COMPLIANCE MANAGEMENT AND DUE DILIGENCE

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PP-SACM & DD
first use the funds for repayment of such deposits.
– Under Section 372A of the Act, if the company had defaulted in complying with Section 58A, the
company cannot invest or lend or provide guarantee or security as long as the deposit is subsisting.
– As per Section 77B of the Act, the company is prohibited from buying back, if any default committed
by the company in repayment of deposit or interest payable thereon.
– There are also other provisions that protect the interests of depositors.
– Under Section 274 (1) (g) of the Act, if the default continues for one year or more, the directors of
the company incur the inevitable disqualification.
– Under Section 58AAA, the default in repayment of deposits has been made a cognizable offence.
In the case of Non-Banking Financial Companies, they have to comply with the directions of the Reserve
Bank of India also.
Offering Shares or Debentures to the Public (Section 67)
Section 67 of the Act contained a very clear expression of what amounts to an issue of shares to public as
distinguished from a private placement. Section 67 makes it clear that the offer or invitation to subscribe for
shares/debentures shall be treated as an offer to the public, if the offer or invitation is made to 50 persons or
more.
Every listed Public Company, making initial Public offer of securities for a sum of rupees ten crores or more,
shall issue the same only in dematerialized form by complying with the requisites provisions of the
Depositories Act, 1996 (Section 68B)
Minimum Subscription (Section 69)
The law is clear that there should be a minimum subscription and this applies for rights issues also under the
SEBI (ICDR) Regulation. All these are very important requirements and have been in place for protecting the
investors. Where the minimum subscription has not been received, Section 69 demands returning of the
moneys to the investors.
Statement in lieu of Prospectus (Section 70)
Section 70 of the Act contains an important provision. Whenever a company wants to issue shares, without
issuing a prospectus, it is mandatory to deliver to the Registrar a statement in lieu of prospectus atleast 3
days before allotment of shares/ debentures.
Listing Permission (Section 73)
Companies issuing securities to public have to necessarily get permission from Stock Exchanges for listing
the securities. Hence it is necessary to take care of that while complying Section 73 of the Act .
Buyback of Securities (Section 77A, 77AA, 77B)
The requirements to be complied with by listed companies under the above sections read with relevant
regulations of SEBI which covers all matters that apply to listed companies/companies purporting to be
listed.
Even in respect of unlisted companies, it is necessary to note that under Section 77A read with Section 77AA
and Section 77B, there are certain specific compliance requirements, restrictions and prohibitions. Besides
these substantive provisions of law contained in the above sections, the company that intends to make a