[PUBLISHED IN THE GAZETTE OF INDIA EXTRAORDINARY PART II, SECTION 3, SUB-SECTION (i)]

MINISTRY OF FINANCE

(DEPARTMENT OF COMPANY AFFAIRS)

NOTIFICATION

New Delhi,  the 4^th December, 2003

GSR_922(E). – In exercise of the powers conferred by sub-section (1A) of section 81 of the Companies Act, 1956 read with section 642 of the said Act, the Central Government hereby makes the following rules, namely:-

1. Short title and commencement.-

(1)   These rules may be called Unlisted Public Companies (Preferential Allotment) Rules, 2003

(2)   They shall come into force on the date of their publication in the official gazette.

2. Applicability.-

These rules shall be applicable to all unlisted public companies in respect of preferential issue of equity shares, fully convertible debentures, partly convertible debentures or any other financial instruments, which would be convertible into or exchanged with equity shares at a later date. 

3. Definitions.-

(1)  “Preferential Allotment” includes issue of shares on preferential basis and/or through private placement made by a company in pursuance of a resolution passed under sub-section (1A) of section 81 of the Companies Act, 1956 and issue of shares to the promoters and their relatives either in public issue or otherwise.

(2) “Promoter” means –

(a)        the person or persons who are in over-all control of the company; and

(b)        the person or persons who hold themselves as promoters.

Explanation: Where a promoter of a company is a body corporate, the promoters of that body corporate shall also be deemed to be promoters of the company.

(3)  “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

4. Special Resolution.-

No issue of shares on a preferential basis can be made by a company unless authorized by its articles of association and unless a special resolution is passed by the members in a General Meeting authorizing the Board of Directors to issue the same.  The special resolution shall be acted upon within a period of 12 months.

5. Pricing.-

Where warrants are issued on a preferential basis with an option to apply for and get the shares allotted, the issuing company shall determine before hand the price of the resultant shares. 

6. Disclosures.-

The explanatory statement to the notice for the general meeting as required by section 173 of the Companies Act, 1956 shall contain the following particulars:

(a)    (a)    the price or price band at which the allotment is proposed;

(b)   (b)   the relevant date on the basis of which price has been arrived at;

(c)    (c)    the object/s of the issue through preferential offer;

(d)   (d)   the class or classes of persons to whom the allotment is proposed to be made;

(e)    (e)    intention of promoters/directors/key management persons to subscribe to the offer;

(f)     (f)     shareholding pattern of promoters and others classes of shares before and after the offer;

(g)    (g)    proposed time within which the allotment shall be completed;

(h)    (h)    whether a change in control is intended or expected. 

7. Audit Certificate.-

In case of every issue of shares/warrants/fully convertible debentures/partly convertible debentures or other financial instruments with conversion option, the statutory auditors of the issuing company / company secretary in practice shall certify that the issue of the said instruments is being made in accordance with these Rules.  Such certificate shall be laid before the meeting of the shareholders convened to consider the proposed issue.

[File No: 1/4/2003-CL-V]

[PUBLISHED IN THE GAZETTE OF INDIA EXTRAORDINARY PART II, SECTION 3, SUB-SECTION (i)] MINISTRY OF FINANCE (DEPARTMENT OF COMPANY AFFAIRS) NOTIFICATION New Delhi, the 4th December, 2003 G.S.R.923(E). - In exercise of the powers conferred by proviso to sub-section (1) of section 79A of the Companies Act, 1956 (1 of 1956) read with sub-section (1) of section 642 of the said Act, the Central Government hereby makes the following rules, namely :- 1. Short title and commencement.- (1) These Rules may be called the Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003. (2) They shall come into force on the date of their publication in the Official Gazette. 2. Definitions.- In these rules, unless otherwise defined,- (i) “Asset” means a resource controlled by the company and from which future economic benefits are expected to flow to the company; (ii) “employee” means :- a) a permanent employee of the company working in India or out of India; or b) a director of the company, employed as a whole time director or executive director of a company; (iii) “intangible Asset” means an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; (iv) “share price” means price of a share on a given date arrived on the net worth basis; (v) “value addition” means anticipated economic benefits derived by the enterprise from expert and/or professional for providing know-how or making available rights in the nature of intellectual property rights, by such person to whom sweat equity is issued for which the consideration is not paid or included in - (a) the normal remuneration payable under the contract of employment, in the case of an employee and/or (b) monetary consideration payable under any other contract, in the case of non-employee. 3. Applicability.- These Rules shall be applicable to issue of sweat equity shares by all unlisted companies. 4. Special resolution.- (1) For the purpose of passing a special resolution under clause (a) of sub-section (1) of section 79A of the Companies Act, 1956 (1 of 1956), the explanatory statement to be annexed to the notice for the general meeting pursuant to section 173 of the said Act shall contain particulars as specified below. (i) the date of the meeting at which the proposal for issue of sweat equity shares was approved by the Board of Directors of the company; (ii) the reasons/justification for the issue; (iii) the number of shares, consideration for such shares and the class or classes of persons to whom such equity shares are to be issued; (iv) the value of the sweat equity shares alongwith valuation report/ basis of valuation and the price at the which the sweat equity shares will be issued; (v) the names of persons to whom the equity will be issued and the person’s relationship with the company; (vi) ceiling on managerial remuneration, if any, which will be affected by issuance of such equity; (vii) a statement to the effect that the company shall conform to the accounting policies specified by the Central Government; and (viii) diluted earning per share pursuant to the issue of securities to be calculated in accordance with the Accounting Standards specified by the Institute of Chartered Accountants of India. (2) Approval of shareholders by way of separate resolution in the general meeting shall be obtained by the company in case of grant of shares to identified employees and promoters, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversion) of the company at the time of grant of the sweat equity shares. 5. Register of shares.- The company shall maintain a Register of Sweat Equity Shares issued under section 79A in the Form specified in Schedule annexed to these rules. 6. Restriction on issue of sweat equity shares.- The company shall not issue sweat equity shares for more than 15% of total paid up equity share capital in a year or shares of the value of 5 crores of rupees, whichever is higher except with the prior approval of the Central Government. 7. Disclosure in the Directors’ Report.- The Board of Directors, shall, inter alia, disclose either in the Directors’ Report or in the annexure to the Director’s Report, the following details of issue of sweat equity shares :- (a) Number of shares to be issued to the employees or the directors; (b) conditions for issue of sweat equity shares; (c) the pricing formula; (d) the total number of shares arising as a result of issue of sweat equity shares; (e) money realised or benefit accrued to the company from the issue of sweat equity shares; (f) diluted Earnings Per Share (EPS) pursuant to issuance of sweat equity shares. 8. Pricing of Sweat Equity Shares.- The price of sweat equity shares to be issued to employees and directors shall be at a fair price calculated by an independent valuer. 9. Issue of Sweat Equity Shares for consideration other than cash.- Where a company proposes to issue sweat equity shares for consideration other than cash, it shall comply with following : (a) The valuation of the intellectual property or of the know-how provided or other value addition to consideration at which sweat equity capital is issued, shall be carried out by a valuer; (b) the valuer shall consult such experts, as he may deem fit, having regard to the nature of the industry and the nature of the property or the value addition; (c) the valuer shall submit a valuation report to the company giving justification for the valuation; (d) a copy of the valuation report of the valuer shall be sent to the shareholders with the notice of the general meeting; (e) the company shall give justification for issue of sweat equity shares for consideration other than cash, which shall form part of the notice sent for the general meeting; and (f) the amount of Sweat Equity shares issued shall be treated as part of managerial remuneration for the purposes of sections 198, 309, 310, 311 and 387 of the Companies Act, 1956 if the following conditions are fulfilled: (i) the Sweat Equity shares are issued to any director or manager; and, (ii) they are issued for non-cash consideration, which does not take the form of an asset which can be carried to the balance sheet of the company in accordance with the relevant accounting standards. 10. Lock-in of sweat equity shares.- Sweat equity shares issued to employees or directors shall be locked in for a period of three years from the date of allotment. 11. Certificate from auditors.- In the case of every company that has allotted shares under these Rules, the Board of Directors shall at each annual general meeting place before the shareholders a certificate from the auditors of the company/ practising company secretary that sweat equity shares have been allotted in accordance with the resolution of the company in the general meeting and these Rules. 12. Accounting policies.- (1) Where the sweat equity shares are issued for a non-cash consideration, such non-cash consideration shall be treated in the following manner in the books of account of the company: (a) where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the relevant accounting standards; or (b) where clause (a) is not applicable, it shall be expensed as provided in the relevant accounting standards. (2) In respect of sweat equity shares issued during accounting period, the accounting value of sweat equity shares shall be treated as another form of compensation to the employee or the director in the financial statement of the company. SCHEDULE REGISTER OF SWEAT EQUITY SHARES (Pursuant to Rule 5) The register of sweat equity shares issued by the company to be kept in the following format: S.No. Folio No. / certificate No. Date of passing of resolution Date of issue of sweat equity shares 1 2 3 4 Name of the allottee Status of the allottee - whether director or employee Reference to entry in register of members Number of sweat equity shares issued 5 6 7 8 Face value of the share Price at which shares issued Total consideration paid by employee/director Lock in period till which date 9 10 11 12 [File No: 1/4/2003-CL-V] Rajiv Mehrishi, Jt. Secretary

10.12.2003-Designated banks on the RBI list, issuing 8% (taxable ) Bonds will not deduct Tax at source on the interest income earned in the near-term, as per the instructions of Reserve Bank of India(RBI) to keep the TDS provisions in abeyance. This notification clashes with the existing provisions of Deduction of tax at source from the interest income on non- cumulative bonds from time to time and on cumulative bonds at the time of maturity.

RBI in its realease as on 11.11.2003 has intimated that Sole holders of 6.5% RBI non-taxable Saving Bonds and 8% Rbi taxable saving Bonds may nominate an NRI as its nominee in respect of interest\redemption value of the investment in the bonds.

New RBI bond norms for fresh issues

13^th November 2003: The revised norms of the Reserve Bank of India (RBI) for banks’ investment in corporate bonds would apply only to fresh issues. Though the final guidelines on non-statutory liquidity (SLR) ratio investment retained the 20 percent cap on banks’ investment in unlisted bonds, the limit has been bifurcated and there will now be a 10 percent limit for banks’ investment in unlisted bonds and another 10 percent limit on their investment in securities issued by special purpose vehicles for mortgage-backed securities, securitisation paper issued for infrastructure projects, bonds, debentures, security receipts or pass-through certificates. The debt securities will carry a credit rating of not less than investment grade from a credit rating agency registered with the Securities and Exchange Board of India.

The final guidelines cover banks’ investments in non – SLR securities issued by corporates, banks, FI’s, state and central government sponsored institutions, SPV’s etc and will apply to investments both in the primary market as well as the secondary market. The banks should also ensure that all spot transactions in listed and unlisted debt securities are reported on the negotiated delivery system and settled through the Clearing Corporation of India.