The age old Companies (Issue of Share Certificate ) Rules, 1960 has been replaced with the new Rules viz., Companies (Share Capital and Debentures ) Rules, 2014 with respect to Issue of Share Certificates and other allied matters.
From now on the following rules governing Share Certificates shall apply.
Let us explore one by one.
1.Two conditions to be fulfilled before the Issue of Share Certificates
With effective from 1st April, 2014 Share Certificates shall be issued to the new Allottees only after fulfilling the following two conditions.
i. The Board should authorise the issue of the Share Certificate by means of a resolution.
ii. The Share certificate shall be issued only on surrender of the ˜˜Letter of Allotment™ or a ™˜Fractional Coupon™ of a requisite value save in cases of issues against a ™™Letter of Acceptance or a Letter of Renunciation” or in the case of issue of Bonus Shares.
My Comments:
The Rule indirectly imposes the management to issue a ™˜Letter of Allotment” to the Allottees and then make them surrender. I fail to understand why the Government is insisting to do this exercise. Irrespective of the size of the Company, the management is obliged to issue a ™˜Letter of Allotment™ and then ask the allottee to surrender the same so as to make them eligible to get the Share Certificate from the Company. In my opinion, Letter of Allotment should be optional and not conditional.
2.Format and Contents of the Share Certificate in a new Form
There was no specific official Share Certificate format under the Companies Act, 1956. Now the new Rules states that the Share Certificate shall be in Form No.SH.1
The rules has also given the flexibility to the management to have their own format but as near as possible to Form No.SH.1 but shall state particulars such as i. Name of the person in whose favour the certificate is issued ii. the shares to which it relates (such as Folio No, SC No and the Distinctive Nos) iii the amount paid up per share.
3.Signatories to the Share Certificate
The following persons shall be the signatories to the Certificate:
a. Two Directors of the Company. (They should be authorised by the Board or the Committee constituted by the Board ) and
b.. Company Secretary or any person duly authorised by the Board. (If a Company Secretary is appointed, he shall be deemed to be the Authorised Person)
c. If the Composition of the Board permits, one of the Directors shall be a Non Whole Time Director or Non Managing Director.
My Comments:
i. The rules say that the Company Secretary appointed by the Company shall be deemed to be the Authorised Person to counter sign the Share Certificate.
Does it virtually close the opportunity for a third party other than a duly appointed Company Secretary to be Authorised Signatory ?
or
the Board is obliged to pass a separate resolution authorising a third party to sign the Certificate and not for the duly appointed Company Secretary. This matter is for debate.
ii. With regard to Directors™ signatures on the Share Certificates there is a slight shift from the earlier rules. Now the Managing Director™s signature is not mandatory.
iii.The rule says that If the Composition of Directors permits a non whole time Director or a Non Managing Director shall be one of the signatories.
I fail to understand the logic behind this move. In my view, the Managing Director/ Whole time Director should be made accountable. There should have been a provision that any one of the Key Management Personnel, if any should countersign the Certificate.
4.Affixation of Digital Signatures of the Directors on the Share Certificate
For the first time, the Rules have given the option of affixing Digital Signatures of the Directors on the Share Certificates .
The Share Certificates shall be signed by two Directors by adopting any of the following methods:
i. Printing of Facsimile signature by means of machine, equipment or any other mechanical device such as engraving in metal, lithography,
ii.Digital Signature (affixing signature by means of an engraved rubber stamp is not allowed)
My Comments:
i. The option of affixing the Digital Signature is not given to the Company Secretary /Authorised Signatory. This privilege is available only for the Directors.
ii. The Common Seal shall be affixed in the presence of two Directors and the Authorised Person/Company Secretary. This could have been done with a single Director and not all the three to be present for affixing the Common Seal.
I feel that the Government should consider relaxing this compliance..
5.Issue of Renewed or Duplicate Share Certificate except in the case of lost one
Under Rule 6 of the Companies (Share capital and Debentures ) Rules, 2014 ,
when Shares are to be i.subdivided ii.consolidated iii.defaced iv. mutilated v.torn out vi. old vii. Decrypt viii.worn out and ix. where the pages of the reverse for recording transfers are fully utilised, ™™Duplicate Share Certificates” shall be issued only on the following conditions:
i. The Certificate in lieu of which is surrendered to the Company.
ii. The Company may charge a fee as the Board thinks fit but not exceeding a fee of Rs.50/- per certificate only in the case of certificates defaced, mutilated, torn or old, decrypt or worn out.
iii. on the face of the Certificate it shall be mentioned Issued in lieu of Share Certificate no¦. subdivided/replaced/consolidated (only in the case of Subdivision, replacement or consolidation and ) and in all other cases it shall be mentioned Issued in lieu of Share Certificate No¦.
6.Issue of Duplicate Share Certificate in the the case of lost one.
In the case of a lost Share Certificate, a duplicate Share Certificate shall be issued subject to the following conditions:
i. Prior consent of the Board of Directors by means of a resolution.
ii. With or without payment of a fee not exceeding a fee of more than Rs.50/-
ii. On reasonable terms such as furnishing supporting evidence that the share certificate is lost For instance; an FIR lodged could be lodged with the Police.
iii. Indemnity Bond that that the applicant bear the loss sustained on account of the lost Share Certificate and shall return the Certificate if the same is found out.
iv. Payment of ™™Out of Pocket Expenses” incurred by the Company on an investigation done if possible for tracing the lost certificate.
v. On the Share Certificate it shall be printed or stamped as Duplicate issued in lieu of Share Certificate No
7.Time limit for delivering Share Certificates
i.Time limit for delivering Share Certificates in respect of Allotment, Transfer and Transmission
Under Section 53 (4) of the Companies Act, 2013, unless prohibited by Law or any other order of Court or other authority, the Company shall deliver the Share Certificates on account of Allotment/transfer/transmission
a.within a period two months from the date of incorporation in the case of subscribers to the Memorandum of Association.
b. within a period of two months from the date of Allotment in the case of allotment of Shares.
c. within a period of one month from the date of receipt of by the Company the instrument of transfer and the relevant Documents in the case of a Share Transfer
d. within a period of one month from the date of intimation of transmission in the case of transmission.
ii.Time Limit for issuing Duplicate Share Certificates
a.In the case of a listed Company, the Duplicate Share Certificate shall be issued within fifteen days from the date of submission of all the relevant documents.
b.. In the case of Unlisted Company, the Duplicate Share Certificate shall be issued within three months from the date of submission of all the relevant documents.
My Comments:
For the issue of Duplicate Share Certificate in the case of a lost one, prior consent of the Board is required . After the Board Meeting, the common seal should be affixed on the Certificates in the presence of two directors and the Authorised Signatory and then send the same to the Shareholders. It is certainly not a workable solutions for listed Companies and the Government has to consider extending the period of delivery or a simple mechanism to issue Duplicate Shares for listed Companies.
8.Printing, maintenance and preservation of Share Certificate Books
i. All Blank forms used for issuing Share Certificates shall be printed and machine numbered.
ii. Printing of Share Certificates shall be done only with the authority of the Board by means of a resolution.
iii. Maintenance, preservation and safe custody shall be done by the
a. Committee of the Board (if authorised by the Board)
b.Company Secretary
c. If the Company does not have a Company Secretary, by any one of the Director himself specifically authorised by the Board for this purpose.
9.Time limit for preserving and safekeeping of the Certificates
i. All printed Blank Certificates shall be preserved for thirty years.
ii. In the case of disputed cases, it shall be preserved permanently till the Company is in existence.
iii. All surrendered certificates shall be immediately defaced, stamped/printed as cancelled in bold letters and shall be destroyed after a period of three years from the date of surrender and with the authority of the Board by means of a resolution and in the presence of a person duly appointed by the Board on its behalf.
