Section 40 Securities to be dealt with in stock exchanges – Companies Act 2013

Amended and updated notes on section 40 of Companies Act 2013. Provisions and rules related to securities to be dealt with in stock exchanges.

Amended and updated notes on section 40 of Companies Act 2013. Detail discussion on provisions and rules related to securities to be dealt with in stock exchanges.

Chapter III (Sections 2342) of the Companies Act, 2013 (CA 2013) deals with the provisions related to prospectus and allotment of securities. Section 40 of CA 2013 provides for securities to be dealt with in stock exchanges.

Recently, we have discussed in detail section 39 (Allotment of securities by company) of CA 2013. Today, we learn the provisions of section 40 of Companies Act 2013 read with the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Section 40 of the Companies Act, 2013 has been notified by the Ministry of Corporate Affairs (MCA) vide Notification No. S.O. 2754(E) issued dated 12.09.2013. This notification was come into force from 12th September, 2013 i.e. the commencement date of section 40 is 12-9-2013.

Name of ActThe Companies Act 2013
Enacted byParliament of India
Administered byMinistry of Corporate Affairs (MCA)
Number of Chapters29
Number of Sections484 (470-43+57)
Number of Schedules7
You are reading:
Chapter No.III
Chapter NameProspectus and Allotment of Securities
Section No.40
Section NameSecurities to be dealt with in stock exchanges
Monthly Updated EditionCompany Law PDF

Section 40 of Companies Act 2013: Securities to be dealt with in stock exchanges

Section 40 shall come into force on 12th September, 2013 vide Notification No. S.O. 2754(E) dated 12.09.2013 except sub-section (6) which shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.

(1) Every company making public offer shall, before making such offer, make an application to one or more recognised stock exchange or exchanges and obtain permission for the securities to be dealt with in such stock exchange or exchanges.

(2) Where a prospectus states that an application under sub-section (1) has been made, such prospectus shall also state the name or names of the stock exchange in which the securities shall be dealt with.

(3) All monies received on application from the public for subscription to the securities shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than—

  • (a) for adjustment against allotment of securities where the securities have been permitted to be dealt with in the stock exchange or stock exchanges specified in the prospectus; or
  • (b) for the repayment of monies within the time specified by the Securities and Exchange Board, received from applicants in pursuance of the prospectus, where the company is for any other reason unable to allot securities.

(4) Any condition purporting to require or bind any applicant for securities to waive compliance with any of the requirements of this section shall be void.

(5) If a default is made in complying with the provisions of this section, the company shall be punishable with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.

(6) A company may pay commission to any person in connection with the subscription to its securities subject to such conditions as may be prescribed.

Such conditions have now been prescribed in Rule 13 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.


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