Govt to check flow of black money in unlisted companies

Govt to check flow of black money in unlisted companies

The Ministry of Corporate Affairs (MCA) has also proposed more disclosures for preferential allotment of equities by unlisted companies by replacing the Unlisted Public Companies (Preferential Allotment) Rules, 2003, with a new set of Rules.

"All securities issued under preferential allotment or private placement should be kept in Dematerialised form," said the draft notification of the MCA, on which comments have been sought.

There are about 40,000 active unlisted companies in the country.
"If the transaction is carried through demat account, trailing the money flow is easier. There will be a transparency in movement of money," an official said. Sale and purchase in listed companies is done through demat account.

According to the draft rules, a company can issue shares on a preferential basis only if it is authorised to do so by it under Articles of Association and if a special resolution is passed by the members in a general meeting.

"The special rules shall be acted upon within a period of 12 months....and a copy of the special resolution passed in the general meeting...(and) offer document shall be filed with the RoC," it said.

The Government also wants that there should not be a gap of more than 30 days between the opening and closing of issue of private placement and a minimum gap of 60 days between two issues.

It further said that if the cumulative amount, to be raised through debentures, convertible debentures or any other financial instruments, is more than Rs 5 crore, a company would require prior approval of the government for such an issue.

The MCA said the new rules would be applicable to all unlisted public companies in respect of preferential issue of equity shares, fully and partly convertible debentures or any other financial instrument which would be convertible into or exchanged with equity shares at a later date.

The Ministry has put up the draft rules on its website for seeking public comments till June 20, 2011.