Section 54 - Issue of Sweat Equity Shares

This Section enable companies to reward their employees by way of sweat equity shares. These are the shares which are issued by the company to employees or directors at a discount or for the consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

1. A Company may issue the Sweat Equity shares of a class of shares already issued, if the following conditions are satisfied :

a. Special Resolution : The issue of sweat equity shares shall be authorised by a special resolution passed by the company in a general meeting. 

b. The Resolution shall specify the number of shares current market price, consideration, if any, and the section of directors/employees to whom they are to be issued.

c. The gap of one year : As on the date of issue, a year should have elapsed since the company was entitle to commence business.

d. Listed equity shares issued as per regulation made by SEBI : The sweat equity shares of a company whose equity shares are listed on recognized stock exchange shall be issued in accordance with the regulations made by Securities and Exchange Board of india ('SEBI').

In case of a company whose equity shares not listed on any recognised stock exchange, shall be issued in accordance with rule 8 of Companies (Share Capital and Debentures) Rules, 2014.

2. The rights, limitations, restrictions and provisions applicable to equity shares shall be applicable to equity shares shall be applicable to sweat equity shares and holders of such shares shall rank pari passu with other equity shareholders.

Companies (Share Capital and Debentures) Rules, 2014

The company shall maintain a Register of Sweat Equity Shares in Form No. SH.3 [rule 8(14)]

References

Companies Act, 2013

Contact

CS Simpal Singh

EMail ID - cssimpalsingh@gmail.com

Section 185 of the Companies Act, 2013

Applicability: Section 185 applies to both Public and Private Companies

The Section prohibits directly or indirectly advances of Loans to directors or to any other person in whom director is interested by a Company.

185 (1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its director or to any other person in whom director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person;

Exceptions: Provided that nothing contained in this sub section apply to

   (a) Loan to a managing director or a whole-time director,

   (i) as a part of conditions of services applicable to all employees; or

 (ii) pursuant to any scheme approved by the members by a special resolution.

 Status of past contracts: It may be noted that the restriction apply only at the time of entering into the transaction, for example, if a person is only an employees of the Company and later he becomes director of the company, section 185 would not apply. In the same way, if a private limited company has given loan/guarantee or security which was earlier exempted under section 295 of the Companies, shall continue to be exempted under section 185. However it cannot give further loans without complying with the provision of section 185 of the Act.

      (b) Loan, guarantee or security for the repayment of the loan in the ordinary course of business and charging interest at the prevailing bank rate, declared by the Reserve Bank of India.

   (c) any loan made by a holding company to its wholly owned subsidiary company  (100% subsidiary Company) or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or

    (d) any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company.

Provided that the loans made under clauses (c) and (d) are utilized by the subsidiary company for its principal business activities.

Explanation: For the purpose of this section, the expression “to any other person in whom director is interested” means

(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director ;

(b) any firm in which any such director or relative is a partner ; 

(c) any private company of which any such director is a director or member ;

(d) any body corporate at a general meeting of which not less than twenty-five percent of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

(e) any body corporate, the Board of directors, managing director or manager whereof is accustomed to act in accordance with the direction or instructions of the board, or of any director or directors, of the lending company.    

Exemption to a private company: Section 185 shall not apply to a private company –

(a) in whose share capital no other body corporate has invested any money;

    (b) if the borrowing of such a company from banks or financial institutions or body corporate is less than twice its paid-up capital or fifty crore rupees, whichever is lower; and

   (c) such a company is not in default in repayment of such borrowing subsisting at the of making transactions under this section. [Notification dated 5^th June, 2015]

  Offence & Penalty

   If any loan is advanced or a guarantee or security is given or provided in contravention of the provision of sub section (1), the company shall be punishable with fine and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person shall be punishable with imprisonment or with fine or with both. [section 185 (2)] 

     Reference: Companies Act, 2013

Contact

CS Simpal Singh

Email Id: cssimpalsingh@gmail.com

Section 184 of the Companies Act 2013 - Disclosure of interest by Director

184 (1) Every director shall at the first Board Meeting of the Board in which he participates as a director and thereafter at the first  Meeting of the Board in every Financial Year or whenever there is any change in the disclosure already made, then at the first Board Meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of the individuals which shall include the shareholding, in such manner as may be prescribed.

(2) Every director of the company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into –
a.  With a body corporate in which such director or such director in association with any other director, holds more than two percent shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body Corporate ; or

b.  With a firm or other entity in which such director is a partner, owner or member,as the case may be shall disclose the nature of his concern or interest at the meeting of the board in which the contract or arrangement is discussed and shall not participate in such meeting:

Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interested or at the first board meeting of the board held after he becomes so concerned or interest.

(3) A contract or arrangement entered into by the company without disclosure under sub section (2) or with participation by a director who is concerned or interested, in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.

(4) If a director of the Company contravenes the provision of the sub section (1)  or sub section (2), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Fifty thousand rupees (50,000) but which may extend to one lakh rupees, or with both.

Exemption/modification to a Private Company: Section 184 deals with disclosure of interest by the directors of the Companies. Section 184(2) provides that the directors of a private company must refrain from participating in a board meeting where a matter in which they are interested is to be discussed. This created practical problem in case of private Companies which did not have any disinterested director on a matter under consideration. Accordingly, private companies have been exempted from the provision of section 184(2) implying thereby that the interested director of the private companies can take part in the meeting of the Board after disclosing their interest. 

However there is an anomaly. Though such an interested director may participate in a Board meeting of a private company, he cannot be counted for the purposes of quorum under section 174(3) which provides that directors who are not interested and present at the meeting shall be the quorum (Notification dated 5^th June, 2015)

Companies (Meeting of Board and its Powers) Rules, 2014

Disclosure by a director of his interest: Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1

It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice. All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose. (rule 9)

Judicial Pronouncement

Where director is sub partner with the other party to the contract, he is deemed to have an interest in the contract which he is bound to disclose – Pydah Venkatachalapathi v Guntur, Jute & Pare Mills Co Ltd AIR 1929 Mad 353

A relationship of friendliness with directors who are ‘interested’ in contract or arrangement will not make a person an interested director. The interest or concern cannot be merely a sentimental interest or ideological concern – Needle Industries (india) Ltd v Needle Industries Newey (India) Holding Ltd (1981) 51 Comp Cas 743 (SC)

Offences & Penalty

If a director fails to disclose his interst in contract at a Board meeting or participates in the meeting of the Board where he has disclosed his interest shall be punishable with imprisonment or with fine or with both (sub section 4)

References 
Companies Act, 2013