Dear Bala,
The Provisions of Sec 81 are attracted for preferential allotment of shares by a public Co, either a special resolution or an ordinary resolution with Central Govt approval is required for preferential allotment.
Also refer Unlisted Public Companies (Preferential Allotment) Rules, 2003.
Regarding ur queries:
A) Whether the company can issue shares at par to the directors?
No issue of shares on a preferential basis can be made by a company unless authorized by its articles of association and unless a special resolution is passed by the members in a General Meeting authorizing the Board of Directors to issue the same. The special resolution shall be acted upon within a period of 12 months.
The explanatory statement to the notice for the general meeting as required by section 173 of the Companies Act, 1956 shall contain the following particulars:
- the price or price band at which the allotment is proposed;
- the relevant date on the basis of which price has been arrived at;
- the object/s of the issue through preferential offer;
- the class or classes of persons to whom the allotment is proposed to be made;
- intention of promoters/directors/key management persons to subscribe to the offer;
- shareholding pattern of promoters and others classes of shares before and after the offer;
- proposed time within which the allotment shall be completed;
- whether a change in control is intended or expected
B) Whether the investors are aggrieved by such issue of shares to directors?
Investors approval are obtained through special resolution.
C) Is there any violation of Companies Act or other guidelines?
Comply with Sec 81 and Unlisted Public Companies (Preferential Allotment) Rules, 2003.
D) If so what are the consequences?
The allotment is voidable at the option of the Company and penalty as prescribed U/s 629A becomes applicable.
CAclubindia
