Thursday, May 17, 2012

What is the Effective Date of Increase of Authorised Share Capital?

What is the Effective Date of Increase of Authorised Share Capital?

Even though the members approval the increase in authorised capital in EGM or GM , it cannot be construed as final approval as resoloution can be rescinded or kepti in abeyance  as other formaliities have to be followed like

1. Filing of spl resolution in Form 23

2.Filing of Form 5 with fess for increase in authorised capital.

If a company passes a resolution in AGM/EGM for increase of authorised share capital.

No form 23 or form 5 is filed - No stamp-duty has been paid .

Will the company still can show the increased amount as its authorised share capital in the MOA & AOA from the date of AGM/EGM where resolution has been passed.

Hence , increase in authorised share capital needs further legal compliances to be carried over by the company untill then it cannot claim that it has increased authorised sharecapital.

Just passing the resolution is not essential but further legal compliance will have to be carried out.

For instance , in the case of merger , the approval by the court will be the relevant date and not the passing of resolution for merger.

The order of the Court approving a merger does not take effect until a certified copy of the same is filed by the company with the Registrar of Companies.

The same provision will be applicable in the case of increase of authorised share capital by a company

Any increase in the authorized share capital would come into effect immediately on passing of any valid resolution in this behalf, and filing of the requisite e-Forms 5, 23, being a ministerial act and procedural in nature, would not influence the date of increase of the authorized share capital as decided by Company Law Board in the case of 

Kobian (P)Ltd.v Kobian India (P) Ltd. (2005) 64 CLA 281 (CLB)

So from the above it should be date of passing resolution.

Thus, if a company passes a special resolution in a general meeting for increase of authorised share capital , and if it carries on the other formalities like filing of form 5 and form 23 , paying the appropriate fees to the government for increase of share capital ,then the effective date for such increase of authorised share capital will the date of passing the resolution by the members of the company.

This is a real case study . A Listed Company passed special resolution 2 year back for Increase in Auth. Capital but did not filed form 5/Form 23 due to lack of funds nor it acted on the resolution like changes in MOA/Auth. Capital in Balance Sheet. Now, it want to give effect to this resolution but penalty comes around Rs. 5 lakh so it propose to pass new resolution saying that old resolution is nullified & then pass a fresh special resolution for more or less same purpose and file to ROC in today's date.

Since the above company is a listed company and hence , there would be a few check points here : what was the authorized share capital shown in all filings by the company since the increase? What was the amount shown in the audited Balance Sheets since that date? Was the increase and no filing of forms questioned by the Auditors? What response was given to them? If you have been showing the increased amounts in annual filings as well as filings with stock exchanges, it will be very clear that the increase was acted upon, but compliances were not completed. If not, you have a valid justification that the increase was indeed, not acted upon.

If the Company in the Balance Sheet for these two years has shown the enhanced figure, then it is left with no choice than to file the penalty and the effective date of the Increase in Authorised Share Cap would be that date.

1 comment:

  1. Smart Business Solution provide you effective company formation and company registration services since 2010. It is one of the leading companies which ensure the customers in a safer way for the registration process. Forming a limited company with us could not be easier. Our simple online company formation service carries out your limited company incorporation. A dedicated team will assist you on how to register a company & process behind each step while registering a company in a simple & easiest way.