Corporate and Other LawsQuestion 5413 of 221
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Question 2 (a) Stuti Ceramic Pvt. Ltd. (SCPL) manufactures crockery items which are predominantly used only by the domestic household customers. Now the company wants to expand its area of operation to manufacture all types of crockery items and cutlery for the use of big hotels. For this expansion plan, the company needs funds of around ` 500 lakh. The company does not want to convert itself from private company to public company since the promoters do not want to dilute their equity stake otherwise the public company have the option to raise the funds through public issue. The company explored the other avenue of raising funds by issue of right shares to the existing shareholders, however only ` 100 lakh could be generated. CORPORATE AND OTHER LAWS The banks and financial institutions are also reluctant to increase their exposure in the company. Referring to the provisions of the Companies Act, 2013, advise the SCPL, whether the company can raise further funds through private placement issue. If so, are there any limit for fresh offer and time limit of allotment of securities? (5 Marks) (b) Dolls Toys Limited is having a net- worth of ` 310 crore, paid up share capital of ` 200 crore, free reserves and security premium of ` 110 crore and turnover of ` 300 crore. Dolls Toys Limited wants to accept deposits form public other than its members. (i) Referring to the provisions of the Companies Act, 2013, state whether Dolls Toys Limited is permitted to accept the deposits from public other than its members. (ii) It is further mentioned that Dolls Toys Limited is in urgent need of funds as one of its contract is on the verge of completion and it is promising to repay the deposits within a period of four months. Is Dolls Toys Limited permitted to accept deposits with repayment period of 4 months? (5 Marks) (c) Referring to the provisions of the General Clauses Act, 1897, answer the following questions: (i) Whenever a new law is enacted by the Government of India, what shall be its date of coming into force? (ii) Whenever a new law is enacted to replace the existing law, it repeals the old enactment. Describe the points which shall not have any effect of repeal of the old enactment. (4 Marks)

Options

A
B
C
D
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Correct Answer

✅ Option descriptive — Correct Option

All Options:

  • A
  • B
  • C
  • D

Detailed Solution & Explanation

(a) Whether Stuti Ceramic Pvt Ltd (SCPL) can raise funds through Private Placement? Yes, SCPL can raise funds through the private placement of shares. **Section 23(2)(b)** of the Companies Act, 2013 (the Act) provides that a private company may issue securities through private placement by complying with the provisions specified in section 42 of the Act in supplement with those stated under **Rule 14** of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Meaning of Private Placement According to the Explanation I to section 42(3) of the Act, “private placement" means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer- cum-application, which satisfies the conditions specified in this section. Offer to be made only to a select group of persons A private placement shall be made only to a select group of not more than two hundred (200) persons (referred to as “identified persons”) in a financial year who have been identified by the Board after passing a special resolution [**Section 42(2)** read with **Rule 14(1)** of the Companies (Prospectus and Allotment of Securities), Rules 2014]. Limit on Fresh Offer As per section 42(5) of the Act, no fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company. Thus, Stuti Ceramic Pvt. Ltd. can raise further funds through private placement issue after the allotments with respect to right issue for ₹100\displaystyle \text{₹}100 lakh have been completed and subject to the maximum number of 200 persons (identified persons) under section 42(2) and by complying with the procedures stated in **Rule 14** of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Time Limit for Allotment of Securities As per section 42(6) of the Companies Act, 2013, a company making an offer or invitation under this section shall allot its securities within 60 days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the expiry of 60 days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% per annum from the expiry of the sixtieth day. CORPORATE AND OTHER LAWS (b) (i) Whether Dolls Toys Limited is permitted to accept deposits from Public other than its members? **Section 76** of the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules, 2014 deal with acceptance of deposits from public other than its members by ‘eligible companies’. Accordingly, a public company, having net worth of not less than ₹100\displaystyle \text{₹}100 crore or turnover of not less than ₹500\displaystyle \text{₹}500 crore, and which has obtained the prior consent by a special resolution and filed it with the Registrar of Companies before making any invitation to the Public for acceptance of deposit can accept deposits from persons other than its members. Eligible Company: As per **Rule 2(1)(e)** of the Companies (Acceptance of Deposits) Rules, 2014, a public company, having net worth of not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees, may accept deposits from persons other than its members. Such type of public company is known as ‘eligible company’. In the given question, Dollys Toys Limited has a net-worth of ₹310\displaystyle \text{₹}310 crore and turnover of ₹300\displaystyle \text{₹}300 crore. Since at least one condition is satisfied that is net worth is ₹310\displaystyle \text{₹}310 crore which is more than the prescribed limit, and assuming it has obtained the prior consent by a special resolution and filed it with the Registrar of Companies, it is permitted to accept deposits from public other than its members. Thus, Dollys Toys Limited is an eligible company and hence can accept deposits from public other than its members. (ii) Whether Dolls Toys Limited permitted to accept deposits with repayment period of 4 months? As per **Rule 3(1)** of the Companies (Acceptance of Deposits) Rules, 2014, a company is not permitted to accept or renew deposits (whether secured or unsecured) which is repayable on demand or in less than six months. Further, the maximum period of acceptance of deposits cannot exceed thirty- six months. Exception to the rule of tenure of six months: For the purpose of meeting any of its short-term requirements of funds, a company may accept or renew deposits for repayment earlier than six months subject to the condition that: (i) such deposits shall not exceed ten per cent of the aggregate of the paid-up share capital, free reserves and securities premium account of the company; and (ii) such deposits are repayable only on or after three months from the date of such deposits or renewal. Conclusion: Hence, Dolly Toys Limited is permitted to accept deposits with repayment period of 4 months in compliance to the stated provisions. However, by virtue of exception to the rule of tenure of six months as stated above, since the company cannot accept the deposit exceeding 10% of the aggregate of the paid up share capital, free reserves and security premium account which is ₹310\displaystyle \text{₹}310 crore therefore the company can accept the deposits to the extent of ₹31\displaystyle \text{₹}31 crore only. (c) (i) As per section 5 of the General Clauses Act, 1897, where any Central Act has not specifically mentioned a particular date to come into force, it shall be implemented on the day on which it receives the assent of the Governor General in case of a Central Act made before the commencement of the Indian Constitution and/or, of the President, in case of an Act of Parliament. Where, if any specific date of enforcement is prescribed in the Official Gazette, the Act shall into enforcement from such date. (ii) According to section 6 of the General Clauses Act, 1897, where any Central legislation or any regulation made after the commencement of this Act repeals any Act made or yet to be made, unless another purpose exists, the repeal shall not: • Revive anything not enforced or prevailed during the period at which repeal is effected or; • Affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or CORPORATE AND OTHER LAWS • Affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or • Affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or • Affect any inquiry, litigation or remedy with regard to such claim, privilege, debt or responsibility or any inquiry, litigation or remedy may be initiated, continued or insisted.

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