Section 40 of the Companies Act, 2013
Section 40 of the Companies Act, 2013
Title: Securities to be dealt with in stock exchanges
This section ensures that when a company makes a public offer, its securities are listed and dealt with on recognized stock exchanges.
🔹 Full Summary of Section 40:
(1) Every company making a public offer (i.e., issuing securities to the public) shall make an application to one or more recognized stock exchanges for listing its securities before issuing the prospectus.
✅ The prospectus must state the name(s) of the stock exchange(s) where the securities will be listed.
(2) The company must obtain permission from the stock exchange(s) before the prospectus is issued to the public.
(3) If the stock exchange refuses the permission, the company cannot proceed with the public offer.
This helps protect investors by ensuring that only companies meeting exchange requirements can offer shares to the public.
(4) All monies received from applicants for securities must be kept in a separate bank account in a scheduled bank and cannot be used until:
The permission for listing is received from the stock exchange(s), and
The allotment of securities is made.
(5) If the permission for listing is denied:
The company must refund all application money within prescribed time.
If the company fails to do so, it is liable to penal action under the Act.
🧾 Key Objectives:
Protect investors from fraudulent companies.
Ensure securities are traded in a regulated market.
Promote transparency and accountability during public offers.
📌 Penalty:
Non-compliance with this section may attract penalties under the Companies Act and SEBI regulations.
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