Companies Act Section 40 — Securities to be dealt with in stock exchanges
CHAPTER III PROSPECTUS AND ALLOTMENT OF SECURITIES
Commercial / Corporate
Summary
Sub-section (1) requires every company that makes a public offer of its securities to first apply to one or more recognised stock exchanges and get permission for those securities to be traded on that exchange or those exchanges. This application must be made before the offer is made to the public.
Sub-section (2) states that if a prospectus mentions that an application under sub-section (1) has been made, the prospectus must also name the stock exchange or exchanges where the securities will be traded.
Sub-section (3) requires that all money received from the public for subscribing to the securities must be kept in a separate bank account in a scheduled bank. This money cannot be used for any purpose other than the two purposes listed in clauses (a) and (b).
Under clause (a) of sub-section (3), the money can be used for adjustment against the allotment of securities, but only if the securities have been permitted to be traded on the stock exchange or exchanges named in the prospectus.
Under clause (b) of sub-section (3), the money can be used for repaying the applicants within the time specified by the Securities and Exchange Board, if the company is unable to allot the securities for any other reason.
Sub-section (4) makes void any condition that tries to require or bind an applicant for securities to give up compliance with any requirement of this section.
Sub-section (5) sets the penalty for failing to comply with this section. The company is punishable with a fine of not less than five lakh rupees and up to fifty lakh rupees. Every officer of the company who is in default is also punishable, with a fine of not less than fifty thousand rupees and up to three lakh rupees.
Sub-section (6) allows a company to pay commission to any person in connection with the subscription to its securities, but only subject to such conditions as may be prescribed.
Official Text
(1) Every company making public offer shall, before making such offer, make an application to one or more recognised stock exchange or exchanges and obtain permission for the securities to be dealt with in such stock exchange or exchanges.
(2) Where a prospectus states that an application under sub-section (1) has been made, such prospectus shall also state the name or names of the stock exchange in which the securities shall be dealt with.
(3) All monies received on application from the public for subscription to the securities shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than—
(a) for adjustment against allotment of securities where the securities have been permitted to be dealt with in the stock exchange or stock exchanges specified in the prospectus; or
(b) for the repayment of monies within the time specified by the Securities and Exchange Board, received from applicants in pursuance of the prospectus, where the company is for any other reason unable to allot securities.
(4) Any condition purporting to require or bind any applicant for securities to waive compliance with any of the requirements of this section shall be void.
(5) If a default is made in complying with the provisions of this section, the company shall be punishable with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and every officer of the company who is in default shall be punishable 1*** or with fine which shall not be less than fifty thousand rupees but which may extend to 2[three lakh rupees].
(6) A company may pay commission to any person in connection with the subscription to its securities subject to such conditions as may be prescribed.