Companies Act, 2013: Practical compliance issue

By January 15, 2015 December 20th, 2019 No Comments
While the Companies Act 2013 (the “Act”) is being appreciated for its
laudable objectives, it also poses some practical issues for companies trying
to achieve their compliances.
One of such issues is being faced
by the companies under Section 11 of the Act which states that a company shall
not commence business unless the subscribers have paid up the subscribed
capital and a declaration has been filed to that effect by the company.
Further, the section also states that if the declaration is not filed within
180 days from the date of incorporation, the Registrar of Companies (ROC) has
the powers to initiate action for removal of the name of the company from the
register of companies. Therefore, in order for the company to avoid removal of
its name from the register, it has to ensure that the total capital subscribed
by the subscribers to the memorandum of association is fully paid up within 180
On the other hand, Section 56 (4)
of the Act provides that every company shall deliver the certificates of all
securities allotted, transferred or transmitted:
a. within a period of two months from the date of incorporation,
in the case of subscribers to the memorandum;
A conjoint reading of the two sections stated above poses
few legal and practical issues.
One such issue is that in case of subscribers to the
memorandum of association, the shares to which each subscriber has agreed to
subscribe are not allotted by the company since the capital has been subscribed
to by them by virtue of incorporation of the company and the subscribers are
already the members from the date of incorporation itself.  Therefore, Section 56(4) should, to that
extent, not apply to subscribers to memorandum of association as it only talks
of delivery of share certificates for securities ‘allotted, transferred
or transmitted
’. It appears that the intention of the legislature is to
ensure that the share certificates are delivered to the concerned prospective
shareholders of the company in cases where the shares are allotted, transferred
or transmitted.
Assuming that Section 56(4) applies to the subscribers
in the way it is presently written, it therefore means that the company has to
at least complete the following activities within 2 months from the date of
  1. procure PAN;
  2. Open bank account;
  3. Receive subscription amount for capital
    subscribed by the subscribers to memorandum;
  4. Hold the first board meeting to issue share
    certificates, adoption of common seal, adoption of format of share
    certificates, authority for signing etc;
  5. Procure common seal;
  6. Print share certificates;
  7. Get the share certificates stamped and signed;
  8. Issue share certificates to subscribers.
Procuring PAN, opening of a bank account, stamping of
share certificates and holding a board meeting are all such processes which
take a lot of time. It is only someone’s guess that how all such activities can
be completed within 2 months of incorporation. Also, if the subscribers or one
of the subscriber to memorandum of association is a non-resident, the actions
listed above take even more time. 
An appropriate provision would have been that in case
of subscribers to memorandum of association, the share certificates be due to
be delivered within two months from the date they have complied with the
provisions of Section 11 viz. from the date when the subscribed capital has
been paid up and not from the date of incorporation.

We hope that the MCA takes cognizance of this issue and take appropriate corrective actions.

Authored by:
Kajal Tandon
Akshat Pande

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