COMPLIANCE MANAGEMENT AND DUE DILIGENCE

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PP-SACM & DD
applies only to limited companies with share capital. Section 16 of the Act provides that a company cannot
alter the conditions contained in its memorandum except in the cases, in the mode, and to the extent, for
which express provision has been made in the Act. Section 94 of the Act is an illustration with regard to
alteration of the capital clause of a limited company in relation to the following:
– Increase the share capital.
– Consolidate and divide all or any of its share capital into shares of larger amount than its existing
shares.
– Convert all or any of its fully paid shares into stock, and reconvert that stock into fully paid up shares
of any denomination.
– Sub-division of shares.
– Cancellation of unissued shares.
Reduction of Share Capital (Sections 100 to 105)
Under these sections, the prerequisites, procedures and penalties in relation to reduction of share capital
have been provided. Interestingly any action under this section is verified by the court before which the
application for reduction of share capital has been made. However in view of the significance of the subject
matter, it is necessary to be careful about reduction of capital and necessarily the procedural aspects
thereof. In this context, it is necessary to ensure that the following requirements have been complied with.
Variation of Shareholders Rights (Sections 106 and 107)
The company has varied the rights of holders of special classes of shares and the variation of rights has
taken place in accordance with the provisions of the Act.
Appointment of Nominees by Shareholders and Debenture holders (section 109A)
A company has to record particulars of appointment/revocation of appointment of nominees of its
shareholders/debenture holders.
Special provisions relating to Debentures (Section 117 to 122)
Section 117A
– The debenture trust deed should be in the prescribed form and it should be executed within the
prescribed time.
– The copy of the trust deed should be made available for inspection for debenture holder and he
shall also be entitled to have a copy thereof.
– Failure to permit inspection or give copy, invites the penal clause contained in sub-section (3) of
Section 117A of the Act.
The mischief addressed by this section is applicable only when the company had issued debentures and if it
had refused an inspection of the debenture trust deed or to give a copy of the same.
Section 117B
– The provisions of this section apply when the company issues debentures to public.
– Unless, the company appoints one or more persons who are eligible to be appointed as debenture
trustees after obtaining the consent of such persons, it is not possible to issue a prospectus or letter