company in contravention of provisions of Section 73

., if the company does not apply or the permission has not

been granted by the stock exchange before the expiry often weeks from the date of the closing of the subscription lists, shall be void.

In this connection, it is worth noting that the companies have been given a right of appeal against the refusal of any stock exchange to list securities within

15 days either from the date ofrefusal or from the date of expiry of the aforesaid 10 weeks. The appeal can be filed with the Securities Appellate Tribunal

(SAT). Till the disposal of appeal, the money is required to be kept in separate bank accounts. In case of default, the company and

every officer in default shall be punishable with a fine upto Rs. 50,000. If appeal is dismissed, the money is refundable. Ifappeal is upheld the company can

proceed to allot shares.

If the pem1ission has not been applied for.. or has not been granted as aforesaid, the company must immediately repay the money received from the

applicants. If this money is not repaid within 8 days, the company and every director of the company who is an officer in default shall be jointly and

severally liable to repay that money with interest at 15%1 per annum from the expiry of the eighth day.

. Section 73 furtl1er provides that all moneys received from applicants for shares must be kept in a separate bank account maintained with a scheduled

bank until the permission has been granted, or where an appeal has been preferred against the refusal to grant such permission, until the disposal of the

appeal. If default is made in complying with this provision, the company, and every officer of the company who is in default, shall be punishable with fine

whidl may extend to Rs. 50,000.

Ovcrsubscription. If the shares or debentures are Q’er-subscribed. the company must repay the excess money forthwith without any interest.

The following are the moles for the issue of shelf prospectus

I. Any public financial institution, public sector banks, or scheduled banks whose main business is financing are eligible to issue shelf prospectus.

Financing as per explanation (a) to Sec. 60A(4) means making loans, to or subscribing in the capital of a private enterprise engaged in infrastmcture

financing or to such other company as may be notified by the Central Government. .

2. The Shelf Prospectus is to be filed with the Registrar of Companies.

3. The ‘Shelf Prospectus’ will be valid only for a year from the date of

opening of its first issue of shares or debentures, under the prospects and need not file a fresh prospectus each time when the company makes an issue.

4. At the time of subsequent offer of securities, the company shall file an information memorandum and also issue information memorandum along with

shelf prospectus.

5. An update ‘information memorandum’ is to be filed every time an offer of securities is made and such memorandum together with ‘shelf

prospectus’ shall constitute a prospectus. .

(D) INFORMATION MEMORANDUM [SEC. 60B]

Sec. GOB has also been added by the Companies (Amendment) Act 2000 making a provision for information memorandum.

As per Sec. 2 (19B), ‘information memorandum’ means “a process undertaken prior to the filing of a prospectus by which a demand for the securities

proposed to be issued to a company is elicited, and the price and the terms of issue for such securities is assessed by means of a notice, circular.

advertisement or docmnent”. The provisions regarding’ information memorandum’ are as follows:

1. A public company making an issue of securities may circulate the ‘information memorandum’ to the public prior to the filing of the prospectus. Since the

object of this document is to explore the demand for securities and the price offered for them, it should contain major information regarding the issuing

company.

T1lis memorandum is practically issued to qualified institutional buyers, financial institutions. large brokers, underwriters etc. at least in case oflisted

companies.

2. The company is required to file a prospectus. prior to the opening of subscription lists and th(.; offer, as a ‘red-herring prospectus’ at least three days

before the opening of the offer.A red-herring prospectus’ means a prospectus which does not have a

complete particular on the price orand the quantum of securities offered.

3. The red-herring prospectus should contain all particulars which are

required in the prospectus except that the exact size and issue price.

4. Any mis-statement or omission of fact in red-herring prospectus or the infoIDlation memorandum will attract the same civil and criminal liabilities as arc

activities which are illegal or contrary to public policy

The objects clause must not include activities which are illegal or contrary to public policy. Nor should any object be included here which conflicts with any
provision of the Indian Companies Act. Thus if the objects include a clause which permits the company to buy its own share, it will be ultra vires (i.e.
invalid) as such activity is prohibited under the Companies Act. Finally, it is essential that the objects and powers must be expressed in a clear and
unambiguous language. The object clause determines the scope of its activity beyond which a company cannot go.
4. Liability, Clause. The clause contains the nature of liability of the compan)'. I n case the company is limited by shares, the liability clause must state that
,the liability of the members shall be limited to the nominal value of shares held by them. In case of a company limited by guarantee. the liability shall be Ii.
noted to the amount lavish he has agreed to contribute in the event of its liquidation. A company registered with unlimited liability need not give this clause

in its Memorandum.
5. Capital Clause. The capital clause in the Memorandum of a company, having a share capital, must state the amount of the share capital with which the
company is to be registered and the division thereof into shares of a fixed amount. The denomination of each share should be Rs. 10 or Rs. 100 in case of

equity share and Rs. 100 in case of preference share. However. the company following depository system may issue equity shares in any denomination
Press release of SEBI dated 11.6.1999]. This is the maximum amount of share capital that the company is authorized by the memonmdum to raise.
Hence it is called the "authorized'. 'registered' or 'nominal capital'. Each subscriber to the Memonmdu1l1 must take the qualification shares which shall not

be less than one, and write the number of shares taken by him opposite his name. It may be noted here tbat a limited company having share capital may
have only two. kinds of share capital, liz., equity share capital and preference share capital.Subscrilltion or Association Clause. Tiles clause contains the

names of signatories to the Memorandum and it reads like this:
"We. tile several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of the Memorandum
and we respectively agree to take the number of shares in the capital of the company set opposite our respective names."
The M A should be signed by at least seven persons in the case of a public company and by at least two persons in the case of a. private

public company having share capital commence business

Penalty. If any public company having share capital commence business or exercises borrowing power without the certificate to commence
business, then every person at fault shall be liable to a fine which may. e1end to Rs. 5000 for eve)' day of default. The principle of non-metrification of

pre-incorporation contract by the company is subject to Sections 15 (11) and 19 (e) of the Specific Relief Act. 1903. The combined effect of these

provisions is that where the promoters had made a contract on behalf of the company before its incorporation in the following circumstances, the contract

may be specifically performed by or against the company :
1. The contract is a pre-incorporation contract.
2. It has been made for the purposes one company or it is warranted
by the terms of incorporation of the company.
3. The company has accepted it, and
4. Such acceptance has been communicated to the other party. The term 'warranted by the terms of incorporation' means that it is
within the scope of the company's objectives as stated in. the Memorandum of Ass coition. .
It’ must, however, be remembered that a private company becomes legally bound, the moment it makes a fresh contract l)r ratifies a contract falling within

the purview of Sections 15 (h) and 19 (e) of the Specific Relief Act. 1963 after incorporation. But a public company becomes bound only after getting the
certificate of commencement of business because . Memorandum of Association is one of the documents which has to be filed with the Registrar of
Companies at the time :f incorporation of a company. It contains the fundamental conditions on which the company is to be incorporated. In the words of
Palmer, "It is a document of great importance in relation to the proposed company." No company can be registered without a memorandum of association

and that is why it is sometimes called a life giving document or a charter of the company.
Definition. Under Section 2 (28) of the Act, ;'Memorandum means the memorandum of association of a company as originally framed or as altered from
time to time in pursuance of any previous company laws or of this Act."This definition, however, neither give us any idea as to what a memorandum of

association really is nor does it point out the role which it plays in the affairs of the company. We shall, therefore, examine some better definitions given by

judges.Lord Cairns in the leading case of Asbury Railway Carriage Co. Riche observed that 'The memorandum of association of a company is
its charter and defines the limitation of the powers of a company.