Section 40 of CA 2013 : Section 40: Securities To Be Dealt With In Stock Exchanges

Explanation using Example

Imagine a company called "Tech Innovate Ltd." is planning to go public and wants to issue shares to the general public. According to Section 40 of the Companies Act, 2013, before Tech Innovate Ltd. can make its public offer, it must first apply to a recognized stock exchange, like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE), and get approval for its securities to be listed and traded on that exchange.

Once Tech Innovate Ltd. has made the application, and if they mention this in their prospectus, they must also clearly state the name of the stock exchange (for example, BSE) where the securities will be listed. This is to ensure transparency for potential investors.

Moreover, any money the company receives from the public as part of the application process for the shares must be kept in a separate bank account and can only be used for two specific purposes: either to adjust against the allotment of securities if they are allowed to be traded on the stock exchange, or to refund the applicants if for some reason the company is unable to allot the securities.

If Tech Innovate Ltd. tries to include a condition in the application process that asks investors to ignore these rules, that condition would be considered void.

If the company fails to follow these guidelines, it could face a hefty fine ranging from five lakh to fifty lakh rupees, and the officers of the company could be fined between fifty thousand to three lakh rupees.

Lastly, Tech Innovate Ltd. is allowed to pay commission to people who help in subscribing to the securities, as long as they follow the prescribed conditions.