Share Certificates, Calls and Variation of Shareholders' Rights

And note "prima facie". The certificate is not conclusive. It establishes title unless the contrary is shown, and the register of members is the primary record.

Section 46(2): duplicates. A duplicate certificate may be issued if the certificate:

• (a) is proved to have been lost or destroyed; or
• (b) has been defaced, mutilated or torn and is surrendered to the company.

Section 46(3). Notwithstanding anything in the articles, the manner of issue of a certificate or a duplicate, the form, the particulars to be entered in the register of members and other matters shall be such as may be prescribed.

Section 46(4): dematerialised shares. Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner. So for most listed shares the depository record, not a certificate, is the evidence.

Section 46(5): fraudulent duplicates. If a company with intent to defraud issues a duplicate certificate, the company shall be punishable with a fine of not less than five times the face value of the shares involved and up to ten times that face value, or rupees ten crores, whichever is higher, and every officer in default shall be liable for action under section 447.

That is one of the heaviest fines in the Act, and the reason is obvious: a fraudulent duplicate creates a second owner of the same share.

Variation of shareholders' rights: section 48

Section 48(1): the consent needed. Where the share capital is divided into different classes of shares, the rights attached to the shares of any class may be varied with the consent in writing of the holders of not less than three fourths of the issued shares of that class, or by means of a special resolution passed at a separate meeting of the holders of the issued shares of that class, and:

• (a) if provision with respect to such variation is contained in the memorandum or articles; or
• (b) in the absence of any such provision, if the variation is not prohibited by the terms of issue of the shares of that class.

The proviso: knock-on effects. If variation by one class affects the rights of any other class, the consent of three fourths of that other class shall also be obtained, and the section applies to that variation too.

Section 48(2): the minority's right to go to the Tribunal. Where the holders of not less than ten per cent of the issued shares of a class did not consent to the variation or vote in favour of the special resolution, they may apply to the Tribunal to have the variation cancelled, and where such an application is made, the variation shall not have effect unless and until it is confirmed by the Tribunal.

The proviso: twenty-one days. The application shall be made within twenty-one days after the date on which the consent was given or the resolution was passed, and may be made on behalf of the shareholders entitled to make it by one or more of their number appointed in writing for the purpose.

Section 48(3). The decision of the Tribunal shall be binding on the shareholders.

Section 48(4). The company shall within thirty days of the order file a copy with the Registrar.

Two numbers to memorise: three fourths to vary, ten per cent to challenge, and twenty-one days to apply.

Calls and unpaid capital: sections 49, 50 and 51

Section 49: uniformity.

Where any calls for further share capital are made on the shares of a class, such calls shall be made on a uniform basis on all shares falling under that class.

The Explanation matters. Shares of the same nominal value on which different amounts have been paid-up shall not be deemed to fall under the same class. So a company with ten rupee shares, some paid up to ten rupees and some to six, has two classes for this purpose, and a call may be made on one without the other.

Section 50: calls in advance.

• (1) A company may, if so authorised by its articles, accept from any member the whole or part of the amount remaining unpaid on any shares held by him, even if no part of that amount has been called up.
• (2) A member shall not be entitled to any voting rights in respect of the amount paid by him under sub-section (1) until that amount has been called up.

Sub-section (2) is the fair part and it is why section 47(1) is expressly made subject to it: paying early is a convenience to the company, not a way of buying votes.

Section 51: dividend on paid-up amounts.

A company may, if so authorised by its articles, pay dividends in proportion to the amount paid-up on each share.

So where some shares are paid up to ten rupees and others to six, the dividend can follow the money actually contributed. Note that it is permissive and depends on the articles.

Personation of a shareholder: section 57

If any person deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of this Act, and thereby obtains or attempts to obtain any such security or interest or any such share warrant or coupon, or receives or attempts to receive any money due to any such owner, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Distinguish it from section 38, which students confuse with it. Section 38 is about applying for securities in a fictitious name or making multiple applications, and it routes into section 447. Section 57 is about pretending to be an existing owner in order to get his securities or his money, and it carries its own punishment: one to three years' imprisonment and a fine of one to five lakh rupees. Note that attempts are covered as well as completed acts.

Publication of capital: section 60

Section 60(1). Where any notice, advertisement or other official publication, or any business letter, billhead or letter paper of a company contains a statement of the amount of the authorised capital, it shall also contain a statement, in an equally prominent position and in equally conspicuous characters, of the amount of the capital which has been subscribed and the amount paid-up.

Section 60(2). On default, the company shall be liable to a penalty of ten thousand rupees and every officer in default to five thousand rupees, for each default.

The mischief is impression management. A company with authorised capital of fifty crore rupees and paid-up capital of one lakh may look substantial on a letterhead; section 60 requires the three figures to travel together, and in equally prominent position and equally conspicuous characters, so the qualification cannot be hidden in small type.

A worked example

Kolhapur Alloys Limited has two classes of equity shares: Class A with full voting rights, and Class B with differential rights under section 43(a)(ii). It also has ten rupee shares, some paid up to ten rupees and some to six.

Certificates. Its certificates are signed by two directors, which section 46(1) permits since the company has no common seal, and each is prima facie evidence of the holder's title. Where shares are held with a depository, section 46(4) makes the depository's record the prima facie evidence instead.

A lost certificate. A holder proves his certificate was destroyed in a flood. Under section 46(2)(a) a duplicate may be issued, in the prescribed manner under section 46(3). If the company were to issue a duplicate with intent to defraud, the fine would be five to ten times the face value of the shares, or ten crore rupees, whichever is higher, and every officer in default would face section 447.

Varying Class B rights. The company wants to remove Class B's right to a preferential dividend. That is a variation of the rights attached to a class, so section 48(1) requires the written consent of holders of three fourths of the issued Class B shares, or a special resolution at a separate meeting of Class B holders, and either a provision in the memorandum or articles permitting variation, or, failing that, that variation is not prohibited by the terms of issue.

A knock-on effect. Removing Class B's preferential dividend increases what is available to Class A. If the change also affects Class A's rights, the proviso requires the consent of three fourths of Class A as well.

The minority. Holders of twelve per cent of the Class B shares voted against. Since that is not less than ten per cent, they may apply to the Tribunal within twenty-one days of the resolution to have the variation cancelled, and the variation does not take effect unless and until the Tribunal confirms it: section 48(2). The Tribunal's decision binds all the shareholders, and the company must file a copy of the order with the Registrar within thirty days.

A call. The company calls two rupees a share on its partly paid shares. By section 49 the call must be uniform across the class, and by the Explanation the six rupee paid shares and the ten rupee paid shares are not the same class, so the call may be made on the former alone.

Calls in advance. One member offers to pay the remaining four rupees before any call. The articles permit it, so section 50(1) allows the company to accept. But under section 50(2) he gets no voting rights on that amount until it is called up.

Dividend. The articles permit dividends in proportion to the amount paid-up, so under section 51 the fully paid shares receive proportionately more.

The letterhead. Its letter paper says "Authorised capital: fifty crore rupees". Under section 60(1) it must also state the subscribed and paid-up amounts, in an equally prominent position and equally conspicuous characters. If it does not, the company pays ten thousand rupees and every officer in default five thousand rupees, for each default.

Distinctions that carry marks

What this does NOT mean

It does not mean a share certificate proves ownership conclusively. It is prima facie evidence only, and for depository shares the depository's record is the evidence.

It does not mean a class's rights can never change. They can, with three fourths' consent, subject to the Tribunal's power on a ten per cent application.

It does not mean paying calls early buys influence. Section 50(2) denies voting rights on the amount until it is called up.

It does not mean all shares of the same face value are one class for calls. The Explanation to section 49 says shares of the same nominal value with different amounts paid up are not the same class.

Quick revision

• 46(1): certificate under the seal if any, or signed by two directors or a director and the Company Secretary, is prima facie evidence of title. 46(2): duplicate if lost or destroyed, or defaced, mutilated or torn and surrendered. 46(4): for depository shares the depository's record is the evidence. 46(5): fraudulent duplicate, fine five to ten times face value or ten crore rupees, whichever is higher, and officers under section 447.
• 48(1): vary class rights by three fourths in writing or a special resolution of the class, plus a provision in the memorandum or articles, or absence of prohibition in the terms of issue. Proviso: three fourths of any other class affected.
• 48(2): ten per cent who did not consent may apply to the Tribunal within twenty-one days; the variation does not take effect until confirmed. 48(3): binding. 48(4): file the order in thirty days.
• 49: calls uniform across a class; shares of the same nominal value with different amounts paid up are not the same class.
• 50: calls in advance if the articles allow; no voting rights on that amount until called up.
• 51: dividend in proportion to the amount paid-up, if the articles allow.
• 57: deceitful personation of an owner: one to three years and one to five lakh rupees, attempts included.
• 60: authorised capital never published without subscribed and paid-up, equally prominent and conspicuous; ten thousand rupees on the company and five thousand rupees on each officer in default, per default.

Test yourself

1. What is the evidentiary value of a share certificate? It is prima facie evidence of the title of the person named to the shares specified: section 46(1). Where a share is held in depository form, the record of the depository is the prima facie evidence of the beneficial owner's interest: section 46(4).

2. How may the rights attached to a class of shares be varied? With the consent in writing of the holders of not less than three fourths of the issued shares of that class, or by a special resolution passed at a separate meeting of that class, and either where the memorandum or articles provide for variation, or, in the absence of such a provision, where variation is not prohibited by the terms of issue: section 48(1).

3. What can a dissenting minority do? Holders of not less than ten per cent of the issued shares of the class who did not consent or vote in favour may apply to the Tribunal within twenty-one days to have the variation cancelled, and the variation does not take effect unless and until the Tribunal confirms it: section 48(2).

4. Must a call be made on all shareholders equally? On a uniform basis on all shares of the class: section 49. But by the Explanation, shares of the same nominal value on which different amounts have been paid up are not deemed to fall under the same class.

5. A member pays the unpaid amount on his shares before any call. Does he gain votes? No. Section 50(2) provides that he is not entitled to any voting rights in respect of that amount until it has been called up.

6. What must accompany a statement of authorised capital on a company's letterhead? A statement, in an equally prominent position and in equally conspicuous characters, of the amount of capital subscribed and the amount paid-up: section 60(1). Default costs the company ten thousand rupees and every officer in default five thousand rupees, for each default.