Amended Rules for Unlisted Public Companies

The Central Government of India has recently made amendments to the list of rules for Unlisted Public Companies (known as the “Unlisted Public Companies Preferential Allotment [2011]”). These rules will come into effect on the date of their publication in the Official Gazette.

The previous list of rules [2003] (hereafter referred to as “said rules”) will have the following changes made.

Rule 3, Clause (1), shall be substituted with the following:

• “Preferential allotment” means allotment of shares or any other instrument convertible into shares, including hybrid instruments convertible into shares on preferential basis, made pursuant to the provisions of subsection (1A) of Section 81 of the “Companies Act, 1956″
• Provided that the name, father’s name, address and occupation of persons to whom such allotment is proposed shall be mentioned in the resolution passed by the members under that sub-section
• Provided further that persons to whom such an offer is proposed, shall not be older than forty-nine, as per the first proviso to sub-section (3) of Section 67 of the “Companies Act, 1956″

Rule 4 of the said rules – “Special Resolution” – shall be substituted with the following:

• No issue of shares or any other instruments convertible into shares, including hybrids convertible into shares on a preferential basis, can be made by a company unless authorized by its articles of association and unless the members of the Board of Directors pass a special resolution in a general meeting
• The special resolution referred to in sub-rule (1) shall be acted upon within a period of twelve months

Following Rule 7 “Audit Certificate”, Rule 8 – “Invitation and Allotment of Securities” – shall be inserted:

• No fresh offer or invitation shall be made unless the allotment with respect to any offer or invitation made earlier has been completed according to the terms of sub-section (9) of Section 60B of the “Companies Act, 1956″
• Any offer or invitation not in compliance with sub-section (1A) of Section 81 read with sub-section (3) of Section 67 of the said Act shall be treated as a public offer and shall comply with the provisions of the “Securities Contracts (Regulation) Act, 1956 (42 of 1956)” and the “Securities and Exchange Board of India Act, 1992 (15 of 1992)”
• All monies payable on subscription of securities shall be paid through cheque or demand draft or other banking channels but not by cash
• Any allotment of securities shall be completed within sixty days from the receipt of application money. In case the company is not able to allot the securities within the particular period of sixty days, it shall repay the application money within fifteen days thereafter, failing which it will be required to be re-paid with interest at the rate of 12 percent per annum
• Provided that the monies received on such application shall be kept in a separate bank account and shall not be utilized for any purpose other than:
  1) For adjustment against allotment of securities; or
  2) For the repayment of monies where the company is unable to allot securities
• No company offering securities shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an offer.

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