Merchant Banking and Legal Regulatory Frame Work

MERCHANT BANKING AND LEGAL REGULATORY FRAME WORK

1 Companies Act

(i). Company means a company formed and registered under this Act or an existing company as defined in clause (ii);

(ii). Existing company means a company formed and registered under any of the previous companies laws specified below:

a. any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866) and repealed by the Act;

b. The Indian Companies Act, 1866

c.  The Indian Companies Act, 1882 d. the Indian Companies Act, 1913 e. the Registration of Transferred Companies Ordinance 1942.

iii. Private company means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles,

a. Restricts the right to transfer its shares, if any;

b. Limits the number of its members to fifty not including i. persons who are in the employment of the company, and ii. persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and

c.   Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company;

d.   Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member;

iv. Public company means a company which a. is not a private company; b. has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, s may be prescribed c. is a private company which is a subsidiary of a company which is not a private company.

In this Act, unless the context otherwise requires,

1. Abridged prospectus means a memorandum containing such salient features of a prospectus as may be prescribed

2. Banking company has the same meaning as in the Banking Companies Act, 1949

3. Company Law Board means the Board of Company Law Administration constituted under section 10E

4.  Debenture includes debenture stock bonds and any other securities of a company, whether constituting a charge on the assets of the company or not;

5.  Derivative has the same meaning as in clause (aa) of section 2 of the Securities Contracts (Regulation) Act, 1956

6.   Hybrid means any security which has the character of more than one type of security, including their derivatives;

7.  Issued generally means, in relation to a prospectus, issued to persons irrespective of their being existing members or debenture-holders of the body corporate to which the prospectus relates;

8. Prospectus means any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate;

9. Recognized stock exchange means, in relation to any provision of this Act in which it occurs a stock exchange whether in or outside India, which is notified by the Central Government in the Official Gazette as a recognized stock exchange for the purposes of that provision;

10.            Registrar means a Registrar, or an Additional, a Joint, a Deputy or an Assistant Registrar, having the duty of registering companies under this Act;

11. Securities means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956

12.Securities and Exchange Board of India means the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992

13.            Share means share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied;

2 Provisions under Companies Act

The various regulations which govern the merchant bankers on the capital issue are prescribed by the companies act, and the other enactments mentioned below.

1. Provisions of the Companies Act, 1956

a. Prospectus (Sec. 55 to 68A)

b. Allotment (Sec. 55 to 75)

c. Commissions and discounts (Sec. 76 & 77)

d. Issue of shares at premium and at discount (Sec. 78 & 79)

e. Issue and redemption of preference shares (Sec. 80 & 80A)

f. Further issues of capital (Sec. 81)

g. Nature, numbering and certificate of shares (Sec. 82 to 84)

h. Kinds of share capital and prohibition on issue of any other kind of shares (Sec. 85 & 86)

^Ø   Matters to be specified in prospectus and reports to be set out therein (Schedule 11)

^Ø   The Securities Contracts (Regulations) Act, 1957 regarding transactions in securities

^Ø   The Securities Contracts (Regulation) Rules, 1957.

2. Their capital adequacy

3. Their track record, experience and general reputation

4. Adequacy and quality of personnel employed by them and also the available infrastructure.

3 SCRA (Security contract regulation Act):

The Securities Contracts (Regulations) Act was passed in 1956 by Parliament and it came into force in February 1957. An act to prevent undesirable transactions in securities by regulating the business of dealing therein, by providing for certain other matters connected therewith. 1. This Act may be called the Securities Contracts (Regulation) Act, 1956. 2. It extends to the whole of India.

2.     It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

Definitions

a.  Contract  means  a  contract  for  or  relating  to  the  purchase  or  sale  of  securities;

b.   Corporatization means the succession of a recognized stock exchange, being a Body of individuals or a society registered under the Societies Registration Act, 1860 (21 of 1860), by another stock exchange, being a company incorporated for The purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities carried on by such individuals or society;

c.  demutualization means the segregation of ownership and management from the trading rights of the members of a recognized stock exchange in accordance with a scheme approved by the Securities and Exchange Board of India;

(d) Derivative includes:

a. a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; b. a contract which derives its value from the prices, or index of prices, of underlying securities;

c.    Government security means a security created and issued, whether before or after the commencement of this Act, by the Central Government or a State Government for the purpose of raising a public loan and having one of the forms specified in clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944);

d. Member means a member of a recognized stock exchange;

e. Option in securities means a contract for the purchase or sale of a right to buy or sell, or a right

to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities;

f.Recognized― stock exchange means a stock exchange which is for the time being recognized by the Central Government under section 4;

g. Stock exchange which may provide for

(i)   The issue of shares for a lawful consideration and provision of trading rights in lieu of membership cards of members of a recognized stock exchange;

(ii) The restrictions on voting rights;

the transfer of property, business, assets, rights, liabilities, recognitions, contracts of the recognized stock exchange, legal proceedings by, or against, the recognized stock exchange, whether in the name of the recognized stock exchange or any trustee or otherwise and any permission  given to, or by, the recognized stock exchange;

(iv)    the transfer of employees of a recognized stock exchange to another recognized stock exchange;

(iv)           any other matter required for the purpose of, or in connection with, the corporatization or

demutualization,   as    the    case    may    be,    of    the    recognized    stock    exchange

h.   Securities include i. shares, scrip‘s,stocks,bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(h) Government securities;

i.  Such other instruments as may be declared by the Central Government to be securities; and ii. rights or interest in securities;

(j). Stock Exchange means a anybody of individuals, whether incorporated or not, constituted before corporatization and demutualization under sections 4A and 4B, or b. a body corporate incorporated under the Companies Act 1956 whether under a scheme of corporatization and demutualization or otherwise, for the purpose of assisting, regulating or controlling the business of buying.