Introduction of a new instrument called stockinvest - Companies Law - Circular : No. 2 of 1992,

Circular : No. 2 of 1992, dated 9 ‑ 1 ‑ 1992. Subject:- Introduction of a new instrument called stockinvest The Government have been receiving a large number of complaints regarding non‑receipt/delay of refund of share application money/allotment letters. In order to facilitate the investors on the suggestion made by the Securities and Exchange Board of India (SEBI), a new instrument called stockinvest has been introduced as per a scheme prepared by the State Bank of India and approved by the Reserve Bank of India. As per the Scheme, the stockinvest instrument provides for the investors to indicate the name of the issuer, number and amount of shares/debentures applied for, a space for the authorised signatory of the company to indicate the entitlement to shares and debentures applied for and a statement from the bank expressing that it is guaranteed for payment at par on all branches. An investor who has an account for a deposit with the bank issuing the stockinvest will apply for blank stockinvests. The issuing bank will give the stockinvests duly signed and also marking the date to the investor. Simultaneously, the bank will mark a lien on the investor s account to the extent of the stockinvests issued. The investor, while applying for public issues, will enclose the stockinvest forms duly filled in along with the application forms and send them to the collecting bank as he normally does in the case of cash, cheques and drafts under the existing system. Stockinvest is not an alternative but an additional facility available to the investor in case he so opts. Under the scheme, the company while deciding the basis of allotment would consider along with other applications the applications received from the investor who has opted for payment by a new instrument. Once the basis of allotment to all the applicants is decided, the company would encash the stockinvest instrument in respect of those applicants who are successful allottees and partially of those who are partially successful. The unsuccessful applicant s stockinvest instruments would be returned to the investor without encashing them. The successful/partially successful applicant s instruments would, after encashing, be deposited in the separate bank account where the cash and other moneys received from other investors are deposited. The stockinvest scheme is in conformity with the provisions of sections 69 and 73 of the Companies Act. In this connection, it may be stated that under sub‑section (1) of section 69 of the Act, the share application money can be paid either in cash or by a cheque or by any other instrument. 2. The aforesaid procedure has been prescribed as a measure to avoid any complaint about non‑payment/delay in refund of share application money in terms of section 73 of the Companies Act from the investing public. 3. You are requested to advise your constituent member companies to adopt the aforesaid new scheme in consultation with the State Bank of India and the Securities and Exchange Board of India. APPENDIX Stockinvest special payment system for investors in the primary capital market Eligibility. All individuals can seek issue of stockinvest forms of appropriate denominations against deposits held by them or on payment of the requisite sum. (Lien will be marked against these deposits for the amounts of Stockinvests issued only and no lien will be marked against unutilised drawing power in the investor s overdraft or loan account for the purpose). Instrument. Stockinvest is a letter of authority‑cum‑cheque as per the specimen enclosed, which the payee (a company issuing shares, debentures or bonds) can encash for the authorised or a reduced sum, based on actual allotments made to the investor. Denominations. Stockinvest will be issued in denominations of Rs. 250, Rs. 500, Rs. 2,500, Rs. 5,000 and Rs. 10,000. Price. The various denominations of stockinvest will be priced based on a liability study being undertaken by our management Science Department. Period. The stockinvest is valid for a period of six months. Interest. The stockinvest is issued after a lien is marked for the appropriate amount on the deposit account of the investor and the deposit will continue to bear interest at the agreed sum till the instrument is actually to be debited. Non ‑ allotment to investors. In case of non‑allotment, the stockinvest forms are cancelled and filed with the bankers to the issue and as per advice received from them, lien will be lifted from the account of the investor concerned. Payment. Stockinvest is payable at par at all branches of the bank and can be presented in Banks Clearing House. It bears the appropriate MICR cheque features. Special benefits. The stockinvest will ensure that only those instruments that represent allotments are actually collected. Thus, the load on the clearing system will be less. Refunds need not be issued in case of non or partial allotments, reducing the workload at the registrars. The capital/debenture/bond-issuing companies need not have the bother of holding sums of money which cannot be used by them adequately, till the allotments are made.