CHANGE IN OBJECT CLAUSE IN
CASE OF COMPANY RAISED MONEY THROUGH PROSPECTUS AND HAS UNUTILIZED MONEY.
Companies Act.
Object clause being the 3rd
clause of Memorandum of Association (MOA) contains the purpose for which the
company is incorporated, it forms the core matter of the MOA, it is considered
as the most important clause amongst all other clauses of MOA which indicates the
extent of the company’s power and sphere of its activities, it defines the boundary
within which a company operates.
Any operation carried out by the
company outside the limits as specified in object clause shall be ULTRA VIRES
and therefore, void.
In the earlier Companies Act, 1956
the object clause was bifurcated into main, ancillary and other objects but the
Companies Act, 2013 provides that there is no need for such bifurcation and a
Company can’t provide for other objects.
Section 13(1) of the Companies
Act, 2013 (hereinafter referred to as “Act”) provides that any alteration in MOA (expect
section 61) requires Special Resolution and subsequently
company is required to file MGT-14 with Registrar within 30 days of such
Special Resolution (as given under section 117 of the Act.)
As per Section
13(8) and Section 27(2) of the Act read with Rule 32 of Companies Incorporation
Rules, 2014 provides where the Company has raised money from the public through the prospectus and has any unutilized amount, it shall not change the object for
which money so raised unless a special resolution is passed through postal ballot
To
understand the given case let’s take an example-
A company
XYZ Ltd. Engaged in business “A” and raised a fund of R.s 800 cr. form public through
prospectus and now the company have the unutilized amount of R.s 300cr. out of such
800 cr. and the company wants to change its object clause from Business “A” to
Business “B” and desires to utilize such 300 cr in business “B”.
For doing
so the company required the approval of shareholders in general meeting by means of Special Resolution and provide an exit
opportunity to dissenting shareholders, if any.
The
Summary Procedure for such Alteration.
·
Issue notice for calling a Board Meeting as per
Section 173(3) of the Act.
·
Hold the Board Meeting and approve such
alteration.
·
Issue the notice of the general meeting as per Section
101 & 102.
·
The notice in respect of such alteration shall
contains the following details namely.
-
Details of the total money received
-
Details of money utilized for the objects stated
in prospectus.
-
Details of unutilized money out of the money so
raised through the prospectus.
-
Particulars for proposed alteration.
-
Justification for such alteration
-
Amount proposed to be utilized for the new
objects
-
The estimated financial impact of the proposed alterations
on the earnings and cash flows of the company.
-
The other relevant information which is necessary
for the members to take an informed decision on the proposed resolution.
-
The place where any interested person may
obtain a copy of the notice of resolution to be passed.
· Details of such resolution shall also be
published in the newspaper which is in circulation at the place where the registered office of the company is situated in FORM PAS-1 as provided in section 27(2) read with Rule 7 of Companies (Prospectus and Allotment Rules) 2014.
·
The notice shall also be placed on the website of
the Company.
·
Hold the general meeting and pass special
resolution through postal ballot as per Section 110.
(Except
Companies other than OPC and having members up to 200)
·
Details of Such Special Resolution shall also
require to be published in the newspaper.
·
13(6) of the Act provides, save as provided
under section 64 of the Act, a Company shall, in relation to any alteration of
its MOA file with the Registrar a copy of special resolution along with
explanatory statement in form – MGT 14.
·
Section 13(9) of the Act provides, that the
Registrar shall register the same and issue a certificate to that effect under
his hand within 1 month from the date of filing such documents.
·
Section 13(10) of the Act further provides, no
alteration shall have any effect until the same has been registered in
accordance with the provision of this section. (as discussed above).
ANY SHAREHOLDER WHO IS AGAINST SUCH RESOLUTION (DISSENTING
SHAREHOLDERS) SHALL BE GIVEN EXIT OPPORTUNITY BY PROMOTERS AND SHAREHOLDERS
HAVING CONTROL AS SPECIFIED IN SCHEDULE XX OF THE SEBI (ICDR) REGULATION 2018.
Readers shall note that the above exit opportunity is given by
promoters and shareholders having control, not by the Company.
Relaxation in SEBI (SAST) Regulation 2011.
As per Regulation 3(4) of SEBI (SAST) Regulation 2011,
Promoter or Shareholder are not required to give open offer as given under
Regulation 3 if there, shareholdings increased due to exit given to dissenting
shareholders.
SEBI (ICDR) REGULATION 2018
MANNER OF PROVIDING EXIT OPPORTUNITY TO DISSENTING SHAREHOLDERS
-
Issue of notice along with an explanatory statement
for passing a special resolution.
-
The issuer shall submit the voting results to
the recognized stock exchange as per Reg. 44(3) of SEBI (LODR) 2015.
-
The issuer shall provide a list of dissenting
shareholders to the stock exchange.
- The promoters and shareholders having control, shall
appoint merchant banker registered with the Board and finalize the exit offer price –
THE exit offer price shall be the highest of the
following:
·
VWAP (Volume –weighted average price) during 52
weeks immediately preceding the relevant date.
·
The highest price paid or payable by promoters
etc. during 26 weeks immediately preceding the relevant date.
·
VWAMP (Volume weighted average market price) of
60 trading days immediately preceding relevant date.
It may be noted that if shares
are frequently traded, the price to be determined by the promoters or
shareholders and merchant banker taking into account valuation parameters including
book value, comparable trading multiples, and such other parameters as are
customary.
-
The stock exchanges on receipt of such
information disseminate the same to the public within 1 working days.
-
Tendering period shall start not later than
seven days from the date of passing Special Resolution and offer shall remain
open for 10 working days.
- Dissenting Shareholder shall have an option to
withdraw such acceptance till the date of closure of tendering period
- Promoters or shareholders having control shall
make payment within 10 days from the last date of tendering period to the dissenting
shareholders who have accepted the exit offer.
Condition
for Exit Offer
- The proposal for change in objects or variation in terms of a contract is dissented by atleast10% of the shareholders who voted in the general meeting.
- The amount to be utilized for the objects for which the prospectus was issued is less than 75% of the amount raised.
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