THE COMPANIES ORDINANCE, 1972

Payment for shares

55.—(1) Subject to the provisions of this section, the issue price of a share shall not be less than its nominal value.

(2)  If a company issues a share at an issue price which exceeds its nominal value the excess, when paid to the company, shall be carried to the credit of the company's capital reserve. If shares are issued for a consideration other than cash, the excess of the value of the consideration (as determined under section 6 or 57) over the total of the nominal values of the shares so issued, shall be carried to the credit of capital reserve.

(3)  Subject to the following provisions of this section, a share may not be issued at a discount, that is to say, on terms that the share shall be credited as paid up to a greater extent than the amount actually paid to the company for it. In the case of shares issued for a consideration other than cash, the shares shall be considered as issued at a discount if the value of the consideration (as determined under section 6 or 57) is less than the total of the nominal values of the shares so issued.

(4)  For the purpose of this Part of this Ordinance, the amount for the time being standing to the credit of a company's capital reserve shall be treated as though it were paid up share capital, but it shall be permissible for a company by an ordinary resolution passed in general meeting to provide for the use of its capital reserve : —

(a)  in paying up the nominal value or the issue price of unissued, surrendered or redeemed shares which are issued to the existing shareholders as fully paid bonus shares in the same proportions as a dividend might be paid to them in cash out of the company's profits or revenue reserves ; or

(b)   in paying up the amount of any discount on shares issued at a discount; and shares issued on terms that their nominal value shall be paid in part by the holders thereof and in part under this paragraph shall not be considered as shares issued at a discount within the prohibition contained in subsection (3).

(5)  The capital reserve of a company shall consist of the amounts credited to capital reserve under subsection (2), the amounts transferred to it under sections 56(5), 60 and 61 on the re-issue or redemption of any shares, and the amounts transferred to it from the company's profits and revenue reserves under section 160(3), less the amounts applied out of capital reserve under the foregoing subsection and the amounts by which it has been reduced under sections 62 and 63.

(6)  Nothing in this section shall affect the provisions of section 19(4) of this Ordinance.

(7)  This section applies to shares issued before or after the coming into force of this Ordinance.

56.—(1) The issue price of shares issued to be paid for in cash shall be paid to the company within five years after they are issued.

(2) The prospectus or registration statement under which shares are issued may state the amounts of the instalments by which the issue price is to be paid and the dates when such instalments will respectively become due, and the issue price of the shares shall then become due and payable accordingly.

(3)  If subsection (2) does not apply to an issue of shares, the company may make calls on the holders of the shares in accordance with its memorandum and articles, and any part of the issue price which has not been called up at the expiration of five years after the issue of the shares shall then become immediately due and payable.

(4)  If a shareholder fails to pay an instalment of the issue price or a call in respect of shares held by him within one month after the instalment or call becomes due, the company may serve a written notice on him stating the amount due in respect of his shares and the date on which it became due, and further stating that unless the the amount is paid within one month after the notice is served, the shares will be forfeited, but without prejudice to the company's right to recover any unpaid instalment from* the* shareholder after forfeiture. If the instalment or call is not paid within the period limited by the notice, the allotment of the shares shall become void, and the shares shall be forfeited without any resolution of the directors or a general meeting being passed.

(5)  A company may re-issue shares whose allotment has become void under the foregoing provisions of this section. The re-issued shares shall be credited as paid up to the same extent as they were paid up immediately before the avoidance of the last preceding allotment of them. If the company receives any consideration on such a re-issue (other than payment of any instalments of the issue price or calls which are due and unpaid), the value of the consideration shall be credited to capital reserve. A re-issue of shares shall be treated for all purposes in the same way as an allotment of the shares, and if any instalment of the issue price of the shares or call which becomes due after the avoidance of the previous allotment is not paid, the provisions of this section as to forfeiture and re-issue of the shares and recovery of unpaid instalments or calls shall apply. Re-issued shares shall for all purposes be treated as though they formed part of the issue of shares of the same class, and accordingly they shall carry the same rights, obligations and priorities as shares of that class originally issued, and shall be taken into account in the same way as such shares in determining the percentage of shareholders, or of shareholders of any class, who may apply or appeal to the court or may present a petition to the court under any of the provisions of this Ordinance.

(6)  A company shall not be accountable to a shareholder for instalments of the issue price of his shares or calls which have been paid if the company avoids the allotment of the shares under this section, and the company may recover from the shareholder any instalments of the issue price or calls which are due but unpaid at the date the allotment is avoided.

(7)  This section (except subsections (1) to (3) inclusive) shall apply to shares issued before the commencement of this Ordinance.

57.—(1) If shares are issued for a consideration other than cash, the shares shall not be allotted until the assets constituting consideration have been transferred to the company.

(2) Except in cases to which section 6 applies, no allotment of shares for a consideration other than cash shall be made, unless : —

(a)   the directors of the company have passed a resolution that the allotment shall be made ;

(b)   the resolution states the nature of the consideration, its value and the extent to which the shares to be issued in respect of it will be credited as paid up by virtue of it; and

(c) the resolution has been approved by an ordinary resolution passed by a general meeting of the company.

(3)  For the purposes of this section, assets shall be considered as tranferred to the company : —

(i) in the case of goods, when the ownership passes to the company or when they are delivered to it;

(ii) in the case of negotiable instruments, when the company becomes entitled to enforce all the rights embodied in them in its own name without the concurrence of any other person ; and

(iii) in any other case, when the ownership or lesser rights agreed to be vested in the company are legally vested in it.

(4)  Section 6(5) shall apply to issues of shares under this section as it applies to issues under that section.

(5)  If upon an allotment of shares for a consideration other than cash in circumstances in which this section applies—

(a)   subsection (1) or (2) of this section is not complied with ; or

(b)   the shares are issued in contravention of subsection (4);

the directors of the company who are in default shall be guilty of an offence.

(6)  If a person accepts an allotment of shares knowing that subsection (1) or (2) of this section has not been complied with, or accepts an allotment of shares in contravention of subsection (4), he shall be guilty of an offence.

(7)  An offence under this section shall be 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.

58,—(1) Sections 56 and 57 of this Ordinance shall not apply to the subscribers of the memorandum of a company.

(2) The shares for which the subscribers have subscribed the memorandum shall be allotted to them immediately after the incorporation of the company, and they shall pay the nominal value of such shares in cash to the company within one year after the company is incorporated :

Provided that if within one month after its incorporation the company issues a prospectus or prospectuses inviting the public to subscribe for the whole of its nominal capital and in consequence the whole of such capital is subscribed by the public or by the underwriters named in the prospectus, the obligation of the subscribers of the memorandum to take and pay for the shares for which they subscribed the memorandum shall be discharged ; and if less than the whole of the nominal capital is subcribed by the public or by such underwriters as aforesaid, the obligation of the subscribers of the memorandum shall extend only to the shares not subscribed by the public or by such underwriters, but so that the subscribers of the memorandum shall not be required to take and pay for more shares than the number for which they subscribed the memorandum.