LECTURE ONE

EIGHTH WEEK

ALLOTMENT

Section 67. Application for, and allotment of, shares and debentures. –
(1) No application for allotment of shares in and debentures of a company in pursuance of a
prospectus shall be made for shares or debentures of less than such nominal amount as the
Commission may, from time to time, specify, either generally or in a particular case.

(2) The Commission may specify the form of an application for subscription to shares in or
debentures of a company which may, among other matters, contain such declarations or
verifications as it may, in the public interest, deem necessary; and such form then shall form
part of the prospectus.

(3) All certificates, statements and declarations made by the applicant shall be binding on
him.

(4) An application for shares in or debentures of a company which is made in pursuance of a

prospectus shall be irrevocable.

(5) Whoever contravenes the provisions of sub-section (1) or sub-section (2), or makes an
incorrect statement, declaration or verification in the application for allotment of shares, shall be
liable to a fine which may extend to ten thousand rupees.

Section 68. Restriction as to allotment. -

(1) No allotment shall be made of any share capital of a company offered to the public for
subscription unless the amount stated in the prospectus as the minimum amount which in the
opinion of the directors must be raised by the issue of share capital in order to provide for the
matters specified in clause 5 of section 1 of Part I of the Second Schedule has been subscribed,
and the full amount thereof has been paid to and received in cash by the company.

(2) The amount referred to in sub-section (1) as the amount stated in the prospectus shall be
reckoned exclusively of any amount payable otherwise than in cash and is in this Ordinance
referred to as the minimum subscription.

(3) All moneys received from applicants for shares shall be deposited and kept in a separate
bank account in a schedule bank until returned in accordance with the provisions of sub-section
(5) or until the certificate to commence business is obtained under section 146.

(4) The amount payable on application on each share shall be the full nominal amount of the
share.

(5) If the conditions aforesaid have not been complied with on the expiration of forty days
after the first issue of the prospectus, all money received from applicants for share shall be
forthwith repaid to them without surcharge, and, if any such money is not so repaid within fifty
days after the issue of the prospectus, the directors of the company shall be jointly and severally
liable to repay that money with surcharge at the rate of one and-a-half per cent for every month
or part thereof from the expiration of the fiftieth day:

Provided that a director shall not be liable if he proves that the default in repayment of
the money was not due to any misconduct or negligence on his part.

(6) Any condition purporting to require or bind any applicant for shares to waive
compliance with any requirement of this section shall be void.

(7) This section, except sub-section (4) thereof, shall not apply to any allotment of shares
subsequent to the first allotment of shares offered to the public for subscription.

(8) In the case of the first allotment of shares capital payable in cash of a company which
does not issue any invitation to the public to subscribe for its shares, no allotment shall be made
unless the minimum subscription, that is to say,

(a) the amount, if any, fixed by the memorandum or articles and specified in the
statement in lieu of prospectus as the minimum subscription referred to in sub-section
(1) upon which the directors may proceed to allotment; or

(b) if no amount is so fixed and specified, the whole amount of the share capital other than
that issued or agreed to be issued as paid up otherwise than in cash; has been subscribed and the
full nominal amount of each share payable in cash has been paid to and received by the
company.

(9) Sub-section (8) shall not apply to a private company.

(10) In the event of any contravention of any provisions of this section, every promoter,
director or other person knowingly responsible for such contravention shall be liable to a fine
not exceeding ten thousand rupees and in the case of a continuing contravention to a further fine
not exceeding two hundred rupees for every day after the first during which the contravention
continues.

(11) For the purpose of this section, the expression "promoter" has the same meaning as in
section 59.

Section 69. Statement in lieu of prospectus. –

(1) A company having a share capital, which does not issue a prospectus on or with reference to
its formation, or which has issued such a prospectus but has not proceeded to allot any of the
shares offered to the public for subscription, shall not allot any of its shares or debentures
unless, at least three days before the first allotment of either share or debenture, there has been
delivered to the registrar for registration a statement in lieu of prospectus signed by every
person who is named therein as a director or proposed director of the company or by his agent
authorised in writing, in the form and containing the particulars set out in section 1 of Part II of
the Second Schedule and, in the cases mentioned in section 2 of that Part, setting out the reports
specified therein, and the said section 1 and 2 shall have effect subject to the provisions
contained in section 3 of that Part.

(2) Every statement in lieu of prospectus delivered under sub-section (1), where the person
making any such report as aforesaid have made therein, or have without giving the reason
indicated therein, made any such adjustments as are mentioned in clause 5 of Part II of the
Second Schedule, shall have endorsed thereon or attached thereto a written statement signed by
those persons, setting out the adjustments and giving the reasons thereof.

(3) This section shall not apply to a private company.

(4) If a company acts in contravention of sub-section (1) or sub-section (2), the company,
and every officer of the company who willfully authorises or permits the contravention, shall be
liable to a fine not exceeding five thousand rupees and in the case of a continuing contravention
with a further fine not exceeding one hundred rupees for every day after the first during which
the contravention continues.

(5) Where a statement in lieu of prospectus delivered to the registrar under sub-section (1)
includes any untrue statement, any person who signed or authorised the delivery of the
statement in lieu of prospectus for registration shall be punishable with imprisonment for a term
which may extend to two years, or with fine which may extend to ten thousand rupees, or with
both, unless he proves either that the statement was immaterial or that he had reasonable ground
to believe, and did up to the time of delivery for registration of the statement in lieu of
prospectus believe, that the statement was true.

(6) For the purposes of this section,--

(a) a statement included in a statement in lieu of prospectus shall be deemed to be

untrue if it is misleading in the form and context in which it is included; and

(b) where the omission from a statement in lieu of prospectus of any matter is
calculated to mislead, the statement in lieu of prospectus shall be deemed, in respect of
such omission, to be a statement in lieu of (c) prospectus in which an untrue statement is
included.

(7) For the purposes of sub-section (5) and clause (a) of sub-section (6), the expression
"included", when used with reference to a statement in lieu of prospectus, means included in the
statement in lieu of prospectus itself or contained in any report or memorandum appearing on
the face thereof, or by reference incorporated therein, or issued therewith.

Section 70. Effect of irregular allotment. –

(1) An allotment made by a company to an applicant in contravention of the provisions of
section 68 or 69 shall be voidable at the instance of the applicant within thirty days after the
holding of the statutory meeting of the company and not later, or in any case where the company
is not required to hold a statutory meeting or where the allotment is made after the holding of
the statutory meeting within thirty days after the date of the allotment, and not later, and shall be
so voidable notwithstanding that the company is in course of being wound up.

(2) If any officer of a company knowingly contravenes or permits or authorises the

contravention of any of the provisions of section 68 or 69 with respect to allotment, he shall,
without prejudice to any other liability, be liable to compensate the company and the allottee
respectively for any loss, damages or costs which the company or the allottee may have
sustained or incurred thereby:

Provided that proceedings to recover any such loss, damages or costs shall not be
commenced after the expiration of two years from the date of the allotment.

Section 71. Repayment of money received for shares not allotted. --

(1) Where a company issues any invitation to the public to subscribe for its shares or other
securities, the company shall take a decision within ten days of the closure of the subscription
lists as to what applications have been accepted or are successful and refund the money in the
case of the unaccepted or unsuccessful applications within ten days of the date of such decision.

(2) If the refund required by sub-section (1) is not made within the time specified therein,
the directors of the company shall be jointly and severally liable to repay that money with
surcharge at the rate of one and-a-half per cent. for every month or part thereof from the
expiration of the fifteenth day and, in addition, to a fine not exceeding five thousand rupees and
in the case of a continuing offence to a further fine not exceeding one hundred rupees for every
day after the said fifteenth day on which the default continues:

Provided that a director shall not be liable if he proves that the default in the repayment
of money was not due to any misconduct or negligence on his part.

(3) Any condition purporting to require or bind any applicant for shares or other securities to
waive any requirement of this section shall be void.

Section 72. Allotment of shares and debentures to be dealt in on stock exchange. -- (1)
Where a prospectus, whether issued generally or not, states that application has been or will be
made for permission for the shares or debentures offered thereby to be dealt in on any stock
exchange, any allotment made on an application in pursuance of the prospectus shall, whenever
made, be void if the permission has not been applied for before the seventh day after the first
issue of the prospectus or if the permission has not been granted before the expiration of
twenty-one days from the date of the closing of the subscription lists or such longer period not
exceeding forty-two days as may, within the said twenty-one days, be notified to the applicant
for permission by or on behalf of the stock exchange.

(2) Where the permission has not been applied for as aforesaid, or has not been granted as
aforesaid the company shall forthwith repay without surcharge all money received from
applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days
after the company becomes liable to repay it, the directors of the company shall be jointly and
severally liable to repay that money from the expiration of the eight day together with surcharge
at the rate of one and-a-half per cent. for every month or part thereof from the expiration of the
eighth day and in addition, to a fine not exceeding five thousand rupees and in the case of a
continuing offence to a further fine of one hundred rupees for every day after the said eight day
on which the default continues:

Provided that a director shall not be liable if he proves that the default in the repayment
of the money was not due to any misconduct or negligence on his part.

(3) All moneys received as aforesaid shall be deposited and kept in a separate bank account
in a scheduled bank so long as the company may become liable to repay it under sub-section
(2); and, if default is made in complying with this sub-section, the company and every officer of
the company who knowingly and willfully authorises or permits the default shall be liable to a
fine not exceeding five thousand rupees.

(4) Any condition purporting to require or bind any applicant for shares or debentures to
waive compliance with any requirement of this section shall be void.

(5) For the purposes of this section, permission shall not be deemed to be refused if it is
intimated that the application for it, though not at present granted, will be given further
consideration.

(6) This section shall have effect--

(a) in relation to any shares or debentures agreed to be taken by a person

underwriting an offer thereof by a prospectus as if he had applied therefor in pursuance
of the prospectus; and

(b) in relation to a prospectus offering shares for sale with the following
modifications, that is to say,--

(i) reference to sale shall be substituted for reference to allotment;

(ii) the person by whom the offer is made and not the company, shall be
liable under sub-section (2) to repay the money received from applicant, and
reference to the company's liability under that sub-section shall be construed
accordingly; and

(iii) for the reference in sub-section (3) to the company and every officer of
the company there shall be substituted a reference to any person by or through
whom the offer is made and who knowingly and willfully authorises or permits
the default.

Section 73. Return as to allotments. --

(1) Whenever a company having a share capital makes any allotment of its shares, the company
shall, within thirty days thereafter,--
 (a) file with the registrar a return of the allotment, stating the number and nominal
amount of the shares comprised in the allotment and such particulars as may be
prescribed of each allottee, and the amount paid on each share; and

(b) in the case of shares allotted as paid up otherwise than in cash, produce for the
inspection and examination of the registrar a contract in writing constituting the title of
the allottee to the allotment together with any contract of sale, or for services or other
consideration in respect of which that allotment was made, such contracts being duly
stamped, and file with the registrar copies verified in the prescribed manner of all such
contracts and a return stating the number and nominal amount of shares so allotted, the
amount to be treated as paid-up, and the consideration for which they have been
allotted; and

(c) file with the registrar--

(i) in the case of bonus shares, a return stating the number and nominal
amount of such shares comprised in the allotment and such particulars which
may be prescribed] of each allottee together with a copy of the resolution
authorising the issue of such shares;

(ii) in the case of issue of shares at a discount, a copy of the resolution passed
by the company authorising such issue together with a copy of the order of the
Commission sanctioning the issue, and where the maximum rate of discount
exceeds ten per cent, a copy of the order of the Commission permitting the issue
at the higher percentage.

Explanation:-- Shares shall not be deemed to have been paid for in cash except to the extent
that the company shall actually have received cash therefor at the time of, or subsequent to, the
agreement to issue the shares, and where shares are issued to a person who has sold or agreed to
sell property or rendered or agreed to render services to the company, or to persons nominated
by him, the amount of any payment made for the property or services shall be deducted from the
amount of any cash payment made for the shares and only the balance, if any, shall be treated as
having been paid in cash for such shares, notwithstanding any bill of exchange or cheques or
other securities for money.

(2) Where such a contract as is mentioned in clause (b) of sub-section (1) is not reduced to
writing, the company shall, within thirty days after the allotment, file with the registrar the
prescribed particulars of the contract stamped with the same stamp duly as would have been
payable if the contract had been reduced to writing, and these particulars shall be deemed to be
an instrument within the meaning of the Stamp Act, 1899 (II of 1899), and the registrar may, as
a condition of filing the particulars, require that the duty payable thereon be adjudicated under
section 31 of that Act.

(3) If the registrar is satisfied that in the circumstances of any particular case the period of
thirty days specified in sub-sections (1) and (2) for compliance with the requirements of this
section is inadequate, he may extend that period as he thinks fit, and, if he does so, the
provisions of sub-sections (1) and (2) shall have effect in that particular case as if for the said
period of thirty days the extended period allowed by the registrar were substituted.

(4) If default is made in complying with any requirement of this section, the company and
every officer of the company who is knowingly a party to the default shall be liable to a fine not
exceeding five hundred rupees for every day during which the default continues.

(5) This section shall apply mutatis mutandis to shares which are allotted or issued or
deemed to have been issued to a scheduled bank or a financial institution in pursuance of any
obligation of a company to issue shares to such scheduled Bank or financial institution:

Provided that where default is made by a company in filing a return of allotment in

respect of the shares referred to in this sub-section, the scheduled bank or the financial
institution to whom shares have been allotted or issued or deemed to have been issued may file
a return of allotment in respect of such shares with the registrar together with such documents as
may be specified by the Commission in this behalf, and such return of allotment shall be
deemed to have been filed by the company itself and the scheduled bank the financial institution
shall be entitled to recover from the company the amount of any fee properly paid by it to the
registrar in respect of the return.

CERTIFICATE OF SHARES AND DEBENTURES

Section 74. Limitation of time for issue of certificates. –

(1) Every company shall, within ninety days after the allotment of any of its shares, debentures
or debenture stock, and within forty-five days after the application for the registration of the
transfer of any such shares, debentures or debenture stock, complete and have ready for delivery
the certificates of all shares, the debentures, and the certificates of all debenture stock allotted or
transferred, and unless sent by post or delivered to the person entitled thereto, within that period,
shall give notice of this fact to the shareholders or debenture-holders, as the case may be,
immediately thereafter in the manner prescribed, unless the conditions of issue of the shares,
debentures or debenture stock otherwise provide.

Provided that the company shall, within five days after an application is made for the
registration of the transfer of any shares, debentures or debenture stock to a central depository,
register such transfer in the name of the central depository.

Explanation-- The expression "transfer", for the purposes of this sub-section, means a transfer
duly stamped and otherwise valid, and does not include such a transfer as the company is for
any reason entitled to refuse to register and does not register.

(2) If default is made in complying with the requirements of sub-section (1) the company, and
every officer of the company who is knowingly a party to the default, shall be liable to a fine not
exceeding one hundred rupees for every day during which the default continues.

Section 75. Issue of duplicate certificates. –

(1) A duplicate of a certificate of shares, debentures or debenture stock issued under section 74
shall be issued by the company within forty-five days from the date of application if the
original--

(a) is proved to have been lost or destroyed, or

(b) having been defaced or mutilated or torn is surrendered to the company.

(2) The company, after making such inquiry as to the loss, destruction, defacement or
mutilation of the original, as it may deem fit to make, shall, subject to such terms and
conditions, if any, as it may consider necessary, issue the duplicate:

Provided that the company shall not charge fee exceeding the sum prescribed and the
actual expenses incurred on such inquiry.

(3) If the company for any reasonable cause is unable to issue duplicate certificate, it shall
notify this fact, along with the reasons within thirty days from the date of the application, to the
applicant.

(4) If default is made in complying with the requirements of this section, the company and
every officer of the company who is knowingly a party to the default shall be liable to a fine not
exceeding five hundred rupees.

(5) If a company with intent to defraud, renews a certificate or issues a duplicate thereof, the
company shall be punishable with fine which may extend to twenty thousand rupees and every
officer of the company who is in default shall be punishable with imprisonment for a term
which may extend to six months, or with fine which may extend to ten thousand rupees, or with
both.

TRANSFER OF SHARES AND DEBENTURES

Section 76. Transfer of shares and debentures. –

(1) An application for registration of the transfer of shares and debentures in a company
may be made either by the transferor or the transferee, and subject to the provisions of this
section, the company shall enter in its register of members the name of the transferee in the
same manner and subject to the same conditions as if the application was made by the
transferee:

Provided that the company shall not register a transfer of shares or debentures unless
proper instrument of transfer duly stamped and executed by the transferor and the transferee has
been delivered to the company along with the scrip.

(2) Where a transfer deed is lost, destroyed or mutilated before its lodgment, the company
may on an application made by the transferee and bearing the stamp required by an instrument
of transfer, register the transfer of shares or debentures if the transferee proves to the satisfaction
of the directors of the company that the transfer deed duly executed has been lost, destroyed or
mutilated:

Provided that before registering the transfer of shares or debentures the company may
demand such indemnity as it may think fit.

(3) All references to the shares or debentures in this section, shall in case of a company not
having share capital, be deemed to be references to interest of the members in the company.

(4) Every company shall maintain at its registered office a register of transfers of shares and
debentures made from time to time and such register shall be open to inspection by the members
and supply of copy thereof in the manner stated in section 150.

(5) Nothing in sub-section (1) shall prevent a company from registering as shareholder or
debenture-holder a person to whom the right to any share or debenture of the company has been
transmitted by operation of law.

(6) In the case of a public company, a financial institution duly approved by the
Commission may be appointed as the transfer agent on behalf of the company.

(7) If a company makes default in complying with any of the provisions of sub-sections (1)
to (4), it shall be liable to a fine not exceeding five thousand rupees and every officer of the
company who is knowingly or willfully a party to such default shall be liable to a like penalty.

Section 77. Directors not to refuse transfer of shares.-

The directors of a company shall not refuse to transfer any fully paid shares or debentures unless
the transfer deed is, for any reason, defective or invalid:

Provided that the company shall within thirty days or, where the transferee is a central
depository, within five days from the date on which the instrument of transfer was lodged with
it notify the defect or invalidity to the transferee who shall, after the removal of such defect or
invalidity, be entitled to relodge the transfer deed with the company:

Provided further that the provisions of this section shall, in relation to a private
company, be subject to such limitations and restrictions as may have been imposed by the
articles of such company.
Section 78. Notice of refusal to transfer.-
(1) If a company refuses to register a transfer of any shares or debentures, the company shall,
within thirty days after the date on which the instrument of transfer was lodged with the
company, send to the transferee notice of the refusal indicating reasons for such refusal.

(2) If default is made in complying with section 77 or this section, the company and every
officer of the company who is a party to the default shall be liable to a fine not exceeding
twenty thousand rupees and to a further fine not exceeding one thousand rupees for every day
after the first during which the default continues.
Section 78-A. Appeal against refusal for registration of transfer. –
(1) The transferor or transferee, or the person who gave intimation of the transmission by
operation of law, as the case may be, may appeal to the Commission against any refusal of the
company to register the transfer or transmission, or against any failure on its part, within the
period referred to in sub-section (1) of section 78 either to register the transfer or transmission
or to send notice of its refusal to register the same.

(2) An appeal to the Commission under sub-section (1) may be preferred-

(a) in case the appeal is against the refusal to register a transfer or transmission,
within two months of the receipt by him of the notice of refusal; and
(b) in case the appeal is against the failure referred to in sub-section (1) within two
months from the expiry of the period referred to in subsection (1) of section 78.

(3) The Commission shall, after causing reasonable notice to be given to the company and
also to the transferor and the transferee or, as the case may require, to the person giving
intimation of the transmission by operation of law and the previous owner, if any, and giving
them a reasonable opportunity to make their representation, may, by an order in writing, direct
either that the transfer or transmission shall be registered by the company or that it need not be
registered by it and in the former case, the company shall give effect to the decision within
fifteen days of the receipt of the order.

(4) Before making an order under sub-section (3) on an appeal against any refusal of the
company to register any transfer or transmission the Commission may require the company to
disclose to it the reasons for such refusal.

(5) The Commission may, in its aforesaid order, give such incidental and consequential
directions as to the payment of costs or otherwise as it deems fit.

(6) If default is made in giving effect to the order of the Commission within the period
specified in sub-section (3), every director and officer of the company who is in default, shall be
punishable with fine which may extend to five hundred rupees, for every day after the first
during which the default continues.

Section 79. Transfer to successor-in-interest. –

The transfer of shares or debentures from a deceased member or holder to his lawful nominee
successor-in-interest shall be made on application by such nominee successor duly supported by
a document evidencing nomination or lawful award of the relevant property to such nominee or
successor and thereupon the nominee or successor shall be entered as a member:

Provided that the company may, on furnishing of a suitable indemnity by such nominee
or successor, proceed to transfer the security in his name and enter him in the register of
members.

Section 80. Transfer to nominee of a deceased member.-

(1) Notwithstanding anything contained in any other law for the time being in force or in
any disposition by a member of a company of his interest represented by the shares held by him
as a member of the company, a person may on acquiring interest in a company as member,
represented by shares, at any time after acquisition of such interest deposit with the company a
nomination conferring on one or more persons the right to acquire the interest in the shares
therein specified in the event of his death:

Provided that, where a member nominates more than one person, he shall specify in the
nomination the extent of right conferred upon each of the nominees, so however that the number
of shares therein specified are possible of ascertainment in whole numbers.

(2) Where any nomination, duly made and deposited with the company as aforesaid, purports
to confer upon any person the right to receive the whole or any divisible part of the interest
therein mentioned, the said person shall, on the death of the member, become entitled to the
exclusion of all other persons, to become the holder of the shares or the part thereof, as the case
may be, and on receipt of proof of the death of the member along with the relative scrips, the
transmission of the said shares shall be registered in favour of the nominee to the extent of his
interests unless:
(a) such nomination is at any time varied by another nomination made and deposited
before the death of the member in like manner or expressly cancelled by notice in
writing to the company; or

(b) such nomination at any time becomes invalid by reason of the happening of some
contingency specified therein;

and if the said person predeceases the member, the nomination shall, so far as it relates to the
right conferred upon the said person, become void and of no effect:

Provided that where provision has been duly made in the nomination conferring upon
some other person such right instead of the person deceased, such right shall, upon the deceased
as aforesaid of the said person, pass to such other person.

(3) The person to be nominated as aforesaid shall not be a person other than the following
relatives of the member, namely, a spouse, father, mother, brother, sister and son or daughter,
including a step or adopted child.

(4) The nomination as aforesaid shall in no way prejudice the right of the member making
the nomination to transfer, dispose of or otherwise deal in the shares owned by him during his
lifetime and shall have effect in respect of the shares owned by the said member on the day of
his death.

Section 81. Transfer by nominee or legal representative.-

A transfer of the shares or debentures or other interest of a deceased member of a company
made by his nominee or legal representative shall, although the nominee or legal representative
is not himself a member, be as valid if he had been a member at the time of execution of the
instrument of transfer.
 LECTURE TWO
EIGHTH WEEK

SHARE CAPITAL AND DEBENTURES

Section 89. Nature of shares and certificate of shares. -

(1) The shares or other interest of any member in a company shall be moveable property,
transferable in the manner provided by the articles of the company.

(2) Each share in a company shall have a distinctive number.

(3) A certificate under the common seal of the company specifying any shares held by any
member shall be prima facie evidence of the title of the member to the shares therein specified.

Section 90. Classes and kinds of share capital. -

A company limited by shares may have different kinds of share capital and classes therein as
provided by its memorandum and articles:

Provided that different rights and privileges in relation to the different classes of shares
may only be conferred in such manner as may be prescribed.

Section 91. Only fully paid shares to be issued. –

No company shall issue partly paid shares:

Provided that where a company has partly paid shares on the commencement of this
Ordinance, it--

(i) shall not issue any further share capital until all the shares previously issued has
become fully paid up; and

(ii) shall pay dividend only in proportion to the amount paid up on each share.

Section 92. Power of company limited by shares to alter its share capital. –
(1) A company limited by shares, if so authorised by its articles, may alter the conditions of its
memorandum so as to: --

(a) increase its share capital by such amount as it thinks expedient;

(b) consolidate and divide the whole or any part of its share capital into shares of
larger amount than its existing shares;

(c) sub-divide its shares, or any of them, into shares of smaller amount than is fixed
by the memorandum; or
 (d) cancel shares which, at the date of the passing of the resolution in that behalf,
have not been taken or agreed to be taken by any person, and diminish the amount of its
share capital by the amount of the share so cancelled:

Provided that, in the event of consolidation or sub-division of shares, the rights attaching
to the new shares shall be strictly proportional to the rights attaching to the previous shares so
consolidated or sub-divided:

Provided further that, where any shares issued are of a class which is the same as that of
shares previously issued, the rights attaching to the new shares shall be the same as those
attaching to the shares previously held.

(2) The new shares issued by a company shall rank pari passu with the existing shares of the
class to which the new shares belong in all matters, including the right to such bonus or right
issue and dividend as may be declared by the company subsequent to the date of issue of such
new shares.

(3) The powers conferred by sub-section (1) shall be exercisable by the company only in a
general meeting.

(3A) Notwithstanding anything contained in this Ordinance or any other law for the time being
in force or the memorandum and articles, where the authorised capital of a company is fully
subscribed, or the un-subscribed capital is insufficient, the same shall be deemed to have been
increased to the extent necessary for issue of shares to a scheduled bank or financial institution
in pursuance of any obligation of the company to issue shares to such scheduled bank or
financial institution.

(4) A cancellation of shares in pursuance of sub-section (1) shall not be deemed to be a

reduction of share capital within the meaning of this Ordinance.

(5) The company shall file with the registrar notice of the exercise of any power referred to
in sub-section (1) within fifteen days from the exercise thereof.

Section 93. Notice to registrar of consolidation of share capital, etc. -

(1) Where a company having a share capital has consolidated and divided its share capital
into shares of larger amount than its existing shares, it shall, within fifteen days of the
consolidation and division, file notice with the registrar of the same, specifying the shares
consolidated and divided.

(2) If a company makes default in complying with the requirements of subsection (5) of
section 92 or sub-section (1) of this section, it shall be liable to a fine which may extend to one
hundred rupees for every day during which the default continues, and every officer of the
company who knowingly and willfully authorises or permits the default shall be liable to the
like penalty.

Section 94. Notice of increase of share capital or of members. -

(1) Where a company having a share capital has resolved to increase its share capital beyond the
authorised capital 2[or such capital is increased under sub-section (3-A) of section 92] and where
a company not having a share capital has resolved to increase the number of its members
beyond the number previously registered, it shall file with the registrar, within fifteen days after
the passing of the resolution, a notice of the increase of capital or members, as the case may be,
and the registrar shall record the increase.

Provided that where default is made by a company in filing a notice of increase in the
authorised capital under sub-section (3-A) of section 92, the scheduled bank or the financial
institution to whom shares have been issued may file notice of such increase with the registrar
and such notice shall be deemed to have been filed by the company itself and the scheduled
bank or financial institution shall be entitled to recover from the company the amount of any fee
properly paid by it to the registrar in respect of such increase.

(2) The notice to be given under sub-section (1) shall include particulars of the shares to be
affected and the conditions, if any, subject to which the new shares are to be issued.

(3) If a company makes default in complying with the requirements of subsection (1), it
shall be liable to a fine which may extend to one hundred rupees for every day during which the
default continues, and every officer of the company who knowingly and willfully authorises or
permits the default shall be liable to the like penalty.

(4) No resolution referred to in sub-section (1) shall take effect unless the notice required by
that sub-section to be filed with the registrar is duly sent to him.

Section 95. Prohibition of purchase or grant of financial assistance by a company for

purchase of its own or its holding company’s shares. –
(1) No company shall have power to buy its own shares or the shares of its holding company.

(2) No company limited by shares, other than a private company, not being a subsidiary of a
public company, shall give, whether directly or indirectly and whether by means of a loan,
guarantee, the provision of security or otherwise, any financial assistance for the purpose of or
in connection with purchase made or to be made by any person of any shares in the company or,
where the company is a subsidiary, in its holding company:

Provided that nothing in this sub-section shall prevent the company from advancing or
securing an advance to any of its salaried employees, including a chief executive who, before
his appointment as such, was not a director of the company, but excluding all directors of the
company, for purchase of shares of the company or of its subsidiary or holding company, if
making or securing of such advance is a part of the contract of service of such employee.

(3) If a company acts in contravention of sub-section (1) or sub-section (2), the company
and every officer of the company who is knowingly and willfully in default shall be liable to a
fine which may extend to ten thousand rupees if the default relates to a listed company and to
two thousand rupees if the default relates to any other company.
(4) Nothing in this section shall prevent --

(a) a company from redeeming any shares or any other redeemable security issued in
accordance with the provisions of this Ordinance; and

(b) a listed company from purchasing its own shares in accordance with the
provisions of this Ordinance.

Section 95A. Power of company to purchase its own shares.

(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in
force or the memorandum and articles, a listed company may, subject to the provisions of this
section and the rules framed by the Commission in this behalf, purchase its own shares
(hereinafter in this section referred to as “purchase”).

(2) The purchase shall be authorised by a special resolution which shall indicate maximum
number of shares to be purchased, the maximum price at which the shares may be purchased;
and the period within which the purchase is to be made.

(3) The notice of the meeting in which the special resolution authorising the purchase of
shares is proposed to be moved, shall be accompanied by an explanatory statement containing
all material facts including the following:-

(a) justification for the purchase;

(b) source of funding;

(c) effect on the financial position of the company; and

(d) nature and extent of the interest, if any, of every director, whether directly or
indirectly.

(4) The purchase shall always be in cash and shall be out of the distributable profits.

(5) Where shares are purchased by a company on premium, the account of premium shall be
charged to Share Premium Account of the company or in the absence of any balance therein, to
the distributable profits of the company.

(6) Where purchase is made at a price lower than the nominal value of shares, the difference
shall be credited to the reserve created under sub-section (10).

(7) The company shall have such debt equity and current ratios as may be prescribed.

(8) The majority of the directors including the chief executive, shall at a meeting make a
declaration of solvency verified by an affidavit to the effect that they have made a full inquiry
into the affairs of the company, and that after having done so, they have formed the opinion that
the company shall continue to operate as a going concern and that it is capable of meeting its
liabilities on time during the period up to the end of the immediately succeeding financial year.

(9) The purchase shall be made through a tender system and the mode of tender shall be
decided by the company in general meeting through a special resolution.

(10) The shares purchased under this section shall not be resold and shall be cancelled
forthwith. The amount of the company’s paid up share capital shall be diminished by the
nominal value of such shares accordingly. The amount by which the company’s paid up share
capital is thereby diminished on cancellation of the shares purchased shall, after accounting for
the credit, if any, pursuant to sub-section (6) of this section, be transferred from the distributable
profits to an account to be called “Capital Re-purchase Reserve Account”.

(11) The provisions of this Ordinance relating to the reduction of a company’s share capital
apply as if the Capital Re-purchase Reserve Account were paid-up share capital of the company,
except that the reserve account may be applied by the company is paying up its un-issued shares
to be allotted to members of the company as fully paid bonus shares.

(12) Where a company has purchased its own shares under this section, it shall maintain a
register of shares so purchased and enter therein the following particulars, namely:-

(i) number of shares purchased;

(ii) consideration paid for the shares purchased;

(iii) mode of purchase; and

(iv) the date of cancellation of such shares.

(13) A return about the purchase of shares under this section containing such particulars
relating to purchase as may be prescribed, along with the declaration of solvency made under
sub-section (8) shall be filed with the Commission and the registrar within thirty days of the
purchase.

(14) If a company makes default in compliance with the provisions of this section, the
company shall be liable to a fine which may extend to one million rupees and any officer of the
company who is knowingly and wilfully in default shall also be punishable with imprisonment
for a term which may extend to six months, or with fine which may extend to one million
rupees, or with both.

REDUCTION OF SHARE CAPITAL

Section 96. Reduction of share capital. -

(1) Subject to confirmation by the Court, a company limited by shares, if so authorised by
its articles, may by special resolution reduce its share capital in any way, and in particular and
without prejudice to the generality of the foregoing powers may--

(i) extinguish or reduce the liability on any of its shares in respect of share capital
not paid up; or

(ii) either with or without extinguishing or reducing liability on any of its shares,
cancel any paid-up share capital which is lost or un-represented by available assets; or

(iii) either with or without extinguishing or reducing liability on any of its shares, pay
off any paid-up share capital which is in excess of the needs of the company;

and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share
capital and of its shares accordingly.

(2) A special resolution under sub-section (1) is in this Ordinance referred to as a resolution for
reducing share capital.

Section 97. Application to Court for confirming order. -

Where a company has passed a resolution for reducing share capital, it may apply by a petition
to the Court for an order confirming the reduction.

Section 98. Addition to name of company of “and reduced”. -

On and from the passing by a company of a resolution for reducing share capital, or where the
reduction does not involve either the diminution of any liability in respect of unpaid share
capital or the payment to any share-holder of any paid-up share capital, then on and from the
making of the order confirming the reduction, the company shall, unless otherwise directed by
the Court for any special reasons, add to its name until such date as the Court may fix, the words
"and reduced” as the last words thereof, and those words shall, until that date, be deemed to be
part of the name of the company:

Provided that, where the reduction does not involve either the diminution of any liability
in respect of unpaid share capital, or payment to any shareholder of any paid-up share capital,
the Court may, if it thinks expedient, dispense with the addition of the words ”and reduced”.

Section 99. Objection by creditors and settlement of list of objecting creditors. -

(1) Where the proposed reduction of share capital involves either diminution of liability in
respect of unpaid share capital or the payment to any shareholder of any paid-up share capital,
and in any other case if the Court so directs, every creditor of the company who, on the date
fixed by the Court, is entitled to any debt or claim which, if that date were the date of
commencement of the winding up of the company, would be admissible in proof against the
company, shall be entitled to object to the reduction.

(2) The Court shall settle a list of creditors so entitled to object, and for that purpose shall
ascertain, as far as possible without requiring an application form any creditor, the names of
those creditors and the nature and amount of their debts or claims, and may publish notices
fixing a day or days within which creditors not entered on the list are to claim to be so entered
or are to be excluded from the right of objecting to the reduction.

Section 100. Power to dispense with consent of creditor on security being given for his
debt. -
Where a creditor entered on the list of creditors whose debt or claim is not discharged or
determined does not consent to the reduction, the Court may, if it thinks fit, dispense with the
consent of that creditor, on the company securing payment of his debt or claim by appropriating
as the Court may direct, the following amount, that is to say,—

(i) if the company admits the full amount of his debt or claim, or, though not
admitting it, is willing to provide for it, then the full amount of the debt or claim; and

(ii) if the company does not admit or is not willing to provide for the full amount of
the debt or claim, or if the amount is contingent or not ascertained, then an amount fixed
by the Court after the like inquiry, and adjudication as if the company were being wound
up by the Court.

Section 101. Order confirming reduction. -

If the Court is satisfied with respect to every creditor of the company who under this Ordinance
is entitled to object to the reduction that either his consent to the reduction has been obtained or
his debt or claim has been discharged or has been determined or has been secured, the Court
may make an order confirming the reduction on such terms and conditions as it thinks fit.

Section 102. Registration of order and minute of reduction. -

(1) The registrar on production to him of an order of the Court confirming the reduction of
the share capital of a company, and on the filing with him of a certified copy of the order and of
a minute approved by the Court and showing with respect to the share capital of the company as
altered by the order, the amount of the share capital, the number of shares into which it is to be
divided and the amount of each share, and the amount, if any, at the date of the registration
deemed to be paid-up on each share, shall register the order and minute.

(2) A resolution for reducing share capital as confirmed by an order of the Court registered
under sub-section (1) shall take effect on such registration and not before.

(3) Notice of the registration shall be published in such manner as the Court may direct.

(4) The registrar shall certify under his hand the registration of the order and minute, and his
certificate shall be conclusive evidence that all the requirements of this Ordinance with respect
to reduction of share capital have been complied with, and that the share capital of the company
is such as is stated in the minute.

Section 103. Minute to form part of memorandum. --

(1) The minute when registered shall be deemed to be substituted for the corresponding part
of the memorandum of the company, and shall be valid and alterable as if it had been originally
incorporated therein, and shall be embodied in every copy of the memorandum issued after its
registration.

(2) If a company makes default in complying with the requirements of subsection (1), it
shall be liable to a fine which may extend to fifty rupees for each copy in respect of which
default is made, and every officer of the company who knowingly and willfully authorises or
permits the default shall be liable to the like penalty.

Section 104. Liability of members in respect of reduced shares. --

(1) A member of the company, past or present, shall not be liable in respect of any share to any
call or contribution exceeding in amount the difference, if any, between the amount paid, or, as
the case may be, the received amount, if any, which is to be deemed to have been paid, on the
share and the amount of the share as fixed by the minute:

Provided that, if any creditor, entitled in respect of any debt or claim to object to the
reduction of share capital, is, by reason of his ignorance of the proceedings for reduction, or of
their nature and effect with respect to his claim not entered on the list of creditors, and, after the
reduction, the company is unable, within the meaning of the provisions of this Ordinance with
respect to winding up by the Court, to pay the amount of his debt or claim, then--

(i) every person who was a member of the company at the date of the registration of
the order for reduction and minute shall be liable to contribute for the payment of that
debt, or claim an amount not exceeding the amount which he would have been liable to
contribute if the company had commenced to be wound up on the day before that
registration; and

(ii) if the company is wound up, the Court, on the application of any such creditor
and proof of his ignorance as aforesaid, may, if it thinks fit, settle accordingly a list of
persons so liable to contribute, and make and enforce calls and orders on the
contributories settled on the list as if they were ordinary contributories in a winding up.

(2) Noting in this section shall effect the rights of the contributories among themselves.

Section 105. Penalty on concealment of name of creditor. --

If any officer of the company willfully conceals the name of any creditor entitled to object to the
reduction, or willfully misrepresents the nature or amount of the debt or claim of any creditor, or
if any officer of the company abets any such concealment or misrepresentation as aforesaid,
every such officer shall be punishable with imprisonment for a term which may extend to one
year, or with fine, or with both.

Section 106. Publication of reasons for reduction. -

In the case of reduction of share capital, the Court may require the company to publish in the
manner specified by the Court the reasons for reduction, or such other information in regard
thereto as the Court may think expedient with a view to giving proper information to the public,
and, if the Court thinks fit, the causes which led to the reduction.

Section 107. Increase and reduction of share capital in case of a company limited by
guarantee having a share capital. -
A company limited by guarantee may, if it has a share capital and is so authorised by its articles,
increase or reduce its share capital in the same manner and subject to the same conditions in and
subject to which a company limited by shares may increase or reduce its share capital under the
provisions of this Ordinance.

VARIATION OF SHAREHOLDER’S RIGHTS

Section 108. Variation of shareholder’s rights. –

(1) The variation of the right of shareholders of any class shall be effected only in the
manner laid down in section 28.

(2) Not less than ten per cent of the class of shareholders who are aggrieved by the variation
of their rights under sub-section (1) may, within thirty days of the date of the resolution varying
their rights, apply to the Court for an order canceling the resolution:

Provided that the Court shall not pass such an order unless it is shown to its satisfaction
that some facts which would have had a bearing on the decision of the shareholders where
withheld by the company in getting the aforesaid resolution passed or, having regard to all the
circumstances of the case, that the variation would unfairly prejudice the shareholders of the
class represented by the applicant.

(3) An application under sub-section (2) may be made on behalf of the shareholders entitled
to make it by such one or more of their number as they may authorise in writing in this behalf.

(4) The decision of the Court on any such application shall be final.

(5) The company shall, within fifteen days after the service on the company of any order
made on any such application, forward a copy of the order to the registrar and, if default is made
in complying with this provision, the company and every officer of the company who is
knowingly and willfully in default shall be liable to a fine which may extend to two hundred
rupees for each day during which the default continues.

(6) The expression “variation” includes abrogation, revocation or enhancement.

(7) Section 5 of the Limitation Act 1908 (IX of 1908), shall apply to an application made
under sub-section (2).

REGISTRATION OF UNLIMITED COMPANY AS LIMITED

Section 109. Registration of unlimited company as limited. –

(1) Subject to the provisions of this section, any company registered as unlimited may
register under this Ordinance as limited or any company already registered as a limited company
may reregister under this Ordinance, but the registration of an unlimited company as a limited
company shall not affect the rights, debts, liabilities, obligations or contracts acquired, incurred
or entered into by, to, with or on behalf of, the company before the registration.

(2) On registration in pursuance of sub-section (1), the registrar shall close the former
registration of the company, and may dispense with the delivery to him of copies of any
documents with copies of which he was furnished on the occasion of the original registration of
the Company; but, save as aforesaid, the registration shall take place in the same manner and
shall have effect as if it were the first registration of the company under this Ordinance.

Section 110. Power of unlimited company to provide for reserve share capital on re-
registration. --
An unlimited company having a share capital may, by its resolution for registration as a limited
company in pursuance of this Ordinance, increase the nominal amount of its share capital by
increasing the nominal amount of each of its shares, but subject to the condition that no part of
the amount by which its capital is so increased shall be capable of being called up except in the
event and for the purpose of the company being wound up.

UNLIMITED LIABILITY OF DIRECTORS

Section 111. Limited company may have directors with unlimited liability. –
(1) In a limited company, the liability of the directors or of any director may, if so provided by
the memorandum, be unlimited.

(2) In a limited company in which the liability of any director is unlimited, the directors of
the company, if any, and the member who proposes a person for election or appointment to the
office of director, shall add to that proposal a statement that the liability of the person holding
that office will be unlimited and the promoters and officers of the company, or one of them
shall, before that person accepts the office or acts therein, give him notice in writing that his
liability will be unlimited.

(3) If any director or proposer makes default in adding such a statement, or if any promoter
or officer of the company makes default in giving such a notice, he shall be liable to a fine
which may extend to two thousand rupees and shall also be liable for any damage which the
person so elected or appointed may sustain from the default, but the liability of the person
elected or appointed shall not be affected by the default.

Section 112. Special resolution of limited company making liability of directors

unlimited. –
(1) A limited company, if so authorised by its articles, may, by special resolution, alter its
memorandum so as to render unlimited the liability of its directors or of any director.

(2) Upon the passing of any such special resolution, the provisions thereof shall be as valid as if
they had been originally contained in the memorandum:
 Provided that an alteration of the memorandum making the liability of any of the
directors unlimited shall not apply, without his consent, to a director who was holding the office
from before the date of the alteration, until the expiry of the term for which he was holding
office on that date.

SPECIAL PROVISIONS AS TO DEBENTURES

Section 113. Right of debenture-holder and shareholder to have copies of trust-deed. -

(1) A copy of any trust-deed for securing any issue of debentures shall be forwarded to
every holder of any such debentures or holder of shares in the company, at his request on
payment of such fee as the company may fix not exceeding the amount prescribed.

(2) If a copy is refused or not forwarded as required under sub-section (1), the company
shall be liable to a fine not exceeding five hundred rupees, and to a further fine not exceeding
fifty rupees for every day after the first during which the refusal continues, and every officer of
the company who knowingly authorises or permits the refusal shall be liable to the like penalty,
and the registrar may by order compel immediate supply of a copy.

Section 114. Debentures not to carry voting rights. –

(1) Except as otherwise provided in this Ordinance, no company shall, after the commencement
of this Ordinance, issue any debentures carrying voting rights at any meeting of the company:

Provided that debentures convertible into ordinary shares may, at the option of the
company, carry voting rights:

Provided further that such voting rights shall not be in excess of the voting rights
attaching to ordinary shares of equal paid-up value.

Explanation. - Debentures convertible into ordinary shares include debentures with

subscription warrants.

(2) Notwithstanding any-thing contained in this Ordinance, or in the memorandum or

articles of any company, no debenture-holder having immediately before the commencement of
this Ordinance voting rights shall, after such commencement, exercise any such rights at any
meeting of the company, except a meeting of debenture-holders themselves.

Section 115. Perpetual debentures. –

A condition contained in any debenture or any deed for securing any debentures, whether issued
or executed before or after the promulgation of this Ordinance, shall not be invalid by reason
only that thereby the debentures are made irredeemable or redeemable only on the happening of
a contingency, however remote, or on the expiration of a period however long.

Section 116. Power to re-issue redeemed debentures in certain cases. –

(1) Where either before or after the commencement of this Ordinance a company has redeemed
any debentures previously issued, the company, unless the articles or the conditions of issue
expressly otherwise provide, or unless the debentures have been redeemed in pursuance of any
obligation on the company so to do, not being an obligation enforceable only by the person to
whom the redeemed debentures were issued or his assigns, shall have power, and shall be
deemed always to have had power, to keep the debentures alive for the purposes of reissue, and
where a company has purported to exercise such a power the company shall have power, and
shall be deemed always to have had power, to reissue the debentures either by reissuing the
same debentures or by issuing other debentures in their place, and upon such reissue the person
entitled to the debentures shall have, and shall be deemed always to have had, the same rights
and priorities as if the debentures had not previously been issued.

(2) Where with the object of keeping debentures alive for the purpose of reissue they have,
either before or after the commencement of this Ordinance, been transferred to a nominee of the
company, a transfer from that nominee shall be deemed to be a reissue for the purposes of this
section.

(3) Where a company has, either before or after the commencement of this Ordinance,
deposited any of its debentures to secure advances from time to time on current account or
otherwise, the debentures shall not be deemed to have been redeemed by reason only of the
account of the company having ceased to be in debit while the debentures remained so
deposited.

(4) The re-issue of a debenture or the issue of another debenture in its place under the power
by this section given to, or deemed to have been possessed by, a company, whether the re-issue
or issue was made before or after the commencement of this Ordinance, shall be treated as the
issue of a new debenture for the purposes of stamp duty and registration but it shall not be so
treated for the purposes of any provision limiting the amount or number of debentures to be
issued:

Provided that any person lending money on the security of a debenture re-issued under
this section which appears to be duly stamped may give the debenture in evidence in any
proceedings for enforcing his security without payment of the stamp-duty or any penalty in
respect thereof, unless he had notice or, but for his negligence, might have discovered, that the
debenture was not duly stamped, but in any such case the company shall be liable to pay the
proper stamp-duty and penalty.

(5) Nothing in this section shall prejudice any power to issue debentures in the place of any
debentures paid off or otherwise satisfied or extinguished, reserved to a company by its
debentures or the securities for the same.

Section 117. Specific performance of contract to subscribe for debentures. –

A contract with a company to take up and pay for any debentures of the company may be
enforced by a decree for specific performance.

Section 118. Payment of certain debts out of assets subject to floating charge in priority
to claims under the charge. -
(1) Where either a receiver is appointed on behalf of the holders of any debentures of a company
secured by a floating charge, or possession is taken by or on behalf of these debenture holders of
any property comprised in or subject to the charge, then, if the company is not at the time in
course of being wound up, the debts which in every winding up are under the provisions of Part
XI relating to preferential payments to be paid in priority to all other debts, shall be paid
forthwith out of any assets coming to the hands of the receiver or other person taking possession
as aforesaid in priority to any claim for principal or interest in respect of the debentures.

(2) The periods of time mentioned in the said provisions of Part XI shall be reckoned from
the date of the appointment of the receiver or of possession being taken as aforesaid, as the case
may be.

(3) Any payments made under sub-section (1) shall be recouped, as far as may be, out of the
assets of the company available for payment of general creditors.

Section 119. Powers and liabilities of trustee. –

(1) The trustee nominated or appointed under the trust-deed for securing an issue of
debentures shall, if so empowered by such deed, have the right to sue for all redemption monies
and interest in the following cases, namely: -

(a) where the issuer of the debentures as mortgagor binds himself to repay the
debenture loan or pay the accrued interest thereon, or both to repay the loan and pay the
interest thereon, in the manner provided on the due date;

(b) where by any cause other than the wrongful act or default of the issuer the
mortgaged property is wholly or partially destroyed or the security is rendered
insufficient within the meaning of section 66 of the Transfer of Property Act, 1882 (Act
IV of 1882), and the trustee has given the issuer a reasonable opportunity of providing
further security adequate to render the whole security sufficient and the issuer has failed
to do so;

(c) where the trustee is deprived of the whole or part of the security by or in
consequence of any wrongful act or default on the part of the issuer; and

(d) where the trustee is entitled to take possession of the mortgaged property and the
issuer fails to deliver the same to him or to secure the possession thereof without
disturbance by the issuer or any person claiming under a title superior to that of the
issuer.

(2) Where a suit is brought under clause (a) or clause (b) of sub-section (1) the Court may at
its discretion stay the suit and all proceedings therein notwithstanding any contract to the
contrary, until the trustee has exhausted all his available remedies against the mortgaged
property or what remains of it unless the trustee abandons his security and, if necessary,
retransfers the mortgaged property.
(3) Notwithstanding anything contained in sub-sections (1) and (2) or any other law for the
time being in force, the trustee or any person acting on his behalf shall, if so authorised by the
trust-deed, sell or concur in selling, without intervention of the Court, the mortgaged property or
any part thereof in default of payment according to repayment schedule of any redemption
amount or in the payment of any accrued interest on the due date by the issuer.

Explanation: "Issuer", in sub-sections (1), (2) and (3), shall mean the company issuing
debentures and securing the same by mortgage of its properties or assets, or both its properties
and assets, and appointing a trustee under a trust-deed.

(4) Subject to the provisions of this section, any provision contained in a trust deed for
securing an issue of debentures, or in any contract with the holders of debentures secured by a
trust-deed, shall be void in so far as it would have the effect of exempting a trustee thereof from,
or indemnifying him against, liability for breach of trust, where he fails to show the degree of
care and diligence required of him as trustee, having regard to the provisions of the trust-deed
conferring on him any power, authority or discretion.

(5) Sub-section (4) shall not invalidate:--

(a) any release otherwise validly given in respect of anything done or omitted to be
done by a trustee before the giving of the release; or

(b) any provision enabling such a release to be given--

i on the agreement thereto of a majority of not less than three-fourths in

value of the debenture-holders present and voting in person or, where proxies are
permitted, by proxy, at a meeting summoned for the purpose; and
ii either with respect to specific acts or omissions or on the trustee dying or
ceasing to act.

(6) Sub-section (4) shall not operate:--

(a) to invalidate any provision in force immediately before the commencement of

this Ordinance, so long as any person then entitled to the benefit of that provision or
afterwards given the benefit thereof under sub-section (7) remains as trustee of the deed
in question ; or

(b) to deprive any person of any exemption or right to be indemnified in respect of

anything done or omitted to be done by him while any such provision was in force.

(7) While any trustee of a trust-deed remains entitled to the benefit or provision saved by
sub-section (6), the benefits of that provision may be given either: --

(a) to all trustees of the deed, present and future; or

(b) to any named trustees or proposed trustees thereof;
by a resolution passed by a majority of not less than three-fourths in value of the debenture-
holders present in person or, where proxies are permitted, by proxy, at a meeting called for the
purpose in accordance with the provisions of the deed or, if the deed makes no provisions for
calling meetings, at a meeting called for the purpose in any manner approved by the Court.

Section 120. Issue of securities and redeemable capital not based on interest.-
(1) A company may by public offer or], upon terms and conditions contained in an
agreement in writing, issue to one or more scheduled banks, financial institutions or such other
persons as are specified for the purpose by the Federal Government by notification in the
official Gazette, either severally, jointly or through their syndicate, any instrument in the nature
of redeemable capital in any or several forms in consideration of any funds, moneys or
accommodations received or to be received by the company, whether in cash or in specie or
against any promise, guarantee, undertaking or indemnity issued to or in favour of or for the
benefit of the company.

(2) In particular and without prejudice to the generality of the forgoing provisions, the
agreement referred to in sub-section (1) for redeemable capital may provide for, adopt or
include, in addition to others, all or any of the following matters, namely:--

(a) mode and basis of repayment by the company of the amount invested in
redeemable capital within a certain period of time;

(b) arrangement for sharing of profit and loss;

(c) creation of a special reserve called the "participation reserves by the company in
the manner provided in the agreement for the issue of participatory redeemable capital in
which all providers of such capital shall participate for interim and final adjustment on
the maturity date in accordance with the terms and conditions of such agreements ; and

(d) in case of net loss on participatory redeemable capital on the date of maturity, the
right of holders to convert the outstanding, balance of such capital or part thereof as
provided in the agreement into ordinary shares of the company at the break-up price
calculated in the prescribed manner.

(3) The terms and conditions for the issue of instruments or certificates of redeemable
capital and the rights of their holders shall not be challenged or questioned by the company or
any of its shareholders as repugnant to any provision of this Ordinance or any other law or the
memorandum or articles or any resolution of the general meeting or directors of the company or
any other documents.

(4) The provision of this Ordinance relating to the creation, issue, increase or decrease of the
capital shall not apply to the redeemable capital.