THE COMPANIES ORDINANCE, 1972

Commissions, financial assistance for the acquisition of shares and debentures, and acquisitions of shares of a company by itself

52.—(1) It shall be lawful for a company to pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares or debentures of the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares or debentures of the company, only if—

(a)   the payment of the commission is authorised by the articles ; and

(b)   the commission paid or agreed to be paid does not exceed ten per centum of the price at which the shares or debentures are issued or the amount or rate authorised by the articles, whichever is the less ; and

(c)   the amount or rate per centum of the commission paid or agreed to be paid is disclosed in the prospectus, or if there is no prospectus, in the registration statement in respect of the shares or debentures ; and

(d)   the number of shares or debentures which persons have for a commission agreed to underwrite firmly is disclosed in manner aforesaid.

(2)  A vendor to a company, or any other person who receives payment in money, shares or debentures from a company, shall have, and shall be deemed always to have had, power to apply any part of the money or shares so received in payment of any commission, the payment of which, if made directly by the company, would have been legal under this section.

(3)  Nothing in this section shall affect the difference or margin between the issue or other price paid or to be paid by a person who takes an allotment or transfer, or agrees to take an allotment or transfer, of shares or debentures with a view to offering all or any of them for sale, and the price at which that person sells or agrees to sell the shares or debentures. For the purpose of this subsection the word "price" shall include any valuable consideration, and the words "sale" and "sell" shall include any disposition for valuable consideration.

(4)  It shall be unlawful for a company to pay or to agree to pay a commission falling within subsection (1) of this section by the company allotting or agreeing to allot any of its shares or debentures, or by the company conferring a right to subscribe for other shares or debentures to be issued or re-issued by it; and any such allotment, agreement for allotment, or conferment of a right to subscribe for such shares or debentures shall be void.

(5)  For the purposes of this Ordinance a person shall be considered as underwriting shares or debentures firmly if he enters into an underwriting contract, and also applies to the company for the shares or debentures to which the contract relates to be allotted to him, whether or not they are also applied for by other persons.

(6)  Any contravention of this section by a director or any other officer of the company or by any other person shall be punishable by a -fine not exceeding ten thousand rupees.

53.—(1) It shall not be lawful for a company to 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, a purchase or subscription made, or to be made, by any person of or for any shares or debentures of the company, or of a company which belongs to the same group of companies as the company :

Provided that nothing in this section shall be taken to prohibit :—

(a) where the lending of money is part of the ordinary business of a company, the lending of money by the company in the ordinary course of its business, without any obligation or condition being imposed on the borrower that he shall expend the whole or any part of the money lent in subscribing for or purchasing shares or debentures of the company, or of such other company as aforesaid ;

(b)   the gratuitous provision by the company, in accordance with any scheme authorised by an ordinary resolution passed at a general meeting of the company, of money for the subscription or purchase of fully paid shares of the company or of any other company or body corporate, being a subscription or purchase by trustees of shares or debentures to be held by or for the benefit of employees (including directors holding a salaried employment or office) of the company or of a company which belongs to the same group of companies as the company;

(c)   the making by a company of loans to employees (including any director holding a salaried employment or office) of the company or of a company which belongs to the same group of companies as the company with a view to enabling those persons to subscribe for or purchase shares or debentures of any such company ;

(d)   the provision of money, guarantees, or securities by a company under an employee share subscription scheme to which it is a party.

(2) A contravention of this section by a director, or any other officer of a company, or by any other person shall be an offence punishable by a fine not exceeding ten thousand rupees or by imprisonment for not more than two years, or by both such fine and such imprisonment,

54.—(1) A company may not acquire or contract to acquire any shares issued or re-issued by itself or its holding company, or any derivative interest in such shares, whether directly or by means of an agent, nominee or trustee or otherwise.

(2) This section shall not prevent the transfer or surrender of shares to a company : —

(a)   if the shares are fully paid and no consideration is given or paid for them by the company ; or

(b)   if the shares are held in the company to which the transfer or surrender is made, and are replaced immediately by other shares (whether carrying the same rights or not) allotted to the persons making the transfer or surrender, being shares having unpaid upon them not less than the amount unpaid on the shares which are transferred or surrendered ; or

(c)   if the shares are fully paid? and are transferred in consideration of a payment made out of the profits or revenue reserves of the company ; or

(d)   if the shares are fully paid and are transferred to the company as an agent, nominee or trustee under an arrangement in which it has no beneficial interest other than its right to remuneration and to an indemnity for its expenses.

(3)  This section shall not apply : —

(a)   to the issue to a company of shares in its holding company on a capitalisation of the profits or reserves of the holding company, or on a rights issue being made by the holding company ; or

(b)   to a mortgage or charge in favour of a company on shares issued or re-issued by it or its holding company for any part of the issue price or for any debt owed to the company; or

(c)   to a company's right to remuneration or to an indemnity against its expenses under an arrangement falling within paragraph (d) of subsection (2); or

(d)   to the issue of shares on a rights issue being made by the company or its holding company in respect of shares held by the company under an arrangement faHing within paragraph (d) of subsection (2).

(4)  All shares of a company transferred or surrendered to the company itself under paragraphs (a), (b) or (c) of subsection (2) shall be cancelled and shall become void as from the time of the transfer or surrender, and shall thenceforth be deemed not to be issued shares for the purposes of this Ordinance, but without prejudice to the company's power to re-issue such shares under sections 55(4) and 61.

(5)  In this Ordinance a "rights issue" means an issue of shares* under an offer made by a company to its existing shareholders in proportion to the number of shares, or the number of shares of a particular class, which they already hold.

(6)  Any contravention of this section by a director or any other officer of the company or by any other person shall be punishable by a fine not exceeding ten thousand rupees.