meeting of the shareholders (Provided that where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares has to be approved by the shareholders through postal ballot)
  3. The shares with differential rights should not exceed 74% of the total post- issue paid up equity share capital including equity shares with differential rights issued at any point of time
  4. The company has not defaulted in filing financial statements and annual returns for 3 financial years immediately preceding the financial year in which it is decided to issue such shares
  5. The company can have no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend
  6. The company should not have defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or Scheduled Bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government (Provided that a company may issue equity shares with differential rights upon expiry of 5 years from the end of the financial year in which such default was made good).
  7. The company has not been penalized by Court or Tribunal during the last 3 years of any offence under the Reserve Bank of India Act, 1934, the Securities and Exchange Board of India Act, 1992, the Securities Contracts Regulation Act, 1956, the Foreign Exchange Management Act, 1999 or any other special Act, under which such companies being regulated by sectoral regulators.
  8. The explanatory statement to be annexed to the notice of the general meeting or of a postal ballot should contain the total number of shares to be issued with differential rights, details of the differential rights, percentage of the shares with differential rights to the total post issue paid up equity share capital including equity shares with differential rights issued at any point of time, reasons or justification for the issue, the price at which such shares are proposed to be issued either at par or at premium, basis on which the price has been arrived at, in case of private placement or preferential issue details of total number of shares proposed to be allotted to promoters, directors and key managerial personnel, details of total number of shares proposed to be allotted to persons other than promoters, directors and key managerial personnel and their relationship if any with any promoter, director or key managerial personnel, in case of public issue reservation, if any, for different classes of applicants including promoters, directors or key managerial personnel, percentage of voting right which the equity share capital with differential voting right carries to the total voting right of the aggregate equity share capital, the scale or proportion in which the voting rights of such class or type of shares varies, change in control, if any, in the company that may occur consequent to the issue of equity shares with differential voting rights, the diluted earning per share pursuant to the issue of such shares, calculated in accordance with the applicable accounting standards and the pre and post issue shareholding pattern along with voting rights as per the listing agreement issued by the Securities and Exchange Board of India (SEBI) from time to time.
  9. The company cannot convert its existing equity share capital with voting rights into equity share capital carrying differential voting rights and vice versa.
  10. The holders of equity shares with differential rights enjoy all other rights such as bonus shares, rights shares etc., which the holders of equity shares are entitled to, subject to the differential rights with which such shares have been issued.

2.2 Disclosures to be made by the Board of Directors of the Company in respect of Issue of Equity Shares with Differential Rights

  1. The total number of shares allotted with differential rights
  2. Details of the differential rights relating to voting rights and dividends
  3. Percentage of the shares with differential rights to the total post issue equity share capital with differential rights issued at any point of time and percentage of voting rights which the equity share capital with differential voting right has to carry to the total voting right of the aggregate equity share capital
  4. Price at which such shares have been issued
  5. Particulars of promoters, directors or key managerial personnel to whom such
    shares are issued
  6. Change in control, if any, in the company consequent to the issue of equity shares
    with differential voting rights
  7. Diluted earning per share pursuant to the issue of each class of shares, calculated
    in accordance with the applicable accounting standards
  8. The pre and post issue shareholding pattern along with voting rights.

2.3 Rules for Certificate of Shares where the Shares are not in Demat Form

  1. Where a company issues any share capital, no certificate of any share or shares held in the company shall be issued, except in pursuance of a resolution passed by the Board and on surrender to the company of the letter of allotment or fractional coupons of requisite value, save in cases of issues against letters of acceptance or of renunciation, or in cases of issue of bonus shares (Provided that if the letter of allotment is lost or destroyed, the Board may impose such reasonable terms, if any, as to seek supporting evidence and indemnity and the payment of out-of-pocket expenses incurred by the company in investigating evidence, as it may think fit).
  2. Every certificate of share or shares has to be in Form No. SH.1 or as near thereto as possible and has to specify the names of persons in whose favour the certificate is issued, the shares to which it relates and the amount paid-up thereon
  3. Every certificate has to specify the shares to which it relates and the amount paid-up thereon has to be signed by 2 directors or by a director or the company secretary, wherever the company has appointed  a company secretary (Provided that in case the company has a common seal it will have to be affixed in the presence of persons required to sign the certificate). 
  4. It has to be kept in mind that in case of a One Person Company, it is sufficient if the certificate is signed by a director or the company secretary or any other person authorised by the Board for the purpose and that a director is deemed to have signed the share certificate if his signature is printed thereon as facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography or digitally signed, but not by means of rubber stamp. (Provided that the director is personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose).
  5. The particulars of every share certificate issued has to be entered in the Register of Members maintained along with the names of persons to whom it has been issued, indicating the date of issue.

2.4 Rules for Issue of Renewed or Duplicate Share Certificate

  1. The certificate of any share or shares cannot be issued either in exchange for those which are sub- divided or consolidated or in replacement of those which are defaced, mutilated, torn or old, decrepit, worn out, or where the pages on the reverse for recording transfers have been duly utilised, unless the certificate in lieu of which it is issued is surrendered to the company (Provided that the company may charge such fee as the Board thinks fit, not exceeding INR 50 per certificate issued on splitting or consolidation of share certificates or in replacement of share certificates that are defaced, mutilated, torn or old, decrepit or worn out).
  2. A company may replace all the existing certificates by new certificates upon sub- division or consolidation of shares or merger or demerger or any reconstitution without requiring old certificates to be surrendered.
  3. The duplicate share certificate will not be not issued in lieu of those that are lost or destroyed, without the prior consent of the Board and without payment of such fees as the Board thinks fit, not exceeding INR 50 per certificate and on such reasonable terms, such as furnishing supporting evidence and indemnity and the payment of out-of-pocket expenses incurred by the company in investigating the evidence produced.
  4. In case of unlisted companies, the duplicate share certificates have to be issued within a period of 3 months and in case of listed companies such certificate has to be issued within 45 days from the date of submission of complete documents with the company respectively.
  5. The particulars of every share certificate issued has to be entered forthwith in a Register of Renewed and Duplicate Share Certificates maintained in Form No.SH.2 indicating the names of the persons to whom the certificate is issued, the number and date of issue of the share certificate in lieu of which the new certificate is issued, and the necessary changes indicated in the Register of Members by suitable cross-references in the “Remarks” column. The register has to be kept at the registered office of the company or at such other place where the Register of Members is kept and it has to be preserved permanently and kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose.
  6. All entries made in the Register of Renewed and Duplicate Share Certificates have to be authenticated by the company secretary or such other person as may be authorised by the Board for the purposes of sealing and signing the share certificate.

2.5 Rules for Issue of Sweat Equity Shares

  1. A company other than a listed company, which is not required to comply with SEBI regulations on sweat equity, cannot issue sweat equity shares to its directors or employees at a discount or for consideration other than cash, for their providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called, unless the issue is authorised by a special resolution passed by the company in general meeting.
  2. The explanatory statement to be annexed to the notice of the general meeting has to contain the date of the Board meeting at which the proposal for issue of sweat equity shares was approved, reasons or justification for the issue, class of shares under which sweat equity shares are intended to be issued, total number of shares to be issued as sweat equity, class or classes of directors or employees to whom such equity shares are to be
    Issued, the principal terms and conditions on which sweat equity shares are to be issued,
    including basis of valuation, time period of association of such person with the company, names of the directors or employees to whom the sweat equity shares will be issued and their relationship with the promoter or key managerial personnel, price at which the sweat equity shares are proposed to be issued, consideration including consideration other than cash, if any to be received for the sweat equity, the ceiling on managerial remuneration, if any, be breached by issuance of such sweat equity and how it is proposed to be dealt with, a statement to the effect that the company will conform to the applicable accounting standards and diluted earning per share pursuant to the issue of sweat equity shares, calculated in accordance with the applicable accounting standards.
  3. The special resolution authorising the issue of sweat equity shares is to be valid for making the allotment within a period of not more than 12 months from the date of passing of the special resolution.
  4. The company cannot issue sweat equity shares for more than 15% of the existing paid up equity share capital in a year or shares of the issue value of INR 25 crores, whichever is higher (Provided that the issuance of sweat equity shares in the company cannot exceed 25% of the paid up equity capital of the company at any time.
  5. The sweat equity shares issued to directors or employees has to be locked in as non-transferable for a period of 3 years from the date of allotment and the fact that the share certificates are under lock-in and the period of expiry of lock-in have to be stamped in bold or mentioned in any other prominent manner on the share certificate.
  6. The sweat equity shares to be issued have to be valued at a price determined by a registered valuer as the fair price giving justification for such valuation.
  7. The valuation of intellectual property rights or of know how or value additions for which sweat equity shares are to be issued, has to be carried out by a registered valuer who has to provide a proper report addressed to the Board of Directors with justification for such valuation.
  8. The company has to maintain a Register of Sweat Equity Shares in Form No. SH.3 and has to enter particulars of sweat equity shares issued.
  9. The Register of Sweat Equity Shares has to be maintained at the registered office of the company or such other place as the Board may decide.
  10. The entries in the register have to be authenticated by the company secretary of the company or by any other person authorized by the Board for the purpose.

2.6 Rules for Issue and Redemption of Preference Shares

  1. A company having a share capital may, if so authorised by its articles, issue preference shares subject to the issue of such shares has been authorized by passing a special resolution in the general meeting of the company and the company, at the time of such issue of preference shares, has no subsisting default in the redemption of preference shares issued or in payment of dividend due on any preference shares.
  2. A company issuing preference shares has to set out in the resolution, particulars of the priority with respect to payment of dividend or repayment of capital in relation to equity shares, participation in surplus fund, participation in surplus assets and profits, on winding-up which may remain after the entire capital has been repaid, payment of dividend on cumulative or non-cumulative basis, conversion of preference shares into equity shares voting rights and the redemption of preference shares.
  3. The explanatory statement to be annexed to the notice of the general meeting has to provide the complete material facts concerned with and relevant to the issue of such shares which includes the size of the issue and number of preference shares to be issued and nominal value of each share, nature of such shares, objectives of the issue, the manner of issue of shares, price at which such shares are proposed to be issued, the basis on which the price has been arrived at, terms of issue, including terms and rate of dividend on each share, terms of redemption including the tenure of redemption, redemption of shares at premium and if the preference shares are convertible, the terms of conversion, manner and modes of redemption, current shareholding pattern of the company and the expected dilution in equity share capital upon conversion of preference shares.
  4. A company may redeem its preference shares only on the terms on which they were issued or as varied after due approval of preference shareholders and the preference shares may be redeemed at a fixed time or on the happening of a particular event, any time at the company’s option or any time at the shareholder’s option.
  5. A company engaged in the setting up and dealing  with infrastructural projects may issue preference shares for a period exceeding 20 years but not exceeding 30 years, subject to the redemption of a minimum 10% of such preference shares per year from the 21st year onwards or earlier, on proportionate basis, at the option of the preference shareholders.

2.7 Rules for Instrument of Transfer

  1. An instrument of transfer of securities held in physical form has to be in Form No.SH.4 and every instrument of transfer with the date of its execution specified thereon has to be delivered to the company within 60 days from the date of such execution.
  2. A company cannot register a transfer of partly paid shares, unless the company has given a notice in Form No. SH.5 to the transferee and the transferee has given no objection to the transfer within 2 weeks from the date of receipt of notice.

2.8 Rules for Issue of Employee Stock Options

  1. A company, other than a listed company, which is not required to comply with the SEBI Employee Stock Option Scheme Guidelines  cannot offer shares to its employees under a scheme of employees’ stock option, unless the issue of Employees Stock Option Scheme has been approved by the shareholders of the company by passing a special resolution.
  2. The company has to make disclosures in the explanatory statement annexed to the notice for passing of the resolution containing the total number of stock options to be granted, identification of classes of employees entitled to participate in the Employees Stock
    Option Scheme, appraisal process for determining the eligibility of employees to the Employees Stock Option Scheme, the requirements of vesting and period of vesting, maximum period within which the options shall be vested, the exercise price or the formula for arriving at the same, the exercise period and process of exercise,  lock-in period, if any, the maximum number of options to be granted per employee and in aggregate, the method which the company shall use to value its options, conditions under which option vested in employees may lapse in case of termination of employment for misconduct, specified time period within which the employee has to exercise the vested options in the event of a proposed termination of employment or resignation of employee and a statement to the effect that the company has to comply with the applicable accounting standards.
  3. The companies granting option to its employees pursuant to Employees Stock Option Scheme will have the freedom to determine the exercise price in conformity with the applicable accounting policies, if any.
  4. The approval of shareholders by way of separate resolution has to be obtained by the company in case of grant of option to employees of subsidiary or holding company or grant of option to identified employees, during any 1 year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option.
  5. The company may, by special resolution, vary the terms of Employees Stock Option Scheme not yet exercised by the employees, provided that such variation is not prejudicial to the interests of the option holders.
  6. The notice for passing a special resolution for variation of terms of Employees Stock Option Scheme has to disclose full details of the variation, the rationale and the details of employees who are beneficiaries of such variation.
  7. The rules state that there has to be a minimum period of 1 year between the grant of options and vesting of option (Provided that in a case where options are granted by a company under its Employees Stock Option Scheme in lieu of options held by the same person under an Employees Stock Option Scheme in another company, which has merged or amalgamated with the first mentioned company, the period during which the options granted by the merging or amalgamating company were held by him shall be adjusted against the minimum vesting period required under this clause).
  8. The company has the freedom to specify the lock-in period for the shares issued pursuant to exercise of option.
  9. Employees do not have the right to receive any dividend or to vote or in any manner enjoy the benefits of a shareholder in respect of option granted to them, till shares are issued on exercise of option.
  10. The amount, if any, payable by the employees, at the time of grant of option may be forfeited by the company if the option is not exercised by the employees within the exercise period or the amount may be refunded to the employees if the options are not vested due to non- fulfilment of conditions relating to vesting of option as per the Employees Stock Option Scheme.
  11. The option granted to employees is not transferable to any other person. The option granted to the employees cannot be pledged, hypothecated, mortgaged or otherwise encumbered or alienated in any other manner.
  12. In the event of death of an employee while in employment, all the options granted to him till such date will vest in the legal heirs or nominees of the deceased employee.
  13. In case the employee suffers a permanent incapacity while in employment, all the options granted to him as on the date of permanent incapacitation, vests in him on that day.
  14. In the event of resignation or termination of employment, all options not vested in the employee as on that day, expires. However, the employee can exercise the options granted to him which are vested within the period specified in this behalf, subject to the terms and conditions under the scheme granting such options as approved by the Board.
  15. The Board of Directors have to disclose in the Directors’ Report for the year, certain details of the Employees Stock Option Scheme which include options granted, options vested, options exercised, total number of shares arising as a result of exercise of option, options lapsed, exercise price, variation of terms of options, money realized by exercise of options, total number of options in force, employee wise details of options granted to key managerial personnel and any other employee who receives a grant of options in any 1 year of option amounting to 5% or more of options granted during that year, identified employees who were granted option, during any 1 year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant.
  16. The company has to maintain a Register of Employee Stock Options in Form No. SH.6 and has to forthwith enter the particulars of option granted.
  17. The Register of Employee Stock Options has to be maintained at the registered office of the company or such other place as the Board may decide. The entries in the register have to be authenticated by the company secretary of the company or by any other person authorized by the Board for the purpose.
  18. Where the equity shares of the company are listed on a recognized stock exchange, the Employees Stock Option Scheme has to be issued in accordance with the regulations made by SEBI.

2.9 Rules for Buy- back of Shares or Other Securities

  1. The explanatory statement to be annexed to the notice of the general meeting has to contain the date of the board meeting at which the proposal for buy-back was approved by the Board of Directors of the company, objective of the buy-back, the class of shares or other securities intended to be purchased under the buy-back, number of securities that the company proposes to buy-back, the method to be adopted for the buy-back, the price at which the buy-back of shares or other securities shall be made, the basis of arriving at the buy-back price, the maximum amount to be paid for the buy-back and the sources of funds from which the buy-back would be financed, time-limit for the completion of buy-back, the aggregate shareholding of the promoters and of the directors of the promoter where the promoter is a company and of the directors and key managerial personnel as on the date of the notice convening the general meeting, the aggregate number of equity shares purchased or sold by persons during a period of 12 months preceding the date of the board meeting at which the buy-back was approved and from that date till the date of notice convening the general meeting, maximum and minimum price at which purchases and sales were made along with the relevant date, confirmation that there are no defaults subsisting in repayment of deposits, interest payment thereon, redemption of debentures or payment of interest thereon or redemption of preference shares or payment of dividend due to any shareholder, or repayment of any term loans or interest payable thereon to any financial institution or banking company, confirmation that the Board of Directors have made a full enquiry into the affairs and prospects of the company, a report addressed to the Board of Directors by the company’s auditors stating that they have inquired into the company’s state of affairs, amount of the permissible capital payment for the securities in question and that, the audited accounts have been done on the basis of calculations with reference to buy back not more than 6 months from the date of offer document.
  2. The company which has been authorized by a special resolution has to, before the buy-back of shares, file with the Registrar of Companies, a letter of offer in Form No. SH.8 along with the fee.
  3. The company has to file with the Registrar, along with the letter of offer, and in case of a listed company with the Registrar and the Securities and Exchange Board, a declaration of solvency in Form No. SH.9 along with the fee and signed by at least 2 directors of the company, one of whom shall be the managing director, if any, and verified by an affidavit as specified in the said Form.
  4. The letter of offer has to be dispatched to the shareholders or security holders immediately after filing the same with the Registrar of Companies but not later than 20 days from its filing with the Registrar of Companies.
  5. The offer for buy back has to remain open for a period of not less than 15 days and not exceeding 30 days from the date of dispatch of the letter of offer (Provided that where all members of a company agree, the offer for buy-back may remain open for a period less than 15 days).
  6. In case the number of shares or other specified securities offered by the shareholders or security holders is more than the total number of shares or securities to be bought back by the company, the acceptance per shareholder shall be on proportionate basis out of the total shares offered for being bought back.
  7. The company has to complete verifications of the offers received within 15 days from the date of closure of the offer and the shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within 21 days from the date of closure of the offer.
  8. The company has to immediately, after the date of closure of the offer, open a separate bank account and deposit therein, such sum, as would make up the entire sum due and payable as consideration for the shares tendered for buy-back in terms of these rules.
  9. The company has to ensure that the letter of offer contains true, factual and material information and does not contain any misleading information and must state that the directors of the company accept the responsibility for the information contained in such documents.
  10. The company cannot issue any new shares including by way of bonus shares from the date of passing of special resolution authorizing the buy-back till the date of the closure of the offer under these rules, except those arising out of any outstanding convertible instruments.
  11. The company has to confirm in its offer, the opening of a separate bank account adequately funded for this purpose and to pay the consideration only by way of cash.
  12. The company cannot withdraw the offer once it has announced the offer to the shareholders.
  13. The company cannot utilize any money borrowed from banks or financial institutions for the purpose of buying back its shares.
  14. The company cannot utilize the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities for the buy-back.
  15. The company has to maintain a register of shares or other securities which have been bought-back in Form No. SH.10.
  16. The register of shares or securities bought-back has to be maintained at the registered office of the company and has to be kept in the custody of the company secretary of the company or any other person authorized by the Board on this behalf. The entries in the register have to be authenticated by the company secretary of the company or by any other person authorized by the Board for the purpose.
  17. The company, after the completion of the buy-back under these rules, has to file with the Registrar, and in case of a listed company with the Registrar and the Securities and Exchange Board of India, a return in Form No. SH.11 along with the fee.
  18. There has to be annexed to the return filed with the Registrar in Form No. SH.11, a certificate in Form No. SH.15 signed by 2 directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Companies Act, 2013 and its rules.

2.10 Rules for Debentures

  1. The company cannot issue secured debentures unless an issue of secured debentures may be made, provided the date of its redemption does not exceed 10 years from the date of issue (Provided that Companies engaged in setting up of Infrastructure Projects, Infrastructure Finance Companies, Infrastructure Debt Fund Non- Banking Financial Companies and companies permitted by a Ministry or Department of the Central Government or by the Reserve Bank of India or by the National Housing Bank or by any other statutory authority may issue secured debentures for a period exceeding 10 years but not exceeding 30 years).
  2. The company cannot issue secured debentures unless such an issue of debentures is secured by the creation of a charge on the properties or assets of the company or its subsidiaries or its holding company or its associates companies, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon.
  3. The company cannot issue secured debentures unless it appoints a debenture trustee before the issue of prospectus or letter of offer for subscription of its debentures and not later than 60 days after the allotment of the debentures, execute a debenture trust deed to protect the interests of the debenture holders.
  4. The company cannot issue secured debentures unless the security for the debentures by way of a charge or mortgage is created in favour of the debenture trustee on any specific movable property of the company or its holding company or subsidiaries or associate companies or otherwise and any specific immovable property wherever situated, or any interest therein.
  5. The company can appoint debenture trustees after complying with the conditions that the names of the debenture trustees are stated in letter of offer inviting subscription for debentures and also in all the subsequent notices or other communications sent to the debenture holders, before the appointment of debenture trustee or trustees, a written consent has been obtained from such debenture trustee or trustees proposed to be appointed and a statement to that effect has appeared in the letter of offer issued for inviting the subscription of the debentures.
  6. A person cannot be appointed as a debenture trustee, if he beneficially holds shares in the company, is a promoter, director or key managerial personnel or any other officer or an employee of the company or its holding, subsidiary or associate company, is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration payable to the debenture trustee, is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company, has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon, has any pecuniary relationship with the company amounting to 2% or more of its gross turnover or total income or INR 50 lakhs or such higher amount as may be prescribed, whichever is lower, during the 2 immediately preceding financial years or during the current financial year and is relative of any promoter or any person who is in the employment of the company as a director or key managerial personnel.
  7. The Board may fill any casual vacancy in the office of the trustee but while any such vacancy continues, the remaining trustee or trustees, if any, may act (Provided that where such vacancy is caused by the resignation of the debenture trustee, the vacancy can only be filled with the written consent of the majority of the debenture holders).
  8. Any debenture trustee may be removed from office before the expiry of his term only if it is approved by the holders of not less than three fourth in value of the debentures outstanding, at their meeting.
  9.  It is the duty of every debenture trustee satisfy himself that, the letter of offer does not contain any matter which is inconsistent with the terms of the issue of debentures or with the trust deed, the covenants in the trust deed are not prejudicial to the interests of the debenture holders, call for periodical status or performance reports from the company, communicate promptly to the debenture holders defaults, if any, with regard to payment of interest or redemption of debentures and action taken by the trustee, appoint a nominee director on the Board of the company in the event of 2 consecutive defaults in payment of interest to the debenture holders, default in creation of security for debentures or default in redemption of debentures, ensure that the company does not commit any breach of the terms of issue of debentures or covenants of the trust deed and take such reasonable steps as may be necessary to remedy any such breach, inform the debenture holders immediately of any breach of the terms of issue of debentures or covenants of the trust deed, ensure the implementation of the conditions regarding creation of security for the debentures, if any, and debenture redemption reserve, ensure that the assets of the company issuing debentures and of the guarantors, if any, are sufficient to discharge the interest and principal amount at all times and that such assets are free from any other encumbrances except those which are specifically agreed to by the debenture holders, do such acts as are necessary in the event the security becomes enforceable, call for reports on the utilization of funds raised by the issue of debentures, take steps to convene a meeting of the holders of debentures as and when such meeting is required to be held, ensure that the debentures have been converted or redeemed in accordance with the terms of the issue of debentures and perform such other acts as are necessary for the protection of the interest of the debenture holders and do all other acts as are necessary in order to resolve the grievances of the debenture holders.
  10. A trust deed for securing any issue of debentures has to be kept open for inspection to any member or debenture holder of the company, in the same manner, to the same extent and on the payment of the same fees, as if it were the register of members of the company and a copy of the trust deed has to be forwarded to any member or debenture holder of the company, at his request, within 7 days of the making thereof, on payment of fee.
  11. The company has to comply with the requirements with regards to Debenture Redemption Reserve and investment or deposit of sum in respect of debentures maturing during the year ending on the 31st day of March of next year, in accordance with the conditions that the Debenture Redemption Reserve has to be created out of profits of the company available for payment of dividend, the limits with respect to adequacy of Debenture Redemption Reserve and investment or deposits, as the case may be has to be in such a way that Debenture Redemption Reserve is not required for debentures issued by All India Financial Institutions regulated by Reserve Bank of India and Banking Companies for both public as well as privately placed debentures, for other Financial Institutions, Debenture Redemption Reserve is applicable to Non -Banking Finance Companies registered with Reserve Bank of India and for listed companies other than All India Financial Institutions and Banking Companies, Debenture Redemption Reserve is not required in case of public issue of debentures and in case of privately placed debentures, for unlisted companies other than All India Financial institutions and Banking Companies, for Non Banking Financial Companies registered with the Reserve Bank of India and for Housing Finance Companies registered with National Housing Bank, Debenture Redemption Reserve is not required in case of privately placed debentures, for other unlisted companies, the adequacy of Debenture Redemption Reserve is 10% of the value of the outstanding debentures, in case a company is covered in all the above categories, it has to, on or before the 30th day of April in each year, in respect of debentures issued by a company covered in the above categories, invest or deposit, as the case may be, a sum which is not be less than 15% of the amount of its debentures maturing during the year, ending on the 31st day of March of the next year in any one or more methods of investments or deposits.

2.11 Rules for Nomination by Securities Holders

  1. Any holder of securities of a company may, at any time, nominate, in Form No. SH.13, any person as his nominee in whom the securities shall vest in the event of his death.
  2. On receipt of the nomination form, a corresponding entry has to forthwith be made in the relevant register of securities holders.
  3. Where the nomination is made in respect of the securities held by more than one person jointly, all joint holders have to nominate together in Form No. SH.13, any person as nominee.
  4. The request for nomination should be recorded by the company within a period of 2 months from the date of receipt of the duly filled and signed nomination form.
  5. In the event of death of the holder of securities or where the securities are held by more than one person jointly, in the event of death of all the joint holders, the person nominated as the nominee may upon the production of such evidence as may be required by the Board, elect to register himself as holder of the securities or to transfer the securities, as the deceased holder could have done.
  6. If the person being a nominee, so becoming entitled, elects to be registered as holder of the securities himself, he has to deliver or send to the company a notice in writing signed by him stating that he so elects and such notice has to be accompanied with the death certificate of the deceased share or debenture holder.
  7. All the limitations, restrictions and provisions of the Act relating to the right to transfer and the registration of transfers of securities are applicable to any such notice or transfer as aforesaid as if the death of the share or debenture holder had not occurred and the notice or transfer were a transfer signed by that shareholder or debenture holder, as the case may be.
  8. A person, being a nominee, becoming entitled to any securities by reason of the death of the holder is entitled to the same dividends or interests and other advantages to which he would have been entitled to if he were the registered holder of the securities except that he shall not, before being registered as a holder in respect of such securities, be entitled in respect of these securities to exercise any right conferred by the membership in relation to meetings of the company (Provided that the Board may, at any time, give notice requiring any such person to elect either to be registered himself or to transfer the securities, and if the notice is not complied with within 90 days, the Board may thereafter withhold payment of all dividends or interests, bonuses or other moneys payable in respect of the securities, as the case may be, until the requirements of the notice have been complied with.
  9. A nomination may be cancelled or varied by nominating any other person in place of the present nominee, by the holder of securities who has made the nomination, by giving a notice of such cancellation or variation to the company in Form No. SH.14.
  10. The cancellation or variation has to take effect from the date on which the notice of such variation or cancellation is received by the company.
  11. Where the nominee is a minor, the holder of the securities, making the nomination, may appoint a person in Form No. SH.13, who will become entitled to the securities of the company, in the event of death of the nominee during his minority.

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Manohar Samal