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CS EXECUTIVE NEW COURSE GROUP-1

21th REVISED EDITION

COMPANY
LAW
CS ANOOP JAIN
THE CORPORATE LAW WIZARD.

ABOUT THE AUTHOR

 CS ANOOP JAIN is expert and renowned faculty for CS professional CR, CD, DD,
CF AND DRAFTING Papers AND CS EXECUTIVE COMPANY LAW, SETTING
UP AND SECURITY LAWS Papers having teaching experience of more than 15 years.
 He is author of many popular and best selling law books.
 In industry he is popularly known as the CORPORATE LAWS WIZARD.
 He is also winner of best MSOP participant award by ICSI (NIRC).
 For the benefits of students he has opened his own publication house (under name and
style of AJ EDUCATION AND PUBLICATION LLP) for providing good CS books at
affordable price.
 He is also owner of website (csanoopjain.in a website only for cs students) from where
students can get all corporate laws updates, academy99.in (a online book store) And
ajpublication.in
 He is also founder of inter-lege professionals private limited (a legal consultancy firm)
interlegeprofessionals.com

APPLICABLE FOR DECEMBER 2023 ATTEMPT

FULLY UPDATED BOOK COVERING ALL LATEST AMENDMENTS, CIRCULARS,
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AJ EDUCATION AND PUBLICATION LLP

BY CS ANOOP JAIN

AJ Publications….
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AJ GROUP OF COMPANIES
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INDEX

S.NO. CHAPTER NAME PAGE NO.

Part I COMPANY LAW, PRINCIPLES & CONCEPTS (60 Marks)
1 Basics of company 21-26
2 TYPES OF COMPANY 27-47
3 MEMEORANDUM OF ASSOCIATION 48-76
4 ARTICLE OF ASSOCIATION 77-83
5 E-governance 84-89
6 Membership 90-100
7 Register and returns 101-115
8 Share capital part-a (basics) 116-127
9 Share capital part-b (prospectus) 128-134
10 Share capital part-c (issue of shares) 135-144
11 Share capital part-d (allotment of shares) 145-150
12 Share capital part-e (share certificates) 151-154
13 Share capital part-f (call, forfeiture, surrender and reduction of shares) 155-170
14 Share capital part-g (Transfer and Transmission of shares) 171-185
15 Share capital part-h (buy back of shares) 186-193
16 Accounts of company 194-228
17 Audit of Accounts 229-245
18 Charges and mortgages 246-253
19 Producer company 254-258
20 Debentures 259-268
21 Deposits 269-283
22 Dividend 284-305
22A Inspection & Investigation 306-316
23 Inter-corporate loan and investment 317-326
24 Global development 327-332
25 Majority powers and minority rights 333-340
26 Overview of corporate reorganisation 341-373
27 Registered valuer 374-375
28 Transparency and disclosures 376-387
29 Mediation and conciliation 388-392
30 Drafting under companies act 2013 393-415
31 Miscellaneous provisions under companies act 2013 416-422
Part II Company Administration and Meetings (40 Marks)
32 General meeting 424-472
33 Basics of Directors 473-491
34 Appointment of directors 492-513
35 Board meetings 514-525
36 Virtual meetings 526-529
37 Loan to directors and related party transactions 530-544
38 KMP appointment and their remuneration 545-563
39 Company secretary, secretarial audit and standards 564-615

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FIRST EDITION 2012

SECOND EDITION 2013 EXAM-TIPS
THIRD EDITION 2014
FOURTH EDITION 2015 1. Read each and every question twice.
FIFTH EDITION 2015 2. Attempt 100% question paper
SIXTH EDITION 2016 3. Keep on telling your mind that this time I am
SEVENTH EDITION 2016 going to pass at any cost (this gives you
EIGHT EDITION 2017 positivity)
NINTH EDITION 2017 4. Don't quote Sections or Rule unless you are
TENTH EDITION 2018 sure.
ELEVENTH EDITION 2018 5. Don't discuss paper after exams.
12th EDITION 2019 6. Take at least 6 hours sleep and light food during
exams.
13th EDITION 2019 7. Reach your examination center at least 30
14th EDITION 2020 minutes before the start to examination.
15th EDITION 2020 8. Don't forget to carry your wristwatch, calculator
16th EDITION 2021 even for law papers, admit card and pens.
17th EDITION 2021
18th EDITION 2022
19th EDITION 2022
20th EDITION 2023
21TH EDITION 2023
(NEW COURSE)

ALL RIGHTS OF THIS BOOK IS WITH AUTHOR

(Copyright with CS Anoop Jain)

PUBLISHING AND Marketing rights with AJ PUBLICATIONS

No part of this book is allowed to be reproduced, stored in a retrieval system, or transmitted in any
form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the
prior written permission of author otherwise strict legal action will be taken. Our experts teams of
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Every effort has been made to avoid errors or omissions in this publication. Inspite of this, errors may
creep in. Any mistake, error noted might be brought to our notice, which shall be taken care of in the
next edition. It is notified that neither author, nor the seller will be responsible for any damage or loss of
action to any one of any kind in any manner there from.
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DEAR READERS
Before starting Companies Act 2013 it is necessary that you should have some basic knowledge
regarding origin of Company law and Companies Act 2013. So here is the
detail..................................... (Read it very carefully)

DEVELOPMENT OF INDIAN COMPANY LAW

COMPANY LAW IN INDIA IS THE CHERISHED CHILD OF THE ENGLISH PARENTS

The history of Indian company law began with the Companies act of 1850, modeled on British Companies act of
1844. Between 1850 and 1882, the Companies act was amended many times and the act of 1882 repealed all the
previous laws and remained in force till 1912, though amended many times. The Indian Companies act of 1913
was based on the British Companies act of 1908. Subsequent amendments were in 1914, 1915, 1920, 1926,
1930, 1932 and 1936.The amendment in 1936 was based on the lines of the British Companies Act of 1929 and
became operative from 15th January, 1937. After independence it was found that the company law should again
be amended. Therefore The Companies Act, 1956 was passed and it came into force on 1st April 1956. This Act
was also amended subsequently.

After the independence, it was found that the existing companies act should be amended to suit the changed
conditions in the country. In line with Cohen Committee of England, the central government appointed a 12-
member company law committee in October 1950 under the chairmanship of Mr. C. H. Bhabha (known as
Bhabha Committee) and submitted their report in April 1952. The central government brought a bill in
parliament on 2nd September, 1953. The parliament appointed a joint parliamentary committee in May 1954 to
go into the recommendations of the Bhabha committee and to suggest any modifications or changes. On the
basis of the recommendations of the joint parliamentary committee, the parliament passed the new act in
November, 1955 which received the president’s assents on 18th January, 1956, this act came into force with
effect from April, 1956. It consists of 658 sections and 14 schedules.

COMPANIES BILL, 2012 WAS PASSED BY THE LOK SABHA ON 18TH DECEMBER, 2012
AND BY THE RAJYA SABHA ON 8TH AUGUST, 2013. ON RECEIVING THE ASSENT OF
THE HON’BLE PRESIDENT OF INDIA ON 29 AUGUST 2013, IT WAS NOTIFIED ON
AUGUST 30, 2013 AS THE COMPANIES ACT, 2013.

COMPANIES ACT 2013 Has replaced The Companies Act, 1956 (in a partial manner) after
receiving the assent of the President of India on 29 AUGUST 2013. PROVISIONS OF NCLT
ALSO GET EFFECTIVE FROM 1. JUNE 2016)

Companies (Amendment ACT 2017) is passed by Lok Sabha on 27.07.2017 and will be presented in
Rajya Sabha for Further Approval. The ACT has total 93 sections by which 92 Amendments been
carried out in Companies Act, 2013, which includes Amendment of Existing Sections, Insertion of
New Sections, Substitution of Existing Section with New Sections and Omission of Few Sections.
ACT 2017 Amends Following Sections of Companies Act, 2013 – 2, 4, 7, 12, 21, 26, 35, 47, 53, 54,
62, 73, 74, 76A, 77, 78, 82, 89, 92, 94, 96, 100, 101, 110, 121, 123, 129, 130, 132, 134, 135, 136, 137,
139, 140, 141, 143, 147, 148, 149, 152, 153, 157, 160, 161, 164, 165, 167, 168, 173, 177, 178, 180,
184, 186, 188, 196, 197, 198, 200, 201, 2016, 223, 236, 247, 366, 374, 379, 384, 391, 403, 409, 410,
411, 412, 435, 438, 439, 440, 441, 447, 458.
ACT 2017 Omits Following Sections of Companies Act, 2013– 93, 194 and 195
ACT 2017 Inserts Following New Section in Companies Act, 2013-
Section 3A- Members severally liable in certain cases,
section 446A- Factors for determining level of punishment.
section 446B – Lesser penalties for One Person Companies or small companies.

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COMPANIES ACT 2017 Substitutes Following Sections of Companies Act, 2013-

section 42 Issue of shares on private placement basis,
Section 90- Register of significant beneficial owners in a company.
section 185- Loans to directors, etc.
section 406- Provision relating to Nidhis and its application, etc.

THE PROCESS OF LEARNING HAS STARTED ALL OVER AGAIN

DO YOU KNOW?

1. Chapter 20 deals with winding up which is longest chapter in Act with 95 sections.
2. Chapters 17/25/26 are smallest chapter in Act with 1 section each.
3. 35 new definitions have been added in the Act. Total 95 Definitions
4. Nearly 230 sections of Companies Act 1956 has no place in new act 2013
5. The phrase as may be prescribed has mention near about 400 places in the new Act
6. New Act 2013 will replace 57 year old Act 1956.

COMPANY-ADMINISTRATION

MINISTRY OF CORPORATE AFFAIRS (M.C.A.)

MCA regulates corporate affairs in India through the Companies Act, 1956, 2013 and other allied Acts,
Bills and Rules. MCA also protects investors and offers many important services to stakeholders. Ministry
of Corporate Affairs (MCA) is also entrusted with rule making power.

REGIONAL DIRECTORS (R.D.)

The seven Regional Directors (RD) are in-charge of the respective regions, each region comprising a
number of States and Union Territories. They supervise the working of the offices of the Registrars of
Companies and the Official Liquidators working in their regions.

REGISTRAR OF COMPANIES (R.O.C.)

Registrars of Companies (ROC are vested with the primary duty of registering companies floated in the
respective states and the Union Territories and ensuring that such companies comply with statutory
requirements under the Act.

REGIONAL DIRECTOR OFFICS IN INDIA

S.NO. REGION NAME AREA
1 Eastern region Sh. N. K. Bhola KOLKATA
2 Northern region Sh. A. K. Chaturvedi NEW DELHI
3 Outhern region Sh. B. K. BANSAL CHENNAI
4 Western region Sh. K.L. KAMBOJ MUMBAI
5 North western region Sh. S.K. AGARWAL AHMEDABAD
6 South east region Sh. B. N. Harish TELENGNA
7 North eastern region Sh. N. K. Bhola SHILLONG
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ROC OFFICS IN INDIA

S.NO. AREAS NAME ROC

1 Bihar Sh. Himanshu Shekhar (ROC cum OL Patna)

2 Jharkhand Shri Prahalad Meena (ROC (ROC Ranchi)

Ranchi)
3 Goa, Daman & Diu Sh. K. S. Reddy (ROC Goa)

4 Jammu and Kashmir Shri. Ruvit Kumar ROC cum OL) J&K

5 Kerala Sh. G. C. Yadav (ROC Ernakulam

6 Sh. Vinod Sharma (ROC Mumbai)

Maharashtra
Ms. V.N. Khandare (ROC Pune)

7 Puducherry Sh. M. Arun Prasad (ROC Puducherry

8 Rajasthan Shri U. S Patole (ROC Jaipur)

9 Uttar Pradesh & Sh. Sudhir Kapoor (ROC Kanpur & Nainital)
Uttarakhand
10 Assam , Meghalaya, Dr. Ramesh Kumar (ROC Shillong)
Manipura, Tripura,
Mizoram, Nagaland &
Arunachal Pradesh
11 Chattisgarh Sh. Rathore K Gangjibhai (ROC cum OL for Bilaspur
12 Delhi & Haryana Sh. Kamal Harjani (ROC Delhi)
13 Gujarat Sh. L.R.Meena (ROC Ahmedabad)

14 Karnataka Sh. C. V. Sajeevan (ROC Banglore)

15 Madhya Pradesh Sh. Rajpal Singh (ROC Gwalior )
16 Orissa Sh. A.K. Mahapatra (ROC Cuttack)
17 Punjab , Chandigarh & Sh. M.S. Pachouri (ROC Chandigarh and Shimla)
Himachal Pradesh
18 Sh. A. S. Ponraj (ROC) Chennai
Tamil Nadu
Ms. K Latha Parimala Vadana (ROC Coimbatore)

19 West Bengal Sh. K G Joseph Jackson (ROC Kolkata)

20 Telangana Sh R.C. Mishra (ROC Hyderabad)
21 Andhra Pradesh (ROC Vijaywada)

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COMPANIES ACT 2013 ARRANGEMENT OF SECTIONS

CHAPTER CHAPTER HEADING SECTIONS

I Preliminary 1 to 2
II Incorporation of company and matters incidental thereto 3 to 22
III Prospectus and allotment of securities
Part I - Public offer 23 to 41
Part II – Private placement 42
IV Share capital and debentures 43 to 72
V Acceptance of deposits by companies 73 to 76A
VI Registration of charges 77 to 87
VII Management and administration 88 to 122
VIII Declaration and payment of dividend 123 to 127
IX Accounts of companies 128 to 138
X Audit and auditors 139 to 148
XI Appointment & qualifications of directors 149 to 172
XII Meetings of Board and its powers 173 to 195
XIII Appointment & remuneration of managerial personnel 196 to 205
XIV Inspection, inquiry and investigation 206 to 229
XV Compromises, arrangements and amalgamations 230 to 240
XVI Prevention of oppression and mismanagement 241 to 246
XVII Registered valuers 247
XVIII Removal of names of companies from the register of 248 to 252
companies
XIX Revival and rehabilitation of sick companies (deleted by 253 to 269
insolvency and bankruptcy code 2016)
XX Winding up 270
Part I – Winding up by the Tribunal 271 to 303
Part II Voluntary winding up (deleted by insolvency and bankruptcy code 2016) 304 to 323
Part III – Provisions applicable to every mode of winding up 324 to 358
359 to 365
Part IV – Official liquidators
XXI Companies authorised to register under this Act
Part I – Companies authorised to register under this Act 366 to 374
Part II – Winding up of unregistered companies 375 to 378
XXII Companies incorporated outside India 379 to 393
XXIII Government companies 394 to 395
XXIV Registration offices and fees 396 to 404
XXV Companies to furnish information or statistics 405
XXVI Nidhis 406
XXVII National Company Law Tribunal and Appellate Tribunal 407 to 434
XXVIII Special courts 435 to 446
XXIX Miscellaneous 447 to 470
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LIST OF SECTIONS UNDER COMPANIES ACT 2013

CHAPTER II INCORPORATION OF CHAPTER III PROSPECTUS AND ALLOTMENT
COMPANY (Sections 3- 22) OF SECURITIES (Sections 23-42)
3. Formation of company 23. Public offer and private placement
3A. Members severally liable in certain cases 24. Power of Securities and Exchange Board to regulate
4. Memorandum issue and transfer of securities, etc
5. Articles 25. Document containing offer of securities for sale to
6. Act to override memorandum, articles, etc. be deemed prospectus
7. Incorporation of company 26. Matters to be stated in prospectus
8. Formation of companies with charitable objects, etc. 27.Variation in terms of contract in prospectus
9. Effect of registration 28. Offer of sale of shares by certain members of
10. Effect of memorandum and articles company
11. Commencement of business, etc. 29. Public offer of securities to be in demat form.
12. Registered office of company 30. Advertisement of prospectus
13. Alteration of memorandum 31. Shelf prospectus
14. Alteration of articles 32. Red herring prospectus
15. Alteration of memorandum or articles to be noted 33. Issue of application forms for securities
16. Rectification of name of company 34. Criminal liability for misstatements in prospectus
17. Copies of MOA/AOA etc., to be given to members. 35. Civil liability for misstatements in prospectus
18. Conversion of companies already registered 36. Punishment for fraudulently inducing persons to
19. Subsidiary company not to hold shares in its invest money
holding company 37. Action by affected persons
20. Service of documents 38. Punishment for personation for acquisition
21. Authentication of documents, proceedings and 39. Allotment of securities by company
contracts 40. Securities to be dealt with in stock exchanges
22. Execution of bills of exchange, etc. 41. Global depository receipt
42. Issue of shares on private placement basis.

CHAPTER IV SHARE CAPITAL AND 68. BUY BACK

DEBENTURES (Sections 43-72) 69. Transfer of certain sums to CRR
70.Prohibition for B/B in certain circumstances
43. Kinds of share capital 71. Debentures
44. Nature of shares or debentures 72. Power to nominate
45. Numbering of shares CHAPTER V DEPOSITS (Sections 73-76A)
46. Certificate of shares (CS ANOOP JAIN) 73. Prohibition on acceptance of deposits from public
47. Voting rights 74. Repayment of deposits, etc., accepted before
48. Variation of shareholders’ rights commencement of this Act
49. Calls on to be made on uniform basis 75. Damages for fraud
50. advanvce call 76. Acceptance of deposits from public by certain
51. Payment of dividend in proportion to amount paid-up companies
52. premiums received on issue of shares 76A. Punishment for contravention of section 73 or
53. Prohibition on issue of shares at discount section 76
54. Issue of sweat equity shares CHAPTER VI CHARGES (Sections 77-87)
55. Issue and redemption of preference shares 77. Duty to register charges, etc
56. Transfer and transmission of securities 78. Application for registration of charge
57. Punishment for personation of shareholder 79. Section 77 to apply in certain matters
58. Refusal of registration and appeal against refusal 80. Date of notice of charge
59. Rectification of register of members 81. Register of charges to be kept by Registrar
60. Publication of authorised, subscribed and paid-up capital 82. Company to report satisfaction of charge
61. Power of limited company to alter its share capital 83. Power of Registrar to make entries of satisfaction
62. Right issue and release in absence of intimation from company
63. Issue of bonus shares 84. Intimation of appointment of receiver or manager
64. Notice to be given to ROC of share capital 85. Company’s register of charges
65. Unlimited company to provide for reserve share 86. Punishment for contravention
capital on conversion into limited company 87. Rectification by Central Government in register of
66. Reduction of share capital charges
67. Restrictions on purchase by company or giving of
loans by it for purchase of its shares
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LIST OF SECTIONS UNDER COMPANIES ACT 2013

GENEARL MEETINGS (Sections 88-122) APPOINTMENT DIRECTORS (Sections 149-172)
88. Register of members, etc. 149. Company to have Board of Directors
89. Declaration in respect of beneficial interest 150. Manner of selection of independent directors
90. Register of significant beneficial owners 151.Appointment of director elected by SSD
91. Power to close register of member 152. Appointment of directors (R/D-NRD)
92. Annual return 153. Application for allotment DIN
93. [Omitted] AMENDMENT ACT 2017 154. Allotment of Director Identification Number
94. Place of keeping of registers, returns, etc. 155. Prohibition to obtain more than one DIN
95. Registers, etc., to be evidence 156. Director to intimate DIN
96. Annual general meeting 157. Company to inform DIN
97. Power of Tribunal to call annual general meeting 158. Obligation to indicate DIN
98. Power of Tribunal to call meetings of members, etc 159. Punishment for contravention
99. Punishment for contraveneof sections 96 to 98 160. Candidature for directorship
100. Calling of extraordinary general meeting 161. Appointment of additional director, alternate
101. Notice of meeting director and nominee director
102. Statement to be annexed to notice 162. Appointment of directors to be voted individually
103. Quorum for meetings 163. principle of proportional representation
104. Chairman of meetings 164. Disqualifications for appointment of director
105. Proxies 165. Number of directorships
106. Restriction on voting rights 166. Duties of directors
107. Voting by show of hands 167. Vacation of office of director
108. Voting through electronic means 168. Resignation of director
109. Demand for poll 169. Removal of directors
110. Postal ballot 170. Register of directors and key managerial personnel
111. Circulation of members’ resolution 171. Members’ right to inspect
112. Representation of President and Governors 172. Punishment
113. Representation of corporations at meeting MEETINGS OF BOARD (Sections 173-195)
114. Ordinary and special resolutions. 173. Meetings of Board
115. Resolutions requiring special notice 174. Quorum for meetings of Board
116. Resolutions passed at adjourned meeting 175. Passing of resolution by circulation
117. Resolutions and agreements to be filed. 176. Defects in appointment of directors not to
118. Minutes invalidate actions taken
119. Inspection of minute-books of general meeting 177. Audit Committee
120. Maintenance/ inspection of documents in e-form 178. Nomination and Remuneration Committee and
121. Report on annual general meeting Stakeholders Relationship Committee
122. Applicability of this Chapter to OPC 179. Powers of Board
CHAPTER VIII DIVIDEND (Sections 123-127) 180. Restrictions on powers of Board
123. Declaration of dividend 181. Company to contribute to charitable funds, etc.
124. Unpaid Dividend Account 182. political contributions
125. Investor Education and Protection Fund 183. contributions to national defence fund, etc.
126. Right to dividend, rights shares and bonus shares 184. Disclosure of interest by director
to be held in abeyance. 185. Loan to directors, etc.
127. Punishment for failure to distribute dividends 186. Loan and investment by company
AUDIT AND AUDITORS (Sections 139-148) 187.Investments of company to be held in its own name
139. Appointment of auditors 188. Related party transactions
140. Removal, resignation of auditor and giving of 189. Register of contracts or arrangements in which
special notice directors are interested
141. Eligibility, qualifications and disqualifications of 190. Contract of employment with MD/WTD
auditors 191. Payment to director for loss of office, etc., in
142. Remuneration of auditors connection with transfer of undertaking, property or
143. Powers and duties of auditors and auditing shares
144. Auditor not to render certain services 192. non-cash transactions involving directors
145. Auditor to sign audit reports, etc. 193. Contract by One Person Company
146. Auditors to attend general meeting 194. [Omitted] AMENDMENT ACT 2017
147. Punishment for contravention 195. [Omitted] AMENDMENT ACT 2017
148. cost audit
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LIST OF SECTIONS UNDER COMPANIES ACT 2013

CHAPTER XIII APPOINTMENT AND REMUNERATION 238. Registration of offer
OF MANAGERIAL PERSONNEL (Sections 196-205) 239. Preservation of books and papers of amalgamated
196. Appointment of MD/WTD/MANAGER companies
197. Overall maximum managerial remuneration 240. Liability of officers in respect of offences
198. Calculation of profits committed prior to merger, amalgamation, etc.
199. Recovery of remuneration in certain cases CHAPTER XVI PREVENTION OF OPPRESSION
200. CG or company to fix limit with regard to remuneration AND MISMANAGEMENT (Sections 241-246)
201. procedure in relation to, certain applications 241. Application to Tribunal for relief in cases of
202. Compensation for loss of office oppression, etc.
203. Appointment of key managerial personnel 242. Powers of Tribunal
204. Secretarial audit for bigger companies 243. Consequence of termination or modification of
205. Functions of company secretary certain agreements
CHAPTER XIV INSPECTION, INQUIRY AND 244. Right to apply under section 241
INVESTIGATION (Sections 206-229) 245. Class action
206. Power to call for information, inspect books 246. Application of certain provisions to proceedings
207. Conduct of inspection and inquiry under section 241 or section 245
208. Report on inspection made CHAPTER XVII REGISTERED VALUERS (Section 247)
209. Search and seizure 247. Valuation by registered valuers
210. Investigation into affairs of company CHAPTER XVIII REMOVAL OF NAMES OF
211. Establishment of Serious Fraud Investigation Office COMPANIES FROM THE REGISTER OF COMPANIES
212. Investigation into affairs of Company by Serious (Sections 248-252
Fraud Investigation Office 248. Power of Registrar to remove name of company
213. Investigation into company’s affairs in other cases from register of companies
214. Security for payment of costs and expenses of 249. Restrictions on making application under section
investigation 248 in certain situations
215. Firm, body corporate or association not to be 250. Effect of company notified as dissolved
appointed as inspector 251. Fraudulent application for removal of name
216. Investigation of ownership of company 252. Appeal to Tribunal
217. Procedure, powers, etc., of inspectors REVIVAL OF SICK COMPANIES (Sections 253-269)
218. Protection of employees during investigation entire chapter is omiitted
219. Power of inspector to conduct investigation into CHAPTER XX WINDING UP (Sections 270-365)
affairs of related companies, etc. 270. Winding up by Tribunal
220. Seizure of documents by inspector 271. cases in which company may be wound up by
221. Freezing of assets of company on inquiry Tribunal
222. Imposition of restrictions upon securities 272. Petition for winding up
223. Inspector’s report 273. Powers of Tribunal
224. Actions to be taken in pursuance of inspector’s report 274. Directions for filing statement of affairs
225. Expenses of investigation 275. Company Liquidators and their appointments
226. Voluntary winding up of company, etc., not to 276. Removal and replacement of liquidator
stop investigation proceedings 277. Intimation to Company Liquidator, provisional
227. Legal advisers and bankers not to disclose certain liquidator and Registrar
information 278. Effect of winding up order
228. Investigation, etc., of foreign companies 279. Stay of suits, etc., on winding up order
229. Penalty for furnishing false statement, mutilation, 280. Jurisdiction of Tribunal
destruction of documents 281. Submission of report by Company Liquidator
CHAPTER XV COMPROMISES, ARRANGEMENTS AND 282. Directions of Tribunal on report of Company
AMALGAMATIONS (Sections 230-240) Liquidator
230. Power to compromise or make arrangements(C/A) 283. Custody of company's properties
231. Power of Tribunal to enforce C/A 284. Promoters, directors, etc., to cooperate with
232. Merger and amalgamation of companies Company Liquidator
233. Merger or amalgamation of certain companies 285. Settlement of list of contributories and application
234. Merger with foreign company of assets
235. Power to acquire shares of shareholders dissenting 286. Obligations of directors and managers
from scheme or contract approved by majority 287. Advisory committee
236. Purchase of minority shareholding 288. Submission of periodical reports to Tribunal
237. Power of Central Government to provide for 289. Power of Tribunal on application for stay of
amalgamation of companies in public interest winding up [Omitted w.e.f. 15-11-2016]

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LIST OF SECTIONS UNDER COMPANIES ACT 2013

290. Powers and duties of Company Liquidator 356. Powers of Tribunal to declare dissolution of
291. professional assistance to Company Liquidator company void
292. control of Company Liquidator's powers 357. Commencement of winding up by Tribunal
293. Books to be kept by Company Liquidator 358. Exclusion of certain time in computing period of
294. Audit of Company Liquidator's accounts limitation
295. debts by contributory and extent of set-off 359. Appointment of Official Liquidator
296. Power of Tribunal to make calls 360. Powers and functions of Official Liquidator
297. Adjustment of rights of contributories 361. Summary procedure for liquidation
298. Power to order costs 362. Sale of assets and recovery of debts due to
299. Power to summon persons suspected of having company
property of company, etc. 363. Settlement of claims of creditors by Official
300. Power to order examination of promoters, Liquidator
301. Arrest of person trying to leave India or abscond 364. Appeal by creditor
302. Dissolution of company by Tribunal 365. Order of dissolution of company
303. Appeals from orders before commencement of Act PART I - COMPANIES AUTHORISED TO
Section 304-323 has been omitted REGISTER UNDER THIS ACT (Sections 366-374)
324. Debts of all descriptions to be admitted to proof 366. Companies capable of being registered
325. [Omitted w.e.f. 15-11-2016] 367. Certificate of registration of existing companies
326. Overriding preferential payments 368. Vesting of property on registration
327. Preferential payments 369. Saving of existing liabilities
328. Fraudulent preference 370. Continuation of pending legal proceedings
329. Transfers not in good faith to be void 371. Effect of registration under this Part
330. Certain transfers to be void 372. Power of Court to stay or restrain proceedings
331.Liabilities and rights of certain persons 373. Suits stayed on winding up order
332. Effect of floating charge 374. Obligations of companies registering under this Part
333. Disclaimer of onerous property Winding up of unregistered companies (Sections 375-378)
334. Transfers, etc., after commencement of winding 375. Winding up of unregistered companies
up to be void 376. Power to wind up foreign companies, although
335. Certain attachments, executions, etc., in winding dissolved
up by Tribunal to be void 377. Provisions of Chapter cumulative
336. Offences by officers of companies in liquidation 378. Saving and construction of enactments conferring
337. Penalty for frauds by officers power to wind up partnership firm, association or
338. Liability where proper accounts not kept company, etc., in certain cases
339. Liability for fraudulent conduct of business COMPANIES INCORPORATED OUTSIDE INDIA
340. Power of Tribunal to assess damages against (Sections 379-393)
delinquent directors, etc. 379. Application of Act to foreign companies
341. Liability under sections 339 and 340 to extend to 380. Documents, etc., to be delivered to Registrar by
partners or directors in firms or companies foreign companies
342. Prosecution of delinquent officers 381. Accounts of foreign company
343. Company Liquidator to exercise certain powers 382. Display of name, etc., of foreign company
344. Statement that company is in liquidation 383. Service on foreign company
345. Books and papers of company to be evidence 384. Debentures, annual return, registration of
346. Inspection of books by creditors and contributories charges, books of account and their inspection
347. Disposal of books and papers of company 385. Fee for registration of documents
348. Information as to pending liquidations 386. Interpretation
349. O/L to make payments into public account of India 387. Dating of prospectus and particulars to be
350. Company Liquidator to deposit monies into contained therein
scheduled bank 388. Provisions as to expert’s consent and allotment
351. Liquidator not to deposit monies into private 389. Registration of prospectus
banking account 390. Offer of Indian Depository Receipts
352. Company Liquidation Dividend and Undistributed 391. Application of sections 34 to 36 and Chapter XX
Assets Account 392. Punishment for contravention
353. Liquidator to make returns, etc. 393. Company's failure to comply with provisions of
354. Meetings to ascertain wishes of creditors or this Chapter not to affect validity of contracts, etc.
contributories
355. Court, tribunal or person, etc., before whom
affidavit may be sworn
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LIST OF SECTIONS UNDER COMPANIES ACT 2013

CHAPTER XXIII GOVERNMENT COMPANIES CHAPTER XXVIII SPECIAL COURTS (Sections
(Sections 394-395) 435-446)
394. Annual reports on Government companies 435. Establishment of Special Courts
395. Annual reports where one or more State 436. Offences triable by Special Courts
Governments are members of companies 437. Appeal and revision
CHAPTER XXIV REGISTRATION OFFICES AND 438. Application of Code to proceedings before Special Court
FEES (Sections 396-404) 439. Offences to be noncognizable
396. Registration offices 440. Transitional provisions
397. Admissibility of certain documents as evidence 441. Compounding of certain offences
398. Provisions relating to filing of applications, 442. Mediation and Conciliation Panel
documents, inspection, etc., in electronic for 443. Power of CG to appoint company prosecutors
399. Inspection, production and evidence of documents 444. Appeal against acquittal
kept by Registrar 445. Compensation for accusation without reasonable cause
400. Electronic form in addition to physical form 446. Application of fines
401.Provision of value added services through E-form 446A. Factors for determining level of punishment
402.Application of provisions of IT ACT 2000 446B. Lesser penalties for One Person Companies or
403. Fee for filing, etc. small companies
404. Fees, etc., to be credited into public account CHAPTER XXIX MISCELLANEOUS
CHAPTER XXV COMPANIES TO FURNISH (Sections 447-470)
INFORMATION OR STATISTICS (Section 405) 447. Punishment for fraud
405. Power of CG to direct companies to furnish 448. Punishment for false statement
information or statistics 449. Punishment for false evidence
CHAPTER XXVI NIDHIS (Section 406) 450. Punishment where no specific penalty or
406. Provision relating to Nidhis and its application, etc. punishment is provided
CHAPTER XXVII NCLT/NCLAT (Sections 407-434) 451. Punishment in case of repeated default
407. Definitions 452. Punishment for wrongful withholding of property
408. Constitution of National Company Law Tribunal 453. Punishment for improper use of “Limited” or
409. Qualification Members of Tribunal “Private Limited”
410. Constitution of Appellate Tribunal 454. Adjudication of penalties
411. Qualifications of of Appellate Tribunal 455. Dormant company
412. Selection of Members of NCLT/NCLAT 456. Protection of action taken in good faith
413. Term of office of President, chairperson and other 457. Nondisclosure of information in certain cases
Members 458. Delegation by Central Government of its powers
414. Salary, allowances and other terms and conditions and functions
of service of Members 459. Powers of Central Government or Tribunal to
415. Acting President and Chairperson of Tribunal or accord approval, etc., subject to conditions
Appellate Tribunal and to prescribe fees on applications
416. Resignation of Members 460. Condonation of delay in certain cases
417. Removal of Members 461. Annual report by Central Government
418. Staff of Tribunal and Appellate Tribunal 462. Power to exempt class or classes of companies
419. Benches of Tribunal from provisions of this Act
420. Orders of Tribunal 463. Power of court to grant relief in certain cases
421. Appeal from orders of Tribunal 464. Prohibition of association or partnership of
422. Expeditious disposal by NCLT/NCLAT persons exceeding certain number
423. Appeal to Supreme Court 666 465. Repeal of certain enactments and savings
424. Procedure before NCLT/NCLAT 466. Dissolution of Company Law Board and
425. Power to punish for contempt consequential provisions
426. Delegation of powers 467. Power of Central Government to amend
427. President, Members, officers, etc., to be public servants Schedules
428. Protection of action taken in good faith 468. Powers of Central Government to make rules
429. Power to seek assistance of Magistrate, etc. relating to winding up
430. Civil court not to have jurisdiction 469. Power of Central Government to make rules
431. Vacancy in Tribunal or Appellate Tribunal not to 470. Power to remove difficulties
invalidate acts or proceedings
432. Right to legal representation
433. Limitation
434. Transfer of certain pending proceedings

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LIST OF IMPORTANT FORM UNDER COMPANIES ACT, 2013

Form No. FormType Purpose of Form Section Rule

FORMS USED IN CHAPTER OF INCORPORATION, OPC, MOA AND AOA
RUN Web service Application for reservation of Name 4(4) 8,9
INC-3 e-Form OPC -Nominee consent Form 3(1) 4(2),(3),(4),(5),(6
)
INC-4 e-Form One Person Company- 3(1) 4(4),(5),(6)
Change in Membership/Nominee
INC-5 e-Form One Person Company- - 6(4)
Intimation of exceeding threshold
INC-6 e-Form One Person Company- 18 7(4)
Application for Conversion
INC-8 Physical Declaration 7(1)(b) 14
INC-9 Physical Affidavit 7(1)(c) 15
INC-11 Physical Certificate of Incorporation 7(2) 8
INC-12 Physical Application for grant of License under section 8 8(1),8(5) 19,20
INC-13 Physical Memorandum of Association - 19(2)
INC-14 Physical Declaration 7(1)(b) 19(3)(b)
INC-15 Physical Declaration - 19(3)(d)
INC-16 Physical License under section 8(1) of the Companies Act - 20
INC-17 Physical License under section 8(5) of the Companies Act - 20
INC-18 e-Form Application to RD for conversion of Section 8 8(4)(ii) 21(3)
company into company of any other kind
INC-19 e-Form Notice - 22
INC-20 e-Form Intimation to Registrar of revocation/surrender 8(4),8(6) 23
of license issued under section 8
INC-22 e-Form Notice of situation or change of situation of 12(2),(4) 25,27
registered office
INC-23 e-Form Application to the Regional Director for the 12(5),13(4) 28,30
approval to shift the Registered Office from one
state to another state or from jurisdiction of one
Registrar to another Registrar within the same State
INC-24 e-Form Application to CG for change of name 13(2) 29(2)
INC-25 Physical C.O.I pursuant to change of name - 29
INC-26 Physical Advertisement to be published in the newspaper for - 30
Form license for existing companies
INC-27 e-Form Conversion of public company into private company 14 33
or private company into public company
INC-28 e-Form Notice of Order of the Court or any other authority - -
FORMS USED IN CHAPTER OF SHARE CAPITAL

PAS-2 e-Form Information Memorandum 31(2) 10

PAS-3 e-Form Return of Allotment 39(4),42(9) 12,14
PAS-4 Physical Private Placement Offer Letter 42 14(1)
PAS-5 Physical Record of a private placement offer 42(7) 14(3)
SH- 1 Physical Share Certificate 46(3) 5(2)
SH-2 Physical Register of duplicate share certificate 46(3) 6(3)(a)
SH-3 Physical Register of Sweat Equity Shares 54 8(14)
SH-4 Physical Securities Transfer Form 56 11(1)
SH-5 Physical Notice for transfer of partly paid securities 56(3) 11(3)
SH-6 Physical Register of Employee Stock Options 62(1)(b) 12(10)
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SH-7 e-Form Notice to Registrar of any alteration of share capital 64(1) 15

SH-8 e-Form letter of Offer 68 17(2)
SH-9 e-Form Declaration of Solvency 68(6) 17(3)
SH-10 Physical Register of shares or other securities brought-back 68(9) 17(12)
SH-11 e-Form Return in respect of buy-back of securities 68(10) 17(13)
SH-12 Physical Debenture Trust Deed 71(13) 11
SH-13 Physical Nomination Form 72 19(1)
SH-14 Physical Cancellation or Variation of Nomination 72(3) 19(9)
SH-15 Physical Certificate of Compliance in respect of buy-back - 17(14)
FORMS USED IN CHAPTER OF DEPOSIT
DPT-1 Physical Circular inviting Deposits 73(2)(a),76 4(1),4(2)
DPT-2 Physical Deposit Trust Deed - 7(2)
DPT-3 Physical Return of deposits 16
FORMS USED IN CHAPTER OF GENERAL MEETING
MGT-1 Physical Register of members 88(1)(a) 3(1)
MGT-2 Physical Register of debenture holders 88(1)(b),(c) 4
MGT-3 Physical change of situation or discontinuation of situation, of 88(4) 7(2)
place where foreign register shall be kept
MGT-4 Physical Declaration by the registered owner of shares who 89(1) 9(1)
does not hold the beneficial interest in such shares
MGT-5 Physical Declaration by the beneficial owner who holds or 89(2),(3) 9(2)
acquires beneficial interest in shares but whose name
is not entered in the register of members
MGT-6 Physical Return to the Registrar in respect of declaration 89(6) 9(3)
under section 89 received by the company
MGT-7 Physical Annual Return 92(1) 11(1)
MGT-8 Physical Certificate by a company secretary in practice 92(2) 11(2)
MGT-9 Physical Extract of Annual Return 92(3) 12(1)
MGT-11 Physical Proxy Form 105(6) 19(3)
MGT-12 Physical Polling Paper 109(5) 21(1)(c)
MGT-13 Physical Report of Scrutinizer (s) 109 21(2)
MGT-14 e-Form Filling of Resolutions and agreements ROC 94(1),117(1) -
FORMS USED IN CHAPTER OF DIRECTOR
DIR-2 Physical Consent to act as if director of a company 152(5) 8
DIR-3 Physical Applicant for allotment of DIN 153
DIR-4 Physical Verification of applicant for DIN 153 9(3)(a)(iv)
DIR-5 Physical Application for surrender of DIN 153 11(f)
DIR-6 Physical Intimation of change in particulars of Director to be - 12(1)
given to the Central Government
DIR-7 Physical Verification of applicant for change in DIN - 12(1)(i)
DIR-8 Physical intimation by director 164(2) 14(1)
DIR-9 Physical Report by the company to Registrar 164(2) 14(2)
DIR-10 Physical Form of Applicant for Removal of Disqualification 164(2) 14(5)
DIR-11 e-Form Notice of resignation of a Director to the Registrar 168(1) 16
DIR-12 e-Form Particulars of appointment of directors and the key 7(1)(c),168, 17
managerial personnel and the changes among them 170(2)
MR. 1 e-Form Return of appointment of a key managerial 196, 197 and 3
personnel and the changes among them Sch. V
MR. 2 e-Form Form of application to the Central Government for 196,197,200, 7
approval of appointment or reappointment and 201,201(1),
remuneration or increase in remuneration or waiver 203(1) and

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for excess or over payment to managing director or Sch. V

whole time director or manager and commission or
remuneration to directors
MR. 3 Physical Secretarial Audit Report 204(1) 9
MBP-1 Physical Notice of interest by director 184(1) 9(1)
MBP-2 Physical Register of loans, guarantee, security and acquisition 186(9) 12(1)
made by the company
MBP-3 Physical Register of investments not held in its own name by 187(3) 14(1)
the company
MBP-4 Physical Register of contracts with related party and contracts 189(1)
and bodies etc. in which directors are interested.
GNL-1 e- Form Form for filing an application with the Registrar of - 12(2)
Companies
GNL-2 e- Form Form for submission of documents with the - 12(2)
Registrar
FORMS USED IN CHAPTER OF AUDITOR
ADT-1 Physical Notice of appointment of auditor by the company - 4(2)
ADT-2 Physical Application for removal of auditor(s) - 7(1)
ADT-3 Physical Notice of resignation by the Auditor - 8
ADT-4 Physical Report to the Central Government - 13(4)
FORMS USED IN CHAPTER OF ACCOUNTS OF COMPANY
AOC-1 Physical Statement containing salient features of the financial 129(3) 5
statement of subsidiaries/associate
companies/ventures
AOC-2 Physical Form for disclosure of particulars of 134(3)(h) 8(2)
contracts/arrangements entered into by the company
with related parties referred to in sub-section (1) of
section 188 of the Companies Act, 2013 including
certain arm’s length transactions under third
provision there to
AOC-3 Physical Statement containing salient features of Balance 136(1) 10
Sheet and Profit and Loss Account
AOC-4 Physical Form for filling financial statement and other 137 12(1)
documents with the Registrar
FORMS USED IN CHAPTER OF CHARGES
CHG-1 e-Form registration/modification of charge 77,78,79 and 3(1)
CHG-2 Physical Certificate of Registration of charge 77(1),78 6(1)
CHG-3 Physical Certificate of modification of charge 79(b) 6(2)
CHG-4 e-Form Particular for satisfaction of charge 82(1) 8(1)
CHG-5 Physical Memorandum of satisfaction of charge 82,83 8(2)
CHG-6 e-Form Notice of appointment or cessation of receiver 84(1),384 9
CHG-7 Physical Register of charges 85 10(1)
CHG-8 e-Form Application to R.D. of extension 87 12(2)
CHG-9 e-Form registration of charge for debenture 71 3
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GENERAL PROCEDURE UNDER COMPANY LAW WHERE SHAREHOLDERS AND

OTHER AUTHORITIES APPROVAL REQUIRED

While following any procedure under company law refer first this master procedure

1. Send the notices of board meeting to all directors as per law.

2. Convene and hold a Board Meeting for the following purposes:-
 Pass board resolution for relevant activity subject to approval of shareholders and other
authority.
 To decide day, date, time and venue of the general meeting where resolution is proposed to be
passed;
 To approve the notice of general meeting to be issued; and
 To authorize the Company Secretary/ Director to issue the notice of general meeting.
3. Issue the notice of general meeting to all the members as per law.
4. At the general meeting, pass the required resolution. (O.R. / S.R. as the case may be).
5. Within 30 days of passing of the special resolution, the following shall be filed with the Registrar
of Companies: - e-Form No. MGT 14 after paying requisite fees; (standard rule).
6. File application to other authorities if required by law for their approval. (ROC, R.D., NCLT etc.)
7. Obtain their approval by filling relevant form as prescribed under law.
8. After obtaining the approval of NCLT file eform INC 28 to ROC.
9. Make alteration in MOA and AOA if required.

PENALTIES AND PUNISHMENT UNDER COMPANIES ACT 2013

Section Heading Provisions
447 Punishment for fraud If Any person who is found to be guilty of fraud involving an
amount of at least 10 lakh RS. Or 1% of turnover of company
whichever is lower he is punishable with

Imprisonment for a term which shall not be less than 6 months (3

years if fraud in question involves public interest.) but which may
extend to 10 years and

Fine which shall not be less than amount involved in fraud, but
which may extend to 3 times amount involved in any fraud.

Provided further that where the fraud involves an amount

less than ten lakh rupees or one per cent. of the turnover of
the company, whichever is lower, and does not involve
public interest, any person guilty of such fraud shall be
punishable with imprisonment for a term which may extend
to five years or with fine which may extend to 50 lakh
rupees or with both. (This proviso inserted by companies’
amendment act 2017)
448 Punishment for false If any person gives false statement or makes false material
statement particular or omit any material fact in any of following
documents with knowledge
 Any return or certificate under Companies Act, 2013

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 Prospectus under Companies Act, 2013

 Statement or other documents required to be made under
Companies Act, 2013 and its rule.
He is liable to punishment as per section 447 of Companies Act,
2013:
449 Punishment for false Any person is liable for punishment, if he intentionally gives
evidence false evidence:
 Upon any examination on oath under act or
 In any affidavit or any documents deposited about winding
up of company or
 Any matter arising under Companies Act.
HE IS PUNISHABLE FOR
 imprisonment for period not less than 3 years but extend to 7
years and
 fine up to Rs. 10 lakh
450 Punishment where no Where no specific penalty is provided under Act for
specific penalty is contravention of any provision of the, Act or rules made there
provided under. As per section 450 fine upto Rs. 10,000 plus a fine upto
Rs. 1000 per day where the offence is of continuing nature.
451 Punishment in case of If a company or an officer of a company commits an offence
repeated default punishable either with fine or with imprisonment and where the
same offence is committed for the second or subsequent
occasions within a period of 3 years, then, that company and
every officer thereof who is in default shall be punishable with
twice the amount of fine for such offence in addition to any
imprisonment provided for that offence.
This section is not applicable to the offence repeated after a
period of three years from the commitment of first offence.
452 Punishment for wrongful  If any officer, employee or ex-employee of company has
withholding of property wrongfully obtained the possess ion of property or
wrongfully withholding the property, including cash of
company, he is punishable for fine which shall not be less
than Rs. 1 Lakh but which may extend to Rs. 5 lakh.
 Section 452 is applicable where employee applies the
property of company for any other purpose other than
specified or authorised by article.
453 Punishment for If any person
improper use of  use name “limited” or “Private Limited” without registration
“limited” or “private of company.
limited”  Omit word “limited” or private Limited” while entering into
contract or acting on behalf of company.
He is punishable with fine which shall not be less than Rs. 500
but may extend to Rs. 2000 for every day for which that name or
title has been used.

Power of CG (Under Companies Act, 2013)

Section Heading Provisions
462 Power to Central Government may exempt any class of companies from any
exempt class of provision of act or modify application of any provision subject to
companies- following conditions:
Section  It is in public interest.
 It shall publish notification.
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 Notification before publication should be placed before each house of

parliament. Both house of parliament should agree for it.
467 Power to Central Government may by notification alter any regulation, rules, tables,
amend forms and other provision of any schedule of Act.
schedules Alteration will not be effective to any company with retrospective effect. It
will be applicable from date of publication of notification or date
mentioned in notification.
Alternation should be placed before both houses of parliament.
469 Power to make Central Government may by notification make rules to carrying out
rules provisions of Act.
Above rules may provide that any contravention thereof shall be
punishable with:
 Fine upto Rs. 5000 and
 Fine of Rs. 500 per day in case of continuing offence.
Above rules are required to be placed before both houses of parliament
470 Power to If any difficulty arises in giving effect to the provisions of this act, the
remove central government may, by order published in official gazette, make such
difficulties provisions to remove difficulty.
 Such provisions should not inconsistent with provisions of Act.
 Order make provisions shall be made within period of 5 years from
commencement of section 1 of Companies Act, 2013
 Order should be placed before both houses of parliament.
446A Factors for The court or the Special Court, while deciding the amount of fine or
determining imprisonment under this Act, shall have due regard to the following
level of factors, namely
punishment (a) size of the company;
(b) nature of business carried on by the company;
(c) injury to public interest;
(d) nature of the default; and
(e) repetition of the default.
446B Lesser Notwithstanding anything contained in this Act, if a One Person Company
penalties for or a small company fails to comply with the provisions of sub-section (5)
One Person of section 92, sub-section (2) of section 117 or sub-section (3) of section
Companies or 137, such company and officer in default of such company shall be liable
small to a penalty which shall not be more than one half of the penalty specified
companies in such sections.
454A. Penalty for Where a company or an officer of a company or any other person having
repeated already been subjected to penalty for default under any provisions of this
default. Act, again commits such default within a period of three years from the
date of order imposing such penalty passed by the adjudicating officer or
Companies the Regional Director, as the case may be, it or he shall be liable for the
amendment Act second or subsequent defaults for an amount equal to twice the amount of
2019 penalty provided for such default under the relevant provisions of this Act.

DEAR READERS,

Hopefully you must have understood how Companies Act 2013 came in to force. Now we are
ready to read this bible on company law.

Here we start…………………
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PART-A 60 MARKS
COMPANY LAW, PRINCIPLES
& CONCEPTS
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CHAPTER 1 BASICS OF COMPANY

COMPANIES ACT 2013

SECTION 1 SHORT TITLE, EXTENT, COMMENCEMENT AND APPLICATION

Corresponding Sections under Companies Act 1956 (1,616,561,563)

1. This Act may be called the COMPANIES ACT, 2013

2. It extends to the WHOLE OF INDIA
3. The government has vested with power to enforce different provisions of this act at
different point of time and it is not mandatory to enforce the entire bill in totality at one
point of time
4. The provisions of this Act shall apply to
(a) Companies incorporated under this Act or under any previous Company law
(b) Insurance companies, except in so far as the said provisions are inconsistent with the provisions of the
Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999
(c) Banking companies, except in so far as the said provisions are inconsistent with the provisions of the
Banking Regulation Act, 1949
(d) Companies engaged in the generation or supply of electricity, except in so far as the said provisions
are inconsistent with the provisions of the Electricity Act, 2003
(e) Any other company governed by any special Act for the time being in force, except in so far as the said
provisions are inconsistent with the provisions of such special Act
(f) Such body corporate, incorporated by any Act for the time being in force, as the Central Government
may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptation, as
may be specified in the notification.

ANALYSIS ON SECTION 1
COMPANIES ACT, 1956 also applies on whole of India. However, PROVISO TO
SECTION 1(3) OF THE COMPANIES ACT, 1956 empowers the Central Government to
modify the provisions of the Act, while applying this Act on the STATE OF NAGALAND.
Similarly, SECTIONS 620B AND 620C of the COMPANIES ACT, 1956 empowers the
Central Government to, modify, or exempt from, the provisions of the Act, while applying
this Act ON THE STATES OF GOA, DAMAN, DIU AND JAMMU & KASHMIR
RESPECTIVELY.
SUCH KIND OF PROVISIONS DOES NOT EXIST UNDER COMPANIES ACT, 2013.

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SECTION 2 DEFINITIONS SECTION (TOTAL 95 DEFINITIONS)

Corresponding Sections under Companies Act 1956 (3, 4, 4A, 5, 6, 41,124)

SEC. 2(20) OF COMPANIES ACT 2013

 It means a company formed and registered
 Under this Act (2013)
 or Any of the previous Companies laws

CONCEPT OF COMPANY (BY CS ANOOP JAIN)

As per law Sec2 (20) of Companies Act 2013 GENERAL MEANING

DEFINED BY JUSTICE LINDELY

Company means a company registered
 A Company is as an association of persons,
 These person contribute money or money’s worth to a
common stock,
Under this Act (2013)  The common stock so contributed is denoted in money
and is called as the Capital of the company,
 The Persons who contribute the capital are called the
members of the company,
OR Any of the previous
 The Capital is employed in some common trade or
Companies law
business
 The Members share the profit or losses arising from
such business.
 The Proportion of capital to which each member is
entitled is called his share.
 The Shares are always transferable though the right to
transfer is often more or less restricted.

CHARACTERISTICS OF A COMPANY

1. Separate Legal Entity

 A Company is legal person in the eyes of law distinct forms its members
 A company is a separate person having its own rights and obligations
Case References –Saloman v. Saloman & co. Ltd.
2. Perpetual Succession
 Death, insolvency or insanity of any members does not affect the continuity of the Company it
does not depend upon the life of its members.
 It is generally said that members may come and go but the company goes on forever thus a
company never dies.
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3. Common Seal (IT IS INKLESS) Common seal is the official signature of the Company.
 Any document on which the common seal is affixed is deemed to be signed by the Company.
 Now its adoption is optional as inserted by Companies Amendment Act 2015
4. Transferability Shares(Sec. 42)
 Shares are movable property
 Shares are transferable in the manner provided in the Articles.
 Public company – shares are freely transferable
 Private co. - restriction on transfer of shares.
5. Separation of ownership from management
 The members do not participate in the day to day affairs of the Company.
 The management of the Company lies in the hands of elected representatives of members,
commonly called as Board of Directors.
 The directors are appointed as well as removed by the members. Thus the Act has ensured the
ultimate control of members over the company.
6. Separate property
 A Company can own and enjoy property in its own name.
 Members are not owners or co-owner of the company’s property
 Members have no insurable interest in the property of the company.

ADVANTAGES AND DISADVANTAGES OF COMPANY

ADVANTAGES OF CORPORATE FORM OF DISADVANTAGES OF CORPORATE FORM OF

ENTERPRISE ENTERPRISE

1. Corporate Personality 1. Formalities and expenses

2. Limited Liability 2. Corporate disclosures
3. Perpetual Succession 3. Separation of control from ownership
4. Transferable Shares 4. Greater social responsibility
5. Greater tax burden in certain cases
5. Separate Property
6. Detailed winding-up procedure
6. Capacity to Sue

CASE LAWS ON WHETHER COMPANY IS A CITIZEN

S.NO. CASE NAME PROVISONS
1 State trading The company, though a legal person, is not a citizen under the
corporation of India v. citizenship Act, 1955 or the Constitution of India.
Commercial tax
officer)
2 R.C. cooper VS Even if all members of company are citizen of India: still the
U.O.I company cannot be considered as citizen of India, because even if
all the members of company are married the company cannot be
considered as married.
3 Bennet Coleman & co. Supreme court held that though co. is not citizen of India but all
ltd. rights of citizenship are available to company indirectly through
its members

15 CLASSES ON ICDR-2018, 15 CLASSES ON STOCK MARKET TRADING AND 10 CLASSES ON LODR 2015
SECURITIES LAWS AND CAPITAL MARKETS BY CS Anoop jain (THE CORPORATE LAW WIZARD)
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DIFFERENCE BETWEEN COMPANY AND A FIRM

Basis of distinction Company Partnership firm
1. Mode of A company comes into existence only A firm comes into existence by an
creation when it is incorporated under the agreement between the partners.
company Act. Registration of a firm is optional.
2. Separate A company has an identity of its own. A firm is merely a collection of
Legal entity partners. It has no separate. It has no
separate identity.
3. Perpetual A company enjoys the benefit of A firm has no perpetual succession. A
Succession perpetual succession. Death or firm is close down in case of death or
insolvency of shareholder(s) does not insolvency of all the partners (or of all
affect the continuity of the company. except one partner).

4. Transfer of A member of the company can transfer A partner can also transfer his share to
shares his share. On such transfer, the transferee an outside. But, the transfer does not
becomes a member of the company. become a partner in a firm, although he
become entitled to share the profit and
property transferred to him
5. Management A company is managed by the directors. A firm is managed by the partners
themselves.

LLP vs. PARTNERSHIP vs. COMPANY

POINT OF LIMITED LIABILITY PARTNERSHIP COMPANY
COMPARISION PARTNERSHIP

Governance The Limited Liability The Indian Partnership The Companies Act,
Partnership Act,2008 Act, 1932 2013

Regulation Regulated by Registrar of Regulated by Registrar Regulated by Registrar

LLPs. appointed by the of Companies
respective State
Government under the
Partnership Act.

Name Name to end with LLP or The firm, which is Name can end with
Limited Liability Partnership registered, shall use the Limited / Private
brackets and word Limited

Registration Registration with Registrar Registration is optional Registration with

of Companies mandatory Registrar of Companies
mandatory

Body Corporate It is a Body Corporate having A Partnership Firm does It is a Body Corporate
a Separate Legal Entity not have a Separate Legal having a Separate Legal
capable of sueing and be Entity and it is not a Body Entity capable of sueing
sued in its own name. Corporate. and be sued in its own
name.
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EXPERIENCE OF A SHAREHOLDER IS EXPERIENCE OF A COMPANY

S.NO. CASE NAME PROVISONS

1 NEW The tender of the company, New Horizons Ltd., for publication of
HORIZONS telephone directory was not accepted by the Tender Evaluation
LTD. V.UNION Committee on the ground that the company had nothing on record to
OF INDIA show that it had the technical experience required to be possessed to
qualify for tender. On appeal the rejection of tender was upheld by the
Delhi High Court. The judgement of the Delhi High Court was
reversed by the Supreme Court. (And decided that experience of
shareholders will be considered experience of company. If the
promoters of company having experience in a particular work it will be
considered the experience of company as well.

Similarly, SECTIONS 620B AND 620C of the COMPANIES ACT, 1956 empowers the Central
Government to, modify, or exempt from, the provisions of the Act, while applying this Act ON THE
STATES OF GOA, DAMAN, DIU AND JAMMU & KASHMIR RESPECTIVELY.

SUCH KIND OF PROVISIONS DOES NOT EXIST UNDER COMPANIES ACT, 2013.

LIFTING OR PIERCING OF CORPORATE VEIL

Meaning of corporate veil

By fiction of law a company is seen as a distinct entity yet in reality it is an association of
person who are in fact the beneficial owners of all the corporate property. This fiction is
created the corporate veil.

Effect of corporate veil

Only a company is liable for the acts and defaults done in the name of the company even
though member’s directors or any officer or employee of the company had acted on behalf of
the company.
MEANING OF LIFTING OR PIERCING THE CORPORATE VEIL
 Lifting of corporate veil means ignoring the separate identity of a company.
 Lifting of corporate veil means disregarding the corporate personality and looking behind
the retail persons who are in the control of the company.

LIFTING OF CORPORATE VEIL

UNDER STATUTORY PROVISIONS UNDER JUDICIAL INTERPRETATION

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LIFTING OF CORPORATE VEIL UNDER STATUTORY PROVISIONS

The companies act 2013 contains provisions for lifting of corporate veil

 Section 7 (7) deals with punishment for incorporation of companies by providing false
information
 Section 251 (1) deals with liability for making wrong application for removal of name of
company from Register of Companies
 Section 339 deals with liability for making fraudulent conduct of business during winding up

UNDER JUDICIAL INTERPRETATIONS:

1. Protection of Revenue
The Court may ignore the Separate Legal Entity status of a Company, where it is used for tax
invasion or circumventing tax obligation. (Sir Dinshaw Maneckjee Petit)

2. Determination of enemy character of the Company

Company being an artificial person cannot be enemy or friend. But during war, it may
become necessary to lift the corporate veil and see the persons behind it to determine whether
they are friends or enemy. This is due to the reason that though a Company enjoys Separate
Legal Entity but its affairs are run by individuals. (Daimler Co. Ltd. Vs Continental Tyre
& Rubber Co. Ltd.)

3. Prevention of fraud
Where a Company is used for committing frauds or improper conduct, Court may lift the
corporate veil and look at the realities of the situation. (Jones vs Lipman)

4. Where a Company acts as an agent of its shareholders

If there is an arrangement between the shareholders and a Company to the effect that the
Company will act as agent of shareholders for the purpose of carrying on the business, the
business is essentially of that of the shareholders and will have unlimited liability.

5. Subsidiaries acts as agent

Where a Company floats a subsidiary Company to merely act as its own agent, then the Court
shall remove the Corporate Veil and both Companies will be regarded as same entity, though
in the eyes of law a subsidiary Company has Separate Legal Entity. (State of UP. Vs
Renusagar Power Co.)
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CHAPTER -2 TYPES OF COMPANIES

VARIOUS TYPES OF COMPANIES

ON THE BASIS OF STATUE On the basis of Registration On The Basis Of Liability

Chartered companies LIMITED BY SHARES

1. PRIVATE CO.
2. OPC

UNLIMITED COMPANY
Statutory companies
PUBLIC COMPANY

LIMITED BY GURANTEE
Registered Companies

VARIOS TYPES OF COMPANIES

S.NO. SECTION COMPANY

1 2(68) Private Company
2 2(71) Public Company
3 2(85) Small Company
4 2(62) One person Company
5 2(46) Holding Company
6 2(87) Subsidiary Company
7 187 Wholly owned subsidiary Company
8 2(6) Associate Company
9 2(45) Government Company
10 2(10A) of the Investment Company
Insurance Act, 1938,
11 2(42) Foreign Company
12 8 SECTION 8 Company
13 General Meaning Chartered Company
14 SECTION 406 Nidhi Company
15 2(52) Listed Company
16 366 Companies capable of being registered (part I company)
17 375 Unregistered company
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CLASSIFICATION OF PRIVATE COMPANY

ONE PERSON SMALL COMPANY PRIVATE COMPANY

COMPANY

PRIVATE COMPANY SEC. 2(68)

Private Company means a Company which has a minimum paid-up capital of one lakh rupees
or such higher paid-up capital as may be prescribed and its Articles

(a) Restriction on the right to transfer its shares if any

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

(b) Except in case of ONE PERSON COMPANY Limits the numbers of its members to 200
not including

 Persons who are in the employment of the company and

 Persons who having been formerly in the employment of the company were members of
the company while in the employment and have continued to be members after the
employment ceased.

(c) Prohibits any invitation to the public to subscribe for any securities of the company.

Provided that where two or more persons hold one or more shares in a company jointly they
shall, for the proposes of this definition, be treated as a single number.

Special note: Companies Amendment Act 2015 has omit the requirement of minimum
paid up share capital of rs. 1 lack.

ANALYSIS ON SECTION 2(68) BY CS ANOOP JAIN

A private Company means a Company which has a minimum paid-up capital as may be
prescribed and must contain in its Articles the following restrictions, limitations and
prohibitions. (C.G. has power to prescribe the minimum paid up capital requirement).
a) Restriction on the right to transfer its shares: The articles must contain a provision
restricting the right of members to transfer its shares freely. The right of transfer may be
restricted in the following manner

 By authorizing the Directors to refuse transfer of shares to persons whom they do not
approve.
 By compelling the shareholders to offer his shareholding to the existing shareholders first.

b) Limitation of membership: The Articles must contain a provision whereby the

Company limits the number of its members to 200. The following persons are not
considered in counting the number of members:

 Joint holders of shares shall be counted as on member only.

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 Persons who are in employment of the Company.

 Ex-employees of the Company who have become members while in employment of the
Company and have continued to be members even after termination of employment.

NOTE: The above restriction is only on the number of members. However, a private
company may issue debentures to any number of persons though an invitation to the public
to subscribe for debentures cannot be made.
Membership of Private Company

a) At least two persons are required to form a private company. Thus, two or more persons
are required to subscribe their names to the Memorandum of Association of the
Company.
b) Any person competent to contract can be a member of private company.
c) A Company being a legal person can subscribe but a partnership firm cannot.
d) A HUF is not a person and hence cannot subscribe. A Karta or manager of HUF may sign
on its behalf.

ANNUAL COMPLIANCES FOR PRIVATE COMPANY OTHER THAN SMALL COMPANY

1. Receipt of MBP-1
2. Receipt of DIR-8
3. Board Meeting: -Every Company shall hold a minimum number of FOUR Meetings of
its Board of Directors every year in such a manner that maximum gap between two
Meetings should not be more than 120 (One hundred Twenty) days. Company should
hold at least 1 (one) Board Meeting every quarter of calendar year
4. Holding AGM every year
5. Adoption of Financial Account & Board Report
6. Appointment of Auditor
7. File form ADT-1 of Auditor appointment
8. Maintenance of Statutory Registers
9. Annual Filing

The Ministry of corporate Affairs has by way of notifications dated 5TH JUNE, 2015,
released the exemptions for Private Companies

EXEMPTIONS TO PRIVATE COMPANIES

1. Section 62(1)(a)(i) and (2) The provision relating to keeping rights issue open for a
minimum of 15 days and maximum of 30 days and also the provision that the letter of
offer has to be sent at least 3 days before opening of the offer shall not apply in case of a
Private Company, provided at least 90% of the members agree in writing for a shorter
period. (The time limits cannot be increased, they can only be reduced.)
2. Section 62(1)(b): A private Company can issue shares to its employees under a scheme
of Employee Stock option by passing an Ordinary resolution. Earlier, special resolution
was required to be passed.
3. Private Companies can accept deposits from its members upto 100% of its paid up share
capital and free reserves without having to comply with the procedural requirements
prescribed under Section 73 like issuing circular, maintaining repayment reserve etc.,
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provided details of the deposits so accepted is filed with the ROC in the manner to be
specified.
4. Section 101 to 107 and 109 shall apply unless otherwise specified in the respective
sections or the articles of the company provide otherwise. ARTICLES OF A PRIVATE
COMPANY MAY OVERRIDE PROVISIONS PERTAINING TO these sections
5. The requirement of filing e-form MGT 14 for resolutions passed by the Board in exercise
of its powers u/s. 179(3) is no longer applicable to a private company.
6. Section 141 (3)(g): While calculating the limit of 20 Companies on which a person can
be appointed as a statutory auditor, the following companies shall be excluded
 One person companies,
 Dormant companies
 Small companies, and
 Private companies having paid up share capital less than Rs.100 crores

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

7. Various provisions of Section 160 like seeking deposit of Rs. 1 Lakh, notice of
candidature etc. shall not apply to a private company in case of appointment of a director
in a general meeting.
8. Section 162- Now more than one director can be appoint via a single resolution
9. Provisions relating to kind of share capital, being only equity (with or without differential
voting rights) and preference shall not apply to a Private Company (Section 43)
Provisions relating to voting rights of equity share holders and preference share holders,
as contained in Section 47, shall not apply to a Private Company. (then MOA & AOA
prevail over the section 43 and 47)
10. Section 180- Restrictions on powers of Board Not Apply Now there is no need to pass
“Special Resolution
11. Provisions of Section 185 not apply to a private company if its fulfill the following below
mention conditions-
 in whose share capital no another body corporate has invested any money;
 if the borrowings of such a company from banks or financial institutions or anybody
corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is
lower
 Such a company has no default in repayment of such borrowings subsisting at the time of
making transactions under this section.
12. Second proviso to section 188 (1): No member of the company shall vote on such
Resolutions, to approve any contract or arrangement which may be entered into by the
Company, if such member is related party. Now This proviso will not apply on Private
Limited Company. Even if, Member is related then also he can vote on such resolution
required to be pass u/s 188 in GM.
13. The following provisions of Section 196 have been exempted for private companies
 Requirement of seeking approval of Central Government where such
appointment/remuneration of managerial personnel is not in accordance with provisions
of Schedule V.
 Requirement of filing return of appointment of managerial personnel within 60 days with
the ROC
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SMALL COMPANY” (NEW PROVISIONS) SECTION 2(85)

Small company means a company, other than a public company

a) Paid-up share capital of which does not exceed 4 CRORE or such higher amount as may
be prescribed which shall not be more than 10 crore rupees; AND
b) Turnover of which as per profit and loss account for the immediately preceding financial
does not exceed 40 crore rupees or such higher amount as may be prescribed which shall
not be more than 100 crore rupees.

PROVIDED THAT NOTHING IN THIS CLAUSE SHALL APPLY TO

(A) A holding company or a subsidiary company
(B) A company registered under section 8 (non-profit organisation)
(C) A company or body corporate governed by any special Act

NATURE OF SMALL COMPANY AND NUMBER OF MEMBERS

It is clear from the definition that a small company shall be a private company limited by
shares and hence it will limit its number of members to 200 as per Section 2(68)(ii).

RELAXATION FOR SMALL COMPANIES

Signing of annual return—Section 92(1) proviso
The annual return in the case of a small company shall be signed by the Company Secretary
or where there is no Company Secretary, by the Director of the company.
Merger between two or more small companies—Section 233(1)
The provisions of Section 233 provide a simpler procedure of merger and amalgamation
between small companies. It is, however, provided in sub-section (14) that a company
covered by Section 233 may use the provisions of Section 232 for the approval of any scheme
of merger or amalgamation.
Annual Compliances for Small Company
Receipt of MBP-1
Receipt of DIR-8
Board Meeting: -Small Company shall hold a minimum number of Two Meetings of its
Board of Directors every year in such a manner that Minimum gap between both the
Meetings not less than 90 (Ninety) days
Holding AGM every year
Adoption of Financial Account & Board Report
Appointment of Auditor
File form ADT-1 of Auditor appointment
Annual Filing

PUBLIC COMPANY SEC. 2(71)

Public Company means a Company which
a. Is not a private company and
b. Has a minimum paid – up capital of five lakhs rupees or such higher paid – up capital, as
may be prescribed.
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Provided that a company which is a subsidiary of a public company, shall be deemed to be

public company for the purposes of this Act even where such subsidiary company continues
to be a private company in its articles.
Special note: Companies Amendment Act 2015 has omit the requirement of minimum paid
up share capital of RS. 5 lack.

REGISTERED COMPANIES IN INDIA UNDER THE COMPANIES ACT, 2013

PRIVATE COMPANIES SECTION 2 (68) PUBLIC COMPANIES SECTION 2 (71)

MEANS a company which has minimum paid – up Public Company means a Company
capital as may be prescribed

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

which
AND
a) Is not a private company and
b) Has a minimum paid – up capital
BY its Articles: -
as may be prescribed.
(a) restricts the right to transfer its shares, if any; Provided that a company which is a
subsidiary of a public company shall be
(b) Limits the number of its members to 200 not
including
deemed to be public company for the
purposes of this Act even where such
(i) Persons who are (present employees) in the subsidiary company continues to be a
employment of the company, and private company in its articles.
(ii) persons who having (past employee) been
formerly in the employment of the company, were
members of the company while in that employment
and have continued to be members after the
employment ceased; and

(c) Prohibits any invitation to the public to subscribe

for any securities of, the company

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the
purposes of this definition, be treated as a single member;

ANNUAL COMPLIANCES FOR UNLISTED PUBLIC COMPANY

1. Receipt of MBP-1
2. Receipt of DIR-8
3. Board Meeting: -Every Company shall hold a minimum number of FOUR Meetings of
its Board of Directors every year in such a manner that maximum gap between two
Meetings should not be more than 120 (One hundred Twenty) days. Company should
hold at least 1 (one) Board Meeting every quarter of calendar year.
4. Holding AGM every year
5. Adoption of Financial Account & Board Report
6. Filing of Adoption of Financial Account & Board Report in Form MGT-14
7. Appointment of Auditor
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8. File form ADT-1 of Auditor appointment

9. Maintenance of Statutory Registers
10 Annual Filing
11 Certification of Annual Return by PCS if paid up share capital of 10 Crore or more or
turnover of Rs. 50 crore or more
12 E–Form filing for Acceptance of Deposit, Appointment of KMP, Appointment of
independent director, Appointment of Women director, Appointment of internal auditor
13 Following Companies are required to get Secretarial Audit of the Company from the
Practicing Company Secretary and report of PCS will be part of Directors’ Report (MR-
3).
a) All Listed Companies
b) Every Public Company having;
 Paid-Up Share Capital of Rs. 50 Crore (fifty crore rupees) or more; or
 Every Public Company having a Turnover of Rs. 250 Crore (two hundred fifty
crore rupees) or more
14. Constitution of Audit Committee if applicable
15. Constitution of Nomination Committee

START-UP COMPANY MCA NOTIFICATION 13 JUNE 2017

Start-up Company means a private Company incorporated under Companies Act, 1956 or the
Companies Act, 2013 and recognized as start-up in accordance with the notification issued by
the Department of Industrial Policy and promotion, Ministry of Commerce and Industry.
HOLDING COMPANY SECTION 2(46)
Holding Company in relation to one or more other companies, means a company of which
such companies are subsidiary companies
'Explanation.—For the purposes of this clause, the expression "company" includes anybody
corporate

TYPE OF COMPANIES ON THE BASIS OF CONTROL

ASSOCIATE COMPANY SUBSIDIARY COMPANY WHOLLY OWNED

SUBSIDIARY COMPANY

SUBSIDIARY COMPANY" OR "SUBSIDIARY SECTION 2(87)

Subsidiary Company in relation to any other company (that is to say the holding company),
means a company in which the holding company
(i) Controls the composition of the Board of Directors; or
(ii) Exercises or controls more than one-half of the total voting power either at its own
or together with one or more of its subsidiary companies
Provided that such class or classes of holding companies as may be prescribed shall not have
layers of subsidiaries beyond such numbers as may be prescribed.
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EXPLANATION - FOR THE PURPOSES OF THIS CLAUSE

a. A company shall be deemed to be a subsidiary company of the holding company even if
the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company
of the holding company.
b. The composition of a company's Board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at its
discretion can appoint or remove all or a majority of the directors
c. The expression "company" includes any Body Corporate
d. "layer" in relation to a holding company means its subsidiary or subsidiaries

HOLDING AND SUBSIDIARY COMPANIES SECTION 2 (87)

H Ltd control the

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

composition of B.O.D
Of S Ltd
SUBSIDIARY
HOLDING H Ltd holds more than COMPANY
COMPANY 50% of share capital S LTD
H LTD

Chain Holing –
subsidiary relationship

COMPANIES (RESTRICTION ON NUMBER OF LAYERS) RULES, 2017

(1) no company, other than a company belonging to a class specified in sub-rule (2), shall
have more than two layers of subsidiaries:

Provided that the provisions of this sub-rule shall not affect a company from acquiring a
company incorporated outside India with subsidiaries beyond two layers as per the laws of
such country:

Provided further that for computing the number of layers under this rule, one layer which
consists of one or more wholly owned subsidiary or subsidiaries shall not be taken into
account.

(2) The provisions of this rule shall not apply to the following classes of companies, namely:
(a) a banking company
(b) a non-banking financial company
(c) an insurance company
(d) a Government company

(3) The provisions of this rule shall not be in derogation of the proviso to sub-section (1) of
section 186 of the Act.
(4) Every company, other than a company referred to in sub-rule (2), existing on or before
the commencement of these rules, which has number of layers of subsidiaries in excess of
the layers specified in sub-rule (1) - (i) shall file, with the Registrar a return in Form
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CRL-1 disclosing the details specified therein, within a period of one hundred and fifty
days from the date of publication of these rules in the Official Gazette;

 shall not, after the date of commencement of these rules, have any additional layer of
subsidiaries over and above the layers existing on such date; and
 shall not, in case one or more layers are reduced by it subsequent to the
commencement of these rules, have the number of layers beyond the number of layers
it has after such reduction or maximum layers allowed in sub rule (1), whichever is
more.
(5) If any company contravenes any provision of these rules the company and every officer
of the company who is in default shall be punishable with fine which may extend to ten
thousand rupees and where the contravention is a continuing one, with a further fine
which may extend to one thousand rupees for every day after the first during which such
contravention continues.

ASSOCIATE COMPANY SECTION 2(6)

Associate company in relation to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary company of the company
having such influence and includes a joint venture company.
Explanation For the purposes of this clause, the expression "significant influence" means
control of at least twenty per cent. of total voting power, or control of or participation in
business decisions under an agreement

The expression "joint venture" means a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement

CONCEPT OF CONTROL SECTION 2 (27)

CONTROL INCLUDES

Right to appoint majority Right to control the Right to control the policy
of the directors management decisions

The aforesaid rights can be exercised, by a person or persons acting individually or in concert
directly or indirectly, including by virtue of their shareholding or management rights or
shareholders agreements or voting agreements or in any other manner The words "in any other
manner" are very wide to cover many situations including the exercise of voting rights through
executed Power of Attorney.
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GOVERNMENT COMPANY SECTION 2(45)

Government company means any company in which not less than fifty-one per cent of the
paid-up share capital is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a Government
Company.
Explanation. - For the purposes of this clause, the “paid-up share capital” shall be
construed as “total voting power”, where shares with differential voting rights have
been issued.

GOVERNMENT COMPANY SECTION 2 (45)

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

Government company means any company in which not A company which is a
less than fifty-one per cent of the PAID-UP SHARE subsidiary of a
capital is held by the Central Government, or by any State Government company as
ND
A Government or Governments, or partly by the Central thus defined.
Government and partly by one or more State Governments

GOVT. COMPANY-AUDIT SECTION 143 (5) AND 139 (7)

The auditor of a Government company shall be appointed or re-appointed by the
Comptroller and Auditor-General of India
The auditor aforesaid shall submit a copy of his audit report to the Comptroller and Auditor-
General of India who shall have the right to comment upon, or supplement within 60 days
from the date of receipt of report, the audit report in such manner as he may think fit.
Any such comments upon, or supplement to, the audit report shall be placed before the
annual general meeting of the company at the same time and in the same manner as the audit
report.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 In case of Kamlesh It was decided CAG cannot distinguish among CA sole
Vadilal Mehta proprietorship and CA partnerships firms while inviting the
applications for empanelment of government auditor.

The Ministry of corporate Affairs has by way of notifications dated 5TH JUNE, 2015,
released the exemptions for Government Companies

EXEMPTIONS TO GOVERNMENT COMPANIES

1. The name of all Government Companies shall end with the word “Limited”, be it Public
or Private Company. SECTION 4(1)
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2. The AGM of a Government Company can either be held at the registered office or at any
other place as approved by the Central Government. sub-section (2) of section 96
3. The rules regulating declaration of dividend out of reserves in case of inadequacy or
absence of profits and the provision relating to depositing the amount of dividend
(including interim dividend) in a separate bank account within 5 days of declaration will
not be applicable in case of those Government Companies which the entire paid up share
capital is held by the Government. sub-section (4) of section 123
4. The requirement of disclosing the Company’s nomination and remuneration policy and
the manner in which formal annual evaluation has been made by the Board of its own
performance and that of its committees and individual directors in the Board’s report has
been relaxed for government companies. sub-section (3) of section 134
5. As per Section 149(1) (b) and first proviso to Section 149(1), a government company can
have more than 15 directors. Such a company is now no longer required to pass a special
resolution for appointing more than 15 directors.
6. The requirement of seeking consent from a Director and filing the same within 30 days of
appointment to ROC is relaxed where appointment of such director is done by the Central
Government or State Government. sub-section (5) of section 152
7. The provisions relating to appointment of directors to be voted individually section 162,
principle of Proportional Representation for Appointment of Directors SECTION 163
and Various provisions of Section 160 like seeking deposit of Rs. 1 Lakh, notice of
candidature etc. will not apply in case of following Government Companies
 Government Company in which the entire paid up share capital is held by the Central
Government, or by the State Government or Governments or by the Central Government
and one or more State Governments
 Subsidiary of a Government Company, referred in on (a) above
8. The restriction that, a person being a director in any other Company which has not filed
financial statements or annual returns for any continuous period of three financial years;
or has failed to repay the deposits accepted by it or pay interest thereon or to redeem any
debentures on the due date or pay interest due thereon or pay any dividend declared and
such failure to pay or redeem continues for one year or more shall not be eligible to be re-
appointed as a director of that company or appointed in other company for a period of
five years from the date on which the said company fails to do so, will not apply in case
of appointment of a person as director in a Government Company. SECTION 164 (2)
9. Section 170 (register of directors and KMP and their shareholding) and 171 (members
right to inspect) shall not apply to a Government Company in which the entire paid up
share capital is held by the Central Government, or by the State Government or
Governments or by the Central Government and one or more State Governments.
10. Sub-Sections (2), (3) and (4) of Section 178 (Nomination and remuneration and
stakeholder relationship committee) shall not apply to Government Company except with
regard to appointment of Senior Management.
11. The restrictions contained in Section 185 regarding giving of loans/guarantees/securities
etc. by a company to its directors and other entities in which a director is interested has
been relaxed for government companies provided they seek prior approval of their
administrative Ministry or Department for the proposed transactions.
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12. The requirement of seeking member’s approval by means of a special resolution for
making loans/ investment or giving or guarantee / security in excess of the threshold
limits specified in Section 186 has been relaxed for government companies engaged in
defence production and other unlisted government companies which seek prior approval
of their administrative Ministry or Department for the proposed transactions.
13. The requirement of seeking member’s approval by means of a special resolution for
related party transactions as contained in Section 188(1) and the restriction on a member,
being a related party, to vote thereon has been relaxed for transactions entered between
two government companies and for transactions entered into by an unlisted government
company with a company other than a government company, provided the unlisted
government company seeks prior approval of its administrative Ministry or Department
for the proposed transactions.

ILLEGAL ASSOCIATION

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

SECTION 464 AND RULE 10 OF COMPANIES MISCELLANEOUS RULES, 2014

MEANING No association or partnership consisting of more than fifty persons shall be formed
for the purpose of carrying on any business that has for its object the acquisition of
gain by the association or partnership or by the individual members thereof, unless it
is registered as a company under this Act or is formed under any other law for the
time being in force. Every member of an association or partnership carrying on
business in contravention of sub-section (1) shall be punishable with fine which may
extend to one lakh rupees and shall also be personally liable for all liabilities
incurred in such business.
EXCEPTION a. A Hindu undivided family carrying on any business; or
b. An association or partnership, if it is formed by professionals who are governed
by special Acts

EFFECT OF  The members of an illegal association shall be personally liable for all the acts
ILLEGAL and dealings made in the name of such association.
ASSOCIATI  The association cannot enter into any contract in its own name.
ON  The association cannot sue or be sued in its own name.
 Every member of illegal association shall be liable to a penalty of up to Rs. 10,
0000.

FOREIGN COMPANY SECTION 2(42)

Foreign company means any company or body corporate incorporated outside India which
o Has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
o Conducts any business activity in India in any other manner.

SECTION 379
Where not less than fifty per cent of the paid-up share capital, whether equity or preference
or partly equity and partly preference, of a foreign company is held by one or more citizens of
India or by one or more companies or bodies corporate incorporated in India, or by one or
more citizens of India and one or more companies or bodies corporate incorporated in India,
whether singly or in the aggregate, such company shall comply with the provisions of this
Chapter and such other provisions of this Act as may be prescribed with regard to the
business carried on by it in India as if it were a company incorporated in India.
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Rule 12 registration of foreign companies Rules 2014

Action for improper use or description as foreign company.- If any person or persons
trade or carry on business in any manner under any name or title or description as a foreign
company registered under the Act or the rules made thereunder, that person or each of those
persons shall, unless duly registered as foreign company under the Act and rules made
thereunder, shall be liable for investigation under section 210 of the Act and action
consequent upon that investigation shall be taken against that person.
PROCEDURE TO REGISTER A FOREIGN COMPANY IN INDIA

Every foreign company shall, within thirty days of the establishment of its place of business
in India, deliver to the Registrar for registration – (section 380)

a) A certified copy of the charter, statute or memorandum and articles of the company or
other instrument constituting or defining the constitution of the company and if the
instrument is not in English language, a certified translation thereof in the English
language;
b) The full address of the registered or principal office of the company;
c) A list of the directors and secretary of the company with particulars;
d) The names and addresses of one or more persons resident in India authorised to accept on
behalf of the company service of process and any notices or other documents required to
be served on the company;
e) The full address of the office of the company in India which is deemed to be its principal
place of business in India;
f) Particulars of opening and closing of a place of business in Indian on earlier occasions;
g) Declaration that none of the directors of the company or authorised representative in India
has ever been convicted or debarred from formation of companies and management in
India or abroad

The Foreign Company shall, within a period of thirty day of establishment of its place of
business in India, file Form FC – 1 of the Companies (Registration of Foreign Companies)
Rules 2014. Along with the Companies Act, 2013 provision of Foreign Exchange
Management Act 1999 and regulations made thereunder shall also be applicable.
SPECIAL POINTS

Where any alteration is made or occurs in the document delivered to the Registrar for
registration under sub-section (1) of section 380, the foreign company shall file with the
Registrar, a return in Form FC-2 along with the fee as provided in the Companies
(Registration Offices and Fees) Rules, 2014 containing the particulars of the alteration, within
a period of thirty days from the date on which the alteration was made or occurred. If any
such document as is mentioned ABOVE is not in the English language, there shall be
annexed to it a certified translation thereof in the English language.

ACCOUNTS OF FOREIGN COMPANY SECTION 381

(1) Every foreign company shall, in every calendar year,

(a) make out a balance sheet and profit and loss account and
(b) deliver a copy of those documents to the Registrar:
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(2) If any such document as is mentioned in sub-section (1) is not in the English language,
there shall be annexed to it a certified translation thereof in the English language.
The documents referred to in this rule shall be delivered to the Registrar within a period of
six months of the close of the financial year of the foreign company to which the documents
relate. Provided that the Registrar may, for any special reason, and on application made in
writing by the foreign company concerned, extend the said period by a period not exceeding
three months.
(3) Every foreign company shall file with the Registrar, along with the financial statement,
in Form FC.3 with such fee as provided under Companies (Registration Offices and Fees)
Rules, 2014 a list of all the places of business established by the foreign company in India as
on the date of balance sheet.

ANNUAL RETURNS BY FOREIGN COMPANY SECTION 384

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

Every foreign company shall prepare and file, within a period of sixty days from the last day of its
financial year, to the Registrar annual return in Form FC 4 along with such fee as provided in the
Companies (Registration Offices and Fees) Rules, 2014 containing the particulars as they stood on the
close of the financial year.

RBI MASTER CIRCULAR JAN 2016

A BO can be established by a body incorporated outside India, including a firm or association
of persons, involved in manufacturing or trading activities. The process of setting up is an
easy one with minimal compliance requirements. The permission to set-up a BO has to be
obtained by the RBI under the FEMA, 1999 provisions. RBI provides guidelines to be
followed for establishing a BO; the former also reserves the right to reject an application on
the non-fulfilment of the same. The Applications are to be made in form FNC and are
considered by the RBI under two routes determined by the degree of Foreign Direct
Investment (FDI):
1. The Reserve Bank Route: taken when the principal business of the foreign company falls
under sectors where 100% FDI is permissible.
2. The Government Route: when the sectors do not permit 100% FDI investment. The RBI
considers applications under this in consultation with the Ministry of Finance of India.
THE RBI HAS A FEW OTHER CONSIDERATIONS:
1. Track Record: For a BO a company will require a profit-making track record in the in
the immediately preceding five financial years in the home country.
2. Net Worth: “a total of paid-up capital and free reserves, less intangible assets as per the
latest Audited Balance Sheet or Account Statement Certified by a Certified Public
Accountant or any Registered Accounts Practitioner”. The net worth has to be equal to or
more than USD 100,000.
FUNDING OF THE BO BY THE FOREIGN COMPANY
1. Equity Share Capital: in the usual way Indian companies are financed.
2. Preferred Share Capital: such convertible preference shares, compulsorily convertible
into equity shares are regarded as Foreign Direct Investment (FDI).
3. Debentures and Borrowings: there can be redeemable, convertible or non-convertible.
Companies can issue debentures, bonds and other debt securities. These also, when
convertible into equity shares, are treated as FDI.
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ACTIVITIES
These BOs represent the parent company and usually undertake the same activities as the
latter. The profits from these are easily remittable from India, subject to the taxes applicable.
They are permitted by the RBI to undertake the following activities, as listed in the Master
Circular:
 Export / Import of goods.
 Rendering professional or consultancy services.
 Carrying out research work, in areas in which the parent company is engaged.
 Promoting technical or financial collaborations between Indian companies and parent or
 Overseas group company.
 Representing the parent company in India and acting as buying / selling agent in India.
 Rendering services in information technology and development of software in India.

BODY CORPORATE or CORPORATE SECTION 2(11)

Generally, the term body corporate or corporate means an association of persons having the
following characteristics:

(a) It is incorporated under any law for the time being in force.
(b) It has a separate legal identity.
(c) It has perpetual succession.
(d) It has a common seal.
(e) It has the capacity to sue and own property in its own name, and similarly it can be sued
in its own name.
Body Corporate" OR "Corporation" includes a company incorporated outside India, but
does not include
a co-operative society registered under any law relating to co-operative societies; and
any other body corporate (not being a company as defined in this Act), which the Central
Government may, by notification, specify in this behalf;
LISTED COMPANY SECTION 2(52)
Listed company means a company which has any of its securities listed on any recognised
stock exchange

Provided that such class of companies, which have listed or intend to list such class of
securities, as may be prescribed in consultation with the Securities and Exchange Board,
shall not be considered as listed companies. (COMPANIES AMENDMENT ACT 2020)
COMPANIES (SPECIFICATION OF DEFINITIONS DETAILS) RULES, 2014,
RULE 2A. For the purposes of the proviso to clause (52) of section 2 of the Act, the following classes
of companies shall not be considered as listed companies, namely
(a) Public companies which have not listed their equity shares on a recognized stock exchange but
have listed their – (i) non-convertible debt securities issued on private placement basis in terms of
SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or (ii) non-convertible redeemable
preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-
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Convertible Redeemable Preference Shares) Regulations, 2013; or (iii) both categories of (i) and (ii)
above.

(b) Private companies which have listed their non-convertible debt securities on private placement
basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities)
Regulations, 2008

(c) Public companies which have not listed their equity shares on a recognized stock exchange but
whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of
section 23 of the Act.

ANNUAL COMPLIANCES FOR LISTED COMPANY

1. Receipt of MBP-1
2. Receipt of DIR-8
3. Board Meeting:-Every Company shall hold a minimum number of FOUR Meetings of its

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

Board of Directors every year in such a manner that maximum gap between two
Meetings should not be more than 120 (One hundred Twenty) days.
4. Providing E-Voting Facilities to shareholders
5. Holding AGM every year
6. Filing Report of AGM
7. Adoption of Financial Account & Board Report
8. Filing of Adoption of Financial Account & Board Report in Form MGT-14
9. Appointment of Auditor
10. File form ADT-1 of Auditor appointment
Filing return for change in Stake of Promoters

INVESTMENT COMPANIES

An investment company is a company, the principal business of which consists in acquiring,

holding and dealing in shares and securities. The word ‘investment’, no doubt, suggests only
the acquisition and holding of shares and securities and thereby earning income by way of
interest or dividend etc. But investment companies in actual practice earn their income not
only through the acquisition and holding but also by dealing in shares and securities i.e. by
buying with a view to selling later on at higher prices and selling with a view to buying later
on at lower prices. If a company is engaged in any other business to an appreciable extent, it
will not be treated as an investment company.

According to Section 2(10A) of the Insurance Act, 1938, an investment company means a
company whose principal business is the acquisition of shares, stocks, debentures or other
securities.

PART-1 COMPANY Section 366

For the purposes of this Part, the word “company” includes

 any partnership firm,
 limited liability partnership,
 cooperative society, society or
 any other business entity formed under any other law for the time being in force which
applies for registration under this Part.
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With the exceptions and subject to the provisions contained in this section, any company
formed, whether before or after the commencement of this Act, in pursuance of any Act of
Parliament other than this Act or of any other law for the time being in force or being
otherwise duly constituted according to law, and consisting of seven or more members, may
at any time register under this Act as an unlimited company, or as a company limited by
shares, or as a company limited by guarantee, in such manner as may be prescribed and the
registration shall not be invalid by reason only that it has taken place with a view to the
company’s being wound up:

COMPANIES AUTHORISED TO REGISTERED RULE AMENDMENT 2018

RULE 3(1)
For the purposes of sub-section (2) of section 366 of the Act, the provision of Chapter II of
the Act relating to incorporation of company shall be applicable mutatis mutandis for such
registration
Provided that there shall be two or more members for the purposes of registration of a
company under this sub-rule
Provided further that a company with less than seven members shall register as a private
company.
RULE 3(2)
A company shall attach and provide the required documents and information to the Registrar
along with Form No. URC. 1.
RULE 4 Obligation of Companies Seeking Registration to Make Publication
1. Every ‘company’ seeking registration under section 366 shall publish an advertisement
about registration under the said section, seeking objections, if any within twenty one
clear days from the date of publication of notice and the said advertisement shall be Form
No. URC. 2 which shall be published in a newspaper in English and in any vernacular
language, circulating in the district in which Limited Liability Partnership, firm, society
or trust, as the case may be, is situated
2. A copy of the notice, as published and the copy of the notice served on Registrar
(LLP) Registrar of Firms, Registrar of Societies or Registrar of Trust, as the case may
be along with proof of service, shall be attached with Form No. URC. 1.
3. The Registrar shall, after considering the application and the objections, if any, received
by him within thirty days from the date of publication of advertisement, and after
ensuring that the company has addressed the objections, suitably decide whether the
registration should or should not be granted.
If the Registrar in satisfied on the basis of documents and information filed by the applicants,
decides that the applicant should be registered, he shall issue a certificate of incorporation in Form
No. INC.11

MEANING OF UNREGISTERED COMPANY SECTION 375

UNREGISTERED COMPANY shall include any partnership firm, limited liability
partnership or society or co-operative society, association or company consisting of more
than seven members at the time when the petition for winding up the partnership firm, limited
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liability partnership or society or co-operative society, association or company, as the case

may be.
UNREGISTERED COMPANY SHALL NOT INCLUDE

o a railway company incorporated under any Act of Parliament or other Indian law or any
Act of Parliament of the United Kingdom;
o a company registered under this Act; or
o a company registered under any previous companies law and not being a company the
registered office whereof was in Burma, Aden, Pakistan immediately before the
separation of that country from India

CHARTERED COMPANIES IN THE U.K.

Chartered Companies are incorporated by Royal Charter, e.g., East India Company. These

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

companies are created and regulated by the Crown of England in exercise of its ancient
prerogatives. A Chartered Company is regulated by its charter and the Companies Act does
not apply to it (Ranjeet Kumar Chatterjee v. Union of India). Chartered Companies for Public
and Charitable purpose are common in England, e.g. British Broadcasting Corporation, Bank
of England, etc.

WHAT CORPORATIONS ARE STATE

CASE LAWS

S.NO. CASE NAME PROVISONS

1 R.D. Shetty v. Supreme Court has pointed out that corporations acting as
International instrumentality or agency of government would become
Airports Authority ‘State’ under Article 12 if
& in Ajay Hasia v.  The entire share capital of the Corporation is held by
Khalid Mujib the Government
 The corporation enjoys a monopoly status which is
conferred or protected by the State.
 The state exercises deep and pervasive control in
corporations.
 The functions of the corporation are of public
importance and closely related to government
functions
 If a department of government is transferred to a
corporation
2 Hindustan steel It was held that a Govt. Company is neither a Govt.
works construction department nor a Govt. establishments, it is just an agency
ltd. v. state of of government. Similarly, the employees of a govt.
Kerala. company are not employee of central or state Govt.
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DORMANT COMPANIES
The Companies Act, 2013 has recognized a new set of companies called as dormant companies.
As per section 455(1) where a company is formed and registered under this Act for a future
project or to hold an asset or intellectual property and has no significant accounting transaction,
such a company or an inactive company may make an application to the Registrar in such
manner as may be prescribed for obtaining the status of a dormant company.

Explanation appended to section 455(1) says that for the purposes of this section
Inactive company” means a company which has not been carrying on any business or operation,
or has not made any significant accounting transaction during the last two financial years, or has

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

not filed financial statements and annual returns during the last two financial years
Significant accounting transaction” means any transaction other than
a) Payment of fees by a company to the Registrar;
b) Payments made by it to fulfill the requirements of this Act or any other law;
c) Allotment of shares to fulfill the requirements of this Act; and
d) Payments for maintenance of its office and records.
OBTAINING DORMANT STATUS

A Company can obtain status as Dormant Company by Suo moto or ROC can declare a
company as Dormant.

Suo-Moto application: A company which Dormant by ROC: In case of a company

meets the above criteria can apply suo-moto which has not filed financial statements or
to Registrar of Companies (ROC) for the annual returns two financial years
status of a “Dormant company” in Form consecutively, the Registrar may issue a
MSC-1 along with such fee as provided in the notice to such company and enter the name
Companies (Registration Offices and Fees) of such company in the register maintained
Rules, 2014 after complying with the for dormant companies.
provision of Rule 3 of The companies
(Miscellaneous) Rules, 2014 .

PROCEDURE FOR OBTAINING STATUS OF DORMANT COMPANY

 The company shall call a board meeting to fix day, date, time and venue for General Meeting
of the members of the company to pass resolution for making application to the ROC to
obtain status of a dormant company
 The company shall pass a special resolution for obtaining the status of a dormant company
and authorizing the director(s) to make application to ROC or After issuing a notice to all the
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shareholders of the company for this purpose and obtaining consent of at least 3/4th
shareholders (in value).
 After passing the special resolution, the company shall file e-form MGT-14 with ROC for
filing special resolution.
 A company may make an application inFormMSC-1 to the Registrar for obtaining the status
of a Dormant Company in accordance with the provisions of section 455
 The Registrar shall, after considering the application filed in Form MSC-1, issue a certificate
in Form MSC-2 allowing the status of a Dormant Company to the applicant.
 A dormant company shall have a minimum number of three directors in case of a public
company, two directors in case of a private company and one director in case of a One
Person Company. The provisions of the Act in relation to the rotation of auditors shall not
apply on dormant companies.
 A dormant company shall file a “Return of Dormant Company” annually, inter-alia,
indicating financial position duly audited by a chartered accountant in practice in Form
MSC- 3

CONDITIONS FOR OBTAINING STATUS OF DORMANT COMPANY

 No inspection, inquiry or investigation has been ordered or taken up or carried out against the
company.
 No prosecution has been initiated and pending against the company under any law.
 The company is neither having any public deposits which are outstanding nor is the company
in default in payment thereof or interest thereon.
 The company is not having any outstanding loan, whether secured or unsecured. if there is
any outstanding unsecured loan, the company may apply after obtaining concurrence of the
lender and enclosing the same with Form MSC-1.
 There is no dispute in the management or ownership of the company and a certificate in this
regard is enclosed with Form MSC-1.
 The company does not have any outstanding statutory taxes, dues, duties etc. payable to the
Central Government or any State Government or local authorities etc.
 The company has not defaulted in the payment of workmen’s dues.
 The securities of the company are not listed on any stock exchange within or outside India.

The privileges and exemptions enjoyed by a dormant Company

1. Financial statements of dormant company may not include the cash flow statement
2. Dormant company shall be deemed to have complied with the provisions relating to Board
meeting if at least one meeting of the Board of directors has been conducted in each half of
the calendar year and the gap between two meetings is not less than ninety days. [Section
173(5)]
3. Dormant Company is not required to include the statement of cash flow in its financial
statement.
4. The provision of rotation of auditors is not applicable in case of the dormant company.
5. Dormant companies enjoy the advantages of lower statutory compliance cost as there are few
statutory compliances applicable to dormant company as compared to active company
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6. Companies can enjoy the status of dormant company for a period of 5 consecutive years

PROCEDURE FOR OBTAINING STATUS OF ACTIVE COMPANY

 An application, for obtaining the status of an active company shall be made inForm MSC-4
along with fees as provided in the Companies (Registration Offices and Fees) Rules, 2014
and shall be accompanied by a return in Form MSC-3 in respect of the financial year in
which the application for obtaining the status of an active company is being filed.
 The Registrar shall initiate the process of striking off the name of the company if the
company remains as a dormant company for a period of consecutive five years.
 The Registrar shall, after considering the application filed issue a certificate in Form MSC-5

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

allowing the status of an active company to the applicant.
 When a dormant company does or omits to do any act mentioned in the Grounds of
application in Form MSC-1submitted to Registrar for obtaining the status of dormant
company, affecting its status of dormant company, the directors shall within 7 days from
such event, file an application, for obtaining the status of an active company.
 Where the Registrar has reasonable cause to believe that any company registered as ‘dormant
company’ under his jurisdiction has been functioning in any manner, directly or indirectly, he
may initiate the proceedings for enquiry under section 206 of the Act and if, after giving a
reasonable opportunity of being heard to the company in this regard, it is found that the
company has actually been functioning, the Registrar may remove the name of such company
from register of dormant companies and treat it as an active company.

500+ CASE STUDIES, 250+ CASE LAWS, 36 CLASSES ON DIRECTOR, 16 CLASSES ON GENERAL MEETING, 20 CLASSES ON
SHARE CAPITAL MAXIMUM CLASSES ON COMPANY LAW ALL OVER INDIA BY CS ANOOP JAIN
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CHAPTER 3 MEMORANDUM OF ASSOCIATION

STATUTORY DEFINITION

MEANING OF MEMORANDUM SECTION 2(56)

MEMORANDUM MEANS MEMORANDUM OF ASSOCIATION OF A COMPANY

OR
AS ORIGINALLY FRAMED AS ALTERED FROM TIME TO TIME

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

IN PURSUANCE OF ANY PREVIOUS COMPANY LAW OR OF THIS ACT

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Pacific Coast Coal It defines as well as confines the power of company. If anything
Mines Ltd. v done beyond the power of MOA it will be void. Any act beyond
Arbuthnot MOA is ultra vires and incapable of ratification, even if every
member of the company assents to it.
2 (Cricket Club of India SECTION 6 of the Companies Act, 2013 says Any provision of
Ltd. v Madhav L. memorandum or articles of association would be void if it is
Apte) repugnant not only to express provisions of the Companies Act,
Act to over-ride but also to those provisions which have to be read in the Act by
memorandum, articles, etc. necessary implication.

FORMAT OF MOA (SEC. 4(6)

TABLE A MOA of Company Limited by Shares

TABLE B MOA of Company limited by guarantee not having share capital

TABLE C MOA of Company limited by guarantee having share capital

TABLE D MOA of unlimited Company not having share capital

TABLE E MOA of unlimited Company having share capital

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CONTENTS OF MEMORANDUM (SEC. 4 (1)

1. Name clause
2. Registered Office clause
3. Objects clause
4. Liability clause
5. Capital clause
6. Declaration clause
7. Nomination clause in case of (One Person Company)
1. NAME CLAUSE
(Read Together Section 4(1), 4(2), 4(3) & RULE 8, Section 12(3), 12(8) & RULE 26) OF COMPANIES
INCORPORATION RULES 2014

This clause contains the name of a company as confirmed by the Registrar of Companies.
The name should be followed by the word "Limited" in the case of a public company and
"Private Limited" if the company is proposed to be registered as a private company. One
Person Company shall also describe as `One Person Company’ in bracket. However,
company registered under section 8 for charitable objects has been exempted from this
requirement.

Proper care should be taken in selection of name and confirmation of reservation of name
must be obtained from the Registrar before making any exercise.

SECTION 4 (2)
The name stated in the memorandum shall not
a. be IDENTICAL (RULE 8 (1 and 2)) with or resemble too nearly to the name of an existing
company registered under this Act or any previous company law; or
b. be such that its use by the company
a. (i) Will constitute an offence under any law for the time being in force; or
b. (ii) Is undesirable (RULE 8 (A)) in the opinion of the Central Government.

RULE 8 OF COMPANY INCORPORATION RULES 2014 (RULE 8 (1&2))

In determining whether a proposed name is identical with another, the differences on account
of the following shall be disregarded

The differences on account of the following shall be disregarded

 the words like Private, Pvt, Pvt., (P), OPC Pvt. Ltd., IFSC Limited, IFSC Pvt. Limited,
Producer Limited, Limited, Unlimited, Ltd, Ltd., LLP, Limited Liability Partnership,
company, and company, & co, & co., co., co, corporation, corp, corpn, corp or group;
 Plural version of any of the words appearing in the name
 Spacing between letters and Punctuation marks.
 Use of a different tense or number of the same word.
 Misspelled Words, whether intentionally or not.
 Using different phonetic spellings or spelling variations.


 If the proposed name is the Hindi or English translation or translation of the name of an Existing
Company or LLP in English or Hindi
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 Different Combination of the same words does not make a name distinguishable from an existing
name.
 The addition of words like THE, New, Modern etc. does not make a name distinguishable
 a slight variation in the spelling of the two names including a grammatical variation thereof
 the order of words in the name
 addition of the name of a place to an existing name, which does not contain the name of any place;
 use of host name such as ‘www’ or a domain extension such as ‘net’, ‘org’, ‘dot’ or ‘com’ in one or
both names
 addition, deletion, or modification of numerals or expressions denoting numerals in an existing
name, unless the numeral represents any brand
 use of the definite or indefinite article in one or both names

UNDESIRABLE NAMES RULE -8A

The name shall be considered undesirable, if-

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

(a) it is prohibited under the provisions of section 3 of the Emblems and Names (Prevention
and Improper Use) Act, 1950 (12 of 1950), unless a previous permission has been
obtained under that Act
(b) The name includes a trade mark registered under the Trade Marks Act, 1999 and the
rules framed thereunder in the same class of goods or services in which the activity of the
company is being carried out or is proposed to be carried out, unless the consent of the
owner or applicant for registration, of the trade mark, as the case may be, has been
obtained and produced by the promoters.
(c) it includes any word or words which are offensive to any section of the people;
(d) the proposed name is identical with or too nearly resembles the name of a limited liability
partnership: Provided that the provisions of rule 8 shall apply mutatis mutandis while
determining whether a proposed name is too nearly resembling the name of a limited
liability partnership;
(e) the proposed name is identical with or too nearly resembles with a name which is for the
time being reserved in accordance with rule 9
(f) the company’s main business is financing, leasing, chit fund, investments, securities or
combination thereof, but the proposed name is not indicative of such related financial
activities, viz., Chit Fund or Investment or Loan, etc.;
(g) the company’s name is indicative of activities financing, leasing, chit fund, investments,
securities or combination thereof, but the company’s main business is not related to such
activities;
(h) it resembles closely the popular or abbreviated description of an existing company or
limited liability partnership;
(i) the proposed name is identical with or too nearly resembles the name of a company or
limited liability partnership incorporated outside India and reserved by such company or
limited liability partnership with the Registrar: Provided that if a foreign company is
incorporating its subsidiary company in India, then the original name of the holding
company as it is may be allowed with the addition of word India or name of any Indian
State or city, if otherwise available
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(j) any part of the proposed name includes the words indicative of a separate type of business
constitution or legal person or any connotation thereof e.g. co-operative, sehkari, trust,
LLP, partnership, society, proprietor, HUF, firm, Inc., PLC, GmbH, SA, PTE, Sdn, AG,
etc.; Explanation.- For the purposes of this clause, it is hereby clarified that the name
including phrase ‘Electoral Trust’ may be allowed for registration of companies to be
formed under section 8 of the Act, in accordance with the Electoral Trusts Scheme, 2013
notified by the Central Board of Direct Taxes (CBDT)
(k) the proposed name contains the words ‘British India’;
(l) the proposed name implies association or connection with an embassy or consulate of a
foreign government;
(m)the proposed name includes or implies association or connection with or patronage of a
national hero or any person held in high esteem or important personages who occupied or
are occupying important positions in the Government;
(n) the proposed name is identical to the name of a company dissolved as a result of
liquidation proceeding and a period of two years has not elapsed from the date of such
dissolution: Provided that if the proposed name is identical with the name of a company
which is struck off in pursuance of action under section 248 of the Act or under section
560 of the Companies Act, 1956 (1 of 1956) then the same shall not be allowed before the
expiry of twenty years from the date of publication in the Official Gazette being so struck
off
(o) it is identical with the name of a limited liability partnership in liquidation or the name of
a limited liability partnership which is struck off up to a period of five years;
(p) the proposed name include words such as ‘Insurance’, ‘Bank’, ‘Stock Exchange’,
‘Venture Capital’, ‘Asset Management’, ‘Nidhi’, ‘Mutual Fund’, etc., unless a declaration
is submitted by the applicant that the requirements mandated by the respective regulator,
such as IRDA, RBI, SEBI, MCA, etc. have been complied with by the applicant;
(q) the proposed name includes the word "State", in case the company is not a Government
company;
(r) the proposed name is containing only the name of a continent, country, State, city such as
Asia limited, Germany Limited, Haryana Limited or Mysore Limited;
(s) Use of descriptive names, where the name merely consists of commonly used words to
describe an activity.
(t) the proposed name includes name of any foreign country or any city in a foreign country,
the same shall be allowed if the applicant produces any proof of significance of business
relations with such foreign country like memorandum of understanding with a company
of such country: Provided that the name combining the name of a foreign country with
the use of India like India Japan or Japan India shall be allowed if, there is a government
to government participation or patronage and no company shall be incorporated using the
name of an enemy country. Explanation.- For the purposes of this clause, ‘enemy
country’ means so declared by the Government of India from time to time.
(u) the proposed name of a section 8 company under the Act does not include the words
Foundation, Forum, Association, Federation, Chambers, Confederation, Council,
Electoral Trust and the like, etc.

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(v) the proposed name of a Nidhi company under the Act does not have the last words “Nidhi
Limited” as a part of its name.
(w) the proposed name has been released from the register of companies upon change of
name of a company and three years have not elapsed since the date of change unless a
specific direction has been received from the competent authority in the course of
compromise, arrangement or amalgamation.

PREVIOUS APPROVAL OF THE CENTRAL GOVERNMENT FOR CERTAIN NAMES

SECTION 4(3)
Previous approval of the Central Government is required for
1. any word or expression which is likely to give the impression that the company is in any
way connected with, or having the patronage of, the Central Government, any State
Government, or any local authority, corporation or body constituted by the Central

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

Government or any State Government under any law for the time being in force; or
2. Such word or expression, as may be PRESCRIBED (RULE 8 (B))

FOLLOWING WORDS SHALL BE USED IN NAME OF COMPANY ONLY WITH CG APPROVAL

(RULE 8 (B))
a) Board
b) Commission
c) Authority
d) Undertaking
e) National
f) Union
g) Central
h) Federal
i) Republic
j) President
k) Rashtrapati
l) Small Scale Industries
m) Khadi and Village Industries Corporation
n) Financial Corporation and the like
o) Municipal
p) Panchayat
q) Development Authority
r) Prime Minister or Chief Minister
s) Minister
t) Nation
u) Forest corporation
v) Development Scheme
w) Statute or Statutory
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x) Court or Judiciary
y) Governor
z) the use of word Scheme with the name of Government (s), State, India, Bharat or any
Government authority or in any manner resembling with the schemes launched by
Central, State or local Governments and authorities
aa) Bureau.

2. Domicile/Registered Office clause

This clause of the memorandum shall state the State and jurisdictions in which the registered
office of the company is situated. There is no requirement to mention the address of the
registered office here.

Section 12(1) provides that a company shall, within 30 days of its incorporation and at all
times thereafter, have a registered office capable of receiving and acknowledging all
communications and notices as may be addressed to it.

Section 12(2) The Company shall furnish to the Registrar verification of its registered office
within a period of thirty days of its incorporation in the Form INC-22 along with the fee as
per Companies (Registration of Office and Fee) Rules, 2014.

Section 12(9) If the Registrar has reasonable cause to believe that the company is not
carrying on any business or operations, he may cause a physical verification of the registered
office of the company in such manner as may be prescribed and if any default is found to be
made in complying with the requirements of sub-section 12(1), he may initiate action for the
removal of the name of the company from the register of companies

RULE 25A OF COMPANIES INCORPORATION RULES 2014

Active Company Tagging Identities and Verification (ACTIVE).-

(1) Every company incorporated on or before the 31st December, 2017 shall file the
particulars of the company and its registered office, in e-Form ACTIVE (Active Company
Tagging Identities and Verification) on or before 25.04.2019.

Provided that any company which has not filed its due financial statements under section 137
or due annual returns under section 92 or both with the Registrar shall be restricted from
filing e-Form-ACTIVE, unless such company is under management dispute and the
Registrar has recorded the same on the register:

Provided further that companies which have been struck off or are under process of striking
off or under liquidation or amalgamated or dissolved, as recorded in the register, shall not be
required to file e-Form ACTIVE:

Provided also that in case a company does not intimate the said particulars, the Company
shall be marked as “ACTIVE-non-compliant” on or after 26th April, 2019 and shall be liable
for action under sub-section (9) of section 12 of the Act:

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Provided also that no request for recording the following event based information or changes
shall be accepted by the Registrar from such companies marked as “ACTIVE-non-
compliant”, unless “ e-Form ACTIVE” is filed-

(i) SH-07 (Change in Authorized Capital);

(ii) PAS-03 (Change in Paid-up Capital);

(iii) DIR-12 (changes in Director except in case of:

(a) cessation of any director or

(b) appointment of directors in such company where the total number of directors are less
than the minimum number provided in clause (a) of sub-section (1) of section 149 on account
of disqualification of all or any of the director under section 164.

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

(c) appointment of any director in such company where DINs of all or any its director(s)
have been deactivated.

(d) appointment of director(s) for implementation of the order passed by the Court or
Tribunal or Appellate Tribunal under the provisions of this Act or under the Insolvency and
Bankruptcy Code, 2016).

(iv) INC-22 (Change in Registered Office);

(v) INC-28 (Amalgamation, de-merger)

(2) Where a company files “e-Form ACTIVE”, on or after 26th April, 2019, the company
shall be marked as “ACTIVE Compliant”, on payment of fee of ten thousand rupees”

Physical verification of the Registered Office of the company: RULE 25B of companies
incorporation rules 2022.

(1) The Registrar, based upon the information or documents made available on MCA 21, shall visit at
the address of the registered office of the company and may cause the physical verification of the said
registered office for the purposes of sub-section (9) of section 12, in presence of two independent
witness of the locality in which the said registered office is situated and may also seek assistance of
the local Police for such verification, if required.

(2) The Registrar shall carry the documents as filed on MCA 21 in support of the address of the
registered office of the company for the purposes of physical verification and to check the authenticity
of the same by cross verification with the copies of supporting documents of such address collected
during the said physical verification, duly authenticated from the occupant of the property whereat the
said registered office is situated.

(3) The Registrar shall take a photograph of the registered office of the company while causing
physical verification of the same.
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(4) Where the registered office of the company is found to be not capable of receiving and
acknowledging all communications and notices, the Registrar shall send a notice to the company and
all the directors of the company, of his intention to remove the name of the company from the register
of companies and requesting them to send their representations along with copies of relevant
documents, if any, within a period of thirty days from the date of the notice before taking further
actions in accordance with the provisions of section 248 of the Act."

DISPLAY OF NAME AND ADDRESS OF ITS REGISTERED OFFICE SECTION 12 (3)

1. Every company shall affix its name and address of its registered office and keep the same
outside the every office place where business is carried on in legible character.
2. Every company shall affix its name on its common seal in legible character (if any).
3. Every company shall get its name, address of its registered office and the Corporate
Identity Number along with telephone number, fax number, if any, e-mail and website
addresses, if any, printed in all its business letters, billheads, letter papers and in all its
notices and other official publications; and

4. have its name printed on hundies, promissory notes, bills of exchange and such other
documents as may be prescribed
5. Words "One Person Company" shall be mentioned in brackets below the name of such
company, wherever its name is printed, affixed or engraved.
6. Where a company has changed its name or names during the last two years, it shall paint
or affix or print, as the case may be, along with its name, the former name or names so
changed during the last two years.

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RULE 26 PUBLICATION OF NAME BY COMPANY

27th July, 2016 Companies (Incorporation) Third Amendment Rules, 2016.
(1) Every company which has a website for conducting online business or otherwise, shall
disclose/publish its name, address of its registered office, the Corporate Identity Number,
Telephone number, fax number if any, email and the name of the person who may be
contacted in case of any queries or grievances on the landing/home page of the said website.
(2) The Central Government may as and when required, notify the other documents on which
the name of the company shall be printed.”.
RULE 27 NOTICE AND VERIFICATION OF CHANGE OF SITUATION OF THE
REGISTERED OFFICE.
The notice of change of the situation of the registered office and verification thereof shall be
filed in Form No.INC.22 along with the fee.
Requirements of having a registered office of a company

The Registered office of a company is an identical address for reorganization of its functions.
It has the following purposes to serve:

(1) For service of documents on a company or an officer thereof either personally or by a

certificate of posting or by registered post; [Section 20]
(2) Determination of jurisdiction of Court on a company;
(3) Determination of applicability of duty as per relevant Stamps Act for stamping on
memorandum and articles of association, share and debenture certificates, etc.
(4) Area limit for holding annual general meeting; [Section 96]
(5) Inspection of different registers and records as provided under the Companies Act;
(6) Place for deposit of proxies and other documents

Penalty in case of default

Section 12(8) of the Act provides that if any default is made in complying with the
requirements of section 12, the company and every officer who is in default shall be liable to
a penalty of one thousand rupees for every day during which the default continues but not
exceeding one lakh rupees.

3. Objects clause
Objects of the business and operations of an organisation form the core matter of the
memorandum of association. It sets out the objects and is the most important of all clauses. It
indicates the extent of company's power and the sphere of its activities. It defines the limit of
operations to be carried on by the company.

Any business carried on by the company should be stated in the memorandum of association
hence the business activities not mentioned in the objects clause of the memorandum shall be
ultra vires and therefore, void. (Doctrine of Ultra Vires)
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Now in the Memorandum of Association of the company, there is no requirement as to

bifurcation of the objects clause into main, ancillary and other objects. Only objects for which
company is incorporated along with matters considered necessary for its furtherance shall be
mentioned. The company cannot provide for other object clause.

DOCTRINE OF ULTRA VIRES

MEANING AND EFFECT OF THE DOCTRINE
Ultra means beyond or in excess of and vires means ‘powers ‘ Thus ultra vires means an act
or transaction beyond or in excess of the powers of the company An act or transaction shall
be ultra vires if
 It is not permitted or authorized by the Companies Act, 2013
 It fails outside the object clause of memorandum
Ashbury Railway Carriage & Iron Company Ltd. v. Richie

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

Effect of object clause. The object clause of an industrial company contained the following
objects besides some other objects

(a) To make, sell or lend or hire, railway carriage and wagons

(b) To carry on the business of mechanical engineers and general contractors
(c) To purchase, lease, work and sell mine minerals land and buildings

Nature of contract made by the company. The company entered into a contract with Richie
for the financing of a construction of a railway line in Belgium.
Decision of the court. The court held that the word general contractors had to be given a
restricted meaning.
 Only such contracts could be covered in the term general contractors as are in some way
related or connected with mechanical engineering.
 Therefore the company could not finance the construction of a railway line by alleging
that such a business falls under the business of general contractors.

Loans, Borrowings, Guarantees and Ultra Vires Rule

An ultra vires borrowing does not create a relationship of a debtor and creditor. In a case, a
company had accepted deposits from outsiders which was outside the scope of the
Memorandum. When the company was ordered to be wound up, a question was raised
whether the depositors were creditors of the company and whether the contributories could be
asked to contribute towards payment of deposits. The Court held that the relationship
between the company and the depositors was not that of debtor and creditor. But if the lender
had lent the amount for discharging lawful expenses, he may recover the amount.

Whether a transaction is ultra vires the company can be decided on the basis of the
following:

1) if a transaction entered into by a company falls within the objects, it is not ultra vires;
2) if a transaction is outside the capacity (objects) of the company, it is ultra vires;

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3) if a transaction is in excess or abuse of the company’s powers, it is ultra vires and such
transaction will be set aside by the shareholders or even ratification by the shareholders
would not validate the acts done beyond the authority of the company itself;

Implied Powers
The powers exercisable by a company are to be confined to the objects specified in the
memorandum. While the objects are to be specified, the powers exercisable in respect of
them may be express or implied and need not be specified.

Every company may necessarily possess certain powers which are implied, such as, a power
to appoint and act through agents, and where it is a trading company, a power to borrow and
give security for the purposes of its business, and also a power to sell. Such powers are
incidental and can be inferred from the powers expressed in the memorandum. [Oakbank Oil
Co. v. Crum].

The principle underlying the exercise of such powers is that a company, in carrying on the
business for which it is constituted, must be able to pursue those things which may be
regarded as incidental to or consequential upon that business.
[See Egyptian Salt and Soda Co. v. Port Said Salt Association].

Powers which are not implied

1) Acquiring any business similar to the company’s own business. [Ernest v. Nicholls];
2) Entering into an agreement with other persons or companies for carrying on business in
partnership or for sharing profit, joint venture or other arrangements. Very clear powers
are necessary to justify such transactions [Re European Society Arbitration Act];
3) Taking shares in other companies having similar objects. [Re Barned’s Banking Co.]
4) taking shares of other companies where such investment authorizes the doing indirectly
that which will not be intra vires if done directly;
5) promoting other companies or helping them financially [Joint Stock Discount Co. v.
Brown];
6) a power to sell and dispose of the whole of a company’s undertaking;
7) a power to use funds for political purposes;
8) a power to give gifts and make donations or contribution for charities not relating to the
objects stated in the memorandum;
9) Acting as a surety or as a guarantor.

Effects of ultra vires Transactions

1. Void ab initio – The ultra vires acts are null and void ab initio. The company is not bound
by these acts. Even the company cannot sue or be sued upon [Ashbury Railway Carriage
and Iron Company v. Riche].
2. Ultra vires contracts are void ab initio and hence cannot become intra vires by reason of
estoppel or ratification.
3. Injunction: The members can get an injunction to restrain a company wherein ultra vires
act has been or is about to be undertaken [Attorney General v. Gr. Eastern Rly. Co.].
4. Personal liability of Directors: It is one of the duties of directors to ensure that the
corporate capital is used only for the legitimate business of the company and hence if
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such capital is diverted to purposes alien to the company’s memorandum, the directors
will be personally liable to replace it. In Jehangir R. Modi v. ShamjiLadha], the Bombay
High Court held, “A shareholder can maintain an action against the directors to compel
them to restore to the company the funds of the company that have by them been
employed in transactions that they have no authority to enter into, without making the
company a party to the suit”.
5. Where a company’s money has been used ultra vires to acquire some property, the
company’s right over such property is held secure and the company will be the right party
to protect the property. This is because, though the property has been acquired for some
ultra vires object, it represents the money of the company.
6. Ultra vires borrowing does not create the relationship of creditor and debtor [In Re.
Madras Native Permanent Fund Ltd].

4. Liability clause

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

THE LIABLITY OF MEMBERS ARE AS FOLLOWS

S.NO. PARTICULARS PROVISIONS

1 Company limited liability of its members is limited to the amount unpaid, if any, on the
by shares shares held by them
2 Company limited Company limited by guarantee, the amount up to which each member
by guarantee undertakes to contribute to the assets of the company in the event of its
being wound-up while he is a member or within one year after he
ceases to be a member, for payment of the debts and liabilities of the
company or of such debts and liabilities as may have been contracted
before he ceases to be a member, as the case may be; and To the costs,
charges and expenses of winding-up and for adjustment of the rights of
the contributories among themselves
3 Unlimited company The liability of members will be unlimited

5. Capital clause

Section 4(1)(e) provides that in the case of a company having a share capital the amount of
share capital with which the company is to be registered and the division thereof into shares
of a fixed amount and the number of shares which the subscribers to the memorandum agree
to subscribe which shall not be less than one share. This capital is variously described as
'registered', 'authorised' and 'nominal' capital.
In case of an unlimited company, the liability of the members towards the outsiders is
unlimited in the event of winding up of the company, while it remains limited to the value at
which the shares are subscribed by them and remain unpaid, so long as the company is a
going concern. However, the same should be specifically stated in the memorandum. The
requirement of section 4(1)(e) is not mandatory in such case.

6. Declaration clause

The VI Clause in the memorandum is 'Declaration of Association' or the Association

Clause. This is very important clause in the memorandum of association, by which it shall be
ascertained, who are the real promoters of the company. This decides the authenticity of the
association being formed into a company.

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The fact that the particulars of this clause are written in own handwriting and signed by the
subscribers and witnessed, makes it a binding contract on the subscribers to abide by the
clauses specified in the memorandum.
Each of the subscriber must take at least one share

Where a company is having share capital, every subscriber shall take not less than one share
and he shall write opposite his name the number of shares he agrees to take. It is advisable
that all the subscribers put together must take such number of shares whose value aggregates
not less than the minimum paid up capital required under the Act.

7. Nomination clause in case of One Person Company

In case of One Person Company, there is requirement to have the 7th Clause of the
memorandum of association to describe the nominee of the subscriber in the following
manner.

RULE 13 OF COMPANIES INCORPORATION RULES 2014

SIGNING OF MEMORANDUM AND ARTICLES

1. The memorandum and articles of association of the company shall be signed by each subscriber to
the memorandum, who shall add his name, address, description and occupation, if any, in the
presence of at least one witness who shall attest the signature and shall likewise sign and add his
name, address, description and occupation, if any.
2. Where a subscriber to the memorandum is illiterate, he shall affix his thumb impression or mark
which shall be described as such by the person, writing for him, who shall place the name of the
subscriber against or below the mark and authenticate it by his own signature and he shall also
write against the name of the subscriber, the number of shares taken by him.

Explanation For the purposes of sub-rule(1) and sub-rule (2), the type written or printed
particulars of the subscribers and witnesses shall be allowed as if it is written by the
subscriber and witness respectively so long as the subscriber and the witness as the case may
be appends his or her signature or thumb impression, as the case may be.”

3. Such person shall also read and explain the contents of the memorandum and articles of
association to the subscriber and make an endorsement to that effect on the memorandum and
articles of association.
4. Where the subscriber to the memorandum is a body corporate, the memorandum and articles of
association shall be signed by director, officer or employee of the body corporate duly authorized
in this behalf by a resolution of the board of directors of the body corporate
5. Where the subscriber is a Limited Liability Partnership, it shall be signed by a partner of the
Limited Liability Partnership, duly authorized by a resolution approved by all the partners of the
Limited Liability Partnership
6. A partnership firm is not a legal person and it does not have any separate entity, therefore it
cannot be a subscriber to the memorandum. However, as per provisions of section 8(3) it may be a
member of a company licensed under section 8 of the Companies Act, 2013. [Circular No. 4/72,
dated 9-3-1972]
7. Minor and incompetent person cannot be subscriber
8. HUF is not a person to be a subscriber; however it can be represented by its Karta. In the case of
HUF, the shares may be registered in the name of Karta of HUF
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 61 of 623

IMPORTANCE OF MEMORANDUM KEY DOCUMENT

Memorandum is a key document containing vital details about the company it is the most
important document as regards incorporation of the company is concerned. This is the most
fundamental document of the company specifying the most important relating to the
company. Therefore, memorandum is also called as the charter of the company.
PUBLIC DOCUMENT (SEC. 399)

Memorandum is a public document i.e. any person (whether a member of the company or
not) can inspect in the office of Registrar Provided that no person shall be entitled under
section 399 to inspect or obtain copies of resolutions referred to in clause (g) of sub-section
(3) of section 117 of the Act.”.

Payment of Stamp duty on Memorandum and Articles of Association

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

The stamp duty payable on memorandum of association and articles of association shall be
paid electronically through the portal of MCA as per the duties prevailing in the State in
which the registered office of the company is proposed to be situated.

Binding nature of the Memorandum and Articles of Association of a company

According to the provisions of section 10 of the Companies Act, 2013, the memorandum
and articles shall, when registered, bind the company and the members thereof to the same
extent as if they respectively had been signed by the company and by each member, and
contained covenants on its and his part to observe all the provisions of the memorandum and
of the articles. All monies payable by any member to the company under the memorandum or
articles shall be a debt due from him to the company.

Printing of Memorandum and Articles

The memorandum and articles of association should be in the printed form. Section 15 of the
Companies Act, 2013 provides that every alteration made in the memorandum or articles of a
company shall be noted in every copy of the memorandum or articles, as the case may be.

If a company makes any default the company and every officer who is in default shall be
liable to a penalty of one thousand rupees for every copy of the memorandum or articles
issued without such alteration.

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ALTERATION OF MOA
ALTERATION IN NAME CLAUSE

ALTERATION IN NAME CLAUSE OF MEMORANDUM

CHANGE OF NAME (SEC. 13 (2)) (Voluntary Change)

RECTIFICATION OF NAME (SECTION 16) (Compulsory Change)

CHANGE OF NAME (SEC. 13 (2))

ENTIRE NAME CHANGE ADDITION/ DELETION OF WORD PRIVATE

EX. = ABC LTD. TO XYZ LTD. EX. = ABC PVT LTD. TO ABC LTD AND VICE VERSA

Pass Special Resolution and CG approval in Pass Special Resolution and NO CG approval and MGT
form INC 24 and MGT 14 to ROC for SR 14 to ROC for SR

AS PER SEC. 13 (3) OBTAIN FRESH CERTIFICATE OF INCORPORATION IN FORM INC 25 FROM
ROC AND CHANGE WILL BE EFFECTIVE ON ISSUE OF SUCH CERTIFICATE.

RULE 29 OF COMPANIES INCORPORATION RULES 2014:

27th July, 2016 Companies (Incorporation) Third Amendment Rules, 2016.
The change of name shall not be allowed to a company which has not filed annual returns or
financial statements due for filing with the Registrar or which has failed to pay or repay
matured deposits or debentures or interest thereon: Provided that the change of name shall be
allowed upon filing necessary documents or payment or repayment of matured deposits or
debentures or interest thereon as the case may be.

CONNECTIVITY OF LISTING REGULATION 45

CHANGE IN NAME OF THE LISTED ENTITY

1. The listed entity shall be allowed to change its name subject to compliance with the following
conditions:
a. A time period of at least one year has elapsed from the last name change;
b. At least fifty percent. of the total revenue in the preceding one year period has been accounted for
by the new activity suggested by the new name; or
c. The amount invested in the new activity/project is at least fifty percent. Of the assets of the listed
entity:
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Provided that if any listed entity has changed its activities which are not reflected in its name, it shall
change its name in line with its activities within a period of six months from the change of activities in
compliance of provisions as applicable to change of name prescribed under Companies Act ,2013.

2. On satisfaction of conditions at sub-regulation (1), the listed entity shall file an application for
name availability with Registrar of Companies.

PROCEDURE FOR CHANGE OF NAME

1. A Board meeting shall be convened to consider a new name for the company.
2. After deciding upon the new name an application is required to be made to the Registrar
of companies in RUN along with a fee of Rs.1000 for ascertaining the availability of new
name.
3. On confirmation from Registrar of companies, a Board Meeting is held to:

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

 Note down the new name;
 Decide the day, date, time and venue of general meeting;
 Approve the notice of the general meeting;
 Authorize the company secretary or any one director to issue the notice general meeting.
4. Issue the notice of general meeting to all members, auditors and directors at least 21 clear
days before the date of general meeting.
5. Hold the meeting and pass the special resolution.
6. Special resolution and explanatory statement thereto, it any, should be filed with the
Registrar of companies in e-Form MGT 14 within 30 days of passing the special
resolution.
7. After obtaining approval of the members by way of special resolution Company needs to
file an application along with the certified copy of the special resolution, altered copy of
the memorandum of association to the Central Government in the prescribed Form INC-
24 within 60 days from the date of name reserved by the Registrar or 30 days from the
date of passing of special resolution whichever is earlier.
8. Application to be made to Registrar of Companies for issue of fresh certificate of
incorporation in (INC 25).
9. If the company has changed name during the last 2 years, it shall affix, outside every
office, place of business and print in all letter heads, bill heads etc along with its name the
former name or names changed during the said period.
RECTIFICATION OF NAME SECTION 16 OF COMPANIES ACT 2013
Powers of the Central Government (R.D.) for RECTIFICATION of name of an existing
company

Section 16 provides that in case, if the name of a company on its registration or on

registration with changed name
 It has come to the knowledge of the company OR
 If in the opinion of the Central Government the name of the company
is identical with or too nearly resembles the name by which a company in existence had been
previously registered.

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It may direct the company to change its name and the company shall change its name or new
name, as the case may be, within a period of three months from the issue of such direction,
after adopting an ORDINARY RESOLUTION for the purposes. In either case, all the
formalities described earlier shall be taken as under

Section 16(1)(b) empowers a registered proprietor of a trade mark to make an application that
the name is identical with or too nearly resembles to a registered trade mark of such
proprietor under the Trade Marks Act, 1999, to the Central Government within three years of
incorporation or change of name of the company,
AND
If in the opinion of the Central Government name is identical with or too nearly resembles to
an existing trade mark,
The Central Government may direct the company to change its name and the company shall
change its name or new name, as the case may be, within a period of 3 months from the
issue of such direction, after adopting an ORDINARY RESOLUTION for the purpose.

SECTION 16(3) If a company is in default in complying with any direction given under sub-
section (1), the Central Government shall allot a new name to the company in such manner as
may be prescribed and the Registrar shall enter the new name in the register of companies in
place of the old name and issue a fresh certificate of incorporation with the new name, which
the company shall use thereafter: Provided that nothing in this sub-section shall prevent a
company from subsequently changing its name in accordance with the provisions of section
13(COMPANIES AMENDMENT ACT 2020)

RULE 33A OF COMPANIES INCORPORATION RULES

Allotment of a new name to the existing company under section 16(3) of the Act.
(1) In case a company fails to change its name or new name, as the case may be, in
accordance with the direction issued under sub-section (1) of section 16 of the Act within a
period of three months from the date of issue of such direction, the letters “ORDNC” (which
is an abbreviation of the words “Order of Regional Director Not Complied”), the year of
passing of the direction, the serial number and the existing Corporate Identity Number
(CIN) of the company shall become the new name of the company without any further act or
deed by the company, and the Registrar shall accordingly make entry of the new name in the
register of companies and issue a fresh certificate of incorporation in Form No.INC-11C:
Provided that nothing contained in sub-rule (1) shall apply in case e-form INC-24 filed by
the company is pending for disposal at the expiry of three months from the date of issue of
direction by Regional Director, unless the said e-form is subsequently rejected.
(2) A company whose name has been changed under sub-rule (1) shall at once make
necessary compliance with the provisions of section 12 of the Act and the statement, “Order
of Regional Director Not Complied (under section 16 of the Companies Act, 2013)” shall be
mentioned in brackets below the name of company, wherever its name is printed, affixed or
engraved:
Provided that no such statement shall be required to be mentioned in case the company
subsequently changes its name in accordance with the provisions of section 13 of the Act.”.
Notice for change of name to the Registrar within 15 days
Where a company changes its name or obtains a new name under section 16(1), it shall
within a period of fifteen days from the date of such change, give notice of the change to the
Registrar along with the order of the Central Government, who shall carry out necessary
changes in the certificate of incorporation and the memorandum.
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Consequence of non-compliance of directions of the Central Government for change of name

Section 16(3) provides that if a company makes default in complying with any direction
given under section 16(1), the company shall be punishable with fine of 1000 for every day
during which the default continues and every officer who is in default shall be punishable
with fine which shall not be less than 5,000 but which may extend to 1 lakh.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Pioneer Protective It has been decided by the courts that change of name in the
Glass Fibre (P) Ltd. v company shall not affect any rights or obligations of the
Fibre Glass Pilkington company. Any legal proceedings, which might have commenced
Ltd in the former name, shall be continued with the new name.
2 Sidhvi Constructions When the limitation prescribed by the statute for rectification of
(India) (P) Ltd. v name of company under section 16(2), had expired, it would not

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

Registrar of be open for the Court to extend the same by exercising the
Companies powers under Article 226 of the Constitution of India.

Former name or names to be painted/affixed/printed

Proviso of section 12(3) (d) provides that where a company has changed its name or names
during the last two years, it shall paint or affix or print, as the case may be, along with its
name, the former name or names so changed during the last two years as required under
clauses (a) and (c) of section 12(3)
EFFECTS OF ALTERATION OF NAME
1. The registrar shall enter the new name on the register of companies.
2. The registrar shall issue a fresh certificate of incorporation to the company containing the
new name.
3. The registrar shall alter the memorandum which shall contain the new name of the
company.
4. The alteration of name shall become effective as soon as fresh certificate of incorporation
is issued.
5. The rights of obligations of the company shall not be affected by alteration of name .Thus
alteration in name of the company does not mean a change in constitution of the company

ALTERATION IN REGISTERED OFFICE CLAUSE

Change in the situation of Registered Office

The Board of directors of a company (public or private limited) may find it necessary to change the
situation of the registered office from time to time in any of the following manners:

1. Shifting of the registered office from one place to another place within same
city/town/village
2. Shifting of the registered office to a place outside the local limits, but within the same State under
the jurisdiction of the same Registrar
3. Shifting of registered office from the jurisdiction of one ROC to another ROC in the same
State
4. Shifting of the registered office to another State
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ALTERATION OF REGISTERED OFFICE CLAUSE CHART ANALYSIS

Within same city/town/village CASE- 1

By Board Resolution
File e-Form INC 22 to ROC within 30 days

From one C/T/V to another C/T/V within same state CASE- 2

By passing S.R.U/S 12(5) postal ballot for listed companies/ companies having 200 members
MGT 14 AND INC 22 TO ROC

From one C/T/V to another C/T/V within the same state-from the jurisdiction of one
ROC to the jurisdiction of another ROC within the same state CASE- 3

By passing S.R.U/S 12(5) AND R.D APPROVAL (APPLICATION TO R.D. INC 23)
MGT 14 AND INC 22 TO ROC

From one State to another State CASE- 4

By passing S.R.U/S 13(1) AND R.D APPROVAL (APPLICATION TO R.D. INC 23)
MGT 14 AND INC 22 TO ROC

PROCEDURES FOR CHANGE OF REGISTERED OFFICE

CASE- 1

Shifting of the registered office from one place to another place within same
city/town/village

(1) Send notice to all directors of company for convening board meeting.
(2) Convene board meeting and pass board resolution for change of registered office.
(3) File notice of change of the situation of the registered office, in the Form INC-22 with the
Registrar within 30 days of the change.
(4) Give intimation of change in the situation of registered office to all the concerned departments,
etc. and make necessary corrections in the name board, stationery and records of the company
wherever it is required.

CASE- 2

Shifting of the registered office to a place outside the local limits, but within the same
State under the jurisdiction of the same Registrar

1. Seek approval of the Board of directors at a Board meeting and fix the date, venue and
time for holding a general meeting to obtain the approval of the members by special
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 67 of 623

resolution and the Board will also approve the notice of general meeting and explanatory
statement to be sent to the members
2. Hold a general meeting and get the approval of the members by way of special resolution.
3. File certified copy of the special resolution along with the explanatory statement with the
Registrar of Companies in the Form MGT-14 as required under section 117 within 30
days from the date of the meeting;
4. File notice of change of the situation of the registered office, in the Form INC-22
verified in the manner prescribed, with the Registrar within 30 days of the change, who
shall record the same.
5. Give intimation of change in the situation of registered office to all the concerned
departments, etc. and make necessary corrections in the name board, stationery and
records of the company wherever it is required.

CASE- 3

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

Shifting of registered office from the jurisdiction of one ROC to another ROC in the same State

1. Seek approval of the Board of directors at a Board meeting and at the same meeting the
Board may consider and fix the date, venue and time for holding a general meeting to
obtain the approval of the members by special resolution and the Board will approve the
notice of general meeting and explanatory statement to be sent to the members.
2. Hold a general meeting and get the approval of the members by way of special resolution
subject to confirmation by the Regional Director. In case if the shares are listed with the
stock exchange, the special resolution should be passed by postal ballot process.
3. File certified copy of the special resolution along with the explanatory statement with the
Registrar of Companies in prescribed Form MGT-14 under section 117 within 30 days
from the date of the meeting;
4. The company shall, not less than one month before filing any application with the
Regional Director for the change of registered office:
A. Publish a notice, at least once in a daily newspaper published in English and in the
principal language of that district in which the registered office of the company is situated
and circulating in that district and serve individual notice on each debenture holder,
depositor and creditor of the company
B. Clearly indicating the matter of application and stating that any person whose interest is
likely to be affected by the proposed alteration of the memorandum may intimate his
nature of interest and grounds of opposition to the Regional Director with a copy to the
company within twenty-one days of the date of publication of that notice
5. File an application in prescribed Form INC-23 for obtaining confirmation of the
Regional Director for change in the situation of registered office of the company within a
State from the jurisdiction of one Registrar to the jurisdiction of another Registrar with
following documents
(a) Board Resolution for shifting of registered office;
(b) Special Resolution of the members of the company approving the shifting of registered
office;
(c) a declaration given by the Key Managerial Personnel or any two directors authorised by
the Board, that the company has not defaulted in payment of dues to its workmen and has
either the consent of its creditors for the proposed shifting or has made necessary provision
for the payment thereof;
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(d) a declaration not to seek change in the jurisdiction of the Court where cases for
prosecution are pending;
(e) acknowledged copy of intimation to the Chief Secretary of the State as to the proposed
shifting and that the employees interest is not adversely affected consequent to proposed
shifting
6. The Regional Director shall examine the application referred to in sub-rule (l) and the
application may be put up for orders without hearing and the order either approving or
rejecting the application shall be passed within fifteen days of the receipt of application
complete in all respects.
7. The certified copy of order of the Regional Director, approving the alternation of
memorandum for transfer of registered office company within the same State, shall be
filed in Form No. INC-28 along with fee with the Registrar of State within thirty days
from the date of receipt of certified copy of the order.
8. ROC shall register the documents and certify the registration under his hand within 30
days of filing such documents.
9. File a notice of change of the situation of the registered office, in Form INC-22 with the
Registrar within 30 days of the change.

Penalty in case of default

Section 12(8) of the Act provides that if any default is made in complying with the
requirements of section 12, the company and every officer who is in default shall be liable to
a penalty of one thousand rupees for every day during which the default continues but not
exceeding one lakh rupees.

CASE- 4

Shifting of the registered office from 1 state/ union territory to another State

1. Seek approval of the Board of directors at a Board meeting and at the same meeting the
Board may consider and fix the date, venue and time for holding a general meeting to
obtain the approval of members by special resolution and the Board will approve the
notice of the general meeting and explanatory statement to be sent to the members.
2. Hold a general meeting and get the approval of the members by way of special resolution
subject to confirmation by the Central Government.
3. File certified copy of the special resolution along with explanatory statement and the
altered copy of the memorandum of association with the Registrar of Companies in the
Form MGT-14 along with prescribed filing fees within 30 days from the date of the
meeting
4. An application under sub-section (4) of section 13, for the purpose of seeking approval
for alteration of memorandum with regard to the change of place of the registered office
from one State Government or Union territory to another, shall be filed with the Central
Government in Form No. INC.23 along with the fee and shall be accompanied by the
following documents, namely: — (a) a copy of Memorandum of Association, with
proposed alterations; (b) a copy of the minutes of the general meeting at which the
resolution authorising such alteration was passed, giving details of the number of votes
cast in favour or against the resolution; (c) a copy of Board Resolution or Power of
Attorney or the executed Vakalatnama, as the case may be.
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5. There shall be attached to the application, a list of creditors and debenture holders, drawn
up to the latest practicable date preceding the date of filing of application by not more
than one month, setting forth the following details, namely: -
(a) the names and address of every creditor and debenture holder of the company;
(b) the nature and respective amounts due to them in respect of debts, claims or liabilities:
Provided that the list of creditors and debenture holders, accompanied by declaration signed
by the Company Secretary of the company, if any, and not less than two directors of the
company, one of whom shall be a managing director, where there is one, stating that
(i) they have made a full enquiry into the affairs of the company and, having done so, have
concluded that the list of creditors are correct, and that the estimated value as given in the list
of the debts or claims payable on a contingency or not ascertained are proper estimates of the
values of such debts and claims and that there are no other debts of or claims against the
company to their knowledge, and
(ii) no employee shall be retrenched as a consequence of shifting of the registered office from

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

one state to another state and also there shall be an application filed by the company to the
Chief Secretary of the concerned State Government or the Union territory.
6. A duly authenticated copy of the list of creditors shall be kept at the registered office of
the company and any person desirous of inspecting the same may, at any time during the
ordinary hours of business, inspect and take extracts from the same on payment of a sum
not exceeding ten rupees per page to the company.
7. There shall also be attached to the application a copy of the acknowledgment of service of
a copy of the application with complete annexures to the Registrar and Chief Secretary of
the State Government or Union territory where the registered office is situated at the time
of filing the application.
8. The company shall, not more than thirty days before the date of filing the application in
Form No. INC.23 - (a) advertise in the Form No. INC.26 in the vernacular newspaper in
the principal vernacular language in the district and in English language in an English
newspaper with the widest circulation in the state in which the registered office of the
company is situated: Provided that a copy of advertisement shall be served on the Central
Government immediately on its publication. (b) serve, by registered post with
acknowledgement due, individual notice, to the effect set out in clause (a) on each
debenture-holder and creditor of the company; and (c) serve, by registered post with
acknowledgement due, a notice together with the copy of the application to the Registrar
and to the Securities and Exchange Board of India, in the case of listed companies and to
the regulatory body, if the company is regulated under any special Act or law for the time
being in force.
9. There shall be attached to the application a duly authenticated copy of the advertisement
and notices issued under sub-rule (5), a copy each of the objection received by the
applicant, and tabulated details of responses along with the counter-response from the
company received either in the electronic mode or in physical mode in response to the
advertisements and notices issued under sub-rule (5).
10. Where no objection has been received from any person in response to the advertisement
or notice under sub-rule (5) or otherwise, the application may be put up for orders without
hearing and the order either approving or rejecting the application shall be passed within
fifteen days of the receipt of the application.
11. Where an objection has been received, (i) the Central Government shall hold a hearing or
hearings, as required and direct the company to file an affidavit to record the consensus
reached at the hearing, upon executing which, the Central Government shall pass an order
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approving the shifting, within sixty days of filing the application. (ii) where no consensus
is reached at the hearings the company shall file an affidavit specifying the manner in
which objection is to be resolved within a definite time frame, duly reserving the original
jurisdiction to the objector for pursuing its legal remedies, even after the registered office
is shifted, upon execution of which the Central Government shall pass an order
confirming or rejecting the alteration within sixty days of the filing of application.
12. The order passed by the Central Government confirming the alteration may be on such
terms and conditions, if any, as it thinks fit, and may include such order as to costs as it
thinks proper: Provided that the shifting of registered office shall not be allowed if any
inquiry, inspection or investigation has been initiated against the company or any
prosecution is pending against the company under the Act.
13. On completion of such inquiry, inspection or investigation as a consequence of which no
prosecution is envisaged or no prosecution is pending, shifting of registered office shall
be allowed
14. File a certified copy of the confirmation order obtained from the C.G. to the Registrar of
Companies in prescribed form INC-28 with the prescribed fee within 30 days from the
date of order communicated to the company
15. ROC shall register the documents and certify the registration under his hand within 30
days of filing such documents.
16. File a notice of change of the situation of the registered office, in Form INC-22 with the
Registrar within 30 days of the change.

ALTERATION IN THE OBJECT CLAUSE

ALTERATION IN THE OBJECT CLAUSE

SECTION 13(1) SECTION 13(8)

Alteration in Requirement for change in objects in case of a company raised money

objects may be through prospectus and has unutilized money.
done by way of
SPECIAL 1. Special resolution passed through postal ballot
RESOLUTION and 2. Detail of such resolution shall also be published in the newspapers (one in
English and one in vernacular language) which is in circulation at the place
file MGT 14 to
where the registered office of the company is situated.
ROC 3. Detail of such resolution shall also be placed on the website of the company,
if any.
4. Dissenting shareholders shall be given exit opportunity by promoters and
shareholders having control as specified by SEBI.

ADDITIONAL REQUIREMENT – CHANGE OF OBJECTS FOR WHICH MONEY IS

RAISED THROUGH PROSPECTUS

Rule 32 of Companies (Incorporation) Rules, 2014 contains the provisions for change of
objects for which the money is raised through prospectus:

1) Where the company has raised money from public through prospectus and has any
unutilised amount out of the money so raised, it shall not change the objects for which the
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 71 of 623

money so raised is to be applied unless a special resolution is passed through postal ballot
and the notice in respect of the resolution for altering the objects shall contain the
following particulars, namely: -

a) The total money received

b) The total money utilized for the objects stated in the prospectus
c) The unutilized amount out of the money so raised through prospectus
d) The particulars of the proposed alteration or change in the objects
e) The justification for the alteration or change in the objects
f) The amount proposed to be utilised for the new objects
g) The other relevant information which is necessary for the members to take an
informed decision on the proposed resolution
h) The place from where any interested person may obtain a copy of the notice of
resolution to be passed

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

2) The advertisement giving details of each resolution to be passed for change in objects
which shall be published simultaneously with the dispatch of postal ballot notices to
shareholders.

3) The notice shall also be placed on the website of the company, if any.

Registration of alteration of Memorandum [Section 13]

1. Section 13(6) provides requirement for filing of the special resolution with the Registrar
of Companies except under section 64 of the Companies Act, 2013 in prescribed Form
MGT-14 along with a certified copy of the altered memorandum of association and
explanatory statement sent to the members for alteration in object clause with the
Registrar of Companies.
2. The Registrar shall under section 13(9) register the same and issue a certificate to that
effect under his hand within one month from the date of filing of such document.
3. It should be noted that no alteration made under section 13 of the Act shall have any
effect until it has been registered by the Registrar and the certificate issued by the
Registrar to that effect shall be conclusive evidence that all the requirements of this Act
with respect of alteration have been complied with and the memorandum so altered shall
be the memorandum of association of the company.
PROCEDURE FOR CHANGING OBJECTS OF A COMPANY

1. Issue notice in writing to every director of the company at his address registered with the
company and the notice shall be sent by hand delivery, or by post or by electronic means
as per the provisions of Section 173 (3) of the Companies Act 2013. The notice must be
a seven-day notice. The notice must contain time, date and venue for the meeting and
detailed agenda of the business to be transacted thereat.

2. Hold the Board meeting at the appointed time, date and venue to

i. Consider and to pass a resolution approving the proposed amendments to the objects
clause of the memorandum of association of the company.
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ii. Consider and to pass another resolution fixing time, date and venue for holding
general meeting of the company for passing a special resolution under Section 13 of
the Act for change of objects clause of the memorandum of association of the
company.
iii. Approve notice of the general meeting and draft resolution with the explanatory
statement to be annexed to the notice for the general meeting and to authorise the
company secretary or some other competent officer to issue the notice on behalf of the
Board.
3. Issue notice of the general meeting to all the members of the company, its directors and
the auditors.
4. Hold the general meeting and pass the proposed special resolution.
5. File with the Registrar of Companies, Form MGT – 14 along with a copy of the special
resolution passed by the company with a copy of the explanatory statement annexed to
the notice of the meeting and the amended copy of memorandum of association attached
to the e-form, within 30 days of passing of the resolution.
6. Amend each copy of the memorandum of association of the company available in the
office or in the alternative fresh copies of memorandum of association be got printed.

ALTERATION IN THE LIABILITY CLAUSE

Section 18 says company of one class can convert itself in to another class of company by
altering its MOA and AOA. So a unlimited company can be converted in limited company
and vice versa.
27th July, 2016 Companies (Incorporation) Third Amendment Rules, 2016.
Rule 37. Conversion of unlimited liability company into a limited liability company by shares
or guarantee
An Unlimited Liability Company shall not be eligible for conversion into a company limited
by shares or guarantee in case-
(a) its net worth is negative, or
(b) an application is pending under the provisions of the Companies Act1956 or the
Companies Act, 2013 for striking off its name, or
(c) the company is in default of any of its Annual Returns or financial statements under the
provisions of the Companies Act, 1956 or the Companies Act, 2013, or
(d) a petition for winding up is pending against the company, or
(e) the company has not received amount due on calls in arrears, from its directors, for a
period of not less than six months from the due date; or (f) an inquiry, inspection or
investigation is pending against the company.

PROCESS OF CONVERSION
1. For effecting the conversion of an unlimited liability company with or without share
capital into limited liability company by shares or guarantee, such a company shall pass a
special resolution in a general meeting
2. The Company shall within seven days from the date of passing of the special resolution
in a general meeting, publish a notice in Form No. INC-27A of such proposed conversion
in two newspapers (one in English and one in vernacular language) in the district in
which the registered office of the company is situate and shall also place the same on the
website of the Company, if any, indicating clearly the proposal of conversion of the
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company into a company limited by shares or guarantee, and seeking objections if any,
from the persons interested in its affairs to such conversion and cause a copy of such
notice to be dispatched to its creditors and debentures holders made as on the date of
notice of the general meeting by registered post or by speed post or through courier with
proof of dispatch.
3. The notice shall also state that the objections, if any, may be intimated to the Registrar
and to the company within twenty-one days of the date of publication of the notice, duly
indicating nature of interest and grounds of opposition.
4. The Company shall within forty-five days of passing of the special resolution file an
application to ROC for its conversion into a company limited by shares or guarantee by
attaching the following documents, namely: -

a. notice of the general meeting along with explanatory statement;

b. copy of the resolution passed in the general meeting;

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

c. copy of the newspaper publication;
d. a copy of altered Memorandum of Association as well as Articles of Association duly
certified by any one of the Directors duly authorised in this behalf or Company Secretary
of the Company, if any.
e. declaration signed by not less than two Directors of the Company, including Managing
Director, if any, that such conversion shall not affect any debts, liabilities, obligations or
contracts incurred or entered into by or on behalf of the Company before conversion
(except to the extent that the liability of the members shall become limited).
f. a complete list of creditors and debenture holders, to whom individual notices have been
sent under sub rule (2) setting forth the following details, namely:- (i) the names and
address of every creditor and debenture holder of the Company; (ii) the nature and
respective amounts due to them in respect of debts, claims or liabilities:(iii) declaration by
a Director of the Company that notice as required under sub-rule (2) has been dispatched
to all the creditors and debenture holders with proof of dispatch.
g. a declaration of solvency signed by at least two Directors of the Company, one of whom
shall be the Managing Director, that company is capable of meeting its liabilities and will
not be rendered insolvent within a period of one year from the date of declaration
h. The company shall also obtain a certificate from the Auditors that the company is solvent
i. No Objection Certificate from sectoral regulator, if applicable.
j. No Objection Certificate from all secured creditors, if any.

5. The Registrar shall, after considering the application and objections if any, received by
the Registrar and after ensuring that the company has satisfactorily addressed the
objections received by the company, suitably decide whether the approval for conversion
should or should not be granted within thirty days from the date of receipt of application
complete in all respects.

6. The certificate of incorporation consequent to conversion of unlimited liability company

to into a company limited by shares or guarantee be in Form INC-11A issued to the
company upon grant of approval for conversion.

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Conditions to be complied with, subsequent to conversion.-

1. Company shall not change its name for a period of one year from the date of such
conversion.
2. The company shall not declare or distribute any dividend without satisfying past debts,
liabilities, obligations or contracts incurred or entered into before conversion.

In the principal rules, after rule 38 as so inserted these rules, the following rule shall be
inserted with effect from 1st November, 2016, namely:

RULE 39 Conversion of a company limited by guarantee into a company limited by

shares (1st November, 2016)

1. A company other than a company registered under section 25 of the Companies Act, 1956
or section 8 of the Companies Act, 2013 may convert itself into a company limited by
shares.
2. The company seeking conversion shall have a share capital equivalent to the guarantee
amount.
3. A special resolution is passed by its members authorising such a conversion omitting the
guarantee clause in its Memorandum of Association and altering the Articles of
Association to provide for the articles as are applicable for a company limited by shares.
4. A copy of the special resolution shall be filed with the Registrar of Companies in Form
no. MGT- 14 within thirty days from the date of passing of the same.
5. An application in Form No. INC-27 shall be filed with the Registrar of Companies within
thirty days from date of the passing of the special resolution enclosing the altered
Memorandum of Association and altered Articles of Association and a list of members
with the number of shares held aggregating to a minimum paid up capital which is
equivalent to the amount of guarantee hither to provided by its members.
6. The Registrar of Companies shall take a decision on the application filed under these
rules within thirty days from the date of receipt of application complete in all respects and
upon approval of Form No. INC-27, the company shall be issued with a certificate of
incorporation in Form No. INC-11B.

ALTERATION IN THE CAPITAL CLAUSE

Requirements for alteration in capital clause:
1. AOA POWER
2. O/R (SPECIAL RESOLUTION IF REQUIRED BY AOA)
3. SH.7 TO ROC (Section 64)
Section 61(1) provides that a company may alter its share capital by passing ordinary
resolution and clause by any of the following ways
a) Increase in the authorised share capital
b) Consolidation and division of share capital. Provided that no consolidation and division
which results in changes in the voting percentage of shareholders shall take effect unless it is
approved by the Tribunal on an application made in the prescribed manner
c) Conversion of fully paid-up shares into stock and vice versa
d) Sub-division of shares or any of them into smaller amount
e) Cancellation or diminution of share capital
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Consolidation and division which results in changes in the voting percentage of shareholders
shall require approval of the Tribunal/High Court to be effective.

Notice to the Registrar of Companies for alteration of share capital

Section 64 of the Companies Act, 2013 provides that a company having share capital shall give notice to the
Registrar of Companies for alteration in share capital in the Form SH-7 within a period of 30 days from the date
of the resolution passed by the company for alteration in share capital.
NCLT RULES 2016

RULE 71 Application under proviso to clause (b) of sub-section (1) of section 61.

1. An application for obtaining the approval of the Tribunal for the consolidation and division of all
or any of the share capital into shares of a larger amount than its existing shares which results in
changes in the voting percentage of shareholders shall be filed in Form No. NCLT. 1
2. The company shall at least fourteen days before the date of hearing

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

(A) advertise the petition in accordance with rule 35; and
(B) serve, by registered post with acknowledgement due, a notice together with the copy
of the application to the R.D, Registrar of Companies and to the Securities and Exchange
Board of India, in the case of listed companies and to the regulatory body,if the company is
regulated under any other Act.
3. Where any objection of any person whose interest is likely to be affected by the proposed
application has been received by the applicant, it shall serve a copy thereof to the RD, Registrar
of Companies and the Securities Exchange Board of India, in the case of listed companies and to
any regulator, if the company is regulated under any other Act on or before the date of hearing.
4. Upon hearing the application or any adjourned hearing thereof, the Tribunal may pass such order,
subject to such terms and conditions, as it thinks fit.
Penalty on non-filing of alteration in the capital clause of the memorandum
Section 64(2) provides that if a company and any officer of the company who is in default contravenes
the provisions of sub-section (1), it or he shall be punishable with fine which may extend to
1,000/- for each day during which such default continues, or 5 lakh, whicheveris less.

Alteration in clauses other than conditions contained in Memorandum of Association The

expression "conditions contained in the Memorandum of Association" means thoseprovisions which
are required by section 4 or by any other specific provision contained inCompanies Act, 2013 to
be stated in the memorandum of the company concerned.Sometimes, the memorandum may also
contain other conditions including those relating tothe appointment of a managing director or
manager, etc. These conditions may be altered inthe same manner as the articles of the company
by passing a special resolution and FormMGT-14 needs to be filed with the ROC within 30
days along with the fee as per theCompanies (Registration Offices and Fees) Rules, 2014.

Alteration due to spelling and grammatical mistakes in the memorandum of association The
spelling and/or grammatical mistakes in the memorandum of association can be alteredsimply by
passing a special resolution without seeking the approval of any authority, howeverafter passing a
special resolution the Form MGT-14 needs to be filed with the ROC within30 days along with the fee
as per the Companies (Registration Offices and Fees) Rules, 2014.

Noting of alteration in memorandum or articles, etc., on every copy

Where an alteration is made in the Memorandum or Articles of a company referred to in
section 13 and 14, every copy of the memorandum or articles issued after the date of the
alteration shall be in accordance with the alteration. [Section 15]

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Penalty
If a company makes any default in complying with the provisions of section 15(1), the
company and every officer who is in default shall be liable to a penalty of 1,000 rupees for
every copy of the memorandum or articles issued without such alteration.

PRACTICAL QUESTIONS

Indus Ltd. has changed its name. There is no alternation in the constitution or legal
status of the company. The fact of alternation of name was not brought to the notice of
the Court/Tribunal. Has the company right to execute a decree in its new name after
change of name?

In case of Indus Ltd. there is no alteration in the constitution or the legal status of the
company. Even after the name of a company is altered by special resolution and sanction by
the Registrar is accorded, the company continues to possess the same rights and is subject to
the same obligations as existed before the change. Therefore, if a company has the power to

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

execute a decree in its old name, it has right after the change to execute the decree is its new
name. The fact that alteration in the name was not brought to the notice of the Court/Tribunal
would not in any manner render defective or irregular proceedings initiated by a company in
its former name. A decree obtained by a company in its former name can be executed by it in
the new name after obtained a certificate for the altered name. The change of name the does
not affect the rights of the company It does not necessary that the new name should have
been entered in the decree. Abdul Qayum (FS)V. Manindra Land & Building
Corporation Ltd.

Smart Ltd. wants to include a provision in the articles of association by altering it to

limit the company’s share capital to a fixed amount. Can it do so? Will your answer be
different it 100%sharehoders agree for such alteration?

A provision of the Articles which has the effect of limiting the company’s share capital to
affixed amount would have no effect being contrary to the Act. [Miheer Hemant Mafatlal v.
Mafatlal-Industries-LTD.

The legal position shall not change even if 100%shareholders agree for such alteration as all
members become bound by a valid alteration whether they voted for or against the resolution.
The Smart Ltd. cannot include a provision in the articles of association by altering it to limit
the company’s share capital to a fixed amount.
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CHAPTER-4 ARTICLES OF ASSOCIATION

MEANING OF ARTICLES OF ASSOCIATION

MEANING OF ARTICLE SECTION 2(5)

ARTICLE MEANS ARTICLE OF ASSOCIATION OF A COMPANY

OR
AS ORIGINALLY FRAMED AS ALTERED FROM TIME TO TIME

IN PURSUANCE OF ANY PREVIOUS COMPANY LAW OR OF THIS ACT

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Rangaraj (V.B.) v Articles of association are regulations of the company binding on
Gopalakrishnan the company and on its shareholders

2 Wood v Odessa Articles regulate the rights of members inter se.

Waterworks Co

FORMAT OF AOA (SEC. 5(6))

TABLE F AOA of Company Limited by Shares (TOTAL 91 REGULATIONS)

TABLE G AOA of Company limited by guarantee having share capital

TABLE H AOA of Company limited by guarantee not having share capital

TABLE I AOA of unlimited Company having share capital

TABLE J AOA of unlimited Company not having share capital

Articles of a public company limited by shares

Section 5 (1) The articles of a company shall contain the regulations for management of the
company. Generally, a company formulates its own articles and registers it along with
memorandum.
Section 5(2) of the Companies Act, 2013 provides that the articles shall also contain such
matters, as may be prescribed.
Section 5(7) provides that a company may adopt all or any of the regulations contained in the
model articles applicable to such company.

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Therefore, a company may either:

1. Formulate and register Articles of its own within the provisions of the Act and the
memorandum of association; or
2. Adopt all or any of the regulations contained in the model articles (Table F) or
3. Partially adopt Table F and also have its own articles.
Section 5(8) provides that in case of any company, which is registered after the
commencement of the Companies Act, 2013, in so far as the registered articles of such
company do not exclude or modify the regulations contained in the model articles applicable
to such company, those regulations shall, SO FAR AS APPLICABLE, be the regulations of that
company in the same manner and to the extent as if they were contained in the duly registered
articles of the company. (For excluding table F it has to specifically excluded from own AOA)
If a company has not expressly or by implication excluded any regulation in Table F,
regulation will be deemed to be incorporated in its articles. Seth Mohan Lal v Grain

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

Chambers Ltd.

ARTICLES OF PRIVATE COMPANIES

A private limited company must have articles of its own which must contain the restrictions
as provided in section 2(68) of the Companies Act, 2013. Therefore, without following
these restrictions in its articles it cannot have the status of a private company.
With these restrictions the private limited companies are having liberty to adopt all or any of
the regulations contained in Table 'F'.
Private limited company can adopt Table F with or without modification or exclusion of all
or some of the provisions contained in Table F. Thus, a private company limited by shares
has the following options available in preparing its articles of association for registration with
the Registrar of Companies:

a) adopt the entire Table F as its articles of association

b) adopt only some of the provisions of Table F and incorporate them in the articles
Section 5(9) provides that nothing in section 5 shall apply to the articles of a company
registered under the Companies Act, 1956 or any previous company law unless amended
under this Act.
ENTRENCHMENT PROVISIONS

MEANING OF ENTRENCHMENT: ENTRENCHMENT means making alteration of AOA more

difficult to protect the minority.

Section 5(3) provides that the articles may contain provisions for entrenchment to the effect
that specified provisions of the articles may be altered only if conditions or procedures as that
are more restrictive than those applicable in the case of a special resolution, are met or
complied with.
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HOW TO MAKE ENTRENCHMENT SECTION 5(4)

ARTICLES MAY CONTAIN PROVISIONS FOR ENTRENCHMENT

Either on the formation of the company; or Subsequently with the unanimous consent of all the
members in the case of private company and by
special resolution in the case of public company.

The company shall give notice to the Registrar File in Form No.MGT.14 within thirty days
of such provisions in FORM (INC-32) or from the date of entrenchment of the articles.
Form No.INC.7 (RULE 10)
(RULE 10)

Printing and signing of Articles

As per provisions of section7(1)(a) of the Act, the Articles shall be printed, divided into
paragraphs, numbered consecutively and the Articles shall be signed by each subscriber of
the memorandum of association who shall add his address, description and occupation, if any,
in the presence of at least one witness who shall attest the signature and shall likewise add his
address, description and occupation, if any, and such signatures shall be in form specified
below signed by the subscribers of memorandum of association.

ALTERATION OF ARTICLES SECTION 14

Section 5 read with section 14 of the Act provides that subject to the provisions of the
Companies Act, 2013 and to the conditions contained in the memorandum of association, a
company may by SPECIAL RESOLUTION alter its Articles.

There is no requirement for approval of the Registrar of Companies for alteration of articles
of association. A company may simply alter its articles by passing a special resolution in the
general meeting AND by filing of Form MGT-14 with the Registrar along with the fee as
per the Companies (Registration Offices and Fees) Rules, 2014.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Neal v City of The articles must be altered in good faith and not so as to give an
Birmingham unfair advantage to a majority of the shareholders.
Tramways
2 Evans v Chapman Clerical errors in the articles should be set right by a special
resolution and not by an action for rectification. The Court has no
jurisdiction to rectify the articles on the ground of mistake, for
they have a statutory operation.
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Noting of alteration in memorandum or articles, etc. on every copy [Section 15]

Where an alteration is made in the Memorandum or Articles of a company referred to in
section 13 and 14, every copy of the memorandum or articles issued after the date of the
alteration shall be in accordance with the alteration.

Penalty
If a company makes any default in complying with the provisions of section 15(1), the
company and every officer who is in default shall be liable to a penalty of 1,000 rupees for
every copy of the memorandum or articles issued without such alteration.

PROCEDURE FOR ALTERATION OF AOA

1. Convene and hold a Board Meeting
2. Issue the notice of general meeting to all the members, auditors and directors.
3. Convene and hold the general meeting and pass the necessary special resolution.

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

4. File a copy of the proceedings of the general meeting to all the Stock Exchanges, where
the securities of the company are listed.
5. File Form MGT 14 with the Registrar of Companies within a period of 30 days

DIFFERENCE BETWEEN MOA AND AOA

Basic of MEMORANDUM ARTICLES
distinction
Definition Memorandum means the memorandum of Articles means the Articles of
association of a company as originally Association of a Company as originally
framed or as altered from time to time in framed or as altered from time to time
pursuance of any previous Companies Law in pursuance of any previous Company
or of this Act [Sec. 2(56)] laws or of this Act. [Sec. 2(5)]
Meaning The memorandum contains the fundamental The Articles are the rules for the
conditions upon which alone the company is management of the internal affairs of
allowed to be incorporated. the company.
Powers and Memorandum contains the objects and power Articles contain the rules and regulation
rules of the company. for the internal management of the
company.
Scope The Memorandum lays the objects for which The articles are farmed so as to
the company is formed. The Memorandum facilitate the achievement of objects as
identifies the possible scope of operations of enshrined in the memorandum. The
the company, beyond which the company articles generally define as well as
cannot go. restrict the powers of directors, officers
and employees of the company.
Hierarchy In case of any inconsistency. The The articles subordinate to the
memorandum shall prevail over the articles. memorandum.

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DOCTRINES BASED ON CASE LAWS

3 TYPES OF DOCTRINES

DOCTRINE OF DOCTRINE OF INDOOR DOCTRINE OF ALTER

CONSTRUCTIVE NOTICE MANAGEMENT EGO

S.NO. CASE LAW DOCTRINES PROVISIONS

1
GRIFFITH V/S PAGET DOCTRINE OF CONSTRUCTIVE NOTICE

The articles of a company Applicability of doctrine

required that company can The doctrine operates in favor of the company i.e. it
borrow money on bond signed creates a presumption in favor of the company. It
by its 2 directors. Company operates against the persons dealing with the company.
borrow on bond signed by 1
director only. Court held that Effect of the doctrine
company is not liable to repay Once registered the memorandum and articles become
the loan. public documents Sec. 399. Therefore every person
dealing with the company is presumed to have read the
memorandum and articles Further it is presumed that he
has understood the provisions of memorandum and
articles correctly i.e. in the right sense
2
ROYAL BRITISH V/S DOCTRINE OF INDOOR MANAGEMENT OR
TURQUAND TURQUAND ‘S RULE

The articles of a company stated The doctrine of indoor management operates in favour of
that the directors could borrow the outsiders i.e. this doctrine creates a presumption in
money on behalf of the favour of the outsiders
company, if they are so
authorised by a resolution passed MEANING OF THE DOCTRINE
by the shareholders in G.M.
As per this doctrine, outsiders dealing with the company
The directors borrowed money are not required to enquire into the internal management
from T without obtained any of the company.
authorization from shareholders.
Outsiders dealing with the company are entitled to
T had lent the money to the assume that as far as internal proceeding of the company
company assuming that the are concerned everything has been done regularly .it is a
shareholders had authorised the presumption and therefore rebuttable .
directors to borrow money as per
the requirements of the articles. Thus the doctrine protects an innocent outsider from any
irregularity present in the working of the company
It was held that borrowing of (provided he had actual knowledge of the memorandum
money by the directors without and articles and he complied with the requirements
any authorization from the contained in the memorandum and articles.
shareholders amounted to a mere
internal irregularity and since T
had no knowledge of such
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irregularity he would not be EFFECT OF THE DOCTRINE

prejudiced by such internal
irregularity. If a contract is entered into on behalf of the company by
any director or officer of the company .it is enforceable
against the company, if provisions contained in the
memorandum and articles have been complied with even
though while entering into such contract, some internal
irregularity had arisen of which the outsider was
unaware.
3
In Lennards Carying Co. v. DOCTRINE OF ALTER EGO
Asiatic petroleum Co.
The ‘alter ego’ theory and It is used by the courts to ignore the status of
distinguished from vicarious shareholders, officers, and directors of a company in
liability. The House of Lords reference to their liability in their respective capacity so
stated that the default of the that they may be held personally liable for their actions

CS ANOOP JAIN (THE CORPORATE LAW WIZARD)

managing director who is the when they have acted fraudulently or unjustly.
“directing mind and will” of the
company, would be attributed to
him and he be held for the wrong
doing of the company.

EXCEPTIONS TO THE DOCTRINE OF INDOOR MANAGEMENT

 Where the outsider had knowledge of irregularity – The rule does not protect any
person who has actual or even an implied notice of the lack of authority of the person
acting on behalf of the company. Thus, a person knowing fully well that the directors do
not have the authority to make the transaction but still enters into it, cannot seek
protection under the rule of indoor management.

 No knowledge of memorandum and articles – Again, the rule cannot be invoked in

favour of a person who did not consult the memorandum and articles and thus did not rely
on them.

 Forgery– The rule of indoor management does not extend to transactions involving
forgery or to transactions which are otherwise void or illegal ab initio. In the case of
forgery it is not that there is absence of free consent but there is no consent at all.

 Negligence – The ‘doctrine of indoor management’, in no way, rewards those who

behave negligently. Thus, where an officer of a company does something which shall not
ordinarily be within his powers, the person dealing with him must make proper enquiries
and satisfy himself as to the officer’s authority. If he fails to make an enquiry, he is
estopped from relying on the Rule.

 Ultra- vires acts: This Doctrine is also not applicable where a pre-condition is required to
be fulfilled before company itself can exercise a particular power. In other words, the act
done is not merely ultra vires the directors/officers but ultra vires the company itself –
Pacific Coast Coal Mines v. Arbuthnot.

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INTERPRETATION OF MEMORANDUM AND ARTICLES

Articles should be construed as a business document so as to give business efficacy preference
to a construction which will prove unworkable [Holmes v. Keyes (Lord) (1958)]. Where the
conduct of the parties reveals that there has been some practice in vogue for several years
which was accepted by everyone concerned without any challenge or question, then that practice
in the course of long years in itself becomes an indication that the rules or articles which are
framed by way of internal management were understood in that sense
The memorandum must like any other document be construed according to accepted principles
applicable to the interpretation of all legal documents. No rigid canon of construction is to be
applied to such a document. Like any other document, it must be read fairly and its import
derived from a reasonable interpretation of the language which it employs. A Lakshamanaswami
Mudaliar v. LIC of India (1963)
COMPANY NOT BOUND TO OUTSIDERS
1. The term “outsider” signifies a person who is not a member of the company even if he is a
director of or solicitor to the company. Even in regard to members, the articles bind the
company to them in their capacity as members.
2. As between outsiders and the company, neither the memorandum nor the articles would give
any contractual rights to outsiders against the company or its members even though the
names of outsiders are mentioned in those documents in connection with the arrangements
that the company might have contemplated for carrying on its business.
3. The articles do not confer any contractual rights even upon a member in a capacity other
than that of a member. To succeed, the party suing must prove a contract outside and
independent of the articles [Eley v. Positive Life Insurance Co].
4. In this case the articles provided that the solicitor to the company would not be removed
from office except for misconduct. Eley acted as solicitor to the company and alsobecame a
member of the company. The company discontinued his services and then he sued the
company for damages for breach of contract. It was held that he had no cause of action
because the articles did not constitute any contract between the company and himself. His
action was dismissed.
5. This rule, however, proved to be rather harsh and so the Courts later on modified it.
The modified rule is as follows: While the articles cannot create a contract between the
company and any person other than a member in his capacity as a member, they may
indicate the basis upon which contracts may be made by the company. If such a contract is
entered into whether with a member of the company or any other person, the conditions
stated in the articles will be tacitly adopted by that contract, unless expressly stated in the
negative form or varied by the contract itself.
6. The question sometimes arises as to whether directors are bound by whatever is contained in
the articles. In case the directors contravene the provisions in the articles, the directors
render themselves liable for an action by members. On the other hand, members can also
ratify acts of directors. If any loss is incurred by the company, directors are liable to
reimburse to the company any loss so incurred.

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CHAPTER-5 E GOVERNANCE
E-GOVERNANCE (MCA-21) - MEANING

E-Governance or Electronic governance is the application of Information Technology to the

government functioning.MCA-21 stands for e-governance initiative of Ministry of Corporate Affairs
(MCA) of the 21st century. The project is named MCA-21 as it aims at repositioning MCA as an
organization capable of fulfilling the aspirations of its stakeholder in 21st century.

Filing and registration of documents is a statuary requirement under Companies Act, 2013. Prior to
the launch of this project, the documents/forms were filed manually at the ROC offices. The central
government (CG) has amended Companies (central governments) General rule and Forms, 1956 in
February, 2006 and notified e-forms to enable electronic filing of documents.

After introduction Companies Act 2013 new e-forms has been introduced by MCA.

BENEFITS OF MCA 21

1. Elimination of interface with the offices of ROCs, RDs and the MCA
2. Better supervision and monitoring of compliance
3. Mutually beneficial system
4. Speed, transparency and efficiency
5. Effective due diligence
6. Efficient services by professionals
7. Environment Friendly

MCA-21-SCOPE

The scope of MCA-21 project covers only the offices of ROCs, RDs, and the MCA headquarters at
New Delhi. It does not include other offices of MCA like Official liquidators, CLB/NCLT and Court.

MCA-21-IMPORTANT FEATURES

DIGITAL SIGNATURE CERTIFICATE (DSC)

According to Information Technology Act, 2000, a Digital signature is the electronic signature duly
issued by a certifying authority that shows the authority of the person signing the same.

Every user who is required to sign an e-form for submission to MCA is required to obtain a Digital
Signature Certificate MCA has identified following 4 types of user of DSC

1. MCA (govt.) employees.

2. Professionals(CS,CA,CWA and Lawyers)
3. Authorized signatory of the company including MD, Directors, CS or Manager.
4. Representative of banks and financial institutions.

DIRECTOR IDENTIFICATION NUMBER (DIN)

No company shall appoint or re-appoint any individual as director of the company unless he has been
allotted a Director Identification Number (DIN) under section 154. Section 152(3) provides that every
individual, intending to be appointed as director of a company shall make an application for allotment
of DIN to the Central Government in the prescribed Form DIR-3. A person cannot have more than
one DIN.
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E-FILING-VARIOUS TERMS USAGES

S.NO. TERMS PROVISONS

1 PRE-FILL Pre-fill button are used to automatically fill various static data like, the
corporate identity. Once the CIN number is given, company details are
automatically filled by using Pre-fill function.
2 CHECK FORM Forms have built in facility of check and validation.

3 MODIFY Forms can be modified by clicking ‘modify’ button

4 ADDENDUM User may be required to submit some additional supporting documents

TO AN E- that are not submitted during the e-form filing but are required for
FORM attachment. The supporting documents which are uploaded as an
addendum, gets duly associated with the e-form which was submitted
originally Payment of fees is not required for filing an addendum.
5 Text box Text box is meant to provide details on the relevant point by the person
filling the e-form. Space provided is generally adequate for the text to
be written. However, if the space is not sufficient for a particular matter,
information can be given in the annexure to the form indicating the
same in the box.
6 ATTACHMENT An attachment is a document which is sent as an enclosure with an e-
form by means of an attached file. The motive behind attachment is to
provide details relevant to the e-form for processing.
7 PRE- After ‘check form’ has been done, it has to be digitally signed and on-
SCRUTINY line pre-scrutiny of forms is required to be done before the form is
uploaded.
8 Drop Down Box Drop down box is a box wherein at the end, a downward arrow is
provided. On clicking the arrow various applicable choices appear. One
is required to highlight the applicable choice and that will be filled in
the box.
9 Country Code Sometimes the applicant is required to fill up the country code in the e-
Form. This is available in the instruction kit.
10 Stock Exchange All the stock exchanges of the country have been divided into two
Code categories A and B. Listed companies are required to mention the stock
exchange where the shares are listed with the help of the code.
11 CORPORATE Every company has been allocated a Corporate identity number (CIN).
IDENTITY It is comprised of 21-digit number which indicates the following:-
NUMBER (CIN)
1 digit = Listing status
Next 5 digit = Economic activity
Next 2 digit = State
Next 4 digit = Year of incorporation
Next 3 digit = Ownership
Next 6 digit = No. assigned by ROC
12 E-FORM SIZE The size of an e-form cannot exceed 6 MB to facilitate e-filing.

13 STP FORMS STP stands for “Straight Through Process”. Some e-forms are identified
as informatory in nature. These forms are filed under Straight through
process may be examined by the Registrar at any time on suo- moto or
on receipt of any information or complaint from any source at any time
after its filing . It means the information given in the e-forms is being
taken on file maintained by the Registrar of Companies through
electronic mode on the basis of statement of correctness given by the
filing Company and further verification by the practicing professionals.

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14 REFUND The user is required to make various payments to avail MCA21

services. A number of instances have been observed where the users
make multiple payments or incorrect payment or excess payment while
using these services. In order to allow the stakeholders to claim refund
of such payments, refund process has been introduced by MCA. There
is no fee for filing the refund form.
The Person is to file the ‘Refund Form’ available on MCA21 portal for
claiming refund. The refund of MCA21 fees is available in the
following cases:
(a) Multiple Payments
(b) Incorrect Payments
(c) Excess Payment
15 Re-submission of At times, MCA may ask for some changes before approving/registering
an e-Form the e-Form that have been submitted successfully. MCA will notify the
concerned company about the requirements through email. The
Company will have to make the changes and re-submit the e-form. Re-
submission does not require any payment, if done within prescribed
time. The documents that were uploaded during submission of e-Form
will be again uploaded during re-submission.
16 Service Request Each transaction under e-filing is uniquely identified by a Service
Number (SRN) Request Number (SRN). On filing of an e-form, the system generates
and provides a Service Request Number (SRN). A user can check the
status of the document transaction, by entering the SRN.
17 CERTIFIED CFC is an extended arm of the MCA which is manned by professionals
FILING from three core areas i.e. CS/CA/CWA. These are managed and
CENTRE (CFC) operated by professionals on user charge basis. With the recognition of
CFCs, the services of MCA-21 are being provided in small towns and
Cities.
18 Role Check ‘Role Check’ functionality envisages that MCA21 System shall verify
whether the digital signatures affixed on the e-Form actually belong to
signatory of the company and/or of a practicing professional (if
applicable).
Directors, Managers and Secretary of the Company and practicing
professionals i.e. CA, CS, CWA are required to register their DSC on
MCA portal. On registration of DSC, MCA system will capture the
details of the said persons’ DSC against their DIN/PAN, as the case may
be. The MCA21 System verifies the credentials of the person (s) signing
the e-Form from the data base of the companies created on the basis of
DIN/PAN of Directors/Manager & Secretary submitted through Form
DIR-3/DIR 12 by the Companies.
19 Defective Forms A form or document is defective for any on of the following reasons:
/Documents 1. The form or document does not contain the necessary
enclosures;
2. Certain particulars in the document or form have been left
unfilled;
3. Certain particulars apparent on the face of it seem false;
4. The document is not filed in proper time or is not accompanied
by the requisite filing fee;
5. The document is not properly signed or certified.

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UPLOADING THE DULY FILLED UP E-FORM

Following is the procedure for uploading an e-form
(1) When the ‘submit’ button is pressed, the e-form gets uploaded into the MCA central document
repository.
(2) Thereafter, the requisite fees as applicable for the e-form should be paid either on-line or off-line.
(3) Once the e-form has been accepted and payment of fees has been acknowledged, a work item is
created and assigned to the appropriate MCA employee.
(4) For every filing through MCA-21 portal, Service Request Number (SRN) is generated by the
system. This SRN number is to be noted for future reference.
(5) The authorized official of the/MCA affixes his digital signature for registering/ approving/
rejecting the same.
(6) After the processing of the e-from is completed, an acknowledgement e-mail is sent to the user
regarding its approval/ rejection.
STEPS FOR FILING FINANCIAL STATEMENTS IN XBRL MODE

1. The complete information as contained in the annual accounts and related documents; and the
information required to be filed with the Registrar of Companies should be reported in the XBRL
instance documents to be submitted with MCA.
2. For preparing instance document, the taxonomy as applicable for the relevant financial year is to
be used.
3. Download XBRL validation tool from MCA Portal
4. Load the instance document in the validation tool
5. Validate the instance document
6. Pre-scrutiny of the instance document
7. Convert to pdf and verify the contents of the instance document. (This step is essential to ensure
that the disclosures contained in XBRL document are as per Audited Financial Statement adopted
in the AGM and the textual information entered in the instance document are clearly viewable)
8. Attach instance document to the Form 23AC-XBRL and 23ACA-XBRL]
9. Submitting the XBRL Form on the MCA portal
10. Viewing of balance sheet and profit and loss submitted in XBRL form on MCA portal.

Inspection, production and evidence of documents kept by Registrar.- Rule 14 of Companies

(Registration offices and fees) Rules, 2014

The inspection of the documents maintained in the electronic registry so set up by MCA and which
are otherwise available for inspection under the Act or rules made thereunder, shall be made by any
person in electronic form.

(Rule 15 of Companies (Registration offices and fees) Rules, 2014

Any person may inspect any document kept by the Registrar, being documents filed or registered by
him in pursuance of this Act or the Companies Act 1956( 1 of 1956) or making a record of any fact
required or authorized to be recorded or registered in pursuance of this Act, on payment for each
inspection of fee. It is further provided that no person shall be entitled under section 399 to inspect or
obtain copies of resolutions referred to in clause (g) of sub- section (3) of section 117 of the Act.

ORGANIZATION OF ROC OFFICE UNDER MCA

The ROC office working from its address will virtually become the Back Office of the Ministry. Since
number of companies/entities may find it difficult to switch over to e-Filing at the initial stage.
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Facilitation Centers known as Physical Front Offices (PFOs) have been set-up throughout the country
to provide requisite comfort for e-Filing to such companies.

Front Office

The Front Office represents the interface of the corporate and public user with the MCA21 system.
This companies of Virtual Front Office and Physical Front Office. Virtual Front Office merely
represents a computer facility for filing of digitally signed e-Forms by accessing the My MCA portal
through Internet. It also pre-supposes availability of related facilities to convert documents into PDF
format and scanning of documents wherever required. When a company or user does not have these
computer facilities, it can avail of these facilities at the designated facilitation centers, known as the
Physical Front Offices.

Virtual Front Office

Virtual Front Office facilities online filing of the e-Forms using Internet.

The System automatically does pre scrutiny of the e-Forms filed and indicates error messages in case
of incomplete or invalid particulars. Upon successful submission, a Service Request Number (SRN)
will be generated by the system for the user, which will be used for future correspondence with MCA.

Back Office

Back Office represents the offices of Registrar of Companies, Regional Directors and Headquarters’
and takes care of internal processing of the forms filed by the corporate user as per MCA norms and
guidelines. The e-forms are routed dynamically to the concerned authority for processing depending
upon the assigned role. All the e-forms along with attachment are stored in the electronic depository,
which the staff of MCA can view depending upon the access rights.

HARDWARE AND SOFTWARE REQUIREMENTS UNDER E-FILING

The Minimum system requirements for e-filing are:

1. P-4 computer with printer.

2. Windows 2000/Windows XP.
3. Internet Explorer 6.0 version and above.
4. Above Acrobat Reader 7.0.5 version. Scanner; and
5. Java Runtime Environment (JRE) 1.4.2 version.

Affixing Digital Signature

The process of affixing digital signature is as follows:

a) User clicks the provision provided (signature affixing icon) on the a-form, against his role, to
digitally sign it.
b) Utility to sign the e-Form opens, where user selects the intended certificate to digitally sign the e-
Form.
c) After selecting the certificate, utility digitally signs the e-Form with the certificate and the
certificate information gets embedded in the e-Form.

Physical submission of Certain Documents

In view of practical constraints, certain documents requiring stamp paper or Stamp fees like stamped
memorandum of association, declaration on stamp paper, order of Company Law Board/Court are
required to be sent by the Companies in the physical form to the ROCs. SRN will be provided while
sending these forms/documents to MCA. This would ensure the authenticity and reliability of such
key documents and enable the MCA authorities to further act upon the same
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PAYMENT OF FEES TO MCA

Under electronic filing system, the payment can be made in one of the following ways:

1. Credit Card (online)

2. Internet Banking (online)
3. Challan (offline)
4. NEFT (National Electronic Fund Transfer)

SEARCH FACILITIES ARE AVAILABLE TO LOCATE THE REQUISITE INFORMATION

1. Search for viewing public document: Public documents are those documents that are available
for viewing, by anyone, on payment of requisite fees. Users may need to see public documents of
any company registered with MCA for various purposes. Similarly, banks and financial
institutions may also need to view these documents while sanctioning loan. The following are the
categories of public documents:
 Incorporation documents
 Charge documents
 Annual Return & Balance Sheet
 Change in directors
 Other documents.

2. Search for getting certified copy: The user selects one or more document(s) for viewing and
clicks the “Get Certified copy” button. User has the option to choose more than one document at a
time. This is a paid service. User will have the facility to add the documents to his cart and make
the payment collectively. The user has the option to mention the number of pages in the document
1 or which he wants a certified copy as well as the number of copies. Once the request reaches to
the pending work list of the concerned MCA official, the official will take the printouts of the
documents and sign it with seal and deliver to the requester. The certified copy will be delivered in
the physical form.
3. Finding the Corporate Identity Number (CIN)

4. Checking Company Name.

COMMON CAUSES OF REJECTION OF APPLICATION FOR DIRECTOR

IDENTIFICATION NUMBER (DIN)

1. The applicant details (name, father’s name, date of birth) are not as per the PAN details.
2. The particulars filled in form DIN – 3 do not match with the details given in the supporting
documents submitted along with DIN application.
3. Residence proofs like: Bank Statements, Electricity Bill, Telephone Bill, Utility bills etc.
submitted are older than 2 months of submitting the application for verification OR such
documents are in the name of some other person, for example father or spouse.
4. The supporting documents are not duly attested i.e. Name, Designation, Membership / Practicing
certificate number etc. are not clearly indicated. – If the seal / stamp does not contain membership
/ practicing certificate number, same may be recorded by hand.
5. Passport / driving license / Identity proofs etc attached are expired. – Only such documents which
are currently valid should be attached.
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CHAPTER-6 MEMBERSHIP

DEFINITION OF MEMBER SEC. 2(55)

The subscribers of the Every other person who agrees Every person holding
memorandum of a company in writing to become a member shares of the company and
shall be deemed to have of a company and whose name whose name is entered as a
agreed to become members of beneficial owner in the
is entered in its register of
the company, and on
members shall, be a member of records of a depository
registration, shall be entered
as members in its register of the company OR
member OR

Procedure for Becoming a Member by subscribing to the Memorandum of Association

1. The subscribers are selected by the promoters of a Company
2. The subscribers (minimum, two for a private company and seven for a public company) have to
agree to take minimum one share in share capital of the company.
3. The subscriber has to sign and write in his/her hand name in full, father’s/husbands’ name,
address in full, occupation in the column meant for this purpose
4. On registration of the company, the subscribers become members of the company
5. The subscribers have to pay the money for the shares agreed to be taken by them
6. The names of the subscribers shall be placed on the register of members on registration of the
company.

SECTION 19 OF COMPANIES ACT 2013

(1) No company shall, either by itself or through its nominees, hold any shares in its holding
company and no holding company shall allot or transfer its shares to any of its subsidiary
companies and any such allotment or transfer of shares of a company to its subsidiary
company shall be void:
Provided that nothing in this sub-section shall apply to a case

a. where the subsidiary company holds such shares as the legal representative of a deceased member
of the holding company; or
b. where the subsidiary company holds such shares as a trustee; or
c. where the subsidiary company is a shareholder even before it became a subsidiary company of the
holding company:

Provided further that the subsidiary company referred to in the preceding proviso shall have a right to
vote at a meeting of the holding company only in respect of the shares held by it as a legal
representative or as a trustee, as referred to in clause (a) or clause (b) of the said proviso.

Basis of Member Shareholder

distinction
Definition The Term ‘member’ is defined under The term ‘shareholder’ has not been
sec. 2 (55) defined
Under the companies act. 2013

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Meaning The term ‘member’ generally means a The term ‘shareholder’ means a person
Person whose name is entered in the who
Register of members. Holds shares in a company.
Nature of Every company shall have the Only a company having a share capital
company minimum Number of members, can Have shareholders. A company
whether it islimited by Guarantee and having no share
Limited by share capital or guarantee capital does
Not have any shareholders.
Transferor of A transferor of shares continues to be Where a person transfers his shares, he
shares Until a member until his name is removed immediately ceases to be a shareholder,
change in the from Register of Member. even though his name continues to appear
register in the register of members.

MODES OF ACQUIRING MEMBERSHIP OR HOW TO BECOME A MEMBER

S.NO. Modes of Acquiring PROVISONS

Membership
1 By subscribing The fact that a person is a subscriber to memorandum is sufficient to
to Memorandum constitute such person a member of the company.

It is immaterial as to whether the shares have actually been allotted to

him or not. No application in writing is required from a subscriber to
memorandum.
2 By allotment of Where shares are allotted to an applicant he becomes a holder of shares
shares .However he becomes a member only when his name is entered in the
register of members.
3 By transfer The transferee of shares becomes a member only when the transfer of
shares is registered by the company, and the name of the transferee is
entered in the register of members
4 By transmission A person entitled to the shares of the member, as a consequence of
transmission, becomes a member when he gives a notice of fact of
transmission to the company, and his name is entered in the register of
members.
5 By becoming a A beneficial owner of shares whose name is entered in the records of the
beneficial owner depository is called as a member.
of shares
6 By estoppels A person who knowingly permits entered his name in the register of
(estopped from members, becomes a member by ESTOPPEL or acquiescence. In other
his own conduct) words if the name of a person is entered in the register of members,
although he is not a member, but such person does not object to it (i.e.
he does not apply for rectification of register of members he becomes a
member by estoppel.

CESSATION OR TERMINATION OF MEMBERSHIP

 Surrender of shares
 Transfer of shares
 Transmission of shares
 Sale of shares of a member by the company, where the company has exercised lien on
shares.
 Forfeiture of shares
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CAPICITY TO BECOME A MEMBER OR WHO CAN BECOME A MEMBER

S.NO. who can become PROVISONS
Member
1 A MINOR CAN HOLD FULLY PAID SHARES
MINOR There is no legal bar on minor becoming a member of a company,
provided minor acquires the shares are fully paid up, and no further
obligation of liability is attached to such shares [Devan Singh v
Minerva Films Ltd.]
CONSEQUENCES WHERE A COMPANY ALLOTS SHARES
TO A MINOR
If the company allots shares to a minor in ignorance of majority
following consequences shall follow:
1. The minor shall not be liable to pay any calls remaining unpaid
on the shares held by him.
2. The guardian cannot be compelled to pay the calls due on the
shares held by a minor.
3. The minor can repudiate the allotment made to him. The minor
shall be entitled to receive back the money paid by him.
4. The company can repudiate the allotment made to the minor
AND the minor shall be entitled to receive back the money paid
by him.
2 COMPANY A company can become a member of any other company only if it is
specifically authorized by the memorandum to purchase shares of
any other company. A company cannot become a member of its
own. A subsidiary company cannot become a member of its holding
company.
Exception where a subsidiary company had become the member
of the holding company before it become the subsidiary company, it
can continue to be a member in the holding company .But ,the
subsidiary company shall not have any voting rights in respect of
shares held in the holding company .
3 CO. OPERATIVE A cooperative society is a legal person, and so it has power to hold
SOCIETY AND property. Therefore a cooperative society can become a member in a
SOCIETY company. A society when registered under the societies Registration
Act 1860 is a legal person, and so it can become a member in a
company.
4 TRADE UNION A trade union registered under the Trade Union Act 1926 is legal
person (i.e. a body corporate) capable of holding property
.Therefore a trade union can become a member in a company.
5 FIRM A firm is not a legal person. It cannot hold property in its own
name; the property is Held in the names of the partners on behalf
of the firm. Therefore, a firm cannot become a member in a
company. However, a partnership firm may become a member in a
company licensed u/s 8
6 HUF Hindu undivided family (HUF) is not a separate legal person.
Therefore, An HUF cannot become a member in a company in its
own name.
7 JOINT Two or more persons may hold the shares in a company in their
HOLDERS joint names.
8 FOREIGNER A foreigner can become a member in a company by complying with

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the Requirements of foreign exchange management act, 1999.In

case a war breaks out with such foreign country, the foreigner
cannot enforce any right available to the members.
9 GOVERNMENT CG or SG can become a member in a body corporate.
10 INSOLVENT The shares of the insolvent VEST in the official receiver, as the case
may be. However, an insolvent continues as a member until his
shares are sold by the official receiver. Until an insolvent is
discharged, he cannot become a member

IMPERSONATION AS A MEMBER (Sec 57)

If a person deceitfully personates
1. an owner of any share OR
2. interest in a Company OR
3. coupon issued in pursuance of the Companies Act, 2013 AND
Thereby obtains or attempts to obtain any such share or interest or any such share warrant or
coupon or received or attempts to receive any money due to any such owner. He shall be
punishable Minimum 1 year and maximum 3 years imprisonment OR FINE minimum 1
lakh Rs. and Max. 5 lakh Rs.
VARIATION IN RIGHTS OF SHAREHOLDERS (SEC 48)
AS PER COMPANIES ACT 2013

Variation refers to variation of rights to the prejudice of any class of shareholders. Where the
share capital of a company is divided into different classes of shares, the rights attached to
the shares of any class may be varied with:

EITHER OR

The consent in writing of the holders of not By passing special resolution at a separate
less than three-fourths of the issued shares meeting of the holders of the issued shares of
of that class. that class.

However, variation in the rights of the shareholders can be made only if:

EITHER OR

Provision with respect to such variation is In the absence of any such provision in the
contained in the memorandum or articles of memorandum or articles, if such variation is
the company not prohibited by the terms of issue of the
shares of that class

Rights of dissenting shareholders in cases of variation in rights of shareholders (sec 48)

1. If, u/s 48, the rights attached to any such class of shares are at any time varied, the holders of not
less, in the aggregate, than 10% of the issued shares of that class, being persons who did not
consent to or vote in favour of the resolution for the variation, may apply to the Tribunal to
have the variation cancelled.
2. Where any such application is made to the Tribunal, the variation shall not have effect unless
and until it is confirmed by the Tribunal.
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3. An application under this section shall be made within 21 days after the date on which the
consent was given or the resolution was passed, as the case may be.
4. Application may be made on behalf of the shareholders (entitled to make the application) by one
or more of their number as appointed in writing for the purpose.
5. On any such application, the Tribunal shall hear the applicant and any other persons interested
therein and having regard to all the circumstances of the case, either confirm or cancel the
variation. The decision of the Tribunal shall be final.
6. The company shall, forward a copy of the order to the Registrar, within 30 days of the service
of the Tribunal order.
7. Where any default is made in complying with the provisions of this section, the company shall be
punishable with fine which shall not be less than twenty-five thousand rupees but which may
extend to five lakh rupees and every officer of the company who is in default shall be punishable
with imprisonment for a term which may extend to six months or with fine which shall not be less
than twenty-five thousand rupees but which may extend to five lakh rupees, or with both.
(COMPANIES AMENDMENT ACT 2020)

RULE 68A of NCLT RULES 2016

Application to cancel variation of rights under sub-section (2) of section 48.

1. The application to NCLT shall be made in Form No. NCLT. 1

2. The applicant shall at least fourteen days before the date of the filing of the petition
advertise the application in accordance with rule 35 OF NCLT RULES 2016

3. Where any objection of any person whose interest is likely to be affected by the proposed
application is received by the applicant, a copy thereof shall be served to the Registrar of
Companies and Regional Director on or before the date of hearing.

4. Tribunal, after hearing the applicant and any other person may, if it is satisfied, having
regard to all the circumstances of the case that the variation would unfairly prejudice to
the shareholders of the class represented by the applicant, cancel the variation and shall, if
not so satisfied, confirm the variation for reasons to be recorded:

SHAREHOLDERS' DEMOCRACY

The concept of shareholders’ democracy in the present day corporate world denotes the
shareholders’ supremacy in the governance of the business and affairs of corporate sector
either directly or through their elected representatives.

Democracy means the rule of people, by people and for people. In that context the
shareholders democracy means the rule of shareholders, by the shareholders, and for the
shareholders in the corporate enterprise, to which the shareholders belong. Precisely it is a
right to speak, congregate, communicate with coshareholders and to learn about what is going
on in the company.

Under the Companies Act the powers have been divided between two segments: one is the
Board of Directors and the other is of shareholders. The directors exercise their powers
through meetings of Board of directors and shareholders exercise their powers through
General Meetings. Although constitutionally all the acts relating to the company can be
performed in General Meetings but most of the powers in regard thereto are delegated to the

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Board of directors by virtue of the constitutional documents of the company viz. the
Memorandum of Association and Articles of Association.

Under Section 179 of the Companies Act 2013 a general power has been conferred on the
Board of directors. The section provides that “Subject to the provisions of this Act, the Board
of directors of a company shall be entitled to exercise all such powers and to do all such acts
and things, as the company is authorised to exercise and do.”

Proviso to this section restricts the power of the Board of directors to do things which are
specifically required to be done by shareholders in the General Meetings under the provisions
of Companies Act or Memorandum of Association or the Articles of Association.

Thus the Companies Act has tried to demarcate the area of control of directors as well as that
of shareholders. Basically all the business to be transacted at the meetings of shareholders is
by means of an ordinary resolution or a special resolution or by postal ballot.

SHAREHOLDERS’ AGREEMENTS

Shareholders’ agreements (SHA) are quite common in business. In India shareholder’s

agreement have gained popularity with bloom in newer forms of businesses.
There are numerous situations where such agreements are entered into – family companies,
JV companies, venture capital investments, private equity investments, strategic alliances,
and so on.
Shareholders’ agreement is a contractual arrangement between the shareholders of a company
describing how the company should be operated and the defining inter-se shareholders’ rights
and obligations. Shareholders’ agreement.
SHAs are the result of mutual understanding among the shareholders of a company to which,
the company generally becomes a consenting party. Such agreements are specifically drafted
to provide specific rights, impose definite restrictions over and above those provided by the
Companies Act.
Enforceability of the Shareholder’s Agreement

While shareholders’ agreements are enforceable in England regardless of whether they have
been incorporated in the articles of association of the company, in India courts have either
refused to recognize clauses in shareholders agreements or, even when consistent with
company legislation, enforced such clauses only if they have been incorporated in the articles
of association of the company

CASE LAWS

S.NO. CASE NAME PROVISONS

1 V.B. Rangaraj v. The Supreme Court in V.B. Rangaraj v. V.B. Gopalakrishnan
V.B. held that a restriction which is not specified in the articles of
Gopalakrishnan association is not binding either on the company or on the
shareholders.
2 M.S. However, the Supreme Court in 2003 in its decision in M.S.
Madhusoodhanan v. Madhusoodhanan v. Kerala Kaumudi Pvt. Ltd. not disagreeing
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Kerala Kaumudi Pvt. with the decision in V.B Rangaraj case mentioned above, but
Ltd distinguishing itself from the facts in that judgment, held that a
restriction in relation to identified members on identified shares
of a private company did not amount to restriction of
transferability of shares per se.
3 Western Maharashtra In Western Maharashtra Development Corporation Ltd. v. Bajaj
Development Auto Ltd Company, it was held that such clauses are to hamper
Corporation Ltd. v. the free transferability of shares and in violation of the
Bajaj Auto Ltd Companies Act, and hence, are not enforceable.
Company
4 Messer Holdings Subsequently in the case of Messer Holdings Limited v. Shyam
Limited v. Shyam Madanmohan Ruia the Division Bench of Bombay High Court
Madanmohan Ruia ouerruled its judgement in Western Maharashtra Development
Corporation Ltd and provided a more liberal interpretation and
recognised the rights inter se among shareholders in case of
restrictions on transfer of shares.
5 V.B. Rangaraj case In Indian context, while the landmark decision of the Supreme
Court in V.B. Rangaraj case mentioned above is often cited in the
context of shareholders’ agreements, most other decisions have
been rendered by the High Courts in various states especially the
Bombay High Court. The decisions on shareholders’ agreements
are not uniformly inclined in a direction. The High Court
decisions are limited in their applicability as they are susceptible
to disagreements by other High Courts, thereby conferring
limited precedential value. It is difficult to come to clear and
crisp answers as to enforceability of shareholders’ agreements

SPECIMEN SHAREHOLDERS AGREEMENT

THIS AGREEMENT made the day of , 2013 BETWEEN MR. A residing at

(hereinafter referred to as “A”) of the First Part And MR. B residing at
(hereinafter referred to as “B”) of the Second Part And (P) LTD.,
a Company incorporated under the Companies Act, 2013 and having its registered office at
herein represented by its (hereinafter referred to as “XYZ”) of the Third
Part

WHEREAS
a. A and B hereto have agreed to jointly manage a company in India named “XYZ Pvt Ltd.
b. A and B have agreed to become Equity Partners by investing in the shares of the
Company subject to the condition that they shall enter into a Shareholders Agreement in
terms of these presents
c. The Company “XYZ PVT. LTD. “ has been requested to, and has agreed to, join in the
execution of these presents and to take this Agreement on record so that it is aware of the
rights and obligations of A AND B, the parties hereto and ensure that they comply with
the same

NOW THIS AGREEMENT WITNESS AS FOLLOWS

1. A and B shall jointly invest in the Company which is an existing company limited by
shares under the Companies Act, 2013 and known as “XYZ PVT LTD
2. The registered office of the Company shall be situate at , or at such

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other places as may be mutually agreed upon between the parties in writing
3. The Company shall carry on the business of running and managing restaurants and
(Description of the business and complete address), either by itself or through other
agencies or company industries and may carry on any other business as may be decided
by B hereto and shall ensure that no other business activity is undertaken by the Company
at any time without the consent of A hereto.
4. The authorised share capital of the Company is Rs. /- (Rupees only)
consisting of ( ) equity shares of Rs.10/- (Rupees ten) each.
5. The subscription by A hereto to the aforesaid authorised share capital of the Company
shall be 1,00,000 (One lakh) equity shares of Rs.10/- (Rupees ten only) and the
subscription by B to the aforesaid authorised share capital of the Company shall be
1,00,000 (One lakh) equity shares of Rs.10/-(Rupees ten only).
6. There shall be no further issue of capital without the consent of both the parties hereto,
and unless otherwise agreed upon in writing further investment shall be as mutually
decided by both parties.
7. The Board of Directors of the Company shall consist of A and B
8. A shall have the right to nominate two (2) Additional Directors onto the Board and B
shall have the right to nominate three or more Additional Directors on the Board. Both
parties shall be entitled at any time to remove any of the representatives on the Board by
written notice to the other party and to appoint another or other/s in their place.
9. The Auditors of the Company shall be M/s. .
10. The Auditors of the Company shall not be changed without the prior written consent of
both A and B.
11. A and B agree and undertake not to disclose or divulge directly or indirectly to any third
party any trade or business secret or other secret or confidential information pertaining to
the business, affairs or transactions of each other or of the Company or of their clients or
customers, that may have been disclosed, imparted to or acquired by either of them from
the other or from the Company.
12. No modification of alteration of this Agreement or any of its terms or provisions shall be
valid or binding on A and/or B unless made in writing duly signed by both.
13. This Agreement is personal to A and B and shall not be transferred or assigned in whole
or in part by either party without the prior written consent of the other.

In witnessed whereof the parties hereto have duly executed these presents the day, month and
year first above written.

Witness – 1 ……………………….. Signature by MR. A

Witness – 2 ……………………….. Signature by MR. B
Witness – 2 ……………………….. Signature on behalf of XYZ

ASSIGNMENT OF SHARES IN A COMPANY

A “share” in a company is right to a specified amount of the capital of the company, carrying
with it certain rights and liabilities, while the company is a going concern and in the winding
up. It represents the interest of the holder measured, for the purpose of liability and divided,
by a sum of the money.
Section 44 of the Companies Act, 2013 defines the nature of property in the shares of a
company. It lays down: “The shares or other interest of any member in a company shall be
movable property, transferable in the manner provided in the articles of the company.”
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The definition of the “goods” in the Sale of Goods Act, 1930, specifically includes stocks and
shares. Hence, it is necessary to provide by the articles the manner in which transfer of shares
are to be affected. Where the Articles of Association of a company are silent and also
expressly exclude the application of the regulations in Table F in Schedule It to the
Companies Act, 2013, the general law relating to transfer of movable property will govern
the transfer.
A company can’t refuse to transfer shares except as provided by its articles. It is only
necessary to look to the Articles of Association to ascertain the mode of transfer and the
restrictions upon it.
Section 56 (1) of the Companies Act, 2013 lay down that a company shall not register a
transfer of shares in the company, unless a proper instrument of transfer duly stamped and
executed by or on behalf of the transferor and by or on behalf of the transferee specifying the
name, address and occupation, if any, of the transferee, has been delivered to the company
along with the share certificate, or if no such certificate is in existence, along with the letter
of allotment of the shares.
The share transfer form as per Companies Act 2013 read with Rule 11 of Companies (share
capital and debenture rules) 2014 is Form No SH-4.
A SPECIMEN OF DEED OF ASSIGNMENT OF SHARES IN A COMPANY
THIS ASSIGNMENT is made this ............................ day of ....................................between
AB, son of ............................., resident of ............................... (Hereinafter called “the
Assignor”) of the one part, and CD, son of ............................., resident of..............................
(Hereinafter called “the Assignee”) of the other part.

NOW THIS DEED WITNESSES AS FOLLOWS

That in consideration of the sum of Rs.................... (Rupees ...........................) paid by the
assignee to the assignor, the receipt whereof the assignor hereby acknowledges, the said AB
hereby assigns, sells and transfers to the said CD ................Equity Share of Rs.......................
each, fully paid up, bearing consecutive Nos ....................to......................(inclusive), which
stand in the name of the assignor in the Register of Members of ................ Co. Ltd. TO HOLD
the same to the assignee absolutely, subject nevertheless to the conditions on which the
assignor held the same up to date.
AND the assignee hereby agrees to take the said Equity Shares subject to such conditions.
IN WITNESS WHEREOF the assignor and the assignee do here to affix their respective
signatures on the day, month and the year stated above.
Witness: Assignor
Witness: Assignee

COCEPT OF VETO

A veto – Latin for "I forbid" – is the power to unilaterally stop an official action, especially
the enactment of legislation. A veto may give power only to stop changes, thus allowing its
holder to protect the status quo.

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The Companies Act, 2013 introduced various provisions to essentially bridge the gap towards
protection and welfare of the minority shareholders under Companies Act, 1956. As per the
Companies Act, 1956, shareholders who hold the majority of shares, rule the company. This
majority principle is recognised in a land mark case Foss vs. Harbottle (1843). The decision
taken by the majority shareholders was binding on the minority. Now this principal has been
replaced and minority shareholders have been given greater power under Companies Act,
2013.

VETO POWER AND CASTING VOTE

Veto power is different than casting vote of Chairman. Casting vote is applicable on in case
of equality of votes in favour and against. In case of equality the Chairman may give vote
either in favour or against the resolution and it can be carried accordingly. Veto power has
not been defined in Companies Act. However, dictionary meaning of veto power is: "to
refuse to admit or approve; specifically: to refuse assent to (a legislative bill) so as to prevent
enactment or cause reconsideration." Shareholders Agreement and Articles of Association of
a company may provide for certain rights to the minority shareholder who has invested funds
in the company. Such powers may include power to refuse capital expenditure over certain
specified limit. In case the representative of the minority group is not in favour of the capital
expenditure proposed by the company, he can exercise his right under the Articles which in
common terminology is referred to as "veto powers".

PRACTICAL QUESTIONS
Ultimate result of insider trading is gain to unscrupulous investors at the cost of development of
securities market. COMMENT

The given statement rightly lays down the pernicious effect of insider trading. Securities market in
any country is a significant segment of the economy if the health of the securities market suffers, the
economy also suffers and brings varieties of miseries to common people and common investors. The
ill effects of insider trading include the following.
 It undermines investor confidence in the fairness and integrity of the capital market.
 The privileged few benefit and common investors are left to suffer loss.
 Rampant insider trading deters foreign investors as well as local potential investors from entering
the securities market.
 Insider trading often takes the form of upward rigging of share prices to meet huge loss in a few
days. Rigging downwards creates panic in the minds of the common investors who unload their
holdings to avoid further losses and unloaded shares are picked up by the unscrupulous insiders
through brokers at a much lesser than what should be.
 If the concerned company was really going to have an upswing shortly, these insiders make
safety/safety unethical gain.
Therefore, to curb this unethical possible practice in most countries of the world, there are regulations
and in India also we have SEBI (Prohibition of Insider Trading) Regulation, 2015.

Variation of members’ rights is hanging like Demoded sword on the members in the present
liberalized global economy.” Do you agree with this statement in Indian context? Support your
answer with reason
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The power to vary members’ rights is contained in section 48(1) of the Companies Act, 2013. It is
indeed a danger to retail shareholders because the aforesaid provision read with Sec. 86 of the Act
makes it easier for the controlling group to vary the rights to its advantage.

Apparently, Sec. 48(1) of Companies Act, 2013 provides statutory checks on variation of rights by
requiring the consent in writing of at least 3/4th of holders of shares of the concerned class or by
passing a special resolution of the members of the concerned class in a meeting. This is intrinsically a
theoretical approach as retail shareholders (whose number may be in thousands) are generally not
aware of the pernicious implications of the move. Also, very few retail shareholders attend the general
or class meetings of companies. The move for variation will invariably come from the controlling
group to acquire higher voting power to consolidate its grip over the company which in the long run
may not be beneficial to the ordinary retail shareholders.

Again, with the amendment of Sec. 43 in the year 2000 to enable issue of shares with differential
rights, the passage has been rendered smooth. Further, the Companies (Passing of the Resolution by
Postal Ballot) Rules, 2014 provides that resolutions relating to variation in the rights attached to a
class of shares or debentures or other securities as specified under Sec. 48(1) shall be passed through
postal ballot.

The experience with postal ballots so far is not very encouraging. It does not allow discussion. If any
particular matter requires ‘yes or no’ response, the lay members without much thought may be
inclined to write yes or they may not send their responses. Also, response which are technically
defective or received late will be rejected. Therefore, the controlling group will not spare any effort in
organizing voting/consent as may be appropriate to achieve its objective.

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CHAPTER-7 REGISTERS AND RETURNS

REGISTER OF MEMBER AND OTHER SECURITY

Rule 3(1) says company shall maintain a Rule 4 says company shall maintain a
register of its members in Form MGT-1 separate register of debenture holders or
for section 88(1)(a) other security holders Form MGT-2 for
section 88(1)(b) or (c)

REGISTER OF MEMBERS

Rule 3(1) of the Companies (Management and Administration) Rules, 2014 provides that for the
purposes of section 88(1)(a) of the Companies Act, 2013, every company shall, from the date of its
registration, keep and maintain a register of its members in Form MGT-1.

23rd September, 2016

Companies (Management and Administration) Rules, 2014
in the case of a company existing on the commencement of the Act, the particulars as
available in the register of members maintained under the Companies Act, 1956 shall be
transferred to the new register of members in Form No.MGT-1 and in case additional
information, required as per provisions of the Act and these rules, is provided by the
members, such information may also be added in the register as and when provided.
Contents of the Register of members

a) Name of the member;

b) address
c) Date of becoming member;
d) Date of cessation;
e) Amount of guarantee, if any;
f) Any other interest, if any
g) Instructions, if any, given by the member with regard to sending of notices etc.

SPECIAL NOTE:

 A company shall not enter in the Register of members a statement as to the fact that it has lien on
the shares.
 In case of joint holders names, address, occupation, etc., of all persons will be entered in the
Register of members in order of their application.

Register of debenture holders or any other security holders

Rule 4 of the Companies (Management and Administration) Rules, 2014 provides that for the
purposes of section 88(1)(b) or (c) of the Companies Act, 2013, every company which issues or allots
debentures or any other security shall maintain a separate register of debenture holders or other
security holders, as the case may be, for each type of debentures or other securities in Form MGT-
2.Entries to be made in the register simultaneously on the allotment by the Board.
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Entries in the registers maintained under section 88 shall be made within 7 days after the Board of
Directors or its duly constituted committee approves the allotment or transfer of shares, debentures or
any other securities, as the case may be.

Entries for securities held with a depository

If shares, debentures or other securities are held with a depository, the name, particulars of the
depository and number of shares, debentures or other securities so held shall be entered in the
respective register.

Foreign register of members, debenture holders, other security holders

Rule 7 of the Companies (Management and Administration) Rules, 2014 provides that for the
purposes of section 88(4) of the Companies Act, 2013,
A company which has
1. share capital or
2. which has issued debentures or
3. any other security may,
If so authorized by its articles keep in any country outside India a part of the register of members or
as the case may be, of debenture holders or of any other security holders or of beneficial owners,
resident in that country (FOREIGN REGISTER)

1) The company shall, within thirty days from the date of the opening of any foreign register, file
with the Registrar notice of the situation of the office in Form MGT-3 where such register is
kept.
2) In the event of any change in the situation of such office or of its discontinuance, shall, within
thirty days from the date of such change or discontinuance, as the case may be, file notice in
Form MGT-3 with the Registrar of such change or discontinuance.
3) A foreign register shall be deemed to be part of the company’s register (in this rule called to as the
"principal register") of members or of debenture holders or of any other security holders or
beneficial owners, as the case may be.
4) The foreign register shall be maintained in the same format as the Principal Register.
5) A foreign register shall be open to inspection and may be closed, and extracts may be taken there
from and copies thereof may be required, in the same manner, mutatis mutandis, as is applicable
to the principal register
6) The company shall
 transmit to its registered office in India a copy of every entry in any foreign register within fifteen
days after the entry is made; and
 keep at such office a duplicate register of every foreign register duly entered up from time to time.

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Authentication of register of securities

Rule 8 provides that entries in the registers maintained under section 88 and index included therein
shall be authenticated by the company secretary of the company or by any other person authorized by
the Board for the purpose, and the date of the board resolution authorizing the same shall be
mentioned. Entries in the foreign register shall be authenticated by the company secretary of the
company or person authorized by the Board by appending his signature to each entry.

DECLARATION IN RESPECT OF BENEFICIAL INTEREST IN ANY SHARE SECTION 89

DECLARATION BY REGISTERED AND BENEFICIAL OWNER

Declaration in respect of beneficial interest in Filing of declaration of beneficial interest with

any shares the Company

Rule 9 of the Companies (Management and Section 89(2), read with rule 9(2) of the
Administration) Rules, 2014 provides that for Companies (Management and Administration)
the purposes of section 89(1) “the registered Rules, 2014 which provides the beneficial owner
owner, shall file with the company, a shall file with the company, a declaration
declaration to that effect in Form MGT-4, disclosing such interest in Form MGT-5, within
within thirty days from the date on which his thirty days after acquiring such beneficial interest
name is entered in the register of members of in the shares of the company:
such company:
Provided that where any change occurs in the
Provided that where any change occurs in the beneficial interest in such shares, the beneficial
beneficial interest in such shares, the registered owner shall, within thirty days from the date of
owner shall, within thirty days from the date of such change, make a declaration of such change
such change, make a declaration of such change to the company in Form MGT-5.
to the company in Form MGT-4.

Filing of declaration of beneficial interest with the Registrar

Section 89(6) provides that where any declaration under section 89 is received by the company, the
company shall file, within thirty days from the date of receipt of declaration by it, a return in Form
MGT-6.

Penalty for non-maintenance of Registers

If any person fails to make a declaration as required under sub-section (1) or sub-section (2)
or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and in case of
continuing failure, with a further penalty of two hundred rupees for each day after the first
during which such failure continues, subject to a maximum of five lakh rupees. [Section
88(5)] (COMPANIES AMENDMENT ACT 2020)
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If a company, required to file a return under sub-section (6), fails to do so before the expiry of
the time specified therein, the company and every officer of the company who is in default
shall be liable to a penalty of one thousand rupees for each day during which such failure
continues, subject to a maximum of five lakh rupees in the case of a company and two lakh
rupees in case of an officer who is in default. [Section 88(7)] (COMPANIES AMENDMENT ACT
2020)

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REGISTER OF SIGNIFICANT BENEFICIAL OWNERS IN A COMPANY SECTION 90

(1) Every individual, who acting alone or together, or through one or more persons or trust,
including a trust and persons resident outside India, holds beneficial interests, of not less than
twenty-five per cent. or such other percentage as may be prescribed, in shares of a company
or the right to exercise, or the actual exercising of significant influence or control as defined
in clause (27) of section 2, over the company (herein referred to as "significant beneficial
owner"), shall make a declaration to the company, specifying the nature of his interest and
other particulars, in such manner and within such period of acquisition of the beneficial
interest or rights and any change thereof, as may be prescribed

Provided that the Central Government may prescribe a class or classes of persons who shall
not be required to make declaration under this sub-section.

(2) Every company shall maintain a register of the interest declared by individuals under sub-
section (1) and changes therein which shall include the name of individual, his date of birth,
address, details of ownership in the company and such other details as may be prescribed.

(3) The register maintained under sub-section (2) shall be open to inspection by any member
of the company on payment of such fees as may be prescribed.

(4) Every company shall file a return of significant beneficial owners of the company and
changes therein with the Registrar containing names, addresses and other details as may be
prescribed within such time, in such form and manner as may be prescribed.

(5) A company shall give notice, in the prescribed manner, to any person (whether or not a
member of the company) whom the company knows or has reasonable cause to believe—

(a) to be a significant beneficial owner of the company;

(b) to be having knowledge of the identity of a significant beneficial owner or another person
likely to have such knowledge; or

(c) to have been a significant beneficial owner of the company at any time during the three
years immediately preceding the date on which the notice is issued,

and who is not registered as a significant beneficial owner with the company as required
under this section.

(6) The information required by the notice under sub-section (5) shall be given by the
concerned person within a period not exceeding thirty days of the date of the notice.

(7) The company shall,—

(a) where that person fails to give the company the information required by the notice within
the time specified therein; or
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(b) where the information given is not satisfactory,

apply to the Tribunal within a period of fifteen days of the expiry of the period specified in
the notice, for an order directing that the shares in question be subject to restrictions with
regard to transfer of interest, suspension of all rights attached to the shares and such other
matters as may be prescribed.

(8) On any application made under sub-section (7), the Tribunal may, after giving an
opportunity of being heard to the parties concerned, make such order restricting the rights
attached with the shares within a period of sixty days of receipt of application or such other
period as may be prescribed.
(9) The company or the person aggrieved by the order of the Tribunal may make an
application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section
(8), within a period of one year from the date of such order:
Provided that if no such application has been filed within a period of one year from the date
of the order under sub-section (8), such shares shall be transferred to the authority constituted
under sub-section (5) of section 125, in such manner as may be prescribed
(10) If any person fails to make a declaration as required under sub-section (1), he shall be
liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further
penalty of one thousand rupees for each day after the first during which such failure
continues, subject to a maximum of two lakh rupees. (COMPANIES AMENDMENT ACT
2020)

(11) If a company, required to maintain register under sub-section (2) and file the information
under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so
or denies inspection as provided therein, the company shall be liable to a penalty of one lakh
rupees and in case of continuing failure, with a further penalty of five hundred rupees for
each day, after the first during which such failure continues, subject to a maximum of five
lakh rupees and every officer of the company who is in default shall be liable to a penalty of
twenty-five thousand rupees and in case of continuing failure, with a further penalty of two
hundred rupees for each day, after the first during which such failure continues, subject to a
maximum of one lakh rupees. (COMPANIES AMENDMENT ACT 2020)

(12) If any person wilfully furnishes any false or incorrect information or suppresses any
material information of which he is aware in the declaration made under this section, he shall
be liable to action under section 447.
Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018
RULE: 2 DEFINITIONS
Beneficial owner means a person having beneficial interest in a share but whose name is not
entered in the register of members of a company as the holder of that share
Registered owner means a person whose name is entered in the register of members of a
company as the holder of shares in that company but who does not hold the entire beneficial
interest in such shares

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Majority Stake means

 holding more than one-half of the equity share capital in the body corporate; or
 holding more than one-half of the voting rights in the body corporate; or
 having the right to receive or participate in more than one-half of the distributable
dividend or any other distribution by the body corporate;

Reporting company means a company as defined in clause (20) of section 2 of the Act,
required to comply with the requirements of section 90 of the Act
Significant Beneficial Owner in relation to a reporting company means an individual
referred to in subsection (1) of section 90, who acting alone or together, or through one or
more persons or trust, possesses one or more of the following rights or entitlements in such
reporting company, namely:-
i. holds indirectly, or together with any direct holdings, not less than ten per cent. of the
shares
ii. holds indirectly, or together with any direct holdings, not less than ten per cent. of the
voting rights in the shares
iii. has right to receive or participate in not less than ten per cent. of the total distributable
dividend, or any other distribution, in a financial year through indirect holdings alone, or
together with any direct holdings
iv. has right to exercise, or actually exercises, significant influence or control, in any manner
other than through direct holdings alone:
Explanation I. – For the purpose of this clause, if an individual does not hold any right or
entitlement indirectly under sub-clauses (i), (ii) or (iii), he shall not be considered to be a
significant beneficial owner.
Explanation II. – For the purpose of this clause, an individual shall be considered to hold a
right or entitlement DIRECTLY in the reporting company, if he satisfies any of the
following criteria, namely

(i) the shares in the reporting company representing such right or entitlement are held in the
name of the individual;

(ii) the individual holds or acquires a beneficial interest in the share of the reporting company
under subsection (2) of section 89, and has made a declaration in this regard to the reporting
company.

Explanation III. – For the purpose of this clause, an individual shall be considered to hold a
right or entitlement INDIRECTLY in the reporting company, if he satisfies any of the
following criteria, in respect of a member of the reporting company, namely:
i ii iii iv
where the member of the where the where the member of where the member of
reporting company is a member of the the reporting company the reporting
body corporate (whether reporting is a partnership entity company is a trust
incorporated or registered company is a (through itself or a (through trustee),
in India or abroad), other Hindu partner), and the and the individual
than a limited liability Undivided individual (a) is a trustee in case
partnership, and the Family (HUF) (a) is a partner; or of a discretionary trust
individual, (through (b) holds majority stake in or a charitable trust;
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(a) holds majority stake in karta), and the the body corporate which (b) is a beneficiary in
that member; or individual is is a partner of the case of a specific trust;
(b) holds majority stake in the karta of the partnership entity; or (c) is the author or
the ultimate holding HUF; (c) holds majority stake in settlor in case of a
company (whether the ultimate holding revocable trust.
incorporated or registered in company of the body
India or abroad) of that corporate which is a
member; partner of the partnership
entity.
For the purposes of this clause, the instruments in the form of global depository receipts,
compulsorily convertible preference shares or compulsorily convertible debentures shall be
treated as ‘shares

significant influence means the power to participate, directly or indirectly, in the financial
and operating policy decisions of the reporting company but is not control or joint control of
those policies
RULE: 2A DUTY OF THE REPORTING COMPANY
(1) Every reporting company shall take necessary steps to find out if there is any individual
who is a significant beneficial owner, as defined in clause (h) of rule 2, in relation to that
reporting company, and if so, identify him and cause such individual to make a declaration in
Form No. BEN-1.
(2) Without prejudice to the generality of the steps stated in sub-rule (1), every reporting
company shall in all cases where its member (other than an individual), holds not less than
ten per cent. of its
(a) shares, or (b) voting rights, or (c) right to receive or participate in the dividend or any
other distribution payable in a financial year,
give notice to such member, seeking information in accordance with sub-section (5) of
section 90, in Form No. BEN-4.

RULE: 3 Declaration to company in respect of beneficial interest under section 89

(1) On the date of commencement of the Companies (Significant Beneficial Owners)
Amendment Rules, 2019, every individual who is a significant beneficial owner in a
reporting company, shall file a declaration in Form No. BEN-1 to the reporting company
within ninety days from such commencement.
(2) Every individual, who subsequently becomes a significant beneficial owner, or where his
significant beneficial ownership undergoes any change shall file a declaration in Form No.
BEN-1 to the reporting company, within thirty days of acquiring such significant beneficial
ownership or any change therein
Explanation.- Where an individual becomes a significant beneficial owner, or where his
significant beneficial ownership undergoes any change, within ninety days of the
commencement of the Companies (Significant Beneficial Owners) Amendment Rules,
2019, it shall be deemed that such individual became the significant beneficial owner or
any change therein happened on the date of expiry of ninety days from the date of
commencement of said rules, and the period of thirty days for filing will be reckoned
accordingly
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RULE 4 RETURN OF BENEFICIAL INTEREST

Upon receipt of declaration under rule 3, the reporting company shall file a return in Form
No. BEN-2 with the Registrar in respect of such declaration, within a period of thirty days
from the date of receipt of such declaration by it, along with the fees as prescribed in
Companies (Registration offices and fees) Rules, 2014.
RULE 5 REGISTER OF SIGNIFICANT BENEFICIAL OWNERS
(1) The company shall maintain a register of beneficial owners holding significant beneficial
interest in Form No. BEN-3.
(2) The register shall be open to inspection open for inspection during business hours, at such
reasonable time of not less than two hours, on every working day as the board may decide, by
any member of the company on payment of such fee as may be specified by the company but
not exceeding fifty rupees for each inspection.
RULE 6 Notice seeking information about significant beneficial owners
A company shall give notice seeking information under sub-section (5) of section 90, in Form
No. BEN-4.
RULE 7 Application to the Tribunal
The reporting company shall apply to the Tribunal, -

(i) where any person fails to give the information required by the notice in Form No. BEN-4,
within the time specified therein; or
(ii) where the information given is not satisfactory,

in accordance with sub-section (7) of section 90, for order directing that the shares in
question be subject to restrictions, including –

(a) restrictions on the transfer of interest attached to the shares in question;

(b) suspension of the right to receive dividend or any other distribution in relation to the
shares in question;
(c) suspension of voting rights in relation to the shares in question;
(d) any other restriction on all or any of the rights attached with the shares in question.

RULE 8 Non-Applicability
These rules shall not be made applicable to the extent the share of the reporting company is
held by

(a) the authority constituted under sub-section (5) of section 125 of the Act;
(b) its holding reporting company. Provided that the details of such holding reporting
company shall be reported in Form No. BEN-2.
(c) the Central Government, State Government or any local Authority;
(d) (i) a reporting company, or (ii) a body corporate, or (iii) an entity, controlled by the
Central Government or by any State Government or Governments, or partly by the
Central Government and partly by one or more State Governments;
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(e) Securities and Exchange Board of India registered Investment Vehicles such as mutual
funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs),
Infrastructure Investment Trust (InVITs) regulated by the Securities and Exchange Board
of India,
(f) Investment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and
Development Authority of India, or Pension Fund Regulatory and Development
Authority.

BOOK CLOSURE SECTION 91

Closure of Register of Members and Debenture holders

Section 91 of the Act provides that the Register of members can be closed for an aggregate period of
45 days in a year but not exceeding 30 days at a time. A company may decide the book closure
subject to the compliance with certain requirements under the Act and in case of a listed company also
subject to compliance of Listing Agreement. Whenever there arises a need to close Register of
members, a company may after giving not less than seven days previous notice by advertisement in
some newspapers circulating in the district in which the registered office of the company is situated,
close the Register of members or the Register of debenture holders or Register of other security
holders for any period or periods not exceeding in the aggregate forty-five days in each year, but not
exceeding thirty days at any one time.

The notice period of seven days may be reduced to such lesser period as may be specified by SEBI for
listed companies or the companies which intend to get their securities listed, in such manner as may
be prescribed. [Section 91(1)]

Publication of notice in the newspaper for closure of register of members not applicable
to a private company

The provisions for publication of notice in newspapers shall not be applicable to a private
company provided that the notice has been served on all members of the private company not
less than seven days prior to closure of the register of members/ debenture holders/other
security holders. [Rule 10(2)]

The purposes behind closure of Register of members may be:

a) Declaration of a dividend,
b) Issue of bonus shares,
c) Issue of right shares,
d) Holding of Annual General Meeting, etc.,
e) Payment of interest,
f) Conversion of debentures into shares.
g) Redemption of debentures, etc.
h) Sub-division or consolidation of the shares.

Penalty for contravention in notice period

If the Register of members or of debenture holders is closed without giving the notice
provided in subsection (1), or after giving shorter notice than that so provided, or for a

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continuous or an aggregate period in excess of the limits specified in that sub-section, the
company, and every officer of the company who is in default, shall be punishable with fine of
5,000 for every day subject to a maximum of 1 lakh during which the register is kept closed.

ANNUAL RETURN SECTION 92

Section 92(1) read with Rule 11 of the Companies (Management and Administration) Rules,
2014 provides that every company shall prepare a return (hereinafter referred to as the annual
return) in the prescribed Form MGT-7 and One Person Company and Small Company shall file
annual return from the financial year 2020-2021 onwards in Form No.MGT-7A.containing the
particulars as they stood on the close of the financial year regarding

1. its registered office, principal business activities, particulars of its holding, subsidiary and
associate companies;
2. its shares, debentures and other securities and shareholding pattern;
3. its members and debenture-holders along with changes therein since the close of the previous
financial year;
4. its promoters, directors, key managerial personnel along with changes therein since the close of
the previous financial year;
5. meetings of members or a class thereof, Board and its various committees along with attendance
details;
6. remuneration of directors and key managerial personnel;
7. penalty or punishment imposed on the company, its directors or officers and details of
compounding of offences and appeals made against such penalty or punishment;
8. matters relating to certification of compliances, disclosures as may be prescribed;

Provided further that the Central Government may prescribe abridged form of annual return
for "One Person Company, small company and such other class or classes of companies as
may be prescribed.
Every company shall place a copy of the annual return on the website of the company, if any, and the
web-link of such annual return shall be disclosed in the Board's report.

Certification of annual returns in case of listed company

a) The annual return, filed by a listed company or, by a company having paid-up share capital of 10
crore or more and turnover of 50 crore rupees or more, shall be certified by a Company Secretary
in practice. The certificate shall be in Form MGT-8. [Rule 11(2)]
b) The certificate shall state that the annual return discloses the facts correctly and adequately and
that the company has complied with all the provisions of this Companies Act.
c) If a company secretary in practice certifies the annual return otherwise than in conformity with
the requirements of section 92 or the rules made thereunder, he shall be punishable with fine
which shall not be less than 50,000 but which may extend to 5 lakh.

Signing and certification of the Annual Return

a) The annual return shall be signed by a director and the company secretary, or where there is no
company secretary, by a company secretary in practice.
b) In relation to One Person Company and small company, the annual return shall be signed by the
company secretary, or where there is no company secretary, by the director of the company.
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Extract of annual return

Section 92(3) of the Companies Act, 2013 read with Rule 12(1) of the Companies
(Management and Administration) Rules, 2014 states that an extract of the annual return to
be attached with the Board’s Report shall be in Form MGT-9.

PROVIDED THAT MGT 9 NOT REQUIRED TO BE ATTACHED IN CASE WEB

LINK OF SUCH ANNUAL RETURN HAS BEEN DISCLOSED IN BOARD REPORT
Filing of the annual return with the Registrar

Section 92(4) provides that every company shall file with the Registrar a copy of the annual
return, within sixty days from the date on which the annual general meeting is held or where
no annual general meeting is held in any year within sixty days from the date on which the
annual general meeting should have been held together with the statement specifying the
reasons for not holding the annual general meeting, with such fees or additional fees as
prescribed in the Companies (Registration Offices and Fees) Rules, 2014. [Rule 12(2)]
Filing annual return in absence of annual general meeting
Where no Annual General Meeting is held in a particular year, the annual return has to be
filed within 60 days from the last day on or before which the meeting should have been held
together with the statement specifying the reasons for not holding the annual general meeting,
If an Annual Return has been filed and the Annual General Meeting was held later, in such
cases filing of another Annual Return is not necessary.

PENALTY SECTION 92(5)

If any company fails to file its annual return under sub-section (4), before the expiry of the
period specified therein such company and its every officer who is in default shall be liable to
a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one
hundred rupees for each day during which such failure continues, subject to a maximum
of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is
in default].(companies amendment Act 2020)

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Registrar of Companies Failure to hold an annual general meeting is not a defence for
v Utkal Distributors Pvt. non-filing of annual return.
Ltd.
2 Sukhbir Saran A defunct company must file statutory return till its name is
Bhatnagar v Registrar of struck off from the register of companies, by the Registrar.
Companies
3 Madan Gopal Dey v It is not an excuse for non-compliance with the requirements of
State of West Bengal the section that the company did not function.

4 Anita Chadha v Default in filing annual return and balance sheet of the company
Registrar of Companies is a continuing offence under section 159, 162 of the Companies
Act, 1956 (now section 92 of the Companies Act, 2013) is
attracted and is a compoundable offence.

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Consequences on failure to file annual returns to the RoC

If a company fails to comply with any of the provisions contained in section 92, the company shall be
punishable with fine which shall not be less than 50,000 but which may extend to 5 lakhs and every
officer of the company who is in default shall be punishable with imprisonment for a term which may
extend to six months or with fine which shall not be less than 50,000 but which may extend to 5 lakh
rupees, or with both.

If the annual return is not filed continuously for three financial years, then any director of such
company shall be disqualified under section 164(2)(g) of the Companies Act, 2013 and not be eligible
for appointment as a director of that company and any other company for a period of five years from
the date on which such company in which he is a director failed, inter alia, to file annual returns.

Penalty on refusal of inspection of annual return by the company

If any inspection or the making of any extract or copy required under this section is refused,
the company and every officer of the company who is in default shall be liable, for each such
default, to a penalty of one thousand rupees for every day subject to a maximum of one lakh
rupees during which the refusal or default continues.

The Central Government may also, by order, direct an immediate inspection of the document,
or direct that the extract required shall forthwith be allowed to be taken by the person
requiring it.

SECTION 93 OMITTED BY THE COMPANIES (AMENDMENT )ACT,2017

Place of keeping and Inspection of Registers, Returns, etc. SECTION 94

94. (1) The registers required to be kept and maintained by a company under section 88 and
copies of the annual return filed under section 92 shall be kept at the registered office of the
company:
Provided that such registers or copies of return may also be kept at any other place in India
in which more than one-tenth of the total number of members entered in the register of
members reside, if approved by a special resolution passed at a general meeting of the
company [and the Registrar has been given a copy of the proposed special resolution in
advance:]
Provided further that the period for which the registers, returns and records are required to
be kept shall be such as may be prescribed.
(2) The registers and their indices, except when they are closed under the provisions of this
Act, and the copies of all the returns shall be open for inspection by any member, debenture-
holder, other security holder or beneficial owner, during business hours without payment of
any fees and by any other person on payment of such fees as may be prescribed.
(3) Any such member, debenture-holder, other security holder or beneficial owner or any
other person may—
(a) take extracts from any register, or index or return without payment of any fee; or
(b) require a copy of any such register or entries therein or return on payment of such
fees as may be prescribed.
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Provided that such particulars of the register or index or return as may be prescribed shall
not be available for inspection under sub-section (2) or for taking extracts or copies under
this sub-section.
(4) If any inspection or the making of any extract or copy required under this section is
refused, the company and every officer of the company who is in default shall be liable, for
each such default, to a penalty of one thousand rupees for every day subject to a maximum of
one lakh rupees during which the refusal or default continues.
(5) The Central Government may also, by order, direct an immediate inspection of the
document, or direct that the extract required shall forthwith be allowed to be taken by the
person requiring it.

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INSPECTION OF REGISTERS, RETURNS ETC RULE 14

(1) The registers and indices maintained pursuant to section 88 and copies of returns prepared
pursuant to section 92, shall be open for inspection during business hours, at such reasonable
time on every working day as the board may decide, by any member, debenture holder, other
security holder or beneficial owner without payment of fee and by any other person
on payment of such fee as may be specified in the articles of association of the company but
not exceeding fifty rupees for each inspection.

Explanation.- For the purposes of this sub-rule, reasonable time of not less than two hours on
every working day shall be considered by the company.

(2) Any such member, debenture holder, security holder or beneficial owner or any other
person may require a copy of any such register or entries therein or return on payment of such
fee as may be specified in the articles of association of the company but not exceeding ten
rupees for each page. Such copy or entries or return shall be supplied within seven days of
deposit of such fee.

PRESERVATION OF REGISTER OF MEMBERS ETC. AND ANNUAL RETURN RULE 15

(1) The register of members along with the index shall be preserved permanently and shall be
kept in the custody of the company secretary of the company or any other person authorized
by the Board for such purpose; and

(2) The register of debenture holders or any other security holders along with the index shall
be preserved for a period of eight years from the date of redemption of debentures or
securities, as the case may be, and shall be kept in the custody of the company secretary of
the company or any other person authorized by the Board for such purpose.

(3) Copies of all annual returns prepared under section 92 and copies of all certificates and
documents required to be annexed thereto shall be preserved for a period of eight years from
the date of filing with the Registrar.

(4) The foreign register of members shall be preserved permanently, unless it is discontinued
and all the entries are transferred to any other foreign register or to the principal register.
Foreign register of debenture holders or any other security holders shall be preserved for a
period of eight years from the date of redemption of such debentures or securities.

(5) The foreign register shall be kept in the custody of the company secretary or person
authorised by the Board.
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CHAPTER-8 SHARE CAPITAL PART-A

BASICS OF SHARE CAPITAL

MEANING OF THE TERM CAPITAL

Capital is the money, which a company has raised by issue of its shares. It uses this money to meet its
requirements by way of acquiring business premises and stock-in-trade etc. In relation to a company
limited by shares, the word “capital” means the share capital i.e., the capital in terms of rupees divided
into specified number of shares of a fixed amount each.

TYPES OF CAPITAL

S.NO. NAME PROVISONS

1 Nominal, Authorised As per section 2(8), “authorised capital” or “nominal capital”
or Registered Capital: means such capital as is authorised by the memorandum of a
company to be the maximum amount of share capital of the
company.
2 Issued Capital: As per section 2(50), “issued capital” means such capital as the
company issues from time to time for subscription. It is that part
of the authorised or nominal capital which the company issues for
the time being for public subscription and allotment. This is
computed at the face or nominal value.
3 Subscribed Capital: According to Section 2(86), “subscribed capital” means such part
of the capital which is for the time being subscribed by the
members of a company. It is that portion of the issued capital at
face value which has been subscribed for or taken up by the
subscribers of shares in the company. It is clear that the entire
issued capital may or may not be subscribed.
4 Called up Capital: As per section 2(15), “called-up capital” means such part of the
capital, which has been called for payment. It is that portion of
the subscribed capital which has been called up or demanded on
the shares by the company
5 Paid-up Share Capital: As per section 2(64), “paid-up share capital” or “share capital
paid-up” means such aggregate amount of money credited aspaid-
up as is equivalent to the amount received as paid-up in respect of
shares issued and also includes any amount credited as paid-up in
respect of shares of the company, but does not include
any other amount received in respect of such shares, by whatever
name called.

MEANING AND NATURE OF A SHARE

Section 2(84) of the Act defines a share as “a share in the share capital of a company, and
includes stock except where a distinction between stock and shares is expressed or implied.

Nature of a Share

a) A share is a right to a specified amount of the share capital of a company, carrying with it
certain rights and liabilities while the company is a going concern and in its winding up.
b) A share is not a sum of money but a bundle of rights and liabilities.

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c) Section 44 of the Companies Act provides that a share or other interest of any member in
a company is a movable property transferable in the manner provided by the articles of
the company.
d) According to the Sale of Goods Act, 1930, “Goods” means any kind of movable property
other than actionable claim and money, and includes stock and shares.
e) According to Section 45 of the Companies Act, 2013 every share in a company having a
share capital shall be distinguished by its distinctive number but this provision shall not
apply to a share held by a person whose name is entered as holder of beneficial interest in
such share in the records of a depository.

STOCK: Stock is the aggregate of fully paid up shares of a member merged into one fund of
equal value. Stock is expressed in terms of money and not in terms of number of shares.
BASIS SHARE STOCK
Meaning It is the unit into which the capital of the It is the aggregate value of fully paid
Company is divided. shares of a member merged into one fund
of equal value.
Paid up It may be partly or fully paid up. It is always fully paid up.
Nominal It has a nominal value. It has no nominal value.
value
Issue It can be issued originally. It cannot be issued originally. Only fully
paid up shares is converted into stock.

SHARES

Section 2(84) of Companies Act 2013

Share" means a share in the share capital of a company and includes stock

Section 43 of Companies Act 2013 Kinds of share capital

EQUITY SHARES PREFERENCE SHARES

Shares with Shares with

Differential EQUAL
Voting Rights Rights
Participating or
non-participating

Cumulative and
non-cumulative
shares

Convertible
preference
Redeemable shares
Preference Shares
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KINDS OF SHARES

Section 43 of the Companies Act, 2013 permits a company limited by shares to issue two
classes of shares, namely (Section 43 shall not apply where MOA or AOA of the Private Company so provides)
a) Equity share capital

 With voting rights; or

 With differential rights as to dividend, voting or otherwise in accordance with such rules as
may be prescribed.

b) Preference Share Capital.

Preference and Equity Share Capital: As per explanation to Section 43

Equity Share Capital, with reference to any company limited by shares, means all share
capital which is not preference share capital

Preference Share Capital’’, with reference to any company limited by shares, means that
part of the issued share capital of the company which carries or would carry a preferential
right with respect to

a) Payment of dividend, and

b) Repayment, in the case of a winding up or repayment of capital,

SPECIAL NOTE
47(1) Subject to the provisions of section 43, sub-section (2) of section 50 and sub-section (1)
of section 188
(a) every member of a company limited by shares and holding equity share capital therein,
shall have a right to vote on every resolution placed before the company; and
(b) his voting right on a poll shall be in proportion to his share in the paid-up equity share
capital of the company
Section 47(2) states that every member of a company limited by shares and holding any
preference share capital therein shall, in respect of such capital.( Section 47 shall not apply
where MOA or AOA of the Private Company so provides)
HAVE A RIGHT TO VOTE

 Only on resolutions placed before the company which directly affect the rights attached to
his preference shares and,
 Any resolution for the winding up of the company capital
And his voting right on a poll shall be in proportion to his share in the paid-up preference
share capital of the company
PROVIDED THAT where the dividend in respect of a class of preference shares has not been
paid for a period of two years or more, such class of preference shareholders shall have a
right to vote on all the resolutions placed before the company.

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PREFERENCE SHARES COMPARED WITH EQUITY SHARES

S. No PREFERENCE CAPITAL EQUITY SHARE CAPITAL

1 Preference shares are entitled to a The rate of dividend on equity shares
fixed rate of dividend. depends upon the amount of profit available
and the funds requirements of the company
for future expansion etc.
2 Dividend on the preference shares is The dividend on equity shares is paid only
paid in preference to the equity after the preference dividend has been paid.
shares.
3 In case of winding up, preference In case of winding up, equity share holder
share holder get preference over get payment of capital after the payment of
equity share holders with regard to capital to preference shareholders.
the payment of capital.
4 Dividend on preference share may be The dividend on equity shares is paid only
cumulative. after the preference dividend has been paid
and it is not cumulative.
5 No bonus shares/right shares are A company may issue rights shares or bonus
issued to preference share holders. shares to the company’s existing equity
shareholders.
SHARES WITH DIFFERENTIAL VOTING RIGHTS
While Section 43 (Section 43 shall not apply where MOA or AOA of the Private Company so provides)
enables companies to issue a variety of equity shares with differential rights etc. Rule 4 of
Companies (Share Capital and Debentures) Rules, 2014 states the following conditions
regarding shares with differential voting rights.

Conditions for issuing shares with differential rights (Rule 4) Companies (Share Capital
and Debentures) Rules, 2014

a) The articles of association of the company authorizes the issue of shares with differential
rights;
b) The issue of shares is authorized by an ordinary resolution passed at a general meeting
of the shareholders: When the equity shares of a company are listed on a recognized stock
exchange, the issue of such shares shall be approved by the shareholders through postal
ballot
c) The voting power in respect of shares with differential rights of the company shall not
exceed seventy four per cent. of total voting power including voting power in respect of
equity shares with differential rights issued at any point of time
d) The company having consistent track record of distributable profits for the last three
years;
e) The company has not defaulted in filing financial statements and annual returns for three
financial years immediately preceding the financial year in which it is decided to issue
such shares;

f) The company has no subsisting default in the

 payment of a declared dividend to its shareholders or
 repayment of its matured deposits or
 redemption of its preference shares or debentures that have become due for redemption or
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 payment of interest on such deposits or debentures or

 payment of dividend;

g) The company has not defaulted in

 payment of the dividend on preference shares or
 repayment of any term loan from a public financial institution or State level financial
institution or scheduled Bank that has become repayable or interest payable thereon or
 dues with respect to statutory payments relating to its employees to any authority or
 default in crediting the amount in Investor Education and Protection Fund to the Central
Government;

Provided that a company may issue equity shares with differential rights upon expiry of five
years from the end of the financial year in which such default was made good.19th July, 2016
Companies (Share Capital and Debentures) Third Amendment Rules, 2016.

h) The company has not been penalized by Court or Tribunal during the last three years of
any offence under
 the Reserve Bank of India Act, 1934,
 the Securities and Exchange Board of India Act, 1992,
 the Securities Contracts Regulation Act, 1956,
 the Foreign Exchange Management Act, 1999 or
 any other special Act,
under which such companies being regulated by sectoral regulators.
Conversion of existing equity share capital into differential voting rights and vice-versa
not possible

Rule 4(3) states that the company shall not convert its existing equity share capital with
voting rights into equity share capital carrying differential voting rights and vice–versa.

Rights of holders of equity shares with differential voting rights

Rule 4(5) states that the holders of the equity shares with differential rights shall enjoy all
other rights such as bonus shares, rights shares etc., which the holders of equity shares are
entitled to, subject to the differential rights with which such shares have been issued.

Register of Members to contain the details of equity shareholders having differential

voting rights

Rule (6) states that when a company issues equity shares with differential rights, the Register
of Members maintained under section 88 shall contain all the relevant particulars of the
shares so issued along with details of the shareholders.

Procedure for Issue Equity Shares with Differential Voting Rights

1. Check whether the Articles of Association of the company authorizes issue of equity shares with
differential rights and if not, then amend the Articles of Association of the company.
2. Hold the Board meeting to issue the notice of general meeting for issuance of equity share with
differential rights along with the explanatory statement.
3. Pass the ordinary resolution in the general meeting.
4. If the company is listed, then ensure it obtains the approval of its shareholders through postal
ballot as per rule 22 of the Companies (Management and administration) Rules, 2014.
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5. Once the company makes any allotment, then its shall, within 30 days thereafter, file with the
Registrar a return allotment in Form PAS-3, along with the fees as specified in the Companies(
Registration Offices and Fees) Rules, 2014.
6. The company shall not convert its existing equity share capital with voting rights into equity share
capital carrying differential voting rights and vice–versa.
7. Complete all other proceedings for the issue of certificate of shares with differential voting rights
making necessary entries in various registers. In case of a company whose shares are
dematerialized form, inform the depositories about the same for credit to the respective accounts.
8. Intimate the details of allotment of shares to the Depository immediately on allotment of such
shares.
9. Maintain the Register of Members under section 88 containing all the relevant particulars of the
shares so issued along with details of the shareholders.

ISSUE OF SECURITIES AT A PREMIUM SECTION 52

A company may issue securities at a premium when it is able to sell them at a price above par
or above nominal value. The Companies Act, 2013, does not stipulate any conditions or
restrictions regulating the issue of securities by a company at a premium. However, the
Companies Act does impose conditions regulating the utilization of the amount of premium
collected on securities.

Share Premium to be transferred to ‘securities premium account’

Section 52 (1) states that when a company issues shares at a premium, whether for cash or
otherwise, a sum equal to the aggregate amount of the premium received on those shares shall
be transferred to a “securities premium account” and the provisions of this Act relating to
reduction of share capital of a company shall, except as provided in this section, apply as if
the securities premium account were the paid-up share capital of the company.

Utilisation of Securities premium

In accordance with the provisions of Section 52(2) of the Act, the securities premium can be
utilised only for:
a) Issuing fully paid bonus shares to members;
b) Writing off the balance of the preliminary expenses of the company;
c) Writing off commission paid or discount allowed, or the expenses incurred on issue of
shares or debentures of the company;
d) For providing for the premium payable on redemption of any redeemable preference
shares or debentures of the company; or
e) For the purchase of its own shares or other securities under section 68.

SPECIAL NOTES:
 The premium cannot be treated as profit and as such the amount of premium is not
available for distribution as dividend.
 The amount of premium whether received in cash or in kind must be kept in a separate
account, known as the “Securities Premium Account”.
 The amount of premium is to be maintained with the same sanctity as the share capital.
 Where a company issues shares at a premium, even though the consideration may be
other than cash, a sum equal to the amount or value of the premium must be transferred to
the securities premium account.
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CASE LAWS
S.NO. CASE NAME PROVISONS
1 Zee Telefilms Ltd. The Court granted permission to adjust securities premium
account against losses of the company u/s. 100 [now Section 66]
2 Prakash Industries The Court has granted permission to company to utilize its
securities premium account to meet deferred tax liability.

ISSUE OF SHARES AT DISCOUNT IS PROHIBITED SECTION 53

Section 53 (1) states that except as provided in section 54(i.e. issue of sweat equity shares), a
company shall not issue shares at a discount.

Section 53 (2) Any share issued by a company at a discount shall be void.

Section 53 (2A) Notwithstanding anything contained in sub-sections (1) and (2), a company
may issue shares at a discount to its creditors when its debt is converted into shares in
pursuance of any statutory resolution plan or debt restructuring scheme in accordance with
any guidelines or directions or regulations specified by the Reserve Bank of India under the
Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.

Section 53 (3) Where any company fails to comply with the provisions of this section, such
company and every officer who is in default shall be liable to a penalty which may extend to
an amount equal to the amount raised through the issue of shares at a discount or five lakh
rupees, whichever is less, and the company shall also be liable to refund all monies received
with interest at the rate of twelve per cent. per annum from the date of issue of such shares to
the persons to whom such shares have been issued (companies amendment Act 2019)

CASE LAWS
S.NO. CASE NAME PROVISONS
1 Maneckchowk & Allotment of shares in a scheme of compromise and arrangement
Ahmedabad in consideration of surrender of claims, cannot be treated as
Manufacturing Co, having been issued at discount on ground that claims would have
Ltd. been of no worth had company been wound up.
2 Biochemical & Re-allotment of partly paid shares, which have been forfeited, for
Synthetic Products less than the amount unpaid on them, amounts to issue of shares
Ltd. v. ROC at a discount.

ISSUE OF SWEAT EQUITY SHARES SECTION 54

According to section 2(88), sweat equity shares mean equity shares issued by a company to
its directors or EMPLOYEES at a discount or for consideration, other than cash for providing
know-how or making available rights in the nature of intellectual property rights or VALUE
ADDITIONS, by whatever name called.

According to Explanation to Rule 8(1) of Companies (Share Capital and Debentures) Rules, 2014.
i. The expressions ‘‘Employee’’ means
a) a permanent employee of the company who has been working in India or outside India, for at
least last one year; or
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b) a director of the company, whether a whole time director or not; or

c) an employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India or
outside India, or of a holding company of the company

Conditions for Issue of Sweat Equity Shares

Section 54(1) provides that notwithstanding anything contained in Section 53, a company
can issue sweat equity shares, of a class of shares already issued, if the following conditions
are satisfied:
1. The issue has been authorised by a special resolution passed by the company in the
general meeting.
2. The following are clearly specified in the resolution:
a) Number of shares;
b) Current market price;
c) Consideration, if any; and
d) Class or classes of directors or employees to whom such equity shares are to be issued.

3. As on the date of issue, at least one year should have elapsed from the date on which the
company had commenced business.
4. A company whose shares are listed on a recognized stock exchange issuing sweat equity
shares should comply with the regulations made in this behalf by SEBI.
5. A company whose shares are not so listed should issue sweat equity shares in compliance
with the rules made in this behalf by the Central Government (i.e., Companies (Share
Capital and Debentures) Rules, 2014)

Holders of Sweat Equity Shares to be ranked pari passu with other Equity share holders
Section 54(2) provides that the rights, limitations, restrictions and provisions as are for the time
being applicable to equity shares shall be applicable to the sweat equity shares issued under this
section and the holders of such shares shall rank pari passu with other equity shareholders.
COMPANIES (SHARE CAPITAL AND DEBENTURES) RULES, 2014- ASPECTS
RELATING TO SWEAT EQUITY SHARES
Validity of Special Resolution authorizing sweat equity shares
Rule 8(3) the special resolution authorising the issue of sweat equity shares shall be valid for
making the allotment within a period of not more than twelve months from the date of
passing of the special resolution.
Limits on issue of sweat equity shares
Rule 8(4) states that the company shall not issue sweat equity shares for more than fifteen
percent of the existing paid up equity share capital in a year or shares of the issue value of
rupees five crores, whichever is higher. The issuance of sweat equity shares in the Company
shall not exceed twenty five percent, of the paid up equity capital of the Company at any
time.

19th July, 2016 Companies (Share Capital and Debentures) Third Amendment Rules, 2016.

Provided further that a startup company, as defined in notification number GSR 180(E) dated
17th February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry
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of Commerce and Industry, Government of India, may issue sweat equity shares not
exceeding fifty per cent of its paid up capital upto 10 years from the date of its incorporation
or registration.
Sweat Equity Shares to be locked for three years
The sweat equity shares issued to directors or employees shall be locked in/non transferable
for a period of three years from the date of allotment and the fact that the share certificates
are under lock-in and the period of expiry of lock in shall be stamped in bold or mentioned in
any other prominent manner on the share certificate.
ISSUE AND REDEMPTION OF PREFERENCE SHARES
Section 55 (1) states Companies cannot issue the following types of preference shares—

 Irredeemable Preference shares, or

 Preference shares redeemable after 20 years from the date of its issue.

Section 55(2) further states that a company limited by shares may, if so authorised by its
articles, issue preference shares which are liable to be redeemed within a period not
exceeding twenty years from the date of their issue subject to such conditions as may be
prescribed. So, the maximum time limit for redeemable preference share is 20 years. So, the
maximum time limit for redeemable preference share is 20 years.

EXCEPTION Rule 10
The maximum limit is extended to 30 years in the following situation---
a) Such issue can be made only by a company engaged in the setting up and dealing with of
infrastructural projects
b) Such preference shares may for a period exceeding 20 years but not exceeding 30 years.
c) Minimum 10% of such preference shares should be redeemed every year from the 21st
year onwards or earlier, on proportionate basis, at the option of the preference
shareholders.

Meaning of infrastructure facilities

Infrastructural Projects Means as specified in schedule VI, and broadly covers areas like-
a) Transporation (Roads, Rail System, Ports, Aviation, Logistics)
b) Agriculture (Storage, Agro-Processing, Preservation of Perishable Goods, Quality
Testing Facilities, etc.)
c) Water Management (Water Supply, Distribution, Irrigation, Water Treatment)
d) Telecommunication (Basic, Cellular, Domestic Satellite Service, Broadband, Internet
etc.)
e) Industrial, Comercial and Social Development and Maintenance (Real Estate, Tourism,
Public Markets, Educational Institutions, Urban Development, etc.)
f) Power (Generation, Transmission, Distribution, Trading, etc.)
g) Petroleum and Natural Gas (Exploration, Production, Storage, Transmission, etc.)
h) Housing (Urban / Rural, Slum Rehabilitation, Allied Activities etc.)
i) Miscellaneous (Mining, Technology, Energy, Saving Devices, Environment, Disaster
Management, Emergency Services, Preservation of Monuments, etc.)

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CONDITIONS FOR ISSUE OF PREFERENCE SHARES

Rule 9(1) Share Capital and Debentures) Rules, 2014 states that a company having a share
capital may, if so authorised by its articles, issue preference shares subject to the following
conditions, namely:

A. the issue of such shares has been authorized by passing a special resolution in the general
meeting of the company
B. the company, at the time of such issue of preference shares, has no subsisting default in
the redemption of preference shares issued either before or after the commencement of
this act or in payment of dividend due on any preference shares

CONDITIONS FOR REDEMPTION OF PREFERENCE SHARES 55(2)

A. No such shares shall be redeemed except out of the profits of the company which would otherwise
be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of
such redemption
B. No such shares shall be redeemed unless they are fully paid if shares are not redeemed out of
proceeds of a fresh issue (i.e. redeemed out of divisible profits), a sum equal to the
Nominal Amount of the shares redeemed should be transferred out of divisible profits to
“Capital Redemption Reserve Account”.
C. Use of CRR: this balance in CRR can be used to issue fully paid bonus shares.
D. Nature: Provisions of the act relating to reduction of shares capital shall apply to CRR, as
if CRR were paid up shares capital of the company.

INABILITY OF COMPANY TO REDEEM PREFERENCE SHARES Section 55(3)

Where a company is not in a position to redeem any preference shares or to pay dividend, if
any, on such shares in accordance with the terms of issue (such shares hereinafter referred to
as unredeemed preference shares), it may, with the consent of the holders of three-fourths in
value of such preference shares and with the approval of the Tribunal on a petition made by it
in this behalf, issue further redeemable preference shares equal to the amount due, including
the dividend thereon, in respect of the unredeemed preference shares, and on the issue of
such further redeemable preference shares, the unredeemed preference shares shall be
deemed to have been redeemed:

Provided that the Tribunal shall, while giving approval under this sub-section, order the
redemption forthwith of preference shares held by such persons who have not consented to
the issue of further redeemable preference shares.

Explanation.—For the removal of doubts, it is hereby declared that the issue of further
redeemable preference shares or the redemption of preference shares under this section shall
not be deemed to be an increase or, as the case may be, a reduction, in the share capital of the
company.

Section 64 read with rule 15 of share capital and debenture rules 2014
Whenever a company redeems any redeemable preference shares or a company not having
share capital increases number of its members file Form SH. 7 to ROC within 30 days.
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SECTION 64(2) Where any company fails to comply with the provisions of sub-section (1),
such company and every officer who is in default shall be liable to a penalty of five hundred
rupees for each day during which such default continues, subject to a maximum of five lakh
rupees in case of a company and one lakh rupees in case of an officer who is in default
NCLT RULES 2016 RULE 69

Petition under sub-section (3) of section 55

(1) The petition under sub-section (3) of section 55 of the Act shall be in Form No. NCLT. 1
(2) On petition under sub-section (1), the Tribunal, after hearing the petitioner and any other
person as appears to it to be interested in the petition, may, if it is satisfied, having regard to
all the circumstances of the case, approve for issue of further redeemable preference shares
equal to the amount due, including the dividend thereon, in respect of unredeemable
preference shares. Provided that the Tribunal shall, while giving approval, order the
redemption forthwith of preference shares held by such persons who have not consented to
the issue of further redeemable preference shares:

ISSUE OF SECURITIES IN DEMATERIALISED FORM

RULE 9A (Prospectus and Allotment of Securities) Third Amendment Rules, 2018.

(1) Every unlisted public company shall issue the securities only in dematerialised form; and
facilitate dematerialisation of all its existing securities in accordance with provisions of
the Depositories Act, 1996 and regulations made there under.
(2) Every unlisted public company making any offer for issue of any securities or buyback of
securities or issue of bonus shares or rights offer shall ensure that before making such
offer, entire holding of securities of its promoters, directors, key managerial personnel has
been dematerialised in accordance with provisions of the Depositories Act, 1996 and
regulations made there under.
(3) Every holder of securities of an unlisted public company,- (a) who intends to transfer
such securities on or after 2nd October, 2018, shall get such securities dematerialised
before the transfer; or who subscribes to any securities of an unlisted public company
(whether by way of private placement or bonus shares or rights offer) on or after 2nd
October, 2018 shall ensure that all his existing securities are held in dematerialized form
before such subscription.
(4) Every unlisted public company shall facilitate dematerialisation of all its existing
securities by making necessary application to a depository as defined in clause (e) of sub-
section (1) of section 2 of the Depositories Act, 1996 and shall secure International
Security Identification Number (ISIN) for each type of security and shall inform all its
existing security holders about such facility.
(5) Every unlisted public company shall ensure that - (a) it makes timely payment of fees
(admission as well as annual) to the depository and registrar to an issue and share transfer
agent in accordance with the agreement executed between the parties; (b) it maintains
security deposit, at all times, of not less than two years’ fees with the depository and
registrar to an issue and share transfer agent, in such form as may be agreed between the
parties; and (c) it complies with the regulations or directions or guidelines or circulars, if
any, issued by the Securities and Exchange Board or Depository from time to time with

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respect to dematerialisation of shares of unlisted public companies and matters incidental

or related thereto.
(6) No unlisted public company which has defaulted in sub-rule (5) shall make offer of any
securities or buyback its securities or issue any bonus or right shares till the payments to
depositories or registrar to an issue and share transfer agent are made.
(7) Except as provided in sub-rule (8), the provisions of the Depositories Act, 1996, the
Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996
and the Securities and Exchange Board of India (Registrars to an Issue and Share
Transfer Agents) Regulations, 1993 shall apply mutatis mutandis to dematerialisation of
securities of unlisted public companies.
(8) Every unlisted public company governed by this rule shall submit Form PAS-6 to
the Registrar with such fee as provided in Companies (Registration Offices and
Fees) Rules, 2014 within sixty days from the conclusion of each half year duly
certified by a company secretary in practice or chartered accountant in practice.
(9) The company shall immediately bring to the notice of the depositories any difference
observed in its issued capital and the capital held in dematerialised form.
(10) The grievances, if any, of security holders of unlisted public companies under this
rule shall be filed before the Investor Education and Protection Fund Authority.
(11) This rule shall not apply to an unlisted public company which is: a Nidhi; a
Government company or a wholly owned subsidiary
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CHAPTER-9 SHARE CAPITAL PART-B

PROSPECTUS
CONCEPT OF PROSPECTUS
Meaning of Prospectus [Sec.2 (70)] of companies act 2013

Means Includes
Any Document (a) Red Herring Prospectus referred u/s 32, or
described or (b) Shelf Prospectus referred u/s 31, or
issued as
Prospectus. (c) Any Notice, Circular, Advertisement or other Document inviting offers
from the public for the subscription or purchase of any Securities of a Body
Corporate.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Pramatha Nath Advertisement in a newspaper inviting the public to subscribe to
Sanyal v. Kali Shares which are still available for sale according to the terms of
Kumar Dutt Prospectus, which can be obtained on application, is also a
Prospectus.
2 Govt. Stock An offer to Shareholders of an existing Company "A", of Shares
Securities Invt. Co. in a new Company "B" in exchange of existing shares of "A", is
Ltd. Vs not an offer to Public. Therefore, Prospectus is not required.
Christopher

CONDITIONS WHERE ISSUE OF PROSPECTUS NOT NECESSARY

Situation Description
Rights Issue In a Rights Issue where Securities are offered to existing holders, they may be
with or without the right of renunciation in favour of another person. [Sec.26(2)]
Underwriters For Invitations to a person to enter into an Underwriting Agreement. [Sec.33]
Private Securities are not offered to the Public, but are given by way of Private
placement Placement u/s 42.
Bonus issue These shares given free of cost to existing shareholders only

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REGISTRATION of Prospectus [Sec.26]

Aspect Description
Concept Submission of Prospectus by or on behalf of a Company or in relation to an
Intended Company, to the ROC for registration, is mandatory for issue of
Prospectus.
Aspect Description
Time Limit Registration should be made on or before the date of its publication.
Date (a) Prospectus should be dated.
(b) The date indicated in the Prospectus will be deemed as the date of its
publication.
Signature Prospectus should be signed by -
(a) Every Person named as Director of a Company, or Proposed Director of an
Intended Company, or
(b) His duly authorized Attorney.
Approval by The Draft Prospectus should be approved by the following agencies before it is
Agencies / filed with the ROC -
SEBI (a) All the Lead Managers to the issue,
Guidelines (b) Each of the Stock Exchanges where the Company's Shares are listed and where
the Shares / Debentures are proposed to be listed.
(c) The Lead Financial Institution underwriting the issue, if applicable.
Registration ROC will register the Prospectus only if -
(a) the above conditions are complied with, and
(b) Consent in writing of all persons named in the Prospectus is enclosed.

Non-Compliance with Sec.26

Offence Non-compliance with provisions of Sec.26.
Person (a) Company shall be punishable with Fine of Minimum ` 50,000 Maximum
Liable and 3 Lakhs.
Punishment (b) Every person who is knowingly a party to the issue of such Prospectus shall be
[Sec. 26(9)] punishable with -
• Imprisonment (Maximum 3 years) or
• Fine of Minimum `• 50,000 Maximum ` 3 Lakhs, or
• Both.
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TYPES OF PROSPECTUS
Abridged Prospectus / Issue of Application Forms for Securities [Sec.33]
Definition [Sec.2(1)]
Abridged Prospectus means a Memorandum containing such salient features of a Prospectus
as may be specified by SEBI.
Requirement
An application for the purchase of any of the Securities of a Company shall be issued only if
such form is accompanied by an Abridged Prospectus.

Cases when Abridged Prospectus Not Required

Where the Application Form is issued either -
 In connection with a bonafide invitation to a person to enter into an Underwriting
Agreement with respect such Securities, or
 In relation to Securities which are not offered to Public.

Copy on Request
A copy of the Prospectus shall, on a request being made by any person before the closing of
the Subscription List and the Offer, be furnished to him.
Penalty
Non-Compliance by Company with Sec.33 attracts a penalty of ` 50,000 for each default.
SHELF PROSPECTUS" [SEC.31]
Meaning
Shelf Prospectus" means a Prospectus in respect of which the Securities or class of
Securities included therein are issued for subscription in one or more issues over a certain
period without the issue of a further Prospectus.
Eligibility
Any class or classes of Companies, as provided in SEBI Regulations, may file a Shelf
Prospectus with the ROC, at the stage of the first offer of Securities.

Validity
One year commencing from the date of opening of the first offer of Securities. No further
Prospectus is required for Second or Subsequent Offer of such Securities issued during the
period of validity of that Prospectus.
Information Memorandum
Information Memorandum contains all material facts relating to -
(a) New charges created,
(b) changes in the financial position of the Company as have occurred between the first offer
of securities or the previous offer of securities and the succeeding offer of securities, and
(c) Such other changes as prescribed.

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Filing Information Memorandum with ROC

(a) Information Memorandum shall be prepared in Form No. PAS. 2.
(b) It shall be filed with ROC along with prescribed Fees, within 1 month prior to the issue
of a second or subsequent offer of securities under the Shelf Prospectus. (RULE 10 OF PAS
RULES 2014)
Where an Information Memorandum is filed, every time an offer of securities is made, such
Memorandum together with the Shelf Prospectus shall be deemed to be a Prospectus.
Intimation of Variation
Where a Company or any other person has received applications for the allotment of
securities along with advance payments of subscription before the making of any such
change, the Company or other person shall intimate the changes to such applicants.
If they express a desire to withdraw their application, the Company or other person shall
refund all the monies received as subscription within 15 days thereof.
RED HERRING PROSPECTUS" [SEC.32]
1. Red Herring Prospectus means a Prospectus which does not include complete
particulars of the quantum or price of the Securities included therein.
2. A Company proposing to make an Offer of Securities may issue a Red Herring
Prospectus prior to the issue of a Prospectus.
3. Red Herring Prospectus shall be filed with the ROC atleast 3 days prior to the opening of
the Subscription List and the Offer.
4. Red Herring Prospectus shall carry the same obligations as are applicable to a Prospectus
and any variation between the Red Herring Prospectus and a Prospectus shall be
highlighted as variations in the Prospectus.
5. Once the Offer for Securities is closed, a Final Prospectus shall be filed with ROC and
SEBI stating therein –

• Total Capital raised whether by way of Debt or Share Capital,

• Closing Price of Securities, and
• Any other details which were not complete in Red-Herring Prospectus.

Document containing offer of securities for sale to be deemed prospectus Section 25

(1) Where a company allots or agrees to allot any securities of the company with a view to all
or any of those securities being offered for sale to the public, any document by which the
offer for sale to the public is made shall, for all purposes, be deemed to be a prospectus issued
by the company; and all enactments and rules of law as to the contents of prospectus and as to
liability in respect of mis-statements, in and omissions from, prospectus, or otherwise relating
to prospectus, shall apply with the modifications specified in subsections (3) and (4) and shall
have effect accordingly, as if the securities had been offered to the public for subscription and
as if persons accepting the offer in respect of any securities were subscribers for those
securities, but without prejudice to the liability, if any, of the persons by whom the offer is
made in respect of mis-statements contained in the document or otherwise in respect thereof.

(2) For the purposes of this Act, it shall, unless the contrary is proved, be evidence that an
allotment of, or an agreement to allot, securities was made with a view to the securities being
offered for sale to the public if it is shown— (a) that an offer of the securities or of any of
them for sale to the public was made within six months after the allotment or agreement to
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allot; or (b) that at the date when the offer was made, the whole consideration to be received
by the company in respect of the securities had not been received by it.

(3) Section 26 as applied by this section shall have effect as if — (i) it required a prospectus
to state in addition to the matters required by that section to be stated in a prospectus— (a)
the net amount of the consideration received or to be received by the company in respect of
the securities to which the offer relates; and (b) the time and place at which the contract
where under the said securities have been or are to be allotted may be inspected; (ii) the
persons making the offer were persons named in a prospectus as directors of a company.

(4) Where a person making an offer to which this section relates is a company or a firm, it
shall be sufficient if the document referred to in sub-section (1) is signed on behalf of the
company or firm by two directors of the company or by not less than one-half of the partners
in the firm, as the case may be

Issue of application forms for securities. section 33

(1) No form of application for the purchase of any of the securities of a company shall be
issued unless such form is accompanied by an abridged prospectus: Provided that nothing in
this sub-section shall apply if it is shown that the form of application was issued— (a) in
connection with a bona fide invitation to a person to enter into an underwriting agreement
with respect to such securities; or (b) in relation to securities which were not offered to the
public.

(2) A copy of the prospectus shall, on a request being made by any person before the closing
of the subscription list and the offer, be furnished to him

(3) If a company makes any default in complying with the provisions of this section, it shall
be liable to a penalty of fifty thousand rupees for each default.
GOLDEN RULE OF DRAFTING PROSPECTUS
3 THINGS SHALL BE CONSIDERED WHILE DRAFTING PROSPECTUS
1. Everything stated in prospectus shall be true
2. Nothing shall be half true
3. No misstatement shall be stated in prospectus
CASE LAWS

S.NO. CASE NAME PROVISONS

1 New Burnswick & Prospectus should contain everything which is strictly accurate.
Canada Rly. & None of the statements therein should be untrue. Likewise, there
Land & Co. vs should not be any suppression of a fact or a fact presented out of
Muggeridge context, which might affect, even remotely, the proposed
investor's mind on his subscribing to the security based on such
Prospectus.
2 Failure to disclose that dividends during the preceding years
Rex vs Lord were paid out of Capital Profits, and not out of Trading Profits,
Kylsant renders the Prospectus false in material particulars. Persons

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responsible of this are guilty of fraud.

LIABILITY FOR MIS-STATEMENTS IN PROSPECTUS

Criminal liability for mis-statements in prospectus. Section 34

Particulars Description
Situation (a) Where a Prospectus, (issued, circulated or distributed), includes any statement
which is untrue or misleading in the form or context in which it is included, or
(b) Where any inclusion or omission of any matter is likely to mislead.
Liability/ Every person who authorized the issue of such Prospectus is liable for punishment
Punishment u/s 447.
Protection Liability u/s 34 does not apply if the person proves that -
(a) such statement or omission was immaterial, or
(b) he had reasonable grounds to believe, and did up to the time of issue of the
Prospectus believe, that the statement was true or the inclusion or omission was
necessary.

Civil liability for mis-statements in prospectus section 35

Civil Liability for Mis-statements in Prospectus [Sec.35]

Where a person has subscribed for Securities of a Company acting on any statement included,
or the inclusion or omission of any matter, in the Prospectus which is misleading and has
sustained any loss or damage as a consequence thereof.
Persons Liable u/s 35
(A) The Company, and
(B) Every Person who
• is a Director of the Company at the time of the issue of the Prospectus,
• has authorized himself to be named and is named in the Prospectus as a Director of the
Company, or has agreed to become such Director, either immediately or after an interval
of time,
• is a Promoter of the Company,
• has authorized the issue of the Prospectus, and
• is an Expert referred u/s 26(5).
Nature of Liability
Liable to pay compensation to every person who has sustained such loss or damage.
EXCEPTION
Such person shall not be liable if he proves
(a) that, having consented to become a Director of the Company, he withdrew his consent
before the issue of the Prospectus, and that it was issued without his authority or consent, or
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(b) that the Prospectus was issued without his knowledge or consent, and that on becoming
aware of its issue, he forthwith gave a reasonable public notice that it was issued without his
knowledge or consent.
(c) that, as regards every misleading statement purported to be made by an expert or
contained in what purports to be a copy of or an extract from a report or valuation of an
expert, it was a correct and fair representation of the statement, or a correct copy of, or a
correct and fair extract from, the report or valuation; and he had reasonable ground to believe
and did up to the time of the issue of the prospectus believe, that the person making the
statement was competent to make it and that the said person had given the consent required
by sub-section (5) of section 26 to the issue of the prospectus and had not withdrawn that
consent before delivery of a copy of the prospectus for registration or, to the defendant's
knowledge, before allotment thereunder.
SPECIAL POINT
• Where it is proved that a Prospectus has been issued with intent to defraud the
applicants for the Securities of a Company or any other person or for any fraudulent
purpose.
• Every Person referred above shall be personally responsible, without any limitation of
liability, for all or any of the losses or damages that may have been incurred by any
person who subscribed to the Securities on the basis of such Prospectus.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Peek vs Gurney Remedy is available only if subscription to Shares were based
on the Prospectus which contained misstatement. Therefore,
when a person acquired Shares in the secondary market and
incurred loss as a result of winding up of the Company, he
cannot rely on the deceitful Prospectus, which was issued for
primary market subscribers, and claim damages.

Punishment for fraudulently inducing persons to invest money. Section 36

Any person who, either knowingly or recklessly makes any statement, promise or forecast
which is false, deceptive or misleading, or deliberately conceals any material facts, to induce
another person to enter into, or to offer to enter into,— (a) any agreement for, or with a view
to, acquiring, disposing of, subscribing for, or underwriting securities; or (b) any agreement,
the purpose or the pretended purpose of which is to secure a profit to any of the parties from
the yield of securities or by reference to fluctuations in the value of securities; or (c) any
agreement for, or with a view to obtaining credit facilities from any bank or financial
institution, shall be liable for action under section 447.

Action by affected persons section 37

A suit may be filed or any other action may be taken under section 34 or section 35 or section
36 by any person, group of persons or any association of persons affected by any misleading
statement or the inclusion or omission of any matter in the prospectus.

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CHAPTER-10 SHARE CAPITAL PART -C

ISSUE OF SHARES

SECTION 23 SAYS COMPANY MAY ISSUE OF SHARES BY WAY OF

PUBLIC OFFER THROUGH PRIVATE PLACEMENT RIGHT ISSUE AND

PROSPECTUS BONUS ISSUE

IPO FPO

Section 29 of the Act provides that every

company making public offer of any security,
shall issue the securities only in
ONLY FOR PUBLIC COMPANY
dematerialized form by complying with the
provisions of Depositories Act, 1996 and the
regulations made thereunder.

ISSUE OF SHARES PRIVATE PLACEMENT BASIS SECTION 42

SECTION 42 HAS BEEN SUBSTITUTED BY COMPANIES AMENDMENT ACT 2017

(1) A company may, subject to the provisions of this section, make a private placement of securities.

(2) A private placement shall be made only to a select group of persons who have been identified by
the Board (herein referred to as "identified persons"), whose number shall not exceed fifty or such
higher number as may be prescribed [excluding the qualified institutional buyers and employees of
the company being offered securities under a scheme of employees stock option in terms of provisions
of clause (b) of subsection (1) of section 62], in a financial year subject to such conditions as may be
prescribed.

(3) A company making private placement shall issue private placement offer and application in such
form and manner as may be prescribed to identified persons, whose names and addresses are recorded
by the company in such manner as may be prescribed:

Provided that the private placement offer and application shall not carry any right of renunciation.

Explanation I.—"private placement" means any offer or invitation to subscribe or issue of securities to
a select group of persons by a company (other than by way of public offer) through private placement
offer-cum-application, which satisfies the conditions specified in this section.

Explanation II.—"qualified institutional buyer" means the qualified institutional buyer as defined in
the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2018, as amended from time to time, made under the Securities and Exchange Board of
India Act, 1992.

Explanation III.—If a company, listed or unlisted, makes an offer to allot or invites subscription, or
allots, or enters into an agreement to allot, securities to more than the prescribed number of persons,
whether the payment for the securities has been received or not or whether the company intends to list
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its securities or not on any recognised stock exchange in or outside India, the same shall be deemed to
be an offer to the public and shall accordingly be governed by the provisions of Part I of this Chapter.

(4) Every identified person willing to subscribe to the private placement issue shall apply in the
private placement and application issued to such person alongwith subscription money paid either by
cheque or demand draft or other banking channel and not by cash:

Provided that a company shall not utilise monies raised through private placement unless allotment is
made and the return of allotment is filed with the Registrar in accordance with sub-section (8).

(5) No fresh offer or invitation under this section shall be made unless the allotments with respect to
any offer or invitation made earlier have been completed or that offer or invitation has been
withdrawn or abandoned by the company:

Provided that, subject to the maximum number of identified persons under subsection (2), a company
may, at any time, make more than one issue of securities to such class of identified persons as may be
prescribed.

(6) A company making an offer or invitation under this section shall allot its securities within sixty
days from the date of receipt of the application money for such securities and if the company is not
able to allot the securities within that period, it shall repay the application money to the subscribers
within fifteen days from the expiry of sixty days and if the company fails to repay the application
money within the aforesaid period, it shall be liable to repay that money with interest at the rate of
twelve per cent. per annum from the expiry of the sixtieth day:

Provided that monies received on application under this section 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; or

(b) for the repayment of monies where the company is unable to allot securities.

(7) No company issuing securities under this section shall release any public advertisements or utilise
any media, marketing or distribution channels or agents to inform the public at large about such an
issue.

(8) A company making any allotment of securities under this section, shall file with the Registrar a
return of allotment within fifteen days from the date of the allotment in such manner as may be
prescribed, including a complete list of all allottees, with their full names, addresses, number of
securities allotted and such other relevant information as may be prescribed.

(9) If a company defaults in filing the return of allotment within the period prescribed under sub-
section (8), the company, its promoters and directors shall be liable to a penalty for each default of
one thousand rupees for each day during which such default continues but not exceeding twenty-five
lakh rupees.

(10) Subject to sub-section (11), if a company makes an offer or accepts monies in contravention of
this section, the company, its promoters and directors shall be liable for a penalty which may extend
to the amount raised through the private placement or two crore rupees, whichever is lower, and the
company shall also refund all monies with interest as specified in sub-section (6) to subscribers within
a period of thirty days of the order imposing the penalty.

(11) Notwithstanding anything contained in sub-section (9) and sub-section (10), any private
placement issue not made in compliance of the provisions of the subsection (2)
shall be deemed to be a public offer and all the provisions of this Act and the Securities Contracts
(Regulation) Act, 1956 and Securities and Exchange Board of India Act, 1992 shall be applicable.

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Section 42 and Rule 14 of the Companies (Prospectus and Allotment of Securities) amendment Rules,
2018

S.NO. PARTICULARS PROVISIONS

1 Private For the purposes of sub-section (1) of Section 42, a company may
Placement make an offer or invitation to subscribe to securities through issue of
offer letter a private placement offer letter in Form PAS-4.
2 Application A private placement offer cum application letter shall be in the
form to form of an application in form pas-4 serially numbered and
accompany addressed specifically to the person to whom the offer is made
offer letter and shall be sent to him, either in writing or in electronic mode,
within thirty days of recording the name of such person
pursuant to sub-section (3) of section 42
provided that no person other than the person so addressed in
the private placement offer cum application letter shall be
allowed to apply through such application form and any
application not conforming to this condition shall be treated as
invalid.
3 Private offer to be The proposed offer of securities or invitation to subscribe securities
previously has been previously approved by the shareholders of the company, by
approved by a Special Resolution, for each of the Offer or Invitation:
special resolution
Need of special resolution once a year for debentures
This provision shall not apply in case of offer or invitation for
non-convertible debentures, where the proposed amount to be
raised through such offer or invitation does not exceed the limit
as specified in section 180(1)(C)
In case of offer or invitation for non-convertible debentures,
where the proposed amount to be raised through such offer or
invitation exceeds the limit of 180(1)(C). it shall be sufficient if
the company passes a previous special resolution only once in a
year for all the offers or invitations for such debentures during
the year.
Provided also that in case of offer or invitation of any securities
to qualified institutional buyers, it shall be sufficient if the
company passes a previous special resolution only in a year for
all the allotments to such buyers during the year
4 Offer to Such offer or invitation shall be made to not more than two hundred
maximum of persons in the aggregate in a financial year. Any offer or invitation
200 persons in made to qualified institutional buyers, or to employees of the
a financial year company under a scheme of employees stock option as per provisions
of clause (b) of sub-section (1) of Section 62 shall not be considered
while calculating the limit of two hundred persons.
These shall not be applicable to -
(a) non-banking financial companies
(b) housing finance companies
if they are complying with regulations made by the reserve bank
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of india or the national housing bank in respect of offer or

invitation to be issued on private placement basis
5 Offer counted The restrictions of 200 persons would be reckoned individually for
separately for each kind of security that is equity share, preference share or
each kind of debenture.
security
8 Payment from The payment to be made for subscription to securities shall be made
subscriber’s from the bank account of the person subscribing to such securities
bank account and the company shall keep the record of the bank account from
where such payment for subscription has been received: Provided that
monies payable on subscription to securities to be held by joint
holders shall be paid from the bank account of the person whose
name appears first in the application. Provided further that the
provisions of this sub-rule shall not apply in case of issue of shares
for consideration other than cash.
9 Filing of such The Company shall maintain a complete record of private placement
record with the offers in Form No. PAS-5.
Registrar
11 Return of A return of allotment of securities under Section 42 shall be filed with
allotment to the Registrar within 15 days of allotment in Form No. PAS-3
Registrar

SPECIAL POINT: Provided also that no offer or invitation of any securities under this rule shall be
made to a body corporate incorporated in, or a national of, a country which shares a land border with
India, unless such body corporate or the national, as the case may be, have obtained Government
approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attached
the same with the private placement offer cum application letter.
RIGHT ISSUE OF SHARES SECTION 62 (1)(a)
The provisions of section 62 are applicable to ALL TYPES OF COMPANIES

Section 62 of the Companies Act provides for the issue of “Rights Shares” and states that whenever
at any time, A COMPANY having a share capital proposes to increase its subscribed capital by the
issue of further shares

Such shares shall be offered to the EXISTING HOLDERS OF EQUITY SHARES in proportion to the
paid-up share capital on their shares at the time of further issue by sending a letter of offer. (This is
also called pre- emptive right of existing shareholders)

 The company must give notice to each of the equity shareholders, giving him option to take the
shares offered to him by the company.

 The shareholder must be informed of the number of shares he has opted to buy giving him at least
7 days but not more than 30 days to decide.

 The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through
registered post or speed post or through electronic mode or courier or any other mode having
proof of delivery to all the existing shareholders at least three days before the opening of the
issue.(section 62(2))

 If the shareholder does not convey to the company his acceptance of the company’s offer of
further shares he shall be deemed to have declined the offer.

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 The directors must state in the notice of offer of rights shares the fact that the shareholder has also
the right to renounce the offer in whole or in part, in favour of some other persons.

 If a shareholder has neither renounced in favour of another person nor accepted the shares, the
Board of directors may dispose of the shares so declined in such manner which is not dis-
advantageous to the shareholders and the company.

SPECIAL POINTS

1. Section 42 relates to private placement only and there is no need to comply with the provisions of
section 42 in case of rights issue and accordingly PAS-4 and PAS-5 shall not be applicable in case
of rights issue.

2. For every issue, return of allotment in Form PAS 3 is to be filed with the ROC irrespective of
whether the share is allotted through private placement, ESOP, Rights Issue or Bonus issue.

EXCEPTION OF 62 (1)(a)

1. ISSUE OF SHARES TO EMPLOYEES SECTION 62(1)(b)

Section 62(1)(b) provides that a company may issue further shares to its employees under a scheme
of employees’ stock option, subject to special resolution (O/R FOR PRIVATE COMPANY)
passed by company and subject to such conditions as may be prescribed.

19th FEB., 2019 Companies (Share Capital and Debentures) Third Amendment Rules, 2016.

NO SR/OR FOR startup company upto TEN years from the date of its incorporation or
registration.”.

Issue of employee stock options pursuant to section 62(1)(b) and rule 12

a. The companies granting option to its employees pursuant to ESOS will have the freedom to
determine the exercise price in conformity with the applicable accounting policies, if any.

b. The company shall have the freedom to specify the lock-in period for the shares issued pursuant
to exercise of option.

c. The company shall maintain a Register of Employee Stock Options in Form No. SH-6. The
Register of Employee Stock Options shall be maintained at the registered office of the company
or such other place as the Board may decide.

2. ISSUE OF SHARES ON PREFERENTIAL BASIS SECTION 62(1)(c)

As discussed earlier, SECTION 62(1)(c) deals with issue of shares to persons other than existing
shareholders and provides that a company can issue further shares to persons other than existing
shareholders either for cash or for a consideration other than cash, if

1) The company in General Meeting passes a SPECIAL RESOLUTION to this effect; and
2) The price of such shares is determined by the valuation report of a registered valuer subject to the
compliance with the applicable provisions of Chapter III and any other conditions as may be
prescribed" shall be substituted
3) Such issue on preferential basis should also comply with conditions laid down in section 42 of the
Act, namely private placement.
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The ministry vide companies (share capital and debentures) (amendment) rules, 2015 dated 18th
march, 2015 has made the provisions relating to private placement offer letter not applicable to
preferential offer made to existing members. accordingly, the amended rule 13(1) reads as follows:

For the purposes of clause (c) of sub-section (1) of section 62, if authorized by a special resolution
passed in a general meeting, shares may be issued by any company in any manner whatsoever
including by way of a preferential offer, to any persons whether or not those persons include the
persons referred to in clause (a) or clause (b) of sub-section (1) of section 62 and such issue on
preferential basis should also comply with conditions laid down in section 42 of the Act

Provided that in case of any preferential offer made by a company to one or more existing members
only, the provisions of sub-rule (1) and proviso to sub-rule (3) of rule 14 of companies (prospectus
and allotment of securities) rules, 2014 shall not apply

Provided further that the price of shares to be issued on a preferential basis by a listed company shall
not be required to be determined by the valuation report of a registered valuer.

RULE 13 OF COMPANIES (SHARE CAPITAL AND DEBENTURES) RULES, 2014

The expression ‘Preferential Offer’ means an issue of shares or other securities, by a company to any
select person or group of persons on a preferential basis and does not include shares or other
securities offered through a public issue, rights issue, employee stock option scheme, employee stock
purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a
country outside India or foreign securities

The expression “shares or other securities” means equity shares, fully convertible debentures, partly
convertible debentures or any other securities which would be convertible into or exchanged with
equity shares at a later time.

Where the preferential offer of shares or other securities is made by a company whose share or other
securities are listed on a recognized stock exchange, such preferential offer shall be made in
accordance with the provisions of the Act and regulations made by the Securities and Exchange
Board. If these are not listed, the preferential offer shall be made in accordance with the provisions of
the Act and the Rules made hereunder and subject to compliance with the following requirements

19th July, 2016 Companies (Share Capital and Debentures) Third Amendment Rules, 2016.

where convertible securities are offered on a preferential basis with an option to apply for and get
equity shares allotted, the price of the resultant shares pursuant to conversion shall be determined-

o either upfront at the time when the offer of convertible securities is made, on the basis of
valuation report of the registered valuer given at the stage of such offer, or

o at the time, which shall not be earlier than thirty days to the date when the holder of convertible
security becomes entitled to apply for shares, on the basis of valuation report of the registered
valuer given not earlier than sixty days of the date when the holder of convertible security
becomes entitled to apply for shares:

CIRCULAR 3 AUGUST 2016

lt is accodingly clarified that unless otherwise provided provisions of Chapter lll of the Act and rule
18 of Companies (Share Capilal and debentue) Rules. 2014 rule does not apply lo issue of rupee
denominated bonds made exclusilely to persons residenl outside India

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PREFERENTIAL OFFER OF UNLISTED COMPANIES

 The issue is authorized by its articles of association

 The issue has been authorized by a special resolution of the members
 The allotment of securities shall be completed within a period of twelve months from the date of
passing of the special resolution. If the allotment of securities is not completed within twelve
months from the date of passing of the special resolution, another special resolution shall be
passed by the company to complete such allotment thereafter.
 The price of the shares or other securities to be issued on a preferential basis, either for cash or for
consideration other than cash, shall be determined on the basis of valuation report of a registered
valuer.

3. CONVERSION OF DEBENTURE, LOAN IN TO SHARES SECTION 62(3)

Increase of the subscribed capital of a company caused by the exercise of an option as a term attached
to the debentures issued or loans raised by the company to convert such debentures or loans into
shares in the company [Section 62(3)].

Provided that the terms of issue of such debentures or loan containing such an option have been
approved before the issue of such debentures or the raising of loans by a special resolution passed
by the company in the general meeting.

4. CONVERSION OF DEBENTURE, LOAN IN TO SHARES BY GOVERMENT

SECTION 62(4)
Notwithstanding anything contained in sub-section (3), where any debentures have been issued, or
loan has been obtained from any Government by a company, and if that Government considers it
necessary in the public interest so to do, it may, by order, direct that such debentures or loans or any
part thereof shall be converted into shares in the company on such terms and conditions as appear to
the Government to be reasonable in the circumstances of the case even if terms of the issue of such
debentures or the raising of such loans do not include a term for providing for an option for such
conversion:

Provided that where the terms and conditions of such conversion are not acceptable to the company, it
may, within sixty days from the date of communication of such order, appeal to the Tribunal which
shall after hearing the company and the Government pass such order as it deems fit.

NCLT RULES 2016 RULE 72

Appeal against the order of the Government under Section 62(4)

(1) Where any Government by virtue of provisions of sub-section (4) of section 62, in public interest,
converts the debentures or loan or any part thereof into shares in the company on such terms and
conditions as appear to the Government to be reasonable in the circumstances of the case even in
terms of the issue of such debentures or the raising of such loans do not include a term for providing
for an option for such conversion.
(2) If such terms and conditions of conversion are not acceptable to the company, it may, within
sixty days from the date of communication of such order, appeal to the Tribunal, in Form – NCLT-
9, which shall after hearing the company and the Government, pass such order as it deems fit.

5. DUE REGARD TPO FINANCIAL POSITION OF COMPANY SECTION 62(5)

In determining the terms and conditions of conversion under sub-section (4), the Government shall
have due regard to the financial position of the company, the terms of issue of debentures or loans, as
the case may be, the rate of interest payable on such debentures or loans and such other matters as it
may consider necessary.
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6. DEEMED INCREASED OF AUTHORISED CAPITAL SECTION 62(6)

Where the Government has, by an order made under sub-section (4), directed that any debenture or
loan or any part thereof shall be converted into shares in a company and where no appeal has been
preferred to the Tribunal under sub-section (4) or where such appeal has been dismissed, the
memorandum of such company shall, where such order has the effect of increasing the authorised
share capital of the company, stand altered and the authorised share capital of such company shall
stand increased by an amount equal to the amount of the value of shares which such debentures or
loans or part thereof has been converted into.

PROCEDURE FOR ISSUE OF SHARES ON PREFERENTIAL BASIS

a) Check whether the issue is authorize by Articles. If not make necessary amendments to alter the
articles of association, through special resolution passed at the shareholders’ meeting.
b) Convene a Board Meeting to approve the notice of General Meeting and necessary special
Resolution/s along with explanatory statements as required.
c) Convene General Meeting and pass necessary Special Resolution/s.
d) Ensure to file Form MGT-14 with Registrar of Companies within 30 days of passing the
Resolution.
e) The securities allotted by way of preferential offer shall be made fully paid up at the time of their
allotment.
f) the allotment of securities on a preferential basis made pursuant to the special resolution passed
pursuant to sub-rule (2)(b) shall be completed within a period of 12 months from the date of
passing of the special resolution. If the allotment of securities is not completed within 12 months
from the date of passing of the special resolution, another special resolution shall be passed for
the company to complete such allotment thereafter.
g) the price of the shares or other securities to be issued on a preferential basis, either for cash or for
consideration other than cash, shall be determined on the basis of valuation report of a registered
valuer; and when convertible securities are offered on a preferential basis with an option to apply
for and get equity shares allotted, the price of the resultant shares shall be determined beforehand
on the basis of a valuation report of a registered valuer and also complied with the provisions of
section 62 of the Act;
h) Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar
a return of allotment in Form PAS.3, along with the fee as specified in Companies (Registration
of Offices and Fees) Rules, 2014.
i) Deliver the share certificates of allotted shares within a period of 2 months from the date of
allotment

BONUS SHARES SETION 63

A company may, if its Articles provide, capitalize its profits by issuing fully-paid bonus
shares. The issue of bonus shares by a company is a common feature.

When a company is prosperous and accumulates large distributable profits, it converts these
accumulated profits into capital and divides the capital among the existing members in
proportion to their entitlements. Members do not have to pay any amount for such shares.
They are given free. The bonus shares allotted to the members do not represent taxable
income in their hands.

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Advantages of Issuing Bonus Shares

1. Fund flow is not affected adversely.
2. Market value of the members’ shareholdings increases with the increase in number of
shares in the company.
3. Bonus shares is not an income. Hence it is not a taxable income.
4. Paid-up share capital increases with the issue of bonus shares.

Sources for issue of Bonus shares

According to section 63(1), a company may issue fully paid-up bonus shares to its members,
in any manner whatsoever, out of

1. Its free reserves;

2. The securities premium account; or
3. The capital redemption reserve account.

No issue of bonus shares shall be made by capitalising reserves created by the revaluation of
assets.

Conditions for issue of Bonus Shares

In terms of section 63(2), no company shall capitalise its profits or reserves for the purpose
of issuing fully paid-up bonus shares, unless

a) It is authorised by its articles

b) It has, on the recommendation of the Board, been authorised in the general meeting of the
company
c) It has not defaulted in payment of interest or principal in respect of fixed deposits or debt
securities issued by it
d) It has not defaulted in respect of the payment of statutory dues of the employees, such as,
contribution to provident fund, gratuity and bonus
e) The partly paid-up shares, if any outstanding on the date of allotment, are made fully
paid-up
f) The bonus shares shall not be issued in lieu of dividend. [Section 63(3)]
Prescriptions under Companies (Share Capital and Debentures) Rules, 2014 with
regard to issue
Rule 14 states that the company which has once announced the decision of its Board
recommending a bonus issue, shall not subsequently withdraw the same.
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DIFFERENCE BETWEEN RIGHT SHARES AND BONUS SHARES

BASIS RIGHT SHARES BONUS SHARES

Definition It is entitlement of existing It is capitalization of undistributed
shareholders to receive invitation profits, where shares are allotted to
of offer of shares of a Company in existing shareholders free of cost.
case it makes further issue of
capital.
Payment of Shareholders must pay for the right Bonus shares are free of cost and
shares shares accepted by them. shareholders need not pay for these
shares.
Paid up Right shares may be partly paid up. Bonus shares are always fully paid
up.
Fresh funds Issue of right shares result in fresh Issue of bonus shares does not result
funds in the hands of the in fresh funds in the hands of the
Company. Company.
Right to Right to renounce is available Not applicable
renounce

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CHAPTER-11 SHARE CAPITAL PART -D

ALLOTMENT OF SHARES

 Allotment means acceptance of offer made by applicants to take shares of company.

 It is an appropriation of capital of company

ALLOTMENT OF SECURITIES 

GENERAL PRINCIPLES REGARDING ALLOTMENT

“Allotment” of shares means the act of appropriation by the Board of directors of the
company out of the previously un-appropriated capital of a company of a certain number of
shares to persons who have made applications for shares (In Re Calcutta Stock Exchange
Association). It is on allotment that shares come into existence.

The following general principles should be observed with regard to allotment of securities:

1) The allotment should be made by proper authority, i.e. the Board Directors of the
company, or a committee authorised to allot securities on behalf of the Board.

2) The allotment should be absolute and unconditional. Securities must be allotted on

same terms on which they were applied for and as they are stated in the application for
securities. Allotment of securities subject to certain conditions is also not valid.

3) The allotment must be communicated. As mentioned earlier posting of letter of

allotment or allotment advice will be taken as a valid communication even if the letter is
lost in transit.

4) Allotment against application only — No valid allotment can be made on an oral

request. Section 2(55) of the Act requires that a person should agree in writing to become
a member.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Ramsgate Victoria The interval of about 6 months between application and
Hotel Company v. allotment was held unreasonable
Montefione
2 British and There can be no proper allotment of shares unless the
American Steam applicant has been informed of the allotment
Navigation Co.
3 In Sri GopalJalan& Supreme Court observed that when a share is forfeited and
Co. v. Calcutta Stock re-issued, there is no allotment, in the sense of appropriation
Exchange of shares out of the authorised and unappropriated capital
Association Ltd.
4 Harmony and Any payment which is presently enforceable against the
Montage Tin and company such as consideration payable for property
Copper Mining purchased, will constitute payment in cash;
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Company; Spargo’s
case
5 Chokkalingam v. Allotment of shares against promissory notes shall not be
Official Liquidator valid.

6 Portugese An allotment by a Board irregularly constituted may be

Consolidated Copper subsequently ratified by a regular Board
Mines
7 Household Fire and Grant applied for certain shares in a company, the company
Carriage Accident dispatched letter of allotment to him which never reached
Insurance Co. Ltd. v. him. It was held that he was liable for the balance amount
Grant due on the shares.

CONDITIONS FOR ALLOTMENT OF SHARES

A. 39(1) Receipt of Minimum subscription in case of public offer.
B. 39(2)Collection of minimum application money.
C. 40(3)Deposit of application money in separate bank account
D. 40(1)Permission for listing of securities in a recognized stock exchange (RSE)
E. 39(4)Return of allotment

MINIMUM SUBSRIPTION (SEC. 39(1)

1) Meaning : Minimum subscription is the minimum amount stated in the prospectus,
which in the opinion of directors, ust be raised by the issue of share capital to start with.

2) Condition for allotment: Allotment of securities can be made only if the amount stated
in the prospectus as the minimum amount of subscription, is received.

3) Quantum of minimum subscription shall be as under-

 Under Companies Act: Amount stated in the prospectus
 Under SEBI Guidelines : 90% of the total issue size
This amount of minimum subscription will be exclusive of any amount payable otherwise
than in money. [Ramlal Sao Gupta v Malak]

4) Time limit for minimum subscription and effect of non-receipt :

 Under Companies Act: 30 days from the date of issue.
 Under SEBI Guidelines

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MINIMUM SUBSCRIPTION

THE MINIMUM SUBSCRIPTION SHALL BE RECIEVED

IN CASE OF NON-UNDERWRITTEN ISSUE: IN CASE OF UNDERWRITTEN ISSUE

By the closure of issue otherwise refund the within 60 days of the closure of issue otherwise
application money with in Fifteen days of the refund the application money with in next 10
closure of the issue days

Money to be returned if minimum application money is not received

Section 39(3) and Rule 11 of Companies (Prospectus and Allotment of Securities) Rules 2014

If the stated minimum amount has not been subscribed and the sum payable on application is
not received within a period of thirty days from the date of issue of the prospectus, or such
other period as may be specified by the Securities and Exchange Board, the amount so
received shall be returned within 15 days from the closure of the issue. If any such money is
not so repaid within such period the directors of the company who are officers in default shall
jointly and severally be liable to repay that money with interest at 15% P.A.

PENALTY

In case of default under Section 39(3) Company and every officer in default liable to penalty for
each default 1000 Rs. for every day during which default continues or 1 lac whichever is less.

COLLECTION OF MINIMUM APPLICATION MONEY (SEC. 39(2)

1. Condition for allotment: Allotment of securities can be made only if the minimum value
on application, is collected.
2. Quantum of Minimum Application Money: Minimum amount payable on application
of any security shall be—
Under companies Act : Note less than 5% of the Nominal Amount of the security
Under SEBI Guidelines: 25% of nominal value of security.
For example, if an issue is being made at a price of 390 per equity share, issuer company in
consultation with the lead merchant banker can determine the minimum application lot within
the range of 26-38 equity shares. Applications can be made in multiples of minimum
size/value.

Penalty for default (Sec.39(5) 1,000 per day of default upto maximum 1 lakh.
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RETURN OF ALLOTMENT SEC. 39(4)

Section 39 (4) Whenever a company having a share capital makes any allotment of securities,
it shall file with the Registrar a return of allotment in Form PAS-3.

Companies (Prospectus and Allotment of Securities) Rules, 2014- Rules relating to

allotment of securities

Rule 12 states that whenever company having a share capital makes any allotment of its
securities, the company shall, within thirty days thereafter, file with the Registrar a return of
allotment in Form PAS-3, along with the fee as specified in the Companies (Registration
Offices and Fees) Rules, 2014.

ATTACHMENT
a) List of allotted stating – (i) Name, (ii) Address (iii) Occupation (iv) Number of Securities
allotted.
b) Certificate by the signatory to the form that the list is complete and correct as per the
records.
c) In case of allotment for non-cash consideration (other than Bonus Issue)
 Copy of the Contract duly stamped pursuant to which allotment is made,
 Copy of contract of sale, if it relates to a property or an asset.
 Copy of contract of services or other consideration,
Note: if contract is not available in writing, the particulars shall be furnished in the form,
after payment of the required stamp duty, if it had been reduced in writing.
d) Report of the Registered Valuer, if any.
e) Copy of the Resolution passed in the general meeting, in case of Bonus Issue.
f) Valuation Report for shares (by a registered valuer), in case of Private Placement of
securities by a company other than a listed company
PENALTY
39 (5) In case of any default under sub-section (3) or sub-section (4), the company and its
officer who is in default shall be liable to a penalty, for each default, of one thousand rupees
for each day during which such default continues or one lakh rupees, whichever is less.
LISTING PERMISSION FROM STOCK EXCHANGE(S) SEC. 40(1)
Applicability
Every Company making public offer of securities before making the public offer, the
company shall make an application to one or more recognized stock exchange (s) and obtain
permission for listing of its securities.
Prospectus should state the name of the stock exchange (s) in which securities shall be dealt.
SEC. 40(2)
Effect of approval or denial from RSE
a) Allotment of securities can be made, only if listing permission is granted.
b) No allotment of securities can be made, if listing permission is denied.

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Company’s right to appeal in case of denial of listing Permission

Within 15 days from the date of RSE’s order denying listing permission, the company may
prefer an appeal to the securities appellate tribunal (SAT) u/s 22A of the securities contract
regulation Act. 1956 (SCRA, 1956)
DEPOSIT OF APPLICATION MONEY IN SEPARATE BANK ACCOUNT (SEC. 40(3)

Every Company making Public Offer of Securities Deposit All monies received on
application from public for subscription to the securities shall be kept in a separate bank a/c
in a scheduled bank, and shall not be utilized for any purpose other than as given below
Utilization
a) For adjustment against allotment, if the listing permission from stock exchange (s) is
obtained.
b) For repayment of Monies, if the company is unable to allot Securities for any reason.
(Note: such refund shall be made within the time specified by SEBI / Companies Act.)

SECTION (40)(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.
Punishment for Default Sec. 40(5)
a) Company is punishable with fine of minimum 5 Lakhs Maximum 50 Lakhs.
b) Every Officer in default is punishable with (i) Imprisonment of Maximum 1 year, or (ii)
Fine of minimum 50,000 Maximum 3 Lakhs, or (iii) both.
PUNISHMENT FOR DEFAULT SEC. 40(5)
a) Company is punishable with fine of minimum 5 lakhs, maximum 50 lakhs
b) Every officer in default is punishable (i) Imprisonment of Maximum 1 year, or (ii) fine of
minimum 50,000, maximum 3 lakhs, or (iii) both.
Permission should be granted by each of the stock exchanges named in the prospectus for
listing of shares to which application has been made, failure to obtain permission from even
one of the several stock exchanges named in the prospectus, the entire allotment it void.
Grant of permission by one or more of them is inconsequential.Rishyashringa Jewellery
Ltd. Vs Stock Exchange,

UNDERWRITING COMMISSION SECTION 40(6)

Section 40(6) provides that the company may pay commission to any person in connection
with the subscription to its securities subject to such conditions as prescribed under Rule 13
of the Companies (Prospectus and Allotment of Securities) Rules, 2014 as under:

A company may pay commission to any person in connection with the subscription or
procurement of subscription to its securities, whether absolute or conditional, subject to the
following conditions, namely
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1. The payment of such commission shall be authorized in the company’s articles of

association
2. The commission may be paid out of proceeds of the issue or the profit of the company or
both
3. The rate of commission paid or agreed to be paid shall not exceed, in case of shares, five
percent of the price at which the shares are issued or a rate authorised by the articles,
whichever is less, and in case of debentures, shall not exceed two and a half per cent of
the price at which the debentures are issued, or as specified in the company’s articles,
whichever is less
4. The prospectus of the company shall disclose — (i) the name of the underwriters; (ii) the
rate and amount of the commission payable to the underwriter; and (iii) the number of
securities which is to be underwritten or subscribed by the underwriter absolutely or
conditionally
5. There shall not be paid commission to any underwriter on securities which are not offered
to the public for subscription
6. A copy of the contract for the payment of commission is delivered to the Registrar at the
time of delivery of the prospectus for registration

UNDERWRITING VS BROKERAGE
UNDERWRITING BROKERAGE
It is a contract entered into between the Broker Merely undertakes ‘to place shares’
company and underwriters whereby the i.e. finds person who will buy shares for an
underwriter agree to subscribe the shortfall in agreed brokerage. (Brokerage is the sum
minimum subscription. paid by company for placing its shares)

Underwriter is liable to take the shares when Broker does not have any liability to
there is failure by public to subscribe. subscribe to the shares he merely finds
buyers.
The risk associated with underwriting is the No risk because broker does not undertake
devolvement of underwriters in case of failure to subscribe for the shares
of public to subscribe.
Risk is suitably compensated by way of Broker gets Brokerage only when he
underwriting commission places the shares, else, no brokerage.
Commission is payable only when there is an Brokerage may be paid even if the AOA is
express authority in the AOA silent about it.

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CHAPTER-12 SHARE CAPITAL PART -E

SHARE CERTIFICATES

SHARES TO BE MOVEABLE PROPERTY SECTION 44

The shares or debentures or other interest of any member in a company shall be movable
property transferable in the manner provided by the articles of the company.

SHARES TO HAVE DISTINCTIVE NUMBERS SECTION 45

Every share in a company having a share capital shall be distinguished by its distinctive
number: Provided that nothing in this section shall apply to a share held by a person whose
name is entered as holder of beneficial interest in such share in the records of a depository.

PROVISIONS RELATING TO SHARE CERTIFICATES SECTION 46

(1) A certificate, issued under the common seal (IF ANY) of the company, specifying the
shares held by any person, shall be prima facie evidence of the title of the person to such
shares.

(2) A duplicate certificate of shares may be issued, if such certificate

(a) is proved to have been lost or destroyed; or

(b) has been defaced, mutilated or torn and is surrendered to the company.

(3) Notwithstanding anything contained in the articles of a company, the manner of issue of a
certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be
entered in the register of members and other matters shall be such as may be
prescribed.(REFER RULE 5 AND 6 OF SHARE CAPITAL AND DEBENTURE RULES 2014)

(4) Where a share is held in depository form, the record of the depository is the prima facie
evidence of the interest of the beneficial owner.

(5) If a company with intent to defraud issues a duplicate certificate of shares, the company
shall be punishable with fine which shall not be less than five times the face value of the
shares involved in the issue of the duplicate certificate but which may extend to ten times the
face value of such shares or rupees ten crores whichever is higher and every officer of the
company who is in default shall be liable for action under section 447.
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SHARE CERTIFICATES

Issue of share certificate Rule 5 of the Issue of renewed or duplicate share certificate Rule 6
companies (Share Capital and Debentures) of the companies (Share Capital and Debentures) Rules,
Rules, 2014 2014
Conditions
Conditions
1. Renewal to be made only on surrender of old
1. Pass board resolution 5(1) certificate
2. Letter of offer surrendered to company 2. Company may charge fee for duplicate share
if the letter is lost or destroyed the certificate as the board decides but not exceeding 50
board may impose reasonable terms per certificate.
3. Certificate shall be issued in Form No. 3. Company shall not issue any duplicate share
SH-1. Rule 5(2)] certificate in lieu of those lost or destroyed without
4. Certificate shall be issue under the the prior consent of Board
common seal (if any) of the company. 4. If the company is listed then the duplicate share
Rule 5(3) certificates shall be issued within 45 days and if
the company is unlisted it shall issue the certificates
5. Particulars of shares certificates to be
in 3 months
entered in the Register of Members.
Rule 5(4)

Rule 5 of Companies (Share Capital and Debentures) Rules, 2014, relating issue of
Certificates

Rule 5 of Companies (Share Capital and Debentures) Rules, 2014 provides the following
relating to issue of Securities

Certificate of shares (where shares are not in Demat form)[ (Rule 5(1)]
Where a company issues any share capital, no certificate of any share or shares held in the
company shall be issued, except-

a) In pursuance of a resolution passed by the Board; and

b) On surrender to the company of the letter of allotment

If, the letter of allotment is lost or destroyed, the Board may impose such reasonable terms, if
any, as to seek supporting evidence and indemnity and the payment of out-of-pocket
expenses incurred by the company in investigating evidence, as it may think fit.

Share certificate to be issued under the common seal (if any) of the company and
signatories to share certificates [Rule 5(3)]
Rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014
Every certificate shall specify the shares to which it relates and the amount paid-up thereon
and shall be signed by two directors or by a director and the company secretary, wherever the
company has appointed company secretary:
Provided that in case the company has a common seal it shall be affixed in the presence of
persons required to sign the certificate.
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Explanation. - For the purposes of this sub-rule, it is hereby clarified that,-

(a) in case of an One Person Company, it shall be sufficient if the certificate is signed by
a director and the company secretary or any other person authorised by the Board for the
purpose.
(b) a director or company secretary shall be deemed to have signed the share certificate if his
signature is printed thereon as facsimile signature by means of any machine, equipment or
other mechanical means such as engraving in metal or lithography or digitally signed, but not
by means of rubber stamp, provided that the director or company secretary shall be
personally responsible for permitting the affixation of his signature thus and the safe custody
of any machine, equipment or other material used for the purpose.
(4) The particulars of every share certificate issued in accordance with sub-rule (1) shall be
entered in the Register of Members maintained in accordance with the provisions of section
88 along with the name(s) of person(s) to whom it has been issued, indicating the date of
issue.
Rule 6 of Companies (Share Capital and Debentures) Rules, 2014 relating to issue of
duplicate certificates
When can a company issue Duplicate Share Certificate
Section 46 (2) states that a duplicate certificate of shares may be issued, if such certificate
a) Is proved to have been lost or destroyed; or
b) Has been defaced, mutilated or torn and is surrendered to the company.
Issue of renewed or duplicate share certificate (Rule 6)

1) The certificate of any share or shares shall not be issued either in exchange for those which are
subdivided or consolidated or in replacement of those which are defaced, mutilated, torn or old,
decrepit, worn out, or where the pages on the reverse for recording transfers have been duly
utilised, unless the certificate in lieu of which it is issued is surrendered to the company:
a) The company may charge such fee as the Board thinks fit, not exceeding fifty rupees per
certificate issued on splitting or consolidation of share certificate(s) or in replacement of share
certificate(s) that are defaced, mutilated, torn or old, decrepit or worn out
Register of renewed and duplicate share certificates

a) The particulars of every duplicate share certificate issued shall be entered forthwith in a Register
of Renewed and Duplicate Share Certificates maintained in Form No.SH.2
b) The register shall be kept at the registered office of the company or at such other place where the
Register of Members is kept and it shall be preserved permanently and shall be kept in the
custody of the company secretary of the company or any other person authorized by the Board for
the purpose.
c) All entries made in the Register of Renewed and Duplicate Share Certificates shall be
authenticated by the company secretary or such other person as may be authorised by the Board
for the purposes of sealing and signing the share certificate under the provisions of sub rule (3) of
rule 5.

Time of issue of Certificate of Securities

Under Section 56(4) of the Act, every company, (unless prohibited by any provision of law
or any order of any Court, Tribunal or other authority) must deliver the certificates of all
securities allotted, transferred or transmitted:-
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a) within a period of 2 months from the date of incorporation, in the case of subscribers to the
memorandum;
b) within a period of 2 months from the date of allotment, in the case of any allotment of any of its
shares;
c) within a period of 1 month from the date of receipt by the company of the instrument of transfer
or, as the case may be, of the intimation of transmission, in the case of a transfer or transmission
of securities;
d) within a period of 6 months from the date of allotment in the case of any allotment of debenture.

However, where the securities are dealt with in a depository, the company shall intimate the
details of allotment of securities to depository immediately on allotment of such securities.
[See proviso to Section 56(4)].

Where any default is made in complying with the provisions of sub-sections (1) to (5), the
company and every officer of the company who is in default shall be liable to a penalty of
fifty thousand rupees [Section 56(6)] (COMPANIES AMENDMENT ACT 2020)
Split Certificate
A split certificate means a separate certificate claimed by a shareholder for a portion of his
holding. The advantages of a split certificate are that the shareholder may benefit in case of a
transfer by way of sale or mortgage in small lots and the right to multiply the certificates into
as many shares held by the shareholder.

CASE LAWS
S.NO. CASE NAME PROVISONS
1 Jarnail Singh v. Bakshi The joint shareholders are entitled to split the shares and register
Singh themselves separately.
2 Claude Lila Parulekar If transfer deed is signed by only three out of four joint holders,
v. Sakal Papers P. Ltd transfer cannot be registered.

Whether Share Certificate an Official Publication

Section 44 of the Companies Act 2013 provides that a certificate under the common seal of
the company specifying any share held by any member shall be prima facie evidence of the
title of the member to such share. Thus, shares are movable property transferable in the
manner provided in the articles of the company and that the share certificates are certificates
of title and are movable property but are not publications in the nature of prospectus, balance
sheet, profit and loss account, notice or advertisement.

Legal Effect of Share Certificate

Estoppel as to Title: A share certificate once issued binds the company in two ways. In the
first place, it is a declaration by the company to the entire world that the person in whose
name the certificate is made out and to whom it is given is a shareholder in the company. In
other words the company is estopped from denying his title to the shares.
Estoppel as to Payment: If the certificate states that on each of the shares full amount has
been paid, the company is estopped as against a bona fide purchaser of the shares, from
alleging that they are not fully paid.

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CHAPTER-13 SHARE CAPITAL PART -F

CALLS, FORFEITURE, SURRENDER AND REDUCTION OF SHARES

1. A call is a demand, by the company in pursuance of a Board resolution and in

accordance with the articles of the company, upon its shareholders to pay the whole or
part of the balance still due on each class of shares allotted or held by them made at any
time during the life of the company.

2. A call may also be made by the liquidator in the course of winding up of the company.

3. The amount payable in application on each share shall not be less than five per cent of
the nominal amount of the share. The balance may be payable as and when called for in
one or more calls.

4. Under Section 10(2) of the Act all moneys payable by any member to the company on the
shares held by him under the memorandum or articles is a debt due from him to the
company.

5. In the event of default in payment of a valid call, the company can enforce payment of
such moneys by legal process and forfeit the shares in case the call is not paid.

6. The liability of members is enforceable only after a proper notice which is called ‘call
letter’ or call notice as 1st, 2nd and final or so on, is given to him in accordance with the
articles.

Requisites of a valid call

1. Board of Directors to make call(s) on shares

The power to make calls is exercised by the Board in its meeting by means of a resolution
[Section 179(3) (a)]. A proper notice must be given, and the notice must specify the amount
called up and manner i.e. the date for payment and place and to whom it is to be paid.
2. Call(s) to be made bonafide in the interest of the company

The power to make call is in the nature of trust and must be exercised only for the benefit of
the company, and not for the private ends of the directors. If the call is made for the personal
benefit of directors, the call will be invalid. In Alexander v. Automatic Telephone Co.,
3. Call(s) must be made on uniform basis

According to Section 49 of the Act, calls on same class of shares must be made on a uniform
basis. Hence a call cannot be made only on some of the members unless they constitute a
separate class. In other words, there cannot be any discrimination between shareholders of the
same class as regards amount and time of payment of call.

4. Notice of call(s)

The notice of call must specify the exact amount and time of payment. In Shackleyford & Co.
Dangerfield the notice had specified the time and amount to be paid as a call, it will be a
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valid call inspite of the fact that the form of notice was an inaccurate one. A call must be
made by serving upon member formal notice.

Usually Articles of association of companies provide for the manner in which calls
should be made. They follow the pattern set out in Regulations 13 to 18 of Table-F

a) For each call at least 14 days’ notice must be given to members.

b) An interval of one month is required between two successive calls and not more than one-
fourth of the nominal value of shares can be called at one time. However, companies may
have their own articles and raise the limit.
c) The Board of directors has the power to revoke or postpone a call after it is made.
d) Joint shareholders are jointly and severally liable for payment of calls.
e) If a member fails to pay call money he is liable to pay interest not exceeding the rate
specified in the articles or terms of issue or such lower rate, as the Board may determine.
The directors are free to waive the payment of interest wholly or in part.
f) If any member desires to pay the call money in advance, the directors may at their
discretion accept and pay interest not exceeding the rate specified in the articles.
g) A defaulting member will not have any voting right till call money is paid by him.

Interest on calls due but not paid — A member is generally made liable to pay interest on
the calls made but not paid. The rate of interest to be charged is as specified in the Articles.
Regulation 16 of Table F, in this regard provides:

1. If a sum called in respect of a share is not paid before or on the day appointed for
payment thereof, the person from whom the sum is due shall pay interest thereon from the
day appointed for payment thereof to the time of actual payment at 10% per annum or at
such lower rate, if any, as the Board may determine.
2. The Board shall be at liberty to waive payment of any such interest wholly or in part."
Acceptance of uncalled capital

Section 50(1) states that if authorized by its articles, a company may accept from any
member the whole or part of the amount remaining unpaid on any shares held by him, even if
no part of that amount has been called up.

Where section 50(2) provides that a member who has paid the whole or part of the amount
remaining unpaid on the shares held by him even though the company has not made a call for
it is not entitled for any voting right at a general meeting on the amount so paid until that
amount has been called up
Quantum and Interval between two calls
Proviso to Regulation 13(i) to the Table ‘F’ of Schedule I of the Companies Act, 2013
provides that no call shall exceed 25% of the nominal value of the share or be payable at less
than one month from the date fixed for the payment of the last proceeding call.

If the issuer proposes to receive subscription monies in calls, it shall ensure that the
outstanding subscription money is called within twelve months from the date of allotment of
the issue and if any applicant fails to pay the call money within the said twelve months, the

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equity shares on which there are calls in arrear along with the subscription money already
paid on such shares shall be forfeited.

FORFEITURE OF SHARES

Forfeiture may be termed as penalty for violation of terms of contract. Forfeiture of shares
means taking back of shares by the company from the shareholders. If the shareholder makes
default in payment of calls on shares, then the company can use the option of forfeiting the
shares.
For a valid forfeiture, satisfaction of following conditions is necessary

1. Articles of Association must authorise the forfeiture of shares.

2. Resolution for Forfeiture - Article 30 of the Table F provides that if the defaulting
shareholder does not pay the amount within the specified time as required by the notice,
the directors may pass a resolution forfeiting the shares.

3. Proper Notice - Before the shares of a member are forfeited, a proper notice to that effect
must have been served. Regulation 29 of Table F provides that a notice shall name a
further day (not less than 14 days from the date of service of the notice) on or before
which the payment is to be made. The notice must also mention that in the event of non
payment, the shares will be liable to be forfeited.

4. Power of forfeiture must be exercised bona fide and for the benefit of the company -
The power to forfeit be exercised bona fide and for the benefit of the company. The
power must be used in order to coerce reluctant shareholders into paying their calls. The
power of forfeiture cannot be exercised to relieve unwilling shareholders from the
liability of making the payment. Such a shareholder continues to be responsible for the
unpaid part of the shares.

When forfeiture of shares takes place, shareholder ceases to be a member and the forfeited
shares become the property of the company.

Re-issue of Forfeited Shares

Shares forfeited by a company may either be cancelled or re-issued to another person at the
discretion of the Board. This is done by a Board resolution. After the money due is received
from the new member(s), the company executes a transfer deed and issues a share certificate,
and if the original holder has already surrendered the share certificate, it is duly transferred,
otherwise after a public notice in a newspaper, a new share certificate is issued.

If the shares are re-issued at a price more than the face value, the excess of the proceeds of
sale is not payable to the former owner, if the articles provide otherwise (Calcutta Stock
Exchange Assn.). The excess of the proceeds so retained shall constitute a premium and must
therefore be transferred to the securities premium account.
However, in the case of Naresh Chandra Sanyal v. Calcutta Stock Exchange Ass. Ltd.

Supreme Court held that, where the articles are silent with regard to such surplus, the right
of a company upon the forfeiture and sale of forfeited shares is to use the proceeds for
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discharging the liability for which the forfeiture was effected and if there is any balance, it
belongs to the defaulter and cannot be appropriated by the company.

PROCEDURE FOR FORFEITURE OF SHARES

1. If a member fails to pay any call, or installment of a call, on the day appointed for
payment thereof, the Board may, at any time thereafter serve a notice on him requiring
payment of so much of the call or installment as is unpaid, together with any interest
which may have accrued.
2. The board or committee thereof shall pass a resolution authorizing the forfeiture of share
and issue of notice for this purpose.
3. The notice aforesaid shall
 Name a further day (not being earlier than the expiry of fourteen days from the date of
service of the notice) on or before which the payment required by the notice is to be
made; and
 State that, in the event of non-payment on or before the day so named, the shares in
respect of which the call was made will be liable to be forfeited.
4. The notice must
 Specify clearly the amount payable on account of unpaid call money as well as interest
accrued, if any, and other expenses.
 Mention the day on or before which the amount specified ought to be paid, not be earlier
than 14 days from the date of service of the notice.
 Contain an unambiguous statement to the effect that in the event of failure to pay the
specified amount latest on the appointed day, the shares in respect of which the amount
remains unpaid would be liable to be forfeited.
5. The notice of forfeiture as contemplated in regulation 28 of Table – F of Schedule – I
must be served in accordance with the provisions of section 20 of the Companies Act
2013.
6. If the call money is not paid in response to such notice threatening forfeiture, the
company may, at any time thereafter, before the payment required by the notice has been
made, forfeit the shares by a resolution of the Board to that effect.
7. Publish a notice of forfeiture in newspapers so that the members of the public are made
aware of the forfeiture and cautioned not to deal in the forfeited shares.
8. Inform the forfeiture of the shares to the concerned shareholders by registered post.
9. Regulation 33 of Table – F of Schedule – I provides for a verified declaration in writing
to be issued under the signature of a director, manager or secretary of the company that a
share in the company has been duly forfeited on a date stated in the declaration. The
declaration so made shall be conclusive evidence of the facts stated therein as against all
persons claiming to be entitled to the shares forfeited.
10. The fact of the forfeiture will be entered in the Register of Members and the name of the
concerned shareholder as a member of the company will be deleted from the register.
11. In case of listed company, notify the Stock Exchange at which the securities of the
Company are listed about such forfeiture of shares.

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COMPANY’S LIEN ON SHARES

Articles 9 to 12 of Table F of Schedule I to the Act carry the rules as to lien. These articles
are not compulsory. A company may adopt its own articles regarding the subject matter of
lien as also regarding any money due to it from the shareholder either originally or
subsequently by a special resolution.

The fact to be noted is that unless the articles provide for a lien, a company has no inherent or
prima facie right of lien on the shares of members.

But in the case of listed company, one of the requirements is that the articles of the company
shall provide that the fully paid shares will be free from all lien, while in the case of partly
paid shares, the company’s lien, if any, will be restricted to monies called or payable at a
fixed time in respect of such shares [Rule 19(2)(ii) of the Securities Contracts (Regulation)
Rules, 1957].

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Allen v. Gold Reefs of In a lien the company shall have first and paramount lien on
West Africa the shares of each member for his debts and liabilities to the
company. Such a provision is fully effective for private as
well as public companies.

DIFFERENCE BETWEEN FORFEITURE AND LIEN ON SHARES

S.NO. FORFEITURE ON SHARES LIEN ON SHARES

1 It is Exercised for amount due on shares It is Exercised for amount due on shares
only. and due on other accounts.
2 It is a penalty to enforce the payment of It is a security for debt and to be retained
money due on share. until payment of debt in full.
3 If after forfeiture shares does not re - issue it It does not result in to reduction of
will amount to reduction of capital. capital
4 It is act of depriving him of right in It is act of sale of shares to adjust
forfeited shares outstanding dues

SURRENDER OF SHARES:
Surrender of shares means voluntary return of shares by the shareholder to the Company
for cancellation. There is no provision for surrender of shares in the Companies Act
CASE LAWS
S.NO. CASE NAME PROVISONS
1 Bellerby v. Rowland A Company cannot accept a surrender of its shares, as
& Marwood every surrender of shares, whether fully paid up or not
Steamship Co. Ltd involves a reduction of capital which is unlawful; forfeiture
is a statutory exception-
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2 Trevor v. Whitworth The Articles of a Company may allow surrender of shares

as a short cut to the long procedure of forfeiture, where
their forfeiture is otherwise justified-

In any other circumstances, surrender of shares cannot be accepted without sanction of the
Court, as this would amount to a reduction of capital.

Partly paid shares Fully paid shares

A Company can accept surrender of partly Fully paid shares can be surrendered only in
paid shares only. exchange for new shares of the same
nominal value with different rights. Thus,
there is only replacement of capital but not
reduction.

Re-issue of Surrendered Shares:

 Surrendered shares can be re-issued in the same way as the forfeited shares. In this case,
there is no reduction in capital.
 No consideration can be paid by Company in exchange of surrendered shares as it would
amount to purchase of its own shares, which is prohibited by Sec 68.

REDUCTION OF CAPITAL AS PER COMPANIES ACT 2013

section 66 read with national company law tribunal (procedure for reduction of share capital
of company) rules, 2016.

SECTION 66: REQUIREMENTS FOR REDUCTION:

Reduction of capital refers to reduction of Subscribed and Paid-Up Capital of the
Company. It applies to:

 Company limited by shares

 Company limited by Guarantee and having share capital.

A Company can reduce its capital only if:

 Authorized by its Articles

 Special resolution
 NCLT aprooval

S.NO. PARTICULARS PROVISIONS

1 SECTION 66(1) A company may reduce the share capital in any manner and in
particular, may
METHODS OF
CAPITAL (a) extinguish or reduce the liability on any of its shares in
REDUCTION respect of the share capital not paid-up; or
(b) either with or without extinguishing or reducing liability on
any of its shares,—
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(i) cancel any paid-up share capital which is lost or is

unrepresented by available assets; or
(ii) pay off any paid-up share capital which is in excess of the
wants of the company,
alter its memorandum by reducing the amount of its share capital
and of its shares accordingly:
Provided that no such reduction shall be made if the company is
in arrears in the repayment of any deposits accepted by it, either
before or after the commencement of this Act, or the interest
payable thereon.

NCLT (Procedure for reduction of share capital of Company)

Rules, 2016.
RULE 2: An application shall be made to NCLT for reduction
in Form No. RSC-1

ATTACHMENTS
a. The list of creditors duly certified by the Managing Director,
or in his absence, by two directors, as true and correct, which
is made as on a date not earlier than fifteen days prior to the
date of filing of an application showing the details of the
creditors of the company, class-wise, indicating their names,
addresses and amounts owed to them;
b. A certificate from the auditor of the company to the effect
that the list of creditors referred to in clause (a) is correct as
per the records of the company verified by the auditor;
c. A certificate by the auditor and declaration by a director of
the company that the company is not, as on the date of filing
of the application, in arrears in the repayment of the deposits
or the interest thereon; and
d. A certificate by the company’s auditor to the effect that the
accounting treatment proposed by the company for the
reduction of share capital is in conformity with the
accounting standards specified in section 133 or any other
provisions of the Act.
e. Copies of the list of creditors shall be kept at the registered
office of the company and any person desirous of inspecting
the same may, at any time during the ordinary hours of
business, inspect and take extracts from the same on payment
of the sum of rupees fifty for inspection and for taking
extracts on payment of the sum of rupees ten per page to the
company.
2 SECTION 66(2) Issue of notice and directions by the National Company Law
read with NCLT Tribunal.- RULE 3
(Procedure for
reduction of share 1) The Tribunal shall, within fifteen days of submission of the
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capital of application under rule 2, give notice, or direct that notice be

Company) Rules, given to –
2016.
I. The Central Government (RD), Registrar of Companies,
in all cases, in Form No. RSC-2;
II. The Securities and Exchange Board of India, in the case
of listed companies in Form No. RSC-2;
III. The creditors of the company, in all cases in Form No.
RSC-3;
Seeking their representations and objections, if any.

2) The notice under clause (iii) of sub-rule (1) shall be sent,

within seven days of the direction given under that sub-rule
or such other period as may be directed by the Tribunal, to
each creditor whose name is entered in the list of creditors
submitted by the company about the presentation of the
application and of the said list, stating the amount of the
proposed reduction of share capital and the amount or
estimated value of the debt or the contingent debt or claim or
both for which such creditor’s name is entered in the said list,
and the time within which the creditor may send his
representations and objections.

3) The Tribunal shall along with directions under sub-rule (1)

give directions for the notice to be published, in Form No.
RSC-4 within seven days from the date on which the
directions are given, in English language in a leading English
newspaper and in a leading vernacular language newspaper,
both having wide circulation in the State in which the
registered office of the company is situated, or such
newspapers as may be directed by the Tribunal and for
uploading on the website of the company (if any) seeking
objections from the creditors and intimating about the date of
hearing.

4) The notice under sub-rule (3) shall state the amount of the
proposed reduction of share capital, and the places, where the
aforesaid list of creditors may be inspected, and the time as
fixed by the Tribunal within which creditors of the company
may send their objections: Provided that the objections, if
any, shall be filed in the Tribunal within three months from
the date of publication of the notice with a copy served on the
company.

5) The company or the person who was directed to issue notices

and the publication in the newspaper under this rule shall, as
soon as may be, but not later than seven days from the date of
issue of such notices, file an affidavit in Form No. RSC-5
confirming the dispatch and publication of the notice.

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6) Where the Tribunal is satisfied that the debt or claim of every

creditor has been discharged or determined or has been
secured or his consent is obtained, it may dispense with the
requirement of giving of notice to creditors or publication of
notice under this rule or both.
3 SECTION 66(3) The Tribunal may, if it is satisfied that the debt or claim of every
creditor of the company has been discharged or determined or
Factors to be has been secured or his consent is obtained, make an order
considered by confirming the reduction of share capital on such terms and
NCLT before conditions as it deems fit:
approval
Provided that no application for reduction of share capital shall
be sanctioned by the Tribunal unless the accounting treatment,
proposed by the company for such reduction is in conformity
with the accounting standards specified in section 133 or any
other provision of this Act and a certificate to that effect by the
company’s auditor has been filed with the Tribunal
4 SECTION 66(4) The order of confirmation of the reduction of share capital by the
Tribunal under sub-section (3) shall be published by the
Publication of company in such manner as the Tribunal may direct.
NCLT order
5 SECTION 66(5) (5) The company shall deliver a certified copy of the order of the
Tribunal under sub-section (3) and of a minute approved by the
Filing of NCLT Tribunal showing—
order to ROC
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
(d) the amount, if any, at the date of registration deemed to be
paid-up on each share,
to the Registrar within thirty days of the receipt of the copy of
the order, who shall register the same and issue a certificate to
that effect.

RULE 6:Order on application and Minute thereof:-

The Certificate issued by the Registrar under sub-section (5) of
section 66 shall be in Form No. RSC-7.
6 SECTION 66(6) Nothing in this section shall apply to buy-back of its own
securities by a company under section 68.
SECTION 66
does not apply
to buy back
7 SECTION 66(7) A member of the company, past or present, shall not be liable to
any call or contribution in respect of any share held by him
Liability of past exceeding the amount of difference, if any, between the amount
member paid on the share, or reduced amount, if any, which is to be
deemed to have been paid thereon, as the case may be, and the
amount of the share as fixed by the order of reduction.
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8 SECTION 66(8) Where the name of any creditor entitled to object to the reduction
of share capital under this section is, by reason of his ignorance
Right of creditors of the proceedings for reduction or of their nature and effect with
respect to his debt or claim, not entered on the list of creditors,
and after such reduction, the company commits a default,
within the meaning of section 6 of the Insolvency and
Bankruptcy Code, 2016, in respect of the amount of his debt
or claim

(a) every person, who was a member of the company on the date
of the registration of the order for reduction by the Registrar,
shall be liable to contribute to the payment of that debt or claim,
an amount not exceeding the amount which he would have been
liable to contribute if the company had commenced winding up
on the day immediately before the said date; and

(b) if the company is wound up, the Tribunal may, on the

application of any such creditor and proof of his ignorance as
aforesaid, if it thinks fit, settle a list of persons so liable to
contribute, and make and enforce calls and orders on the
contributories settled on the list, as if they were ordinary
contributories in a winding up.
9 SECTION 66(9) Nothing in sub-section (8) shall affect the rights of the
Rights of the contributories among themselves.
contributories
10 SECTION If any officer of the company
66(10)
(a) knowingly conceals the name of any creditor entitled to
penalty object to the reduction;
(b) knowingly misrepresents the nature or amount of the debt or
claim of any creditor; or
(c) abets or is privy to any such concealment or
misrepresentation as aforesaid,
he shall be liable under section 447.
11 SECTION If a company fails to comply with the provisions of sub-section
66(11) (4), it shall be punishable with fine which shall not be less than
five lakh rupees but which may extend to twenty-five lakh
penalty rupees. (COMPANIES AMENDMENT ACT 2020)

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Reduction of share capital without sanction of the NCLT

In some cases the Company can reduce its capital and is not required to take confirmation
from the Tribunal. Such cases are as follows:
1) Forfeiture of shares: A Company may, in pursuance of its Articles, forfeit shares for
non-payment of calls.

2) Surrender of shares: A Company may accept surrender of shares under circumstances

where forfeiture is justified. It has the effect of releasing the shareholder, whose surrender
is accepted, from liability of the shares.

3) Diminution of capital: According to Sec 94 diminution of capital does not amount to

reduction of share capital

4) Redemption of redeemable Preference shares: When redeemable shares are redeemed

as per the terms of their issue, it does not amount to reduction of share capital and does
not require confirmation from the Tribunal.

5) Purchase of shares of a member by the Company under Sec 242: Tribunal may order
the Company to purchase the shares of any shareholder by the Company itself, under
certain circumstances. As this is done in pursuant of Tribunal’s order, no special sanction
of the Tribunal is required.

CASE LAWS ON REDUCTION OF CAPITAL

S.NO. CASE NAME PROVISONS
1 Chander Bhan Where a company, reducing its share capital by cancelling
Gandhi v. Reckitt and extinguishing some equity shares held by its subsidiary
Benckiser (India) and some shares held by the public, passes the requisite
Ltd resolution approving the reduction by a special majority in
an extraordinary general meeting called for in this regard,
and there is no fault in the reasoning given by the Single
Judge approving the same, and also the valuation of shares,
the appeal by a sole shareholder objecting to the said
reduction is liable to be dismissed.

2 Wartsila India Ltd. The role of the court, while approving scheme of reduction
v. Janak Mathuradas of capital, is limited to the extent of ensuring that the
and Others scheme is not unconscionable or illegal or unfair or unjust.
Merely because the determination of the share exchange
ratio or the valuation of shares is done by a different
method which might result in a different conclusion would
not justify interference of the court, unless found to be
unfair.

The court does not have the expertise nor the jurisdiction to
delve into the deep commercial wisdom exercised by the
creditors and members of the company who have approved
the scheme by the requisite majority.
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3 ALEMBIC LTD. The capital was proposed to be reduced by utilization of the

Securities Premium Account and General Reserve. There
was to be no dimunition of liabilities or repayment of paid
up capital. No reduction of issued, subscribed or paid up
capital was involved. The Court said that the proposed
reduction not being prejudicial in any manner was,
therefore to be allowed.
4 SIEL LTD. A scheme of amalgamation and arrangement involved
reduction of share capital by extinguishment of shares of a
particular class. The reduction was approved by majority of
shareholders and creditors of Transferee Company. The
court approved the reduction and extinguishment of portion
of shares was held to be permissible as no one was
prejudicially affected.
5 Marwari Stores Ltd. EQUAL REDUCTION OF SHARES OF ONE CLASS
v. Gouri Shanker
Goenka Where there is only one class of shares, prima facie, the
same percentage should be paid off or cancelled or reduced
in respect of each share, but where different amounts are
paid-up on shares of the same class, the reduction can be
effected by equalizing the amount so paid-up. The same
principle is to be followed where there are different classes
of shares.
6 ASIAN It is not necessary that extinguishment of shares in all cases
INVESTMENT should necessarily result in reduction of share capital.
LTD. Accordingly, where reduction is not involved, Section 100
would not be attracted.
7 ESSAR STEEL LTD RESTRUCTURING OF DEBTS AND REDUCTION
OF CAPITAL

The petitioner-company was referred to the corporate debt

restructuring (‘CDR’) forum for re-scheduling and
restructuring its debt.

As per restructuring package, as approved by CDR forum,

for every 10 equity shares the company would cancel 4
equity shares and in lieu of such cancellation, 4 non-
cumulative preference shares would be allotted and the
existing equity shareholders would continue to hold
remaining 6 shares without any alteration of rights.

When the petitioner-company moved to the High Court for

confirmation of its restricting package, the objector
opposed the scheme on the ground that it would suffer
financial loss. Taking an overall view and considering the
proposed scheme of reduction of share capital in larger
perspective, the High Court found no reason not to confirm
the proposed action of the company to reduce its share
capital.

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The High Court observed that the proposal is likely to

improve the financial resources of the company, and to
increase the share of profit available for expansion and
growth of the company. Moreover, the proposal does not
involve diminution of any liability in respect of unpaid
capital or the payment to any shareholder of any paid-up
capital.
8 Tamil Nadu A Company was allowed to reduce its capital which was
Newsprint and found to be in excess of its needs by permitting it to pay the
Papers Ltd vs. ROC same partly in cash and partly in the form of non-
convertible debentures
9 WALKAR & Where the Registrar had issued his certificate confirming
SMITH LTD. the reduction, the same was held to be conclusive although
it was discovered later that the company had no authority
under its articles to reduce capital
10 LADIES’S DRESS Similarly, in a case where the special resolution for
ASSN. V. reduction was an invalid one, but the company had gone
PULBROOK through with the reduction, the reduction was not allowed
to be upset
11 Indian National Press The need for reducing capital may arise in various
(Indore) Ltd., In re. circumstances for example trading losses, heavy capital
(1989) 66 Com Cases expenses and assets of reduced or doubtful value. As a
387, 392 (MP): result, the original capital may either have become lost or a
capital may find that it has more resources than it can
profitably employ. In either case, the need may arise to
adjust the relation between capital and assets.

12 British and American When exercising its discretion, the Court must ensure that
Trustee Corpn. v. the reduction is fair and equitable. In short the Court
Couper (NCLT) shall consider the following, while sanctioning the
reduction:

 The interests of creditors must be safeguarded;

 The interests of shareholders must be considered; and
 Lastly, the public interest must be considered as well.

Distinction between Reduction of capital and Alteration of capital

BASIS REDUCTION OF CAPITAL ALTERATION OF CAPITAL

(SEC 66) of Companies Act 2013 (SEC 61) Companies Act 2013
Change in It amounts to decrease in the It may amount to increase or
capital existing share capital of the decrease in the share capital of the
Company. Company.
Resolution Special Resolution in a General Ordinary resolution in a General
meeting meeting
Confirmation Tribunal confirmation is required.
Tribunal confirmation is not
of Tribunal required.
Method Reduction of capital can be made Alteration in share capital may be
by made by:
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 Extinguishing or reducing a) Increase in authorized shares

liability of members in respect capital,
of unpaid capital. b) Consolidation or division of all or
 Writing off or cancellation of any of its share capital into shares
any paid up capital which is of larger denomination.
lost, or is not represented by c) Conversion of fully paid up
available assets. shares into stock and vice versa.
 Paying off any paid up share d) Sub-division of its shares into
capital in excess of the shares of smaller amount.
Company’s needs. e) Cancellation of shares not taken
up and diminishing the amount of
its share capital by amount of
shares so cancelled.

PROCEDURE FOR REDUCTION OF CAPITAL

1. Convene and hold a Board Meeting for the following purposes
 To consider and approve the proposal of reduction of share capital;
 To decide day, date, time and venue of the general meeting where special resolution
is proposed to be passed;
 To approve the notice of general meeting to be issued; and
 To authorize the Company Secretary/ Director to issue the notice of general
meeting.
2. Issue the notice of general meeting to all the members, auditors and directors.
3. Convene and hold the general meeting and pass the necessary special resolution.
4. File E-Form now MGT- 14 with the Registrar of Companies within a period of 30 days
from the date of passing the special resolution, along with a certified true copy of the
resolution and explanatory statement.
5. Make An application to NCLT for reduction in Form No. RSC-1 OF NCLT (Procedure
for reduction of share capital of Company) Rules, 2016 with following attachments.
 The list of creditors duly certified by the Managing Director, or in his absence, by two
directors, as true and correct, which is made as on a date not earlier than fifteen days
prior to the date of filing of an application showing the details of the creditors of the
company, class-wise, indicating their names, addresses and amounts owed to them;
 A certificate from the auditor of the company to the effect that the list of creditors
referred to in clause (a) is correct as per the records of the company verified by the
auditor;
 A certificate by the auditor and declaration by a director of the company that the company
is not, as on the date of filing of the application, in arrears in the repayment of the
deposits or the interest thereon; and
 A certificate by the company’s auditor to the effect that the accounting treatment
proposed by the company for the reduction of share capital is in conformity with the
accounting standards specified in section 133 or any other provisions of the Act.

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 Copies of the list of creditors shall be kept at the registered office of the company and any
person desirous of inspecting the same may, at any time during the ordinary hours of
business, inspect and take extracts from the same on payment of the sum of rupees fifty
for inspection and for taking extracts on payment of the sum of rupees ten per page to the
company.

6. The Tribunal shall, within fifteen days of submission of the application under rule 2,
give notice, or direct that notice be given to –

 The Central Government, Registrar of Companies, in all cases, in Form No. RSC-2;
 The Securities and Exchange Board of India, in the case of listed companies in Form No.
RSC-2;
 The creditors of the company, in all cases in Form No. RSC-3 Seeking their
representations and objections, if any.

7. The company shall send notice to each creditor whose name is entered in the list of
creditors within seven days of the direction by tribunal, stating the amount of the
proposed reduction of share capital and the amount or estimated value of the debt or the
contingent debt or claim or both

8. The Tribunal shall also give directions for the notice to be published, in Form No. RSC-4
within seven days from the date on which the directions are given, in English language in
a leading English newspaper and in a leading vernacular language newspaper, both
having wide circulation in the State in which the registered office of the company is
situated, or such newspapers as may be directed by the Tribunal and for uploading on the
website of the company (if any) seeking objections from the creditors and intimating
about the date of hearing.

9. The company or the person who was directed to issue notices and the publication in the
newspaper under this rule shall, as soon as may be, but not later than seven days from the
date of issue of such notices, file an affidavit in Form No. RSC-5 confirming the
dispatch and publication of the notice.

10. The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company
has been discharged or determined or has been secured or his consent is obtained, make
an order confirming the reduction of share capital on such terms and conditions as it
deems fit:

11. The company shall deliver a certified copy of the order of the Tribunal under sub-section
(3) and of a minute approved by the Tribunal showing to the Registrar within thirty days
of the receipt of the copy of the order, who shall register the same and issue a certificate
be in Form No. RSC-7.
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DIMINUTION OF SHARE CAPITAL

Diminution of capital denotes cancellation of the unsubscribed part of the issued capital.
Diminution of capital does not constitute a reduction of share capital within the meaning of
this Act.

DISTINCTION BETWEEN DIMINUTION OF CAPITAL AND REDUCTION OF

CAPITAL:

BASIS DIMINUTION OF CAPITAL REDUCTION OF CAPITAL

Meaning It is the cancellation of It involves reduction of subscribed or
unsubscribed part of issued capital. paid up capital. There is no reduction
of issued capital.
Resolution Ordinary resolution in the General Special Resolution in the General
meeting meeting.
Confirmation It requires no confirmation It requires confirmation
of NCLT
Order No such order Court may order the Company to add
the words “and reduction” after its
name.
Notice to ROC The Company is required to give Reduction takes place only when the
notice of cancellation to ROC Tribunal’s order and minutes are
within 30 days of cancellation. registered with ROC.

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CHAPTER-14 SHARE CAPITAL - PART-G

TRANSFER AND TRANSMISSION OF SECURITIES

TRANSFER OF SHARES AND TRANSMISSION OF SHARES

SECTION (56 (1, 3) and Rule 11(1, 2, 3) of SECTION 56 (2, 5) AND Section 72 DEALS
Companies (Share Capital and Debentures)
WITH TRANSMISSION OF SHARES
Rules, 2014 deals with TRANSFER OF
SHARES

SEC 58 DEALS WITH REFUSAL BY THE CO. TO REGISTER TRANSFER AND

TRANSMISSION OF SHARES

PROCEDURE OF TRANSFER OF SHARES (IF SHARES ARE IN PHYSICAL FORM)

S.NO. STEPS
1 Purchase share transfer deed (form sh. 4)
2 Thereafter, fill in all the particulars-e.g. Name of the concerned company, total
number of shares being sold, distinctive number of shares, particulars of transferor
and transferee, amount of purchase consideration etc.
3 Get the share transfer deed stamped as per Indian stamp act
4 Signing share transfer deed by transferor and transferee
5 Submit share transfer deed and share certificate to company
6 Company shall Enter the name of transferee in R.O.M. and enter the name of
transferee on back side of share certificate and give back to transferee

TRANSFER OR TRANSMISSION OF SECURITIES

FREE TRANSFERABILITY OF SECURITIES
As per section 58(2), the securities or other interest of any member in a public company shall
be freely transferable.

INSTRUMENT OF TRANSFER :
As per Section 56(1) of the Companies Act, 2013, a company, shall not register a transfer of
securities of, the company, unless a proper instrument of transfer duly stamped, dated and
executed by or on behalf of the transferor and the transferee has been delivered to the
company by the transferor or transferee within a period of sixty days from the date of
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execution along with the certificate relating to the securities, or if no such certificate is in
existence, then along with the related letter of allotment of securities.
However, nothing in section 56(1) shall prejudice any power of the company to register, on
receipt of an intimation of transmission of any right to securities by operation of law from
any person to whom such right has been transmitted. (Section 56(2).
Rule 11(1) and (2) of Companies (Share Capital and Debentures) Rules, 2014

1) An instrument of transfer of securities held in physical form shall be in Form No.SH.4

and every instrument of transfer with the date of its execution specified thereon shall be
delivered to the company within sixty days from the date of such execution.

IN CASE OF LOSS OF TRANSFER DEED: In case of loss of the instrument, the company
may register the transfer in terms of indemnity. It has been provided in section 56(2) of the
Act that where, on an application in writing made to the company bearing adequate stamp
value for an instrument of transfer, it is proved to the satisfaction of the Board of directors
that the transfer deed signed by or on behalf of the transferor and by or on behalf of the
transferee has been lost, the company may register the transfer on such terms as to indemnify
as the Board may think fit.

TRANSFER OF PARTLY PAID UP SHARES: Section 56(3)

Where shares are partly paid and transferor makes an application for transfer—
1. Notice: the company should give a notice of such application to the transferee, in Form
No. SH.5 the transfer shall not be registered immediately.
2. No Objection: transferee shall give his No-Objection to the transfer, with 2 weeks from
the date of the receipt of Notice
3. Registration: Upon receipt of No-Objection from the transferee, the company shall
proceed to register the transfer.
OFFENCE & PENALTY:

According to 56(6), when any default is made in complying with the provisions of sub-
sections (1) to (5), the company shall be punishable with fine which shall not be less than

TWENTY-FIVE THOUSAND RUPEES but which may extend to FIVE LAKH RUPEES

AND

Every officer of the company who is in default shall be punishable with fine which shall not
be less than ten thousand rupees but which may extend to one lakh rupees.

STAMP DUTY: At present, stamp duty applicable for transfer of shares is 25 paise for every
one hundred rupees or part thereof of the value of share. Section 56 of the Companies Act
requires that where share transfer form is delivered to the company should be adequately
stamped. It means stamp of adequate value should be affixed and cancelled on transfer deed.

EXEMPTION FROM PAYMENT OF STAMP DUTY: No duty shall be chargeable in respect

of any instrument executed by or on behalf of or in favor of the Government in cases where

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but for this exemption, the Government would be liable to pay to pay the duty chargeable in
respect of such instrument.

Time Limit for Delivery of certificates SECTION 56 (4)

Every company, deliver the certificates of all securities allotted, transferred or transmitted
1. Within a period of 2 month from the date of incorporation of company in case of
subscribers the company.
2. Within a period of 2 month from the date ALLOTMENT (SHARES)
3. Within a period of 6 month from the date ALLOTMENT (DEBENTURES)
4. Within a period of 1 month from the date of receipt by the company of the instrument of
transfer

PROCEDURE OF TRANSFER OF SHARES INA PRIVATE COMPANY

In case of private company shareholders having pre- emptive right so here is the procedure
for transfer of shares in private company

1. Transferor should give a notice in writing for his intention to transfer his share to the
company.
2. The company in turn should notify to other members as regards the availability of shares
and the price at which such shares would be available to them.
3. Such price is generally determined by the directors or the auditors of the company.
4. The company should also intimate to the members, the time limit within which they
should communicate their option to purchase share on transfer.
5. If none of the members comes forward to purchase shares then the shares can be
transferred to an outsider and the company will have no option, other than to accept the
transfer.

FORGED TRANSFER:
An instrument on which signature of the transferor is forged is called forged transfer.
Forgery does not confer any title. Thus, if a transfer is forged and the Company registers the
transfer, the true owner can apply to the Company for rectification of the register of members
and his name to be put back on the register.

Consequences of Forged Transfer:

1. A forged transfer is a nullity and it does not confer any legal title on the transferee and
the original owner continues to be the shareholder.
2. The true owner can get its name restored in the register of members.
3. If a Company has issued a share certificate to the transferee and he has sold the shares to
an innocent purchaser, then the purchaser will have no right to be registered as
shareholder. However, he can claim damages from the Company on the ground that
he acted on the faith of the share certificate issued by the Company.
4. If the Company has suffered any loss by reason of the forged transfer, it may claim
damages from the person who lodged the forged instrument for registration even
though he acted in good faith.
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BLANK TRANSFER
Blank transfer means transfer of shares by blank instrument of transfer. The instrument is
blank if:

 It contains the signature of the transferor

 It does not contain the name of the transferee and the date of transfer.

The transferor delivers to the transferee:

 Blank transfer deed, and

 Share certificate
The advantage of blank transfer is that the transferee can sell the shares again without
filling his name and signature to a subsequent buyer. Thus, the process of sale and purchase
of shares can be repeated number of times without any requirement of new transfer form
and stamp duty every time.
However, the blank transfer does not confer any ownership of shares on the transferee and
thus, cannot exercise any rights as a shareholder in respect of the shares. The transferee can
fill his name and date in the transfer deed and get it registered with the Company. Only on
registration of transfer form, he will become the owner of the shares. Till then, the original
transferor continues to be the owner of shares and remains liable for any unpaid amount on
the shares.

TRANSPOSITION OF NAME

1. In the case of joint-shareholders, one or more of them may require the company to alter or
rearrange the serial order of their names in the register of members of the company. In
this process, there will be need for effecting consequential changes in the share
certificates issued to them.
2. If the company provides in its articles that the senior-most among the joint-holders will be
recognised for all purposes like service of notice, a copy of balance sheet, profit and loss
account, voting at a meeting etc., the request of transposition may be duly considered and
approved by the Board or other authorised officer of the company.
3. Since no transfer of any interest in the shares takes place on such transposition, the
question of insisting on filling transfer deed with the company, may not arise.
Transposition does not also require stamp duty.

TRANSMISSION OF SECURITIES

According to Section 56(2) Nothing in sub-section (1) shall prejudice the power of the
company to register, on receipt of an intimation of transmission of any right to securities by
operation of law from any person to whom such right has been transmitted.

TRANSFER BY LEGAL REPRESENTATIVE: According to Section 56(5) of the Act, the

transfer of any security or other instrument of a deceased person in a company made by his
legal representative shall, even if the legal representative is not a holder thereof, be valid as if
he had been the holder at the time of execution of the instrument of transfer.

Transmission of securities has not been defined by the Companies Act. ‘Transmission by
operation of law’ is not a transfer. It refers to those cases where a person acquires an interest
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in property by operation of any provision of law, such as by right of inheritance or succession

or by reason of the insolvency or lunacy of the holder of securities or by purchase in a Court-
sale.

Thus, transmission of securities takes place when the registered holder of securities dies or is
adjudicated as an insolvent, or if the holder of securities is a company, it goes into
liquidation.

RIGHTS OF LEGAL RREPRESENTATIVE

1. He is, however, not a member of the company by reason only of being the legal owner of
the shares. But he may apply to be registered as a member.
2. On the contrary, instead of being registered himself as a member, he may make such
transfer of the shares as the deceased or insolvent member could have made.
Execution of transfer deed not required in case of transmission of shares: Section 56 (2)
of the Companies Act, 2013 states that nothing in Section 56 shall prejudice any power of the
company to register as holder of securities any person to whom the right to securities of the
company has been transmitted by operation of law. It is not necessary to have any instrument
of transfer executed for the purpose of transmission of shares. Where title to the shares comes
to vest in another person by operation of law, it is not necessary to submit transfer form. [Life
Insurance Corpn. Of India v Bokaro & Ramgur Ltd.)

Requirement of documents/evidences for transmission of shares: Where title to shares

comes to vest in another person by operation of law, it is not necessary to execute and submit
transfer deed. A simple application to the company by a legal representative along with the
following necessary evidences is sufficient
1. Certified copy of death certificate
2. Succession Certificate
3. Probate
4. Specimen Signature of the successor
However, requirement of these certificates is not essential and depends on various
circumstances of the case. Where a succession certificate has been granted in respect of
shares, the company cannot insist on the production of probate or letters of administration;
the certificate affords full indemnity to company. [Thenappa Chettiar v Indian Overseas Bank Ltd.]
No requirement of consideration and payment of stamp duty: Since the transmission is by
operation of law, neither consideration for transfer nor stamp duty is required on instruments
for transmission.
Transmission in case of joint holding: Regulation 23 in Table F provides that on the death
of a member where he was a joint holder, the survivor or survivors shall be the only persons
recognized by the company as having any title to his interest in the shares. The legal heir of
the deceased member is not entitled to get registered as a joint holder along with the
surviving holder.
Voting rights: The legal representatives of a deceased member shall not be entitled to
exercise voting and other rights in general meetings of the company unless he is registered as
a member in respect of the shares.
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Nomination of shares under the Companies Act 2013 SECTION 72

This section has overriding effect over all other laws for the time being in force
Principals relating to nomination are applicable to securities as well as Deposits
Nomination is the process of assigning or identifying the next person to whom the securities
held by a person will vest in the event of his death.
Provisions of Rule 19 of the Companies (Share Capital and Debentures) Rules, 2014
Nomination shall be in Form No. SH.13, and can be made at any time by every holder of
securities of a company. in case of joint holding all joint holders shall together nominate any
person as nominee.
WHO CAN BE NOMINEE
Any person including a minor
If nominee is a minor, the holder of securities may appoint a person, who shall become
entitled to the securities in the event of death of the nominee during his minority. (Form no.
SH.14)
DUTIES OF COMPANY ON RECEIPT OF NOMINATION FORM
Entry shall be made by the company in the register of securities holders u/s 88 within 2
months from the date of receipt of duly filled in nomination form.

VARIATION OR CANCELLATION:
a) Nomination may be cancelled or varied by nomination any other person in place of the
present nominee.
b) Notice of cancellation or variation shall be in Form No. SH. 14
c) Cancellation or variation shall take effect from the date of receipt of notice by the
company.
POWER TO REFUSE REGISTRATION AND APPEAL AGAINST REFUSAL
Company refusing registration to Transfer (Sec. 58(1)
a) Private companies limited by shares and
b) Public companies.
May refuse registration to Transfer/transmission
Notice of Refusal
In case of refusal, the company should send a notice of refusal to the transferee and
transferor/ person intimating for the refusal.
Time Limit
Such notice should be sent within 30 days from the date of delivery of instrument/intimation.

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Grounds of Refusal
AOA may specify and empower the board to refuse to register transfers on certain specific
grounds. The following grounds also validate a refusal –
a) Prescribed transfer for m has not been used.
b) Form has not been duly stamped.
c) Transfer has not been executed by and on behalf of the transferor, and by or on behalf of
the transferee.
d) Name, address, occupation, if any, of the transferee are not specified.
e) Instrument of transfer is not delivered along with the certificates relating to the shares,
within a specified period of time
CASE LAWS INVALID GROUNDS OF REFUSAL:
S.NO. CASE NAME PROVISONS
1 Pawan Gupta vs Hicks Total holdings of transferee would become dangerously close to
Thermometers (i) Ltd. 25%

2 McDowell & co. Ltd. Petitioner was an ex-employee and has been dismissed from
Vs Shaw Wallace & service for various irregularities committed and instant purchase
Co. Ltd. was not for the purpose of investment but to drag the bank for
further litigation.
3 P.R. Gokkale vs If the AOA does not provide for refusal of registration, the
Tamilandu Mercantile company cannot refuse registration, if AOA confers restrictive
Bank Ltd. powers on the company, the powers could be exercised only in
regard to those matters. Even if AOA provides absolute
discretion, no blankets authority is available to a company to
refuse registration of transfer.

REMEDIES FOR REFUSAL OF REGISTRATION OF TRANSFER

Appeal to Tribunal:
Appeal can be made against company’s-
a) Refusal to register transfer / transmission, or
b) Failure to send Notice of Refusal within the specified period.
FOR PRIVATE COMPANY (SEC. 58 (3))
If notice of refusal received: 30 days from the date of its receipts
If notice not received: 60 days from the date of delivery of the instrument of transfer /
intimation of transmission to the company
FOR PUBLIC COMPANY (SEC. 58 (4))
If notice of refusal received: 60 days from the date of its receipt
If notice not received: 90 days from the date of delivery of the instrument to
transfer/intimation of transmission to the company.
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TRIBUNAL’S ORDERS:
The tribunal shall, after hearing the parties, pass the following orders-
The tribunal may dismiss the appeal or
The tribunal may direct that the transfer / transmission shall be registered by the company.
The company shall comply with such order within 10 days of the receipt of order..
Non- compliance with above order:
Any person contravening the order of tribunal
a) Imprisonment – Minimum 1 year, maximum 3 years,
b) Fine-minimum 1 lakh, maximum 5 lakhs.
RECTIFICATION OF REGISTER OF MEMBERS (SECTION 59)
Section 59(1) provides that if the name of any person is, without sufficient cause,

1. entered in the register of members of a company, or

2. after having been entered in the register, is, without sufficient cause, omitted there from
3. if a default is made, or unnecessary delay takes place in entering in the register, the fact of any
person having become or ceased to be a member,

the person aggrieved, or any member of the company, or the company may appeal in
prescribed form, to the Tribunal, or to a competent court outside India, specified by the
Central Government by notification, in respect of foreign members or debenture holders
residing outside India, for rectification of the register.

The Tribunal may, after hearing the parties to the appeal, by order, either dismiss the appeal or direct
that the transfer or transmission shall be registered by the company within 10 days of the receipt of
the order or direct rectification of the records of the depository or the register and in the latter case,
direct the company to pay damages, if any, sustained by the party aggrieved. [Section 59 (2)]

NCLT RULES 2016 RULE 70

Appeal under sections 58 and 59.

(1) The appeals against the refusal for registration of transfer or transmission of securities under
section 58 or for rectification of register of members under section 59 shall be made to the Tribunal
by way of a petition in Form No. NCLT. 1
Provided that a copy of the appeal shall be served on the concerned company at its registered office
immediately after filing of the petition with the Tribunal.
(2) The petitioner shall at least fourteen days before the date of hearing advertise the petition in
accordance with rule 35.
(3) Where any objection of any person whose interest is likely to be affected by the proposed petition
has been received by the petitioner, it shall serve a copy thereof to the Registrar on or before the date
of hearing:
(4) The Tribunal may, while dealing with a petition under section 58 or 59, at its discretion, make-
(a) order or any interim order, including any orders as to injunction or stay, as it may deem fit
and just;
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(b) such orders as to costs as it thinks fit; and

(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or
rights shares.
(5) On any petition under section 59, the Tribunal may-
(a) decide any question relating to the title of any person who is a party to the petition to have
his name entered in, or omitted from, the register;

(b) generally decide any question which is necessary or expedient to decide in connection with
the application for rectification.
(6) the decision of the Tribunal on any such petition shall be final.

CASE LAWS ON REGISTER OF MEMBER

S.NO. CASE NAME PROVISONS

1 LalithambaBai v. A person who claims to have purchased the shares of a
Harrisons Malayalam member will be entitled to have his name entered in the
Ltd., register by satisfying the requirement of Section 56 of the
Companies Act, 2013

2 W. Key & Son Ltd. No company should enter in the register a statement that it
has a lien on the shares of a member,
3 T.H. Saunders & Co. A company cannot insist upon putting in the register
Ltd. anything except that which is required by the section to be
inserted in it.
4 Taylor, Phillips and In a voluntary winding up, the liquidator may accept share
Richard’s Case, transfers and alter the register accordingly.

5 Vagliano& A firm in its own name cannot be registered as a member, as

Anthracite Collieries a firm is not a legal person like a company incorporated
Ltd., under the Act. Only the partners can be recognised and
registered as joint holders.

DISTINCTION BETWEEN TRANSFER AND TRANSMISSION

S.No. Transfer of Securities Transmission of securities

1. Transfer takes place by a voluntary act Transmission is the result of the

of the transferor. operation of law.
2. An instrument of transfer is required in No instrument of transfer is required in
case of transfer. case of transmission.
3. Transfer is a normal course of Transmission takes place on death or
transferring property. insolvency of a holder of securities
4. Transfer of securities is generally made Transmission of securities is generally
for some consideration. made without any consideration.
5. Stamp duty is payable on transfer of No stamp duty is payable on
securities by a holder of securities. transmission of securities.
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EXPULSION OF MEMBER

A question had arisen as to whether a public limited company has powers to insert a clause in
its articles of association relating to expulsion of a member by the Board of directors of the
company where the directors are of the view that the activities or conduct of such a member
is detrimental to the interests of the company.

1. The then Department of Company Affairs (Now Ministry of Corporate Affairs)

clarified that an article for expulsion of a member is opposed to the fundamental
principles of the Company Jurisprudence and is ultra vires the company, the reason being
that such a provision militates against the provisions of the Companies Act relating to the
rights of a member in a company.
2. According to Section 6 of the Companies Act, the Act overrides the memorandum and
articles of association and any provision contained in these documents repugnant to the
provisions of the Companies Act, is void.
3. The erstwhile Department of Company Affairs has, therefore, clarified that any
assumption of the powers by the Board of directors to expel a member by alteration of
articles of association shall be illegal and void. (Circular No. 32/7 dated November 1,
1975).

PRACTICAL QUESTIONS ON SHARE CAPITAL

A shareholder, who has lost all his share certificates in a flood, approaches the company for
issue of duplicate scripts. COMMENT

The loss of the share certificates should be notified to the Stock Exchange where the company’s
shares are listed id the company concerned is a listed company. An affidavit should be taken from the
shareholder confirming the loss of the scripts. A Public Notice about the loss of the share certificates
should also be published in a newspaper having a wide circulation. Thereafter, the matter should be
placed before the Board and a resolution should be passed for issue of duplicate share certificates to
the shareholder.

A listed company has taken a term loan from a financial institution and is regularly paying the
interest and loan installments. The institution proposes to convert 20% of the loan into equity
shares of the company as per the terms of the loan agreement. Advise the company, whether the
financial institution can enforce the convertibility clause.

Section 62(3) of the Companies Act, 2013 states that the provisions of 62 shall not apply to the
increase of the subscribed capital of a company caused by the exercise of an option as a term attached
to the debentures issued or loan raised by the companies to convert such debentures/loan into shares
in the company. Further, the terms of issue of such debentures or loan containing such an option
should have been approved before the issue of such debentures or the raising of loan by a special
resolution passed by the company in General Meeting. Thus in the given case, if the raising of loan is
already approved by the shareholders by special resolution, then the financial institution can enforce
the convertibility.

Vivek purchased 5000 equity shares of Prosperous Ltd. And lodged the same for transfer with
the company. The company returned these shares under objection that the share transfer
stamps affixed on the transfer deed were not cancelled. Vivek thereafter cancelled the stamps
and re-lodged the shares for transfer. At this time, the company effected the transfer and
returned the duly transferred shares to Vivek. In the meantime, the market price of the shares
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went down substantially. Vivek filed a case against the company claiming that, due to
unwarranted objection raised by the company, he was deprived of the profits which he could
have earned by disposing of the shares at higher price. State with reasons whether the claim of
Vivek is tenable.

Pursuant to the provisions of Section 56 of the Companies Act, 2013, a company shall not register
transfer of its share unless a proper instrument of transfer, duly stamped and executed by or on behalf
of the transfer and by or on behalf of the transferee and specifying the name, address and occupation,
if any, of the transferee, has been delivered to the company along with the certificate relating to the
shares.
In the above sub-section, the words “Duly Stamped” are of great importance. Section 12 of the Indian
Stamp Act provides that any instrument bearing an adhesive stamp which has not been cancelled so it
can be used again and shall so far as such stamp is concerned, be deemed to be unstamped. The share
transfer stamps affixed on the share transfer from are required to be cancelled either before or at the
time of execution of the deed. Therefore the company shall have the right to return the shares under
objection if the stamps are not properly cancelled.

In the given problem, the Company returned the shares under objection as the share transfer stamps
affixed on the transfer deed were not duly cancelled. Vivek, the transferee, subsequently, cancelled
the stamps and re-lodged the shares for transfer and the company affected the transfer. In the
meantime, the market price of the shares went down and Vivek filed a case against the company
claiming that due to unwarranted objection raised by the company, he was deprived of the opportunity
to sell the shares at higher price. In Re. Coronation Tea Co. Lte. AIR 1961 Cal 528 it was held that if
the stamp is not cancelled, then the effect is the same as if the instrument is not stamped.

In view of the provisions of Section 5 of Comapaies Act, 2013 read with the provisions of the Indian
Stamp Act, 1899 the claim of Vivek is not tenable in the Court/Tribunal of law and his case would be
dismissed.

Arnold is the elder son of John. John was holding 5,000 equity shares of Dreams Ltd. and died.
As the Company Secretary of the company, how will you guide Arnold to claim the shares of
John? He has one brother, 2 sisters and mother. John had not made any nomination.

From the details given in the question it is understood that the deceased member late Mr. John was
holding 5000 shares of Dreams Ltd. and left behind him his wife two sons and two daughters.
As the Company Secretary I will have to advise Mr. Arnold as under: Transmission of shares is a
process by operation of law.
Secretarial Standard 6 (Clause 1.4) reads as follows with regard to transmission where there is no will
and there are more than one legal heirs. "Where a sole shareholder who has not appointed a Nominee,
dies intestate, the company should on receipt of written request from the legal heir, accompanied by
the certificate evidencing the death of the shareholder and the Succession certificate or Letter of
Administration, register the Shares in the name of the legal heir within a period of 30 days.

In case the transmission is requested in favour of one or more but not all the legal heirs, the company
may require a No Objection Certificate relinquishing their right on the said Shares or Deed of
Relinquishment from other legal heir(s) for such transmission". After compliance procedure as
prescribed above by Mr. Arnold, the Secretary will place the matter for the approval of the
transmission of 5000 shares in his name by the Board of Directors by passing appropriate resolution.
After such approval by the board, necessary change in the entries will be made in the Register of
Members. Then the share certificate shall be endorsed in the name of Mr. Arnold and sent to him by
registered post
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X Ltd. received valid share transfer deed together with requisite documents for transferring
1,000 equity shares of the company from Ram to Shyam. Advise the company in the following
cases:

(i) Ram dies before the transfer is effected by the company

(ii) Shyam dies before the transfer is. effected by the company. Assume that the company has no
information about the death in both the cases. (4 marks)

If transferor sold his shares by executing a transfer deed in favour of transferee and such documents
were lodged for transfer but the transferor dies before such transfer is registered by the Company, the
company would register the transfer, irrespective of whether the death of transferor is intimated to
company before registration of transfer or whether death is intimated after registration of transfer.

If transferee dies before registration and company has notice of his death, transfer of shares cannot be
registered in the name of the transferee who has already deceased. With the consent of the transferor
and the legal representatives of the transferee, the transfer may be registered in the name of the legal
heirs of the transferee (who has already died) or his nominee, if any. But if there is a dispute, an order
of the Court Tribunal will be insisted by the company before effecting the transfer. In case, the death
of transferee is not notified to the company, the company can register the transfer in the name of the
deceased transferee, in as much as the company is not aware of the death of the transferee and the
transfer is done bonafide by the company, as per the information available with it. So, considering
this:

(i) Ram's (Transferor) death would not affect the transfer process.

(ii) If the company has the notice of Shyam's (Transferee) death, the company has to follow the
procedure mentioned above. Otherwise the company can register the transfer in the name of the
Shyam

IMPORTANT PROVISIONS OF DEPOSITORIES ACT 1996

LEGAL FRAMEWORK

1. Depositories Act, 1996 and

2. SEBI (Depositories and Participants) Regulations, 1996
3. Companies Act 2013 Section 29
4. The Indian Stamp Act, 1899
5. Information Technology Act, 2000
6. SEBI Act, 1992
7. SCRA, 1956
8. Income Tax Act, 1961

SPECIAL NOTE BY AUTHOR

Depository system is very similar to Banking System. Just replace 'cash by 'securities' and
'cheques' by 'delivery instruction slips' in Banking system, one can understand the functioning
of a Depository System.

DEPOSITORY-MEANING
A Depository is an organisation like a Central Bank where the securities of a shareholder are
held in the electronic form at the request of the shareholder through the medium of a
Depository Participant.

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According to Section 2(e) of the Depositories Act, 1996,

“Depository means a company formed and registered under the Companies Act, 2013 and
previous law and which has been granted a certificate of registration under Section 12(1A) of
the Securities and Exchange Board of India Act, 1992”.

TWO BASIC CONDITIONS TO BECOME DEPOSITORY

1. Registered under Companies Act
2. Registered with SEBI

There are two Depositories functioning in India

1. National Securities Depository Limited (NSDL)
2. Central Depository Services (India) Limited (CDSIL).
DEPOSITORY PARTICIPANT (DP)-MEANING
1. Just as a brokers act an agent of the investor at the Stock Exchange; a Depository Participant (DP)
is the representative (agent) of the Depository in the depository system providing the link between
the Company and investor through the Depository.
2. According to SEBI guidelines, Financial Institutions like banks, custodians, stockbrokers etc. can
become participants in the depository.
3. DP has to registered with SEBI for offering its services

S.N. BANK DEPOSITORY

1. HOLDS FUNDS IN ACCOUNT HOLDS SECURITY IN ACCOUNT
2. TRANSFER FUNDS IN ACCOUNT TRANSFER SECURITY IN ACCOUNT
3. SAFE CUSTODY OF MONEY SAFE CUSTODY OF SECURITY

DEPOSITORY SYSTEM

1. The Depository System functions very much like the banking system. A bank holds funds in
accounts whereas a Depository holds securities in accounts for its clients.
2. A Bank transfers funds between accounts whereas a Depository transfers securities between
accounts. In both systems, the transfer of funds or securities happens without the actual handling
of funds or securities.
3. Both the Banks and the Depository are accountable for the safe keeping of funds and securities
respectively.
4. In the depository system, share certificates belonging to the investors are to be dematerialised and
their names are required to be entered in the records of depository as beneficial owners
Consequent to these changes, the investors’ names in the companies’ register are replaced by the
name of depository as the registered owner of the securities.
5. The beneficial owner continues to enjoy all the rights and benefits and is subject to all the
liabilities in respect of the securities held by a depository.
Difference between depository and custodian

S.N. DEPOSITORY CUSTODIAN

1. Securities are kept in electronic form. Securities are kept in physical form.
2. Depository can legally transfer beneficial Custodian cannot transfer beneficial
ownership. Ownership.
3. Objective- to minimise the paper work Objective- to handle the paper work and thus
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involved with the ownership, trading and facilitate trading and simplify and expedite the
transfer of securities. transaction involving transfer of securities.
BENEFITS OF DEPOSITORY SYSTEM
1. Elimination of bad deliveries
2. Elimination of all risks associated with physical certificates
3. Immediate transfer and registration of securities
4. Reduction in handling of huge volumes of paper and periodic status reports to
investors on their holdings and transactions, leading to better controls..
5. No stamp duty on transfer.

DEMATERIALISATION
Dematerialisation is a process by which the physical shares are converted into electronic
shares at the request of the investor.
Dematerialisation of shares is optional and an investor can still hold shares in physical form.
DEMATERIALISATION PROCESS
1. Fills Dematerialisation Request Form (DRF) and lodges DRF and share certificates with DP
2. DP intimates the Depository and send certificates and DRF form to Registrar/Issuer
3. Depository intimates Registrar/Issuer
4. Registrar on receipt of DRF form cancel the share certificate and entered in its ROM the name of
depository as a registered owner.
5. After that Registrar/Issuer confirms to Depository.

DIAGRAMMATIC REPRESENTATION DEMATERIALISATION PROCESS

Step- 1 Investor Fills Dematerialization DP intimates the Depository

Request Form (DRF) and lodges and send certificates and DRF
DRF and share certificates with form to Registrar/Issuer
DP

Step 2A step 2

Registrar on receipt of DRF form NSDL

Step 4 cancel the share certificate and Step -3
entered in its ROM the name of
depository as a registered owner
Step 5

REMATERIALISATION
Rematerialisation is a process by which the electronic shares are converted back into physical
shares at the request of the investor.
REMATERIALISATION PROCESS
1. Client submits Rematerialisation Request Form (RRF) to DP
2. DP intimates Depository and DP sends RRF to the Registrar/Issuer
3. Depository intimates the Registrar/Issuer
4. Registrar/Issuer prints certificates and sends to Investor
5. Registrar/Issuer confirms to Depository

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DIAGRAMMATIC REPRESENTATION OF REMATERIALISATION PROCESS

Dispatch Certificates to Investor STEP 4

Step- 2A
BENEFICAL D.P. intimate to REGISTRAR/ ISSUER
OWNER SUBMITS depository and submits
RRF FORM TO D.P. Step -1 RRF form to registrar

Step -2

STEP -3

Step -5
DEPOSITORY

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CHAPTER-15 SHARE CAPITAL PART-H

BUY BACK OF SHARES AND SECURITY

Financial restructuring of a company involves a re-arrangement of its financial structure to make the
company’s finances more balanced. It is an adjustment of debt-equity ratio.

NEED FOR FINANCIAL RESTRUCTURING

When during the life time of a company, any of the following situations arise, the Board of
directors of a company is compelled to think and decide on the company’s restructuring:

 Necessity for injecting more working capital to meet the market demand for the company’s
products or services;
 When the company is unable to meet its current commitments;
When the company is unable obtain further credit from suppliers of raw materials, consumable
stores, bought out components etc. and from other parties like those doing job work for the company.
When the company is unable to utilize its full production capacity for lack of liquid funds.

METHODS OF FINANCIAL RESTRUCTURING

FOR UNDER-CAPITALIZED COMPANY FOR OVER-CAPITALIZED COMPANY

 Injecting more capital whenever required  Buy-back of own shares

either by resorting to rights issue or  Paying back surplus share capital to
additional public issue. shareholders
 Resorting to additional borrowings from  Repaying loans to financial institutions,
financial institutions, banks, other banks, etc
companies, etc.  Repaying fixed deposits to public
 issuing debentures, bonds, etc or  Redeeming its debentures, bonds
 Inviting and accepting fixed deposits from
directors, their relatives, business associates
and public.

BUY BACK OF SHARES - MEANING

A. Buy back of its own shares by a company is nothing but reduction of share capital.

B. It is nothing but a process which enables a company to go back to the holders of its shares
and offer to purchase from them the shares that they hold.

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BUY BACK - OBJECTIVE

A. To increase promoters holding
B. Increase Earnings per share
C. Maintaining shareholders’ value in a situation of poor state of secondary market by a
return of surplus cash to the shareholders
D. Restructuring the debt-equity mix
E. To counter a hostile takeover
F. To return surplus cash not required by business to share holders

BUY BACK UNDER COMPANIES ACT

Section 68 OVERRIDES all other provisions of Companies Act 2013, as it starts with the
words "Notwithstanding anything contained in the Act" but is SUBJECT to Section 70 of
Companies Act. Though Capital is reduced under Buy Back, the provisions of Section 66 of
Companies Act 2013, requiring NCLT Approval is NOT REQUIRED as Section 68 overrides
all other Section 66. Thus, only sections 68, 69 & 70 to be complied with.

LEGAL FRAMEWORK FOR BUY BACK

In case of listed companies: In case of Private /Unlisted Public Companies:

1. Companies Act, 2013 1. Companies Act,2013

2. SEBI (Buy-back of Securities) 2. Rule 17 of companies (share capital and
Regulations, 2018 debenture) Rules, 2014

Section 68 of the act consisting of eleven sub-sections provides a detailed procedure to be

followed for buy back of securities including the details of funds that can be utilized, the
method to be adopted the conditions to be fulfilled etc. the provisions of the section are
detailed below.

IMPORTANT PROVISIONS OF BUY BACK OF SHARES {SECTION 68}

S.NO. PARTICULARS PROVISIONS
1 Sources of buy A company may purchase its own shares or other specified
back securities out of:
 Its free reserves.
 The securities premium account; or
 The proceeds of an earlier issue of shares or other specified
securities. However, no buy-back can be done out of
proceeds of an earlier issue of same kind of shares/securities.
2 8 pre conditions For buy- back purpose, the following conditions must be
for buy back fulfilled:-

 Buy- back is authorized by the articles of association of the

Company.
 A company may, by a Board Resolution, Buy-back up to
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10% of the aggregate of paid-up equity capital and free

reserves. This Board resolution must be passed at a Board
Meeting only and not by circulation.
 If the company wants to buy- back more than 10% of the
aggregate of paid-up equity capital and free reserves but up
to 25% of the aggregate of the paid – up capital (equity &
preference) and free reserves, then a Special resolution in the
general meeting is required.
 In the case of buy –back of equity shares only, the buy-back
in any financial year shall not exceed 25% of paid up equity
capital.. The aforesaid limit is to be applied to the number of
shares to be bought back.
 After buy- back, the debt equity ratio shall be less than or
equal to 2 (6:1 for government companies carry on non
banking financial and housing finance activities) i.e., the
debt should not be more than twice the equity after buy-back.
The Central Government may, by order, notify a higher ratio
of the debt to capital and free reserves for a class or classes
of companies.
 All the shares or other specified securities for buy-Back are
fully paid –up
 If company is listed, then SEBI (Buy-back of securities)
Regulations, 1998 made by SEBI are complied with and if
the company is private Limited Company and Unlisted
Public Limited Company (Rule 17 (Share Capital and
Debentures) Rules, 2014 are complied with.
 No offer of buy-back under this sub-section shall be made
within a period of one year reckoned from the date of the
closure of the preceding offer of buy-back, if any.
3 Explanatory The notice of the meeting at which the special resolution is
statement proposed to be passed under clause (b) of sub-section (2) shall be
accompanied by an explanatory statement stating
(a) A full and complete disclosure of all material facts;
(b) The necessity for the buy-back;
(c) The class of shares or securities intended to be purchased
under the buy-back;
(d) The amount to be invested under the buy-back; and
(e) The time-limit for completion of buy-back.
4 Completion of Every buy-back shall be completed within 1 YEAR from the date
buy back of passing the Special Resolution or Board Resolution, as the
case may be.
5 Methods of buy The buy- back may be
back
 From the existing holders on a proportionate basis
 From the open market
 From the employees of the company to whom shares/
securities have been issued under a scheme of stock option or
as sweat equity.
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6 Declaration of After passing the special resolution or board or board resolution

solvency and before making buy-back, the company is required to file ’a
declaration of solvency’ in Form No. SH.9 with the ROC and
also with SEBI if listed. This declaration of solvency shall be
signed by at least two directors of the company, one of whom
shall be the managing director, if any.
7 Extinguish and The company shall extinguish and physically destroy the shares/
physically securities bought-back within 7 days of the last date of
destroy the completion of buy-back.
securities
bought-back
8 Restriction on The company shall not make any issue of same kind of
further issue shares/securities (including rights shares) within a period of 6
months from the date of completion of buy-back.

Exceptions are:-
 Bonus issue
 Conversion of warrants
 Stock option scheme
 Sweat equity
 Conversion of preference shares/ debentures into equity
shares
9 Register of buy The company shall maintain a register of shares/ securities
back bought-back in Form No. SH.10 giving the following details:-

 The consideration paid

 The date of cancellation
 The date of extinguishment and physical destruction
 Such other particulars as may be prescribed
10 Return of buy After the completion of buy-back, the company shall file with
back the ROC and also with SEBI, if listed, return in the Form No.
SH.11 with a certificate in Form No. SH.15 signed by two
directors of the company including the managing director, if any,
certifying that the buy-back of securities has been made in
compliance with the provisions of the Act and the rules made
thereunder within 30 days of such completion
11 Penalty If a company makes any default in complying with the
provisions of this section or any regulation made by the
Securities and Exchange Board, for the purposes of clause (f) of
sub-section (2), the company shall be punishable with fine which
shall not be less than one lakh rupees but which may extend to
three lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which
may extend to three years or] with fine which shall not be less
than one lakh rupees but which may extend to three lakh rupees.
(COMPANIES AMENDMENT ACT 2020)

Explanation: 1 For the purpose of section 68 specified securities includes employee’s stock
option and other securities as may be specified by C.G. from time to time
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Explanation: 2 Free Reserves includes Securities Premium Account

TRANSFER OF CERTAIN SUMS TO CAPITAL REDEMPTION RESERVE ACCOUNT SECTION 69
1. Where a company purchases its own shares out of free reserves or securities premium
account, a sum equal to the nominal value of the shares so purchased shall be transferred
to the capital redemption reserve account and details of such transfer shall be disclosed in
the balance sheet.
2. The capital redemption reserve account may be applied by the company, in paying up
unissued shares of the company to be issued to members of the company as fully paid
bonus shares.
PROHIBITION FOR BUY-BACK IN CERTAIN CIRCUMSTANCES SECTION 70

PROHIBITION FOR BUY-BACK

2. No company shall, directly or indirectly,

purchase its own shares or other specified
securities in case such company has not
complied with the provisions of
Section 92 Annual Return
1. No company shall directly or indirectly Section123 Declaration of Dividend
purchase its own shares or other specified
Section127 Failure to distribute dividend
securities
Section 129 Financial Statement

a. Through any subsidiary company including its own subsidiary companies;

b. Through any investment company or group of investment companies; or
c. If a default, is made by the company, in the repayment of deposits accepted either before or after
the commencement of this Act, interest payment thereon, redemption of debentures or
preference shares or payment of dividend to any shareholder, or repayment of any term loan
or interest payable thereon to any financial institution or banking company:
Provided that the buy-back is not prohibited, if the default is remedied and a period of three years has
lapsed after such default ceased to subsist.

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SECURITIES WHICH CAN’T BE BOUGHT BACK

SECURITIES WHICH CAN’T BE BOUGHT BACK

Lock-in securities:- Partly paid –up shares:- Non-transferrable securities

Any securities issued by a listed A company can’t buy-back its those securities which are
company to its promoters or partly-paid up shares, on which subject to lien or are pledged
group of employees, which call money is in arrear. or restricted by a court can’t
subject to lock-in period, are not be bought –back by the
available for buy-back before company
expiry of lock-in period.

STAMP DUTY ON BUY-BACK

a. In the case of buy-back, the shares bought back have to be statutorily extinguished within
7 days from the last date of completion of buy-back.
b. Hence, no registration of such shares takes place in the name of the company.
c. The names of the members/ holders of the shares have to be struck off from the register of
members if the entire holding is bought back.
d. Therefore, buy-back cannot be construed as transfer and stamp duty would not be payable
in a case where buy-back of shares takes place in physical form even if the shares are
accompanied by an application form for transfer of shares in favour of the company.
e. Further, buy-back of shares will not be construed as “release” falling under Article 55 of
the Indian Stamp Act attracting stamp duty.

PROCEDURE FOR BUY-BACK OF SECUTITIES BY AN UNLISTED COMPANY

{SECTIONS 68, 69 & 70 OF THE COMPALIES ACT, 2013 READ RULE 17 (SHARE
CAPITAL AND DEBENTURES) RULES, 2014

A. The company which has been authorized by a special resolution shall, before the buy-
back of shares, file with the Registrar of Companies a letter of offer in Form No. SH.8,
along with the fee.
Provided that such letter of offer shall be dated and signed on behalf of the Board of
directors of the company by not less than two directors of the company, one of whom shall be
the managing director, where there is one.
B. The company shall file with the Registrar, along with the letter of offer, and in case of a
listed company with the Registrar and the Securities and Exchange Board, a declaration
of solvency in Form No. SH.9 along with the fee and signed by at least two directors of
the company, one of whom shall be the managing director, if any, and verified by an
affidavit as specified in the said Form.

C. The letter of offer shall be dispatched to the shareholders or security holders

immediately after filing the same with the Registrar of Companies but not later than 21
days from its filing with the Registrar of Companies.
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D. The offer for buy-back shall remain open for a period of not less than fifteen days and not
exceeding thirty days from the date of dispatch of the letter of offer. Provided that where
all members of a company agree, the offer for buy-back may remain open for a period
less than fifteen days. (29 MARCH 2016)

E. In case the number of shares or other specified securities offered by the shareholders or
security holders is more than the total number of shares or securities to be bought back by
the company, the acceptance per shareholder shall be on proportionate basis out of the
total shares offered for being bought back.

F. The company shall complete the verifications of the offers received within fifteen days
from the date of closure of the offer and the shares or other securities lodged shall be
deemed to be accepted unless a communication of rejection is made within twenty one
days from the date of closure of the offer.

G. The company shall immediately after the date of closure of the offer, open a separate
bank account and deposit therein, such sum, as would make up the entire sum due and
payable as consideration for the shares tendered for buy-back in terms of these rules.

H. The company shall within seven days of the time specified in sub-rule (7)
 Make payment of consideration in cash to those shareholders or security holders
whose securities have been accepted; or
 Return the share certificates to the shareholders or security holders whose securities
have not been accepted at all or the balance of securities in case of part acceptance.

I. The company shall ensure that

 The letter of offer shall contain true, factual and material information and shall not
contain any misleading information and must state that the directors of the company
accept the responsibility for the information contained in such document;
 The company shall not issue any new shares including by way of bonus shares from
the date of passing of special resolution authorizing the buy-back till the date of the
closure of the offer under these rules, except those arising out of any outstanding
convertible instruments;
 The company shall confirm in its offer the opening of a separate bank account
adequately funded for this purpose and to pay the consideration only by way of cash;
 The company shall not withdraw the offer once it has announced the offer to the
shareholders;
 The company shall not utilize any money borrowed from banks or financial
institutions for the purpose of buying back its shares; and
 The company shall not utilize the proceeds of an earlier issue of the same kind of
shares or same kind of other specified securities for the buy-back.

J. The company shall maintain a register of shares or other securities which have been
bought-back in Form No. SH.10.
 The register of shares or securities bought-back shall be maintained at the registered
office of the company and shall be kept in the custody of the secretary of the company
or any other person authorized by the board in this behalf.

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 The entries in the register shall be authenticated by the secretary of the company or by
any other person authorized by the Board for the purpose.

K. The company, after the completion of the buy-back under these rules, shall file with the
Registrar and in case of a listed company with the Registrar and the Securities and
Exchange Board of India, a return in the Form No. SH.11 along with the fee.

L. There shall be annexed to the return filed with the Registrar in Form No. SH.11, a
certificate in Form No. SH.15 signed by two directors of the company including the
managing director, if any, certifying that the buy-back of securities has been made in
compliance with the provisions of the Act and the rules made thereunder.
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CHAPTER- 16 ACCOUNTS OF COMPANIES

TOTAL SECTIONS: 128 TO 138
RULES USED: COMPANIES ACCOUNTS RULES 2014
The shareholders provide capital to the company for running the business. They are in a way,
the owners of the company. But, all of them cannot take part in managing the affairs of the
company as their number is usually much more.

But they have every right to know as to how their money has been dealt with by the directors
in a particular period. This is why perhaps compulsory disclosure through annual information
to the shareholders by the directors about the working and financial position of the company
enables them to exercise a more intelligent and purposeful control over the affairs of the
company.

REQUIREMENT OF KEEPING BOOKS OF ACCOUNT (SECTION 128 (1))

NATURE OF BOOKS TO BE KEPT FEATURES OF BOOKS OF ACCOUNTS

The company must keep the books of True and fair view
account with respect to items specified in
clauses (i) to (iv) of sub-section 2(13) of the  The books must not suppress any
Companies Act, 2013 transaction.
“BOOKS OF ACCOUNT” as defined in
Section 2(13) includes records maintained in  The books must not contain any fictitious
respect of transaction.
1. All sums of money received and expended Accrual basis
by a company and matters in relation to
which the receipts and expenditure take
place Cash basis of maintenance of books is
prohibited.
2. All sales and purchases of goods and
services by the company;
Double entry
3. The assets and liabilities of the company;
and
Single entry system of maintenance of books is
4. The items of cost as may be prescribed prohibited
under section 148 in the case of a company
which belongs to any class of companies
specified under that section.

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LOCATION OF BOOK OF ACCOUNT (SECTION 128 (1))

Registered office 2. Any other place

Place in Board
India resolution

All or any of the books The Board must pass a

may be kept at any resolution according
other place in India. approval to keep the
books at such other place

The company shall give a notice to the registrar within 7

All the books of account shall be days of passing the Board resolution. (form AOC -5)
kept at the registered office (SECTION 128 (1) Proviso)

SECTION 128 (1) PROVISO 2

company may keep such books of account or other relevant papers in electronic mode in such
manner as may be prescribed
Rule 3 of the Companies (Accounts) Rules, 2014 prescribes the following manner
Manner of maintenance of books of account etc. in electronic form
The books of account and other relevant papers may be kept in electronic mode in following manner.

a) The books of account and other relevant books and papers maintained in electronic mode
shall remain accessible in India so as to be usable for subsequent reference.
b) The books of account and other relevant books and papers shall be retained completely in
the format in which they were originally generated, sent or received and the information
contained in the electronic records shall remain complete and unaltered.
c) The information received from branch offices shall not be altered and shall be kept in a
manner where it shall depict what was originally received from the branches.
d) The information in the electronic record of the document shall be capable of being
displayed in a legible form.
e) There shall be a proper system for storage, retrieval, display or printout of the electronic
records as the Audit Committee, if any, or the Board may deem appropriate and such
records shall not be disposed of or rendered unusable, unless permitted by law.
f) The back-up of the books of account and other books and papers of the company
maintained in electronic mode, including at a place outside India, if any, shall be kept in
servers physically located in India on a periodic basis.
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g) The company shall intimate to the Registrar on an annual basis at the time of filing of
financial statement-
 The name of the service provider;
 The internet protocol address of service provider;
 The location of the service provider (wherever applicable);
 Where the books of account and other books and papers are maintained on cloud,
such address as provided by the service provider.
BOOKS OF ACCOUNT OF BRANCH SECTION 128 (2)
1. Nature of books
The branches of the company, if any, in India or outside India shall also keep the books of
account in the same manner as specified in sub- section (1)

2. Duties of the company

The branch offices are required to send the proper summarized return at quarterly intervals to
the company at its registered office and kept open to directors for inspection.

INSPECTION BY DIRECTORS SECTION 128 (3)

1. Inspection of books of account
a) The books of account etc. maintained with India shall be open for inspection by any
director-
 At the registered office of the company or at such other place in India where the books have
been kept;
 During business hours.
b) In the case of financial information, if any, maintained outside the country, copies of such
financial information shall be maintained and produced for inspection by any director
subject to such conditions as may be prescribed.
c) The inspection of books of account of any subsidiary company shall be made only by the
person authorized by a resolution of the Board of Directors.
d) It shall be the duty of every officer and employee of the company to give to the person
making inspection all reasonable of the Board of Directors.
Rule 4 of the Companies (Accounts) Rule, 2014 makes the following provisions with
respect to inspection of books of account:
a) The summarised returns of the books of account of the company kept and maintained
outside India shall be sent to the registered office at quarterly intervals, which shall be
kept and maintained at the registered office of the company and kept open to directors for
inspection.
b) Where any other financial information maintained outside the country is required by a
director, the director shall furnish a request to the company setting out the full details of
the financial information sought and the period for which such information is sought. The
company shall produce such financial information to the director within 15 days of the
date of receipt of the written request.
c) The financial information shall be sought for by the director himself and not by or
through his power of attorney holder or agent or representative.

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ASSISTANCE IN CONNECTION WITH THE INSPECTION SECTION 128 (4)

Where an inspection is made under sub-section (3), the officers and other employees of the
company shall give to the person making such inspection all assistance in connection with the
inspection which the company may reasonably be expected to give

PERIOD FOR WHICH BOOKS TO BE PRESERVED SECTION 128 (5)

Not less than 8 financial If the company has been in Where an investigation of the
years immediately existence for less than 8 company is ordered, the Central
preceding the relevant financial years, then, for the Government may direct that the
financial year entire period of its books of account may be kept
for such longer period as it may
existence.
deem fit.

RESPONSIBILITY OF MAINTAINCE BOOKS OF ACCOUNTS (section 128 (6))

Charging a competent person with duty of

Person’s responsible maintenance of books
u/s 128(6)

Duty charged Duty charged by

1. Managing Director, whom?
2. Whole-Time Director, in to whom?
charge of finance
3. Chief Financial Officer
4. Any other person of a company
charged by the Board with duty
of complying with provisions Any
of section 128.
competent
and reliable
person
By the Board

PENALTY SECTION 128 (6)

If the managing director, the whole-time director in charge of finance, the Chief Financial
Officer or any other person of a company charged by the Board with the duty of complying
with the provisions of this section, contravenes such provisions, such managing director,
whole-time director in charge of finance, Chief Financial officer or such other person of the
company shall be punishable [with imprisonment for a term which may extend to one year
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or] with fine which shall not be less than fifty thousand rupees but which may extend to five
lakh rupees [or with both]. (COMPANIES AMENDMENT ACT 2020)

CONNECTIVITY OF LISTING REGULATIONS 2015

Regulation PRESERVATION OF DOCUMENTS

9
The listed entity shall have a POLICY for preservation of documents, approved by its
board of directors. Listed entity may keep documents in electronic mode.
Company will classifying them in at least Two categories as follows-
 Documents whose preservation shall be PERMANENT IN NATURE
 Documents with preservation period of NOT LESS THAN EIGHT YEARS after
completion of the relevant transactions

SECTION 129 FINANCIAL STATEMENT

As per Section 2(40), financial statement includes:

1. Balance Sheet.
2. Profit and loss account or in the case of company not for profit, income and expenditure
statement.
3. Cash flow statement.
4. Statement of changes in equity, if applicable.
5. Any explanatory note annexed to above documents.

However the financial statement, with respect to One Person Company, small company,
dormant company and private Company if such private Company is a start-up may not
include the cash flow statement;
The balance sheet should be in the form set out in Part I of schedule III, and Profit and loss
account shall be as per Part II Schedule III of Companies Act 2013.

Legal requirements financial statement [Section 129(1)]

a) The financial statements shall give a true and fair view of the state of affairs of the
company.
b) The financial statements shall comply with accounting standards notified under section 133.

If the financial statements do not comply with the accounting standards, the company shall
disclose in its financial statements, - [Section 129(5)]

 The deviation from the accounting standards

 The reasons for such deviation; and
 The financial effects, if any, arising out of such deviation.
c) The financial statements shall be in the form or forms as may be provided for different
class or classes of companies in Schedule III.

NON-APPLICABILITY
Nothing contained in section 129(1) shall apply to

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a. Any insurance company; or

b. Any banking company; or
c. Any company engaged in the generation or supply of electricity; or
d. Any other class of company for which a form of financial for which a form of financial
statement has been specified in the Act governing such class of company.
CONNECTIVITY OF LISTING REGULATION 2015 REGULATION 48

48 Accounting Standards

The listed entity shall comply with all the applicable and notified Accounting
Standards from time to time.

Laying of financial statements [Section 129(2)]

At every annual general meeting, the Board shall lay the following lay the following
documents:
a) Financial statements of the company; and
b) Consolidated financial statement of the company and of all the subsidiaries, if any.
Consolidated financial statement [Section 129(3)]
Where a company has one or more subsidiaries or associate companies, it shall, in addition to
financial statements provided under sub-section (2), prepare a consolidated financial
statement of the company and of all the subsidiaries and associate companies in the same
form and manner as that of its own and in accordance with applicable accounting standards,
which shall also be laid before the annual general meeting of the company along with the
laying of its financial statement under sub-section (2):

Provided that the company shall also attach along with its financial statement, a separate
statement containing the salient features of the financial statement of its subsidiary or
subsidiries and associate company or companies in such form as may be prescribed: Rule 5
of the Companies (Accounts) Rules, 2014 prescribes Form AOC-1 for this purpose.

Provided further that the Central Government may provide for the consolidation of accounts
of companies in such manner as may be prescribed.".

Rule 6 of the Companies (Accounts) Rules, 2014 lays down the following manner of
consolidation of accounts:
1. The consolidation of financial statements of the company shall be made in accordance
with the provisions of Schedule III of the Act and the applicable accounting standards.
2. In case of a company which is not required to prepare consolidated financial statements
under the Accounting Standards, it shall be sufficient if the company complies with
provisions on consolidated financial statements provided in Schedule III of the Act.

3. 27th July, 2016 (Accounts) Amendment Rules, 2016. nothing in this rule shall apply in
respect of preparation of consolidated financial statements by a company if it meets the
following conditions:-
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o it is a wholly-owned subsidiary, or is a partially-owned subsidiary of another company and all its

other members, including those not otherwise entitled to vote, having been intimated in writing
and for which the proof of delivery of such intimation is available with the company, do not
object to the company not presenting consolidated financial statements
o it is a company whose securities are not listed or are not in the process of listing on any stock
exchange, whether in India or outside India; and
o its ultimate or any intermediate holding company files consolidated financial statements with the
Registrar which are in compliance with the applicable Accounting Standards.

Consolidated financial statement [Section 129(4)]

The provisions relating to the preparation, adoption and audit of the financial statements of a
holding company shall, mutatis mutandis, apply to the consolidated financial statements.
Exemption [Section 129(6)]
a) The Central Government may, by notification, exempt any class or classes of companies
from complying with any if the requirements of this section or the rules made thereunder.
b) The Central Government may grant such exemption on its own or on an application by a
class or classes of companies.
c) The Central Government may grant such exemption if it considers necessary to grant such
exemption in the public interest.
d) Such exemption may be granted either unconditionally or subject to such conditions as
may be specified in the notification.

Persons responsible and Penalty [Section 129(7)]

Following persons shall be held responsible for ensuring compliance of the provisions of this
section:
1. Managing director
2. Whole-tome director in charge of finance
3. Chief Financial Officer
4. Any other person of a company charged by the Board with such duty
5. All the directors, in the absence of any of the officers mentioned above.
In case of non-compliance of nay of the provisions of this section, all such persons shall be
liable to –
1. Imprisonment up to 1 year; or
2. Fine: Minimum Rs. 50,000; Maximum Rs. 5,00,000; or
3. Both.
PERIODICAL FINANCIAL RESULTS.
129A. The Central Government may, require such class or classes of unlisted companies, as
may be prescribed, —
(a) to prepare the financial results of the company on such periodical basis and in such form
as may be prescribed;
(b) to obtain approval of the Board of Directors and complete audit or limited review of such
periodical financial results in such manner as may be prescribed; and

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(c) file a copy with the Registrar within a period of thirty days of completion of the relevant
period with such fees as may be prescribed.] (COMPANIES AMENDMENT ACT 2020)

RE-OPENING OF ACCOUNTS ON COURT’S OR TRIBUNAL’S ORDERS

Section 130 provides for provisions relating to re-opening or re- casting of books of accounts
of the company. Accordingly,

1. A company shall not re-open its books of accounts and shall not recast its financial
statements, unless an application in this regard is made by any one or more of the
following

a) The Central Government, or

b) The Income-tax authorities, or
c) The Securities and Exchange Board of India (SEBI), or
d) Any other statutory regulatory body or authority or any person concerned, and
e) An order in this regard is made by a court of competent jurisdiction or the Tribunal.
2. The re- opening and recasting of financial statements is permitted only for the
following reasons

a) The relevant earlier accounts were prepared in a fraudulent manner; or

b) The affairs of the company were mismanaged during the relevant period, casting a
doubt on the reliability of financial statements.
3. The accounts so revised or re-cast under this section shall be final.

4. It may be noted that the Tribunal will include National Company Law Tribunal (NCLT).
This provision provides for both, reopening of books after accounts have been closed and
recast of financial statements.

5. No order shall be made under sub-section (1) in respect of re-opening of books of account
relating to a period earlier than eight financial years immediately preceding the current
financial year: Provided that where a direction has been issued by the Central
Government under the proviso to sub-section (5) of section 128 for keeping of books of
account for a period longer than eight years, the books of account may be ordered to be
re-opened within such longer period.

NCLT RULES 2016 RULE 76A

Application under section 130.

The Central Government, the Income-tax authorities, the Securities and Exchange Board of
India, any other statutory regulatory body or authority or any person concerned may file an
application in Form No. NCLT. 9 for re-opening of books of accounts and for re-casting of
financial statement of a company under section 130 of the Act
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VOLUNTARY REVISION OF FINANCIAL STATEMENTS OR BOARD’S REPORT

Section 131

Section 131 allows the directors to prepare REVISED FINANCIAL STATEMENT OR A

REVISED BOARD’S REPORT if it appears to them that the company’s financial statement or
the Board’s Report did not comply with the requirements of Section 129 or Section 134, after
obtaining approval of the Tribunal.

The company is required to apply to the Tribunal. The application to the Tribunal shall be
made within 2 weeks of the decision taken by the Board.

RULE 77 OF NCLT RULES 2016 Application under section 131

1. Where it appears to the directors of a company that the financial statement of the
company or the report of the Board do not comply with the provisions of section 129 or
section 134, the application shall be filed in Form No. NCLT-1 within fourteen days of
the decision taken by the Board.
2. In case the majority of the directors of company or the auditor of the company has been
changed immediately before the decision is taken to apply under section 131, the
company shall disclose such facts in the application.
3. The company shall at least fourteen days before the date of hearing advertise the
application in accordance with rule 35.
4. The Tribunal shall issue notice and hear the auditor of the original financial statement, if
present auditor is different and after considering the application and hearing the auditor
and any other person as the Tribunal may deem fit, may pass appropriate order in the
matter.
5. A certified copy of the order of the Tribunal shall be filed with the Registrar of
Companies within thirty days of the date of receipt of the certified copy..
6. On receipt of approval from Tribunal a general meeting may be called and notice of such
general meeting along with reasons for change in financial statements may be published
in newspaper in English and in vernacular language.
7. In the general meeting, the revised financial statements, statement of directors and the
statement of auditors may be put up for consideration before a decision is taken on
adoption of the revised financial statements.
8. On approval of the general meeting, the revised financial statements along with the
statement of auditors or revised report of the Board, as the case may be, shall be filed
with the Registrar of Companies within thirty days of the date of approval by the general
meeting.

NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA)

Section 132 Through Section 132 of the Companies Act, 2013, the Central Government has
introduced a new regulatory authority named as National Authority for Financial Reporting
known as National Financial Reporting Authority (NFRA) with wide powers to recommend,
enforce and monitor the compliance of accounting and auditing standards.
The Companies Act, 1956 empowers the Central Government to form a Committee for
recommendations on Accounting Standards which is National Advisory Committee on

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Accounting Standards (NACAS). This is now being renamed with enhanced independent
oversight powers and authority as National Financial Reporting Authority (NFRA).
NFRA shall be responsible for monitoring and enforcing compliance of auditing and
accounting standards and for that purpose, oversee the quality of professions associated with
ensuring such compliances. The Authority shall investigate professional and other
misconducts which may be committed by Chartered Accountancy members and firms. There
is also a provision for appellate authority.
Objective
The objectives of National Financial Reporting Authority inter alia shall be as follows:
1) Make recommendations on formulation of accounting and auditing policies and standards for
adoption by companies, class of companies or their auditors;
2) Monitor and enforce the compliance with accounting standards, monitor and enforce the
compliance with auditing standards;
3) Oversee the quality of service of professionals associated with ensuring compliance with such
standards and suggest measures required for improvement in quality of service, and
4) Perform such other functions as may be prescribed in relation to aforementioned objectives.

These objectives simply bring chartered accountants, cost accountants, management

accountants, company secretaries as well as independent directors / members audit
committees under jurisdiction of NFRA.
The National Financial Reporting Authority (Manner of Appointment and other Terms and
Conditions of Service of Chairperson and Members) Rules, 2018. (NFRA RULES 2018)
In exercise of the powers conferred by sub-section (3) of section 132 of the Companies Act,
the Central Government hereby makes the (NFRA RULES 2018).
COMPOSITION OF AUTHORITY RULE 3
(1) The Authority shall consist of the following persons to be appointed by the Central
Government, namely:-
(a) a chairperson;
(b) three full time members; and
(c) nine part time members.
(2) The chairperson shall be a person of eminence, ability, integrity and standing and having
expertise and experience of not less than twenty-five years in the field of accountancy,
auditing, finance or law.
(3) A full-time member shall be a person of ability, integrity and standing and having
expertise and experience of not less than twenty years in the field of accountancy, auditing,
finance or law.
(4) A part-time member shall be a person who shall not, have any such financial or other
interest as is likely to affect prejudicially his functions as a part-time member.

MANNER OF APPOINTMENT RULE 4

(1) The Central Government shall appoint the chairperson and a full time member referred to
in rule 3 on the recommendation of a search-cum-selection committee consisting of —
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(a) Cabinet Secretary – Chairperson;

(b) Additional Principal Secretary to the Prime Minister — Member;
(c) Secretary — Ministry of Corporate Affairs— Member;
(d) Chairperson, National Financial Reporting Authority (for selection of full-time members)
— Member;
(e) three experts of repute from a panel of experts in the field of accountancy, auditing,
finance, law (to be nominated by the Central Government) – Members
(2) The Secretary, Ministry of Corporate Affairs shall be the convener of the search-cum-
selection committee.
(3) The search-cum-selection committee shall determine its procedure for making its
recommendation.
(4) No appointment of chairperson or a full time member shall be invalid merely by reason of
any vacancy or absence in the search-cum-selection committee.
(5) The search-cum-selection committee shall make its recommendations in regard to
appointment of chairperson or the members, as the case may be, to the Central Government
within a period not exceeding one hundred and twenty days from the date of reference made
to it by the Central Government.
(6) The following persons shall be appointed as part time members of the Authority namely
(i) one member to represent the Ministry of Corporate Affairs, who shall be an officer not
below the rank of Joint Secretary, ex-officio;
(ii) one member to represent the Comptroller and Auditor General of India, who shall be an
officer not below the rank of Accountant General or Principal Director, ex-officio;
(iii) one member to represent the Reserve Bank of India, who shall be an officer not below
the rank of Executive Director, ex-officio;
(iv) one member to represent the Securities and Exchange Board of India, who shall be an
officer not below the rank of Executive Director, ex-officio;
(v) President, Institute of Chartered Accountants of India, ex-officio;
(vi) Chairperson, Accounting Standards Board, Institute of Chartered Accountants of
India, ex-officio;
(vii) Chairperson, Auditing and Assurance Standards Board, Institute of Chartered
Accountants of India, ex-officio; and
(viii) two experts from the field of accountancy, auditing, finance or law.
NATIONAL FINANCIAL REPORTING AUTHORITY RULES, 2018

CLASSES OF COMPANIES AND BODIES CORPORATE GOVERNED BY THE

AUTHORITY RULE 3

i. The authority shall have power to monitor and enforce compliance with accounting
standards and auditing standards, oversee the quality of service under sub-section (2) of
section 132 or undertake investigation under sub-section (4) of such section of the
auditors of the following class of companies and bodies corporate, namely:-

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(a) companies whose securities are listed on any stock exchange in india or outside india;
(b) unlisted public companies having paid-up capital of not less than rupees five hundred
crores or having annual turnover of not less than rupees one thousand crores or having, in
aggregate, outstanding loans, debentures and deposits of not less than rupees five hundred
crores as on the 31st march of immediately preceding financial year
(c) insurance companies, banking companies, companies engaged in the generation or supply
of electricity, companies governed by any special act for the time being in force or
bodies corporate incorporated by an act in accordance with clauses (b), (c), (d), (e) and (f)
of sub-section (4) of section 1 of the act;
(d) any body corporate or company or person, or any class of bodies corporate or companies
or persons, on a reference made to the authority by the central government in public
interest; and
(e) a body corporate incorporated or registered outside india, which is a subsidiary or
associate company of any company or body corporate incorporated or registered in india
as referred to in clauses (a) to (d), if the income or networth of such subsidiary or
associate company exceeds twenty per cent. of the consolidated income or consolidated
networth of such company or the body corporate, as the case may be, referred to in
clauses (a) to (d).

II. every existing body corporate other than a company governed by these rules, shall inform
the authority within thirty days of the commencement of these rules, in form NFRA-1, the
particulars of the auditor as on the date of commencement of these rules.
III. every body corporate, other than a company as defined in clause (20) of section 2,
formed in india and governed under this rule shall, within fifteen days of appointment of
an auditor under sub-section (1) of section 139, inform the authority in form NFRA-1, the
particulars of the auditor appointed by such body corporate. provided that a body
corporate governed under clause (e) of sub-rule (1) shall provide details of appointment
of its auditor in form NFRA-1.
IV. a company or a body corporate other than a company governed under this rule shall
continue to be governed by the authority for a period of three years after it ceases to be
listed or its paid-up capital or turnover or aggregate of loans, debentures and deposits falls
below the limit stated therein.

FUNCTIONS AND DUTIES OF THE AUTHORITY RULE 4

The authority shall

(a) maintain details of particulars of auditors appointed in the companies and bodies
corporate specified in rule 3;
(b) recommend accounting standards and auditing standards for approval by the central
government;
(c) monitor and enforce compliance with accounting standards and auditing standards;
(d) oversee the quality of service of the professions associated with ensuring compliance with
such standards and suggest measures for improvement in the quality of service;
(e) promote awareness in relation to the compliance of accounting standards and auditing
standards;
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(f) co-operate with national and international organisations of independent audit regulators in
establishing and overseeing adherence to accounting standards and auditing standards;
and
(g) perform such other functions and duties as may be necessary or incidental to the aforesaid
functions and duties

ANNUAL RETURN RULE 5

5. annual return. every auditor referred to in rule 3 shall file a return with the authority on or
before 30th april every year in such form as may be specified by the central government.

RECOMMENDING ACCOUNTING & AUDITING STANDARDS RULE 6

For the purpose of recommending accounting standards or auditing standards for approval by
the central government, the authority shall receive recommendations from the institute of
chartered accountants of india on proposals for new accounting standards or auditing
standards

ENFORCING COMPLIANCE WITH ACCOUNTING STANDARDS RULE 7

1. For the purpose of monitoring and enforcing compliance with accounting standards under
the act by a company or a body corporate governed under rule 3, the authority may
review the financial statements of such company or body corporate, as the case may be,
and if so required, direct such company or body corporate or its auditor by a written
notice, to provide further information or explanation or any relevant documents relating
to such company or body corporate, within such reasonable time as may be specified in
the notice.

2. The authority may require the personal presence of the officers of the company or body
corporate and its auditor for seeking additional information or explanation in connection
with the review of the financial statements of such company or body corporate.

SECTION 133: CENTRAL GOVERNMENT TO PRESCRIBE ACCOUNTING STANDARDS

The Central Government may prescribe the standards of accounting or any addendum thereto,
as recommended by the Institute of Chartered Accountants of India, constituted under section
3 of the Chartered Accountants Act, 1949, in consultation with and after examination of
the recommendations made by the National Financial Reporting Authority. Till the
constitution of NFRA, National Advisory Committee on Accounting Standards (NACAS) is
still empowered to do the work allocated to NFRA under new Act. The standards of
accounting as specified under the Companies Act, 1956 shall be deemed to be the accounting
standards until accounting standards are prescribed by the Central Government.

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FINANCIAL STATEMENTS, BOARD REPORT ETC. SECTION 134

IT INVOLVES 5 STAGES

STEP 1
PREPARATION OF FINANCIAL STATEMENTS
STEP 2
SIGNING OF FINANCIAL STATEMENTS
STEP 3
CIRCULATION OF FINANCIAL STATEMENTS
STEP 4
ADOPTION OF FINANCIAL STATEMENTS
STEP 5 STEP 5

FILING OF FINANCIAL STATEMENTS TO ROC

STEP 1 PREPARATION OF FINANCIAL STATEMENTS

SECTION 134: FINANCIAL STATEMENT, BOARD’S REPORT ETC.

SECTION 134(1)

The financial statement, including consolidated financial statement, if any, shall be approved
by the Board of Directors before they are signed on behalf of the Board by the chairperson of
the company where he is authorised by the Board or by two directors out of which one shall
be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and
the company secretary of the company, wherever they are appointed, or in the case of One
Person Company, only by one director, for submission to the auditor for his report thereon

SECTION 134(2) The auditor report shall be attached to every financial statement

BOARD REPORT Section 134(3)

Section 134(3) of the Act provides that there shall be attached to statements laid before a
company in general meeting, a report by its Board of Directors, which shall include

DISCLOSURES BY BOARD OF DIRECTORS IN THE BOARD’S REPORT

Disclosures under Section 134(3)

a) the web address, if any, where annual return referred to in sub-section (3) of section 92
has been placed
b) Board report shall report on the highlights of performance of subsidiaries, associates and
joint venture companies and their contribution to the overall performance of the company
during the period.
c) Number of meetings of board
d) Director’s responsibility statement
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(ca) details in respect of frauds reported by auditors under sub-section (12) of section 143
other than those which are reportable to the Central Government

e) Statement on declaration given by independent director under section 149(6).

f) Explanations or comments by the Board on every qualification, reservation or adverse
remark or disclaimer made by the auditor in his report; and by the company secretary in
practice in his secretarial audit report;
g) Particulars of loan, guarantees or investments under section 186
h) The state of company’s affairs
i) Particulars of contracts and arrangements with related parties in AOC-2
j) Statement relating to risk management policy
k) Statement on corporate social responsibility
l) The amount proposed to carry to any reserve conservation of energy,
m) Technology absorption,
n) foreign exchange earnings and outgo.
o) A disclosure, as to whether maintenance of cost records as specified by the Central
Government under sub-section (1) of section 148 of the Companies Act, 2013, is required
by the Company and accordingly such accounts and records are made and maintained
p) A statement that the company has complied with provisions relating to the constitution of
Internal Complaints Committee under the Sexual Harassment of Women at Workplace
(Prevention, Prohibition and Redressal) Act, 2013
q) the details of application made or any proceeding pending under the Insolvency and
Bankruptcy Code, 2016 (31 of 2016) during the year along-with their status as at the end
of the financial year.
r) the details of difference between amount of the valuation done at the time of one-time
settlement and the valuation done while taking loan from the Banks or Financial
Institutions along with the reasons thereof.

Provided that where disclosures referred to in this sub-section have been included in the
financial statements, such disclosures shall be referred to instead of being repeated in the
Board's report:

Provided further that where the policy referred to in clause (e) or clause (j) is made available
on company's website, if any, it shall be sufficient compliance of the requirements under such
clauses if the salient features of the policy and any change therein are specified in brief in the
Board's report and the web-address is indicated therein at which the complete policy is
available.

134(3A) The Central Government may prescribe an abridged Board's report, for the purpose
of compliance with this section by One Person Company or small company.

Matters to be included in Board’s Report for One Person Company and Small
Company. RULE 8A OF Companies (Accounts) Amendment Rules, 2018

The Board’s Report of One Person Company and Small Company shall be prepared based on
the stand alone financial statement of the company, which shall be in abridged form and
contain the following:-

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a. the web address, if any, where annual return referred to in sub-section (3) of section 92
has been placed;
b. number of meetings of the Board;
c. Directors’ Responsibility Statement as referred to in sub-section (5) of section 134;
d. details in respect of frauds reported by auditors under sub-section (12) of section 143
other than those which are reportable to the Central Government;
e. explanations or comments by the Board on every qualification, reservation or adverse
remark or disclaimer made by the auditor in his report;
f. the state of the company’s affairs;
g. the financial summary or highlights;
h. material changes from the date of closure of the financial year in the nature of business
and their effect on the financial position of the company;
i. the details of directors who were appointed or have resigned during the year;
j. the details or significant and material orders passed by the regulators or courts or tribunals
impacting the going concern status and company’s operations in future.

The Report of the Board shall contain the particulars of contracts or arrangements with
related parties referred to in sub-section (1) of section 188 in the Form AOC-2.

134(4) The board report to be attached to financial statement under this section shall, in case
of OPC, mean a report containing explanations or comments by board on every
qualifications, reservation or adverse remarks or disclaimer made by auditor in his report.

Directors’ Responsibility Statement 134(5)

The Directors’ Responsibility Statement referred to in CLAUSE (c) OF SUB-SECTION (3) OF
SECTION 134 shall state that –

a. In the preparation of the annual accounts, the applicable accounting standards had been
followed along with proper explanation relating to material departures;
b. The directors had selected such accounting policies and applied them consistently and
made judgments and estimates that are reasonable and prudent so as to give a true and fair
view of the state of affairs of the company at the end of the financial year and of the profit
and loss of the company for that period;
c. The directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for safeguarding the
assets of the company and for preventing and detecting fraud and other irregularities;
d. The directors had prepared the annual accounts on a going concern basis; and
e. The directors, in the case of a listed company, had laid down internal financial controls to
be followed by the company and that such internal financial controls are adequate and
were operating effectively.
f. The directors, had devised proper systems to ensure compliance with the provisions of all
applicable laws and that such systems were adequate and operating effectively.
FORMAL ANNUAL EVALUATION
According to Rule 8(4) of Companies (Accounts) Rules 2014; every listed company and
every other public company having a paid up share capital of twenty five crore rupees or
more calculated at the end of the preceding financial year shall include, in the report by its
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Board of directors, a statement indicating the manner in which formal annual evaluation of
the performance of the Board, its Committees and of individual directors has been made
REPORT ON CORPORATE GOVERNANCE UNDER LODR 2015

The company shall have a separate section on Corporate Governance in the Annual Report of
the company with a detailed compliance report on Corporate Governance. Non-compliance of
any mandatory requirement i.e. which is part of the listing agreements with reasons thereof
and the extent to which the non-mandatory requirements have been adopted should be
specifically highlighted.
REPORTING OF CORPORATE SOCIAL RESPONSIBILITY (CSR)

According to Rule 8 of the Companies (Corporate social Responsibility Policy) Rules 2014
the Board’s Report of a company covered under these rules pertaining to a financial year
commencing on or after the 1st day of April, 2014 shall include an annual report on CSR
containing particulars specified in Annexure to these rules.
MANAGEMENT DISCUSSIONANDANALYSIS REPORT (MDAR)

In case of listed companies, the MDAR should either form a part of the Board’s Report or be
given as an addition thereto in the annual report to the shareholders. As per para IV (F) of
clause 49 of the listing agreement, the MDAR should include a discussion on the following
matters within the limits set by the company’s competitive position

1. Industry structure and developments

2. Opportunities and threats
3. Segment-wise or product-wise performance
4. Outlook
5. Risks and areas of concern
6. Internal control systems and their adequacy
7. Discussion on financial performance with respect to operational performance

MDAR should be considered and approved by the Board in a meeting of the Board and not
through resolution passed by circulation. It is desirable that MDAR is signed in the same
manner as in the case of the Board’s Report.
DECLARATION FROM INDEPENDENT DIRECTORS

Every Independent Director in his first board meeting participated after appointment and first
board meeting in every financial year or whenever there is any change give declaration that
he meets the criteria of independence as provided in sub-section (6) of Section 149 of the
Companies Act 2013
The Company may obtain from every independent director a declaration to this effect as a
matter of good practice. The declaration placed before the Board shall be reviewed and its
decision recorded in the minutes.
Disclosure in Board’s report by listed company
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

Every listed company shall disclose in board report a statement showing the names of the top
ten employees in terms of remuneration drawn and the name of every employee who

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 if employed throughout the financial year, was in receipt of remuneration for that year
which, in the aggregate, was not less than one crore and two lakh rupees
 if employed for a part of the financial year, was in receipt of remuneration for any part of
that year, at a rate which, in the aggregate, was not less than eight lakh and fifty thousand
rupees per month

Other Disclosures under Companies Act, 2013

a) Appointment of independent director
b) Disclosure about the composition of audit committee under section 177(8) and also the
recommendation of audit committee
c) Details of establishment of vigil mechanism [section 177(9)]
d) Policies by the nomination and remuneration committee
e) Secretarial report given by a company secretary in practice.

STEP 2 SIGNING OF FINANCIAL STATEMENTS

Signing of Case (a) Case (b)

Board’s The chairperson of the board is In any other case
report authorized by the Board to sign the
(Sec. 134 Board’s report The Board’s report shall be signed by 2
(6)) directors (one of whom shall be MD, if
The Board’s report shall be signed by there is one)
the chairman of the Board.
The Board’s report shall be signed by 1
director, if only 1 director is for the time
being in India.
Signing of Case (a) Case (b)
Financial The chairperson of the board is Any other case
Statement authorized by the Board to sign the
(Sec. 134 FINANCIAL STATEMENT o two directors of whom one should be the
(1)) managing director, and
AND
o chief executive officer, chief financial
chief executive officer, chief financial officer and company secretary, if any in
officer and company secretary, if any in the company
the company
One person company's financial statements shall be signed by only one director.
OPC
SPECIAL Such sign is required for submission of financial statements to the auditor for his report.
NOTE Auditors report is required to be attached to every financial statement. Board report shall
be attached to the statements laid before the company in general meeting.

PENAL PROVISIONS SECTION 134(8)

If a company is in default in complying with the provisions of this section, the company shall
be liable to a penalty of three lakh rupees and every officer of the company who is in default
shall be liable to a penalty of fifty thousand rupees. (COMPANIES AMENDMENT ACT
2020)
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MCA has clarified that approval of annual accounts (now financial statements under Companies Act,
2013) are placed before AGM before shareholders can’t be treated as day to day work. Therefore it is
duty of board of directors to consider the annual account and approve it. In view of the above
clarification, it can be said that approval of financial statements can’t be delegated to committee of
directors or some of directors.

STEP 3 CIRCULATION OF FINANCIAL STATEMENTS

RIGHT OF MEMBER TO COPIES OF AUDITED FINANCIAL STATEMENT SECTION 136

Documents to be circulated
A copy of the following documents is required to be sent by the company:
 Financial Statement
 Consolidated Financial Statement, if any
 Auditor’s Report
 All the documents which are required to be annexed or attached to the financial
statement.
These documents are hereinafter referred to as ‘financial statement and other documents’.
Persons entitled to receive financial statement and other documents
a) Every member of the company.
b) Every trustee for the holders of any debentures issued by the company.
c) All persons other than the member or debenture trustee, being the person so entitled.
Time limit for circulation
The aforesaid documents shall be sent least 21 days (14 days in case of section 8 companies)
before the date of the meeting in which these are to be laid.
Provided that if the copies of the documents are sent less than twenty-one days before the
date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if
it is so agreed by members

(a) holding, if the company has a share capital, majority in number entitled to vote and who
represent not less than ninety-five per cent. Of such part of the paid-up share capital of the
company as gives a right to vote at the meeting; or

(b) having, if the company has no share capital, not less than ninetyfive per cent. of the total
voting power exercisable at the meeting:

Circulation of financial statement and other documents in case of a listed company

In the case of listed company, it shall be a sufficient compliance with the provisions of
section 136, if –
a) The copies of the financial statement other documents are made available for inspection
at its registered office during working hours for a period of 21 days before the date of the
meeting; and
b) A statement containing the salient features of such documents in the prescribed form is
sent to every member of the company and to every trustee for the holders of any

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debentures issued by the company not less than 21 days before the date of the meeting,
unless the shareholders ask for full financial statements.
As per Rule 10 of the companies (Accounts) Rules, 2014, such statement shall be in Form AOC-3.

Provided that the Companies which are required to comply with Companies (Indian Accounting
statndards) Rules,2015 shall forward their statement in form AOC-3A

Manner of circulation in case of prescribed companies

The Central Government may prescribe the manner of circulation of financial statements of
companies having such net worth and turnover as may be prescribed.
Rule 11 of the Companies (Accounts) Rules, 2014 makes the following provisions in this regard

1. In case of above All listed companies; and

2. Public companies having net worth of more than Rs. 1 crore and turnover of more than
Rs. 10 crore.
The financial statement shall be circulated –

 By electronic mode, in the following 2 cases

A. Where a member holds shares in dematerialised form and his email Id is registered with the
Depository for communication purpose.
B. Where a member does not hold share in dematerialized form, but he has positively consented in
writing for receiving such documents by electronic mode.

 By dispatch of physical copies through any recognized mode of delivery as specified

under section 20 of the Companies Act, 2013, in all other cases.
Display of documents at the website
A listed company shall also place its financial statements and other documents on its website,
which is maintained by or on behalf of the company.

Circulation and placing of separate audited accounts of subsidiaries

every listed company having a subsidiary or subsidiaries shall place separate audited accounts
in respect of each of subsidiary on its website, if any: Provided also that a listed company
which has a subsidiary incorporated outside India (herein referred to as "foreign subsidiary

(a) where such foreign subsidiary is statutorily required to prepare consolidated financial
statement under any law of the country of its incorporation, the requirement of this proviso
shall be met if consolidated financial statement of such foreign subsidiary is placed on the
website of the listed company;

(b) where such foreign subsidiary is not required to get its financial statement audited under
any law of the country of its incorporation and which does not get such financial statement
audited, the holding Indian listed company may place such unaudited financial statement on
its website and where such financial statement is in a language other than English, a
translated copy of the financial statement in English shall also be placed on the website.
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Inspection of financial statement and other document

Every company shall allow every member and debenture trustee to inspect the financial
statement and other documents at its registered office during business hours.

Provided that every company having a subsidiary or subsidiaries shall provide a copy of
separate audited or unaudited financial statements, as the case may be, as prepared in respect
of each of its subsidiary to any member of the company who asks for it.

MCA CIRCULAR 21.07.2015

It is clarified that in case of a foreign subsidiary, which is not required to get its accounts audited as
per legal requirements prevalent in the country of its incorporation and which does not get such
accounts audited, the holding/parent Indian may place/file such unaudited accounts to comply with
requirements of Section 136(1) and 137(1) as applicable.
These, however, would need to be translated in English, if the original accounts are not in English.
Further, the format of accounts of foreign subsidiaries should be, as far as possible, in accordance
with requirements under Companies Act, 2013. ln case this is not possible, a statement indicating the
reasons for deviation may be placed/filed alongwith such accounts.

CONNECTIVITY OF LISTING REGULATIONS 2015

Regulation ANNUAL REPORT
34
Time Period of Submission:

The listed entity shall submit the annual report to the stock exchange within 21
days (Twenty One) working days of it being approved and adopted in the
annual general meeting.

The annual report shall contain the following:

1. Audited Financial Statements i.e. balance sheets, profit and loss accounts
etc;
2. Consolidated Financial Statements Audited by its statutory auditors;
3. Cash Flow Statement presented only under the indirect method as
prescribed in Accounting Standard-3 or Indian Accounting Standard 7, as
applicable,
4. Directors Report
5. Management Discussion and Analysis Report – either as a part of directors
report or addition thereto;
6. For the Top 500 Listed Entities based on market capitalization (calculated
as on March 31 of every financial year), Business Responsibility
Report describing the initiatives taken by them from an environmental,
social and governance perspective, in the format as specified by the Board
from time to time:
7. Listed Entities other than top 500 listed companies based on market
capitalization and listed entities which have listed their specified securities
on SME Exchange, may include these business responsibility reports on a
voluntary basis in the format as specified.
8. The annual report shall contain any other disclosures specified in
Companies Act, 2013 along with other requirements as specified in
Schedule V of these regulations

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Regulation Documents & Information to shareholders: The listed entity shall send the
36 annual report in the following manner to the shareholders

a. Soft copies of full annual report to all those shareholder(s) who have
registered their email address(es)for the purpose;
b. Hard copy of statement containing the salient features of all the documents,
as prescribed in Section 136 of Companies Act, 2013 or rules made there
under to those shareholder(s) who have not so registered;
c. Hard copies of full annual reports to those shareholders, who request for
the same.
1. The listed entity shall send annual report referred to in sub-regulation
(1), to the holders of securities, not less than twenty-one days before the
annual general meeting.

In case of the appointment of a new director or re-appointment of a director the

shareholders must be provided with the following information

a. A brief resume of the director

b. Nature of his expertise in specific functional areas
c. Disclosure of relationships between directors inter-se
d. Names of listed entities in which the person also holds the directorship and
the membership of Committees of the board
e. Share holding of non-executive directors

STEP 4 ADOPTION OF FINANCIAL STATEMENTS

At AGM shareholders will adopt the financial statements.

STEP 5 FILING OF FINANCIAL STATEMENTS

FINANCIAL STATEMENT TO BE FILED WITH REGISTRAR SECTION 137

Where financial statement are adopted at the AGM

a) Documents to be filed.
 Financial Statement
 Consolidated Financial Statement, if any
 The accounts of its subsidiary or subsidiaries which have been incorporated outside India
and which have not established their place of business in India.
 All the documents which are required to be annexed or attached to the financial statement.

b) Time limit for filing. The ‘financial statement and other documents’ shall be filed with
the Registrar within 30 days of the date of AGM.

Where financial statement are not adopted at the AGM

a) Filing of unadopted documents. Where the financial statements are not adopted at the
AGM or adjourned AGM, such unadopted financial statements and other documents shall
be filed with the Registrar within 30 days of the date of AGM.
b) Unadopted documents to be provisional. The Registrar shall take the unadopted
financial statement and other documents in his records as provisional till the financial
statements are filed with him after their adoption in the adjourned AGM for that purpose.
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c) Filing of adopted documents. The financial statement and other documents adopted in
the adjourned AGM shall be filed with the Registrar within 30 days of the date of such
adjourned AGM.
Where AGM is not held
Filing of document.
(i) The financial statements and other documents
(ii) Statement of facts and reasons for not holding the AGM
Time limit for filing
The ‘financial statement and other documents’ shall be filed with the Registrar within 30 days
of the last date before which the AGM should have been held.
Form and fees (Rule 12 of the Companies (Accounts) Rules, 2014)

Every company shall file the financial statements with Registrar together with Form AOC-4.

FILING BY OPC
Provided also that a One Person Company shall file a copy of the financial statements duly
adopted by its member, along with all the documents which are required to be attached to
such financial statements, within one hundred eighty days from the closure of the financial
year:
FINANCIAL STATEMENTS OF SUBSIDIARY OR SUBSIDIARIES
Provided also that a company shall, along with its financial statements to be filed with the
Registrar, attach the accounts of its subsidiary or subsidiaries which have been incorporated
outside India and which have not established their place of business in India.
Provided also that in the case of a subsidiary which has been incorporated outside India
(herein referred to as "foreign subsidiary"), which is not required to get its financial statement
audited under any law of the country of its incorporation and which does not get such
financial statement audited, the requirements of the fourth proviso shall be met if the holding
Indian company files such unaudited financial statement along with a declaration to this
effect and where such financial statement is in a language other than English, along with a
translated copy of the financial statement in English.

PENALTY SECTION 137(3)

If a company fails to file the copy of the financial statements under sub-section (1) or sub-
section (2), as the case may be, before the expiry of the period specified therein the company
shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a
further penalty of one hundred rupees for each day during which such failure continues,
subject to a maximum of two lakh rupees, and the managing director and the Chief Financial
Officer of the company, if any, and, in the absence of the managing director and the Chief
Financial Officer, any other director who is charged by the Board with the responsibility of
complying with the provisions of this section, and, in the absence of any such director, all the
directors of the company, shall be shall be liable to a penalty of ten thousand rupees and in

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case of continuing failure, with further penalty of one hundred rupees for each day after the
first during which such failure continues, subject to a maximum of fifty thousand rupees.
(COMPANIES AMENDMENT ACT 2020)

ANNUAL FILING EVERY YEAR TO ROC

1. Financial Statement E-Form AOC – 4

2. Annual Return E-Form MGT - 7

ANNULA FILING EVERY YEAR TO ROC

60 DAYS

DATE OF
AGM 30 DAYS

FILE TO ROC WITH IN 30

DAYS OF AGM
FILE TO ROC WITH IN 60
DAYS OF AGM
BALANCE SHEET IN PROFIT AND LOSS
E-FORM AOC 4 ACCOUNT IN E-FORM
AOC- 4
ANNUAL RETURN
IN E-FORM MGT-7

The following class of companies have to file the Financial Statements in

XBRL Form

 companies listed with stock exchanges in India and their Indian

subsidiaries;
 companies having paid up capital of five crore rupees or above;
 companies having turnover of one hundred crore rupees or above;
 all companies which are required to prepare their financial
statements in accordance with Companies (Indian Accounting
Standards) Rules, 2015

Companies (Filing of Documents and Forms in Extensible Business Reporting

Language) Rules, 2015. 09th September, 2015

Extensible Business Reporting Language (XBRL), means a standardised language for

communication in electronic form to express, report or file financial information by the
companies under the Act;
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Taxonomy means in XBRL, an electronic dictionary for reporting the business data as
approved by the Central Government in respect of any documents or forms indicated in these
rules.

These rules may be called the Companies (Filing of Documents and Forms in Extensible
Business Reporting Language), Amendment, Rules, 2017.

FILING OF FINANCIAL STATEMENT WITH REGISTRAR

The following class of companies shall file their financial statements and other documents
under section 137 of the Act with the Registrar in e-form AOC-4 XBRL

 companies listed with stock exchanges in India and their Indian subsidiaries;
 companies having paid up capital of five crore rupees or above;
 companies having turnover of one hundred crore rupees or above;
 all companies which are required to prepare their financial statements in accordance with
Companies (Indian Accounting Standards) Rules, 2015

Provided that the companies preparing their financial statements under the Companies
(Accounting Standards) Rules, 2006 shall file the statements using the Taxonomy provided in
Annexure-II and companies preparing their financial statements under Companies (Indian
Accounting Standards) Rules, 2015, shall file the statements using the Taxonomy provided in
Annexure-II A:

Provided further that non-banking financial companies, housing finance companies and
companies engaged in the business of banking and insurance sector are exempted from filing
of financial statements under these rules.

FILING OF COST AUDIT REPORT

A company required to furnish cost audit report and other documents to the Central
Government under sub-section (6) of section 148 of the Act and rules made there under, shall
file such report and other documents using the XBRL taxonomy given in Annexure-III for the
financial years commencing on or after 1st April, 2014 in e-Form CRA-4 specified under the
Companies (Cost Records and Audit) Rules, 2014.

COMPANIES (INDIAN ACCOUNTING STANDARDS) RULES, 2015

The Ministry of Corporate Affairs (MCA) has notified on February 16, 2015 the Companies
(Indian Accounting Standards) Rules, 2015.
S.NO. TYPE OF COMPANIES BASIS FROM YEAR
1 Any company voluntary
For accounting
periods
beginning on or
after 1st April,
2015
2 a) companies having net worth of 500 crore or more mandatory For the
whether their equity and/or debt securities are listed accounting

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or otherwise periods
b) Holding, subsidiary, joint venture or associate beginning on or
companies of the class of companies covered in (a) after 1stApril,
above. 2016

3 a) companies whose equity and/or debt securities are mandatory For the
listed or are in the process of being listed on any accounting
stock exchange in India or outside India and having periods
net worth of less than 500 crore beginning on or
after 1stApril,
b) Unlisted companies having net worth of 250 crore 2017
or more but less than 500 crore c) holding,
subsidiary, joint venture or associate companies of
the above class of companies.

CORPORATE SOCIAL RESPONSIBILITY

CORPORATE SOCIAL RESPONSIBILITY
INTRODUCTION

Corporate social responsibility is a form of corporate self-regulation integrated into

a business model. CSR policy functions as a self-regulatory mechanism whereby a business
monitors and ensures its active compliance with the spirit of the law, ethical standards and
national or international norms. CSR strategies encourage the company to make a positive
impact on the environment and stakeholders including consumers, employees, investors,
communities, and others.

SECTION 135: CORPORATE SOCIAL RESPONSIBILITY (CSR)

CORPORATE SOCIAL RESPONSIBILITY

CONCEPT OF CSR BENEFITS OF CSR

CSR has many interpretations but can be 1. Strengthened brand positioning

understood to be a concept imposing a
2. Enhanced corporate image and reputation
liability on the Company to contribute to the
society (whether towards environmental 3. Satisfaction of economic and social
causes, educational promotion, social contribution to society
causes etc.) along with the reinforced duty 4. Contribution to the surrounding society
to conduct the business in an ethical
5. Increased ability to attract, motivate and
manner.
retain employees
It is also known as corporate conscience, 6. Enhanced sales and market share
corporate citizenship, social performance or
sustainable business/responsible business. 7. Increased appeals to investors and financial
analysts
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APPLICATION OF PROVISION

Corporate Social Responsibility

Or Or
Net worth > Rs. 500 cr. Turnover > Rs. 1000 cr. Net profit > Rs. 5 cr.

On compliance of any one of the above conditions the

company shall take both the following steps.

Company shall form the CSR committee & The company shall make an expenditure
who shall make the policies and the of 2% of average net profit of last 3
procedures for making CSR expenses. Financial years as CSR expenses. The
The same policies shall be accepted by CSR expenses shall be made as per the
BOD and shall be disclosed on the CSR policy. The CSR expenditure shall
BOD’s report and on the website of the be made in the local areas in which
company. company is working.

Special note: For the purposes of this section "net profit" shall not include such sums as may
be prescribed, and shall be calculated in accordance with the provisions of section 198.

As per the provisions of section 135 of the Act, one of the three criteria has to be satisfied to
attract Section 135. Therefore, if a company satisfies the criterion of turnover, although it
does not satisfy the criterion of net profit, it is required to comply with the provisions of
Section 135 and the Companies (CSR Policy) Rules, 2014.

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SECTION 135: CORPORATE SOCIAL RESPONSIBILITY (CSR)

135. (1) Every company having net worth of rupees five hundred crore or more, or turnover
of rupees one thousand crore or more or a net profit of rupees five crore or more during the
immediately preceding financial year shall constitute a Corporate Social Responsibility
Committee of the Board consisting of three or more directors, out of which at least one
director shall be an independent director.
Provided that where a company is not required to appoint an independent director under sub-
section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two
or more directors.
(2) The Board's report under sub-section (3) of section 134 shall disclose the composition of
the Corporate Social Responsibility Committee.
(3) The Corporate Social Responsibility Committee shall
a. formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall
indicate the activities to be undertaken by the company in areas or subject, specified
in Schedule VII
b. recommend the amount of expenditure to be incurred on the activities referred to in clause (a)
c. monitor the Corporate Social Responsibility Policy of the company from time to time.

(4) The Board of every company referred to in sub-section (1) shall

a. after taking into account the recommendations made by the Corporate Social Responsibility
Committee, approve the Corporate Social Responsibility Policy for the company and disclose
contents of such Policy in its report and also place it on the company's website, if any, in such
manner as may be prescribed
b. ensure that the activities as are included in Corporate Social Responsibility Policy of the
company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall ensure that the company
spends, in every financial year, at least two per cent. of the average net profits of the
company made during the three immediately preceding financial years or where the
company has not completed the period of three financial years since its incorporation,
during such immediately preceding financial years], in pursuance of its Corporate Social
Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it
where it operates, for spending the amount earmarked for Corporate Social Responsibility
activities:
Provided further that if the company fails to spend such amount, the Board shall, in its
report made under clause (o) of sub-section (3) of section 134, specify the reasons for not
spending the amount and, unless the unspent amount relates to any ongoing project
referred to in sub-section (6), transfer such unspent amount to a Fund specified in
Schedule VII, within a period of six months of the expiry of the financial year.
Provided also that if the company spends an amount in excess of the requirements
provided under this sub-section, such company may set off such excess amount against
the requirement to spend under this sub-section for such number of succeeding financial
years and in such manner, as may be prescribed. (COMPANIES AMENDMENT ACT
2020)
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Explanation.—For the purposes of this section "net profit" shall not include such sums as
may be prescribed, and shall be calculated in accordance with the provisions of section
198.
(6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project,
fulfilling such conditions as may be prescribed, undertaken by a company in persuance of
its Corporate Social Responsibility Policy, shall be transferred by the company within a
period of thirty days from the end of the financial year to a special account to be opened
by the company in that behalf for that financial year in any scheduled bank to be called
the Unspent Corporate Social Responsibility Account, and such amount shall be spent by
the company in pursuance of its obligation towards the Corporate Social Responsibility
Policy within a period of three financial years from the date of such transfer, failing
which, the company shall transfer the same to a Fund specified in Schedule VII, within a
period of thirty days from the date of completion of the third financial year
(7) If a company is in default in complying with the provisions of sub-section (5) or sub-
section (6), the company shall be liable to a penalty of twice the amount required to be
transferred by the company to the Fund specified in Schedule VII or the Unspent
Corporate Social Responsibility Account, as the case may be, or one crore rupees,
whichever is less, and every officer of the company who is in default shall be liable to a
penalty of one-tenth of the amount required to be transferred by the company to such
Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account,
as the case may be, or two lakh rupees, whichever is less. (COMPANIES
AMENDMENT ACT 2020)
(8) The Central Government may give such general or special directions to a company or
class of companies as it considers necessary to ensure compliance of provisions of this
section and such company or class of companies shall comply with such directions.
(9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty
lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social
Responsibility Committee shall not be applicable and the functions of such Committee
provided under this section shall, in such cases, be discharged by the Board of Directors
of such company. (COMPANIES AMENDMENT ACT 2020)
COMPANIES (CORPORATE SOCIAL RESPONSIBILITY POLICY) AMENDMENT
RULES, 2021
RULE-4 CSR IMPLEMENTATION.
(1) The Board shall ensure that the CSR activities are undertaken by the company itself or
through - (a) a company established under section 8 of the Act, or a registered public trust or
a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43
of 1961), established by the company, either singly or along with any other company, or (b) a
company established under section 8 of the Act or a registered trust or a registered society,
established by the Central Government or State Government; or (c) any entity established
under an Act of Parliament or a State legislature; or (d) a company established under section
8 of the Act, or a registered public trust or a registered society, registered under section 12A
and 80G of the Income Tax Act, 1961, and having an established track record of at least three
years in undertaking similar activities.
(2) (a) Every entity, covered under sub-rule (1), who intends to undertake any CSR activity,
shall register itself with the Central Government by filing the form CSR-1 electronically with

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the Registrar, with effect from the 01st day of April 2021: Provided that the provisions of this
sub-rule shall not affect the CSR projects or programmes approved prior to the 01st day of
April 2021. (b) Form CSR-1 shall be signed and submitted electronically by the entity and
shall be verified digitally by a Chartered Accountant in practice or a Company Secretary in
practice or a Cost Accountant in practice. (c) On the submission of the Form CSR-1 on the
portal, a unique CSR Registration Number shall be generated by the system automatically.
(3) A company may engage international organisations for designing, monitoring and
evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity
building of their own personnel for CSR.
(4) A company may also collaborate with other companies for undertaking projects or
programmes or CSR activities in such a manner that the CSR committees of respective
companies are in a position to report separately on such projects or programmes in
accordance with these rules.
(5) The Board of a company shall satisfy itself that the funds so disbursed have been utilised
for the purposes and in the manner as approved by it and the Chief Financial Officer or the
person responsible for financial management shall certify to the effect.
(6) In case of ongoing project, the Board of a Company shall monitor the implementation of
the project with reference to the approved timelines and year-wise allocation and shall be
competent to make modifications, if any, for smooth implementation of the project within the
overall permissible time period.

RULE 7. CSR EXPENDITURE

(1) The board shall ensure that the administrative overheads shall not exceed five percent of
total CSR expenditure of the company for the financial year.
(2) Any surplus arising out of the CSR activities shall not form part of the business profit of a
company and shall be ploughed back into the same project or shall be transferred to the
Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the
company or transfer such surplus amount to a Fund specified in Schedule VII, within a period
of six months of the expiry of the financial year.
(3) Where a company spends an amount in excess of requirement provided under sub-section
(5) of section 135 , such excess amount may be set off against the requirement to spend under
sub-section (5) of section 135 up to immediate succeeding three financial years subject to the
conditions that – (i) the excess amount available for set off shall not include the surplus
arising out of the CSR activities, if any, in pursuance of sub-rule (2) of this rule. (ii) the
Board of the company shall pass a resolution to that effect.
(4) The CSR amount may be spent by a company for creation or acquisition of a capital asset,
which shall be held by - (a) a company established under section 8 of the Act, or a Registered
Public Trust or Registered Society, having charitable objects and CSR Registration Number
under sub-rule (2) of rule 4; or (b) beneficiaries of the said CSR project, in the form of self-
help groups, collectives, entities; or (c) a public authority: Provided that any capital asset
created by a company prior to the commencement of the Companies (Corporate Social
Responsibility Policy) Amendment Rules, 2021, shall within a period of one hundred and
eighty days from such commencement comply with the requirement of this rule, which may
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be extended by a further period of not more than ninety days with the approval of the Board
based on reasonable justification.
RULE-8. CSR REPORTING
(1) The Board's Report of a company covered under these rules pertaining to any financial
year shall include an annual report on CSR containing particulars specified in Annexure I or
Annexure II, as applicable.
(2) In case of a foreign company, the balance sheet filed under clause (b) of sub-section (1) of
section 381 of the Act, shall contain an annual report on CSR containing particulars specified
in Annexure I or Annexure II, as applicable.
(3) (a) Every company having average CSR obligation of ten crore rupees or more in
pursuance of subsection (5) of section 135 of the Act, in the three immediately preceding
financial years, shall undertake impact assessment, through an independent agency, of their
CSR projects having outlays of one crore rupees or more, and which have been completed not
less than one year before undertaking the impact study. (b) The impact assessment reports
shall be placed before the Board and shall be annexed to the annual report on CSR. (c) A
Company undertaking impact assessment may book the expenditure towards Corporate
Social Responsibility for that financial year, which shall not exceed five percent of the total
CSR expenditure for that financial year or fifty lakh rupees, whichever is less.
Activities not amounting to CSR
As per Rule 4 and Rule 6 of the Companies (Corporate Social Responsibility Policy) Rules,
2014, following shall not amount to CSR Activities for the purpose of Section 135
a) The CSR projects or programs or activities undertaken outside India.
b) The CSR projects or programs or activities that benefit only the employees of the
company and their families.
c) Contribution of any amount, directly or indirectly, to any political party under section 182
of the Companies Act, 2013.
d) Any activity undertaken in pursuance of normal course of business of a company.
Display of CSR policy on the website
As per Rule 9 of the Companies ( Corporate Social Responsibility Policy) Rules, 2014 and
Rule 6 of the Companies (Accounts) Rules, 2014, the CSR Policy and its contents shall be
displayed on the company’s website, if any, as per the particulars specified in the Annexure
to the Companies (Corporate Social Responsibility Policy) Rules, 2014.
PENAL PROVISION FOR NOT COMPLYING WITH SECTION 135

1. The concept of CSR is based on the principle ‘comply or explain’. Section 135 of the Act
does not lay down any penal provisions in case a company fails to spend the desired
amount.
2. Second proviso to sub-section (5) of section 135 provides that if the company fails to
spend such amount, the Board shall in its report specify the reasons for not spending the
amount.
3. In case it does not disclose the reasons for not spending in the Board’s report, the
company shall be punishable with fine minimum fifty thousand rupees maximum twenty-
five lakh rupees and every officer of the company who is in default shall be punishable
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with imprisonment for a term which may extend to three years or with fine minimum fifty
thousand rupees maximum five lakh rupees, or with both. [Section 134(8)].

SOME CIRCULARS BY MCA ON CSR

1. The Ministry of Corporate Affairs vide Circular No. 21/2014 dated June 18, 2014 has clarified
that expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as
CSR spend of the Indian Subsidiary.
2. MCA vide General Circular No. 21/2014 dated June18, 2014 has clarified that the statutory
provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in
pursuance of the CSR policy must be relatable areas or subject specified in VII of the Companies
Act 2013. However, the entries in the said Schedule VII must be interpreted liberally so as to
capture the essence of the subjects enumerated in the said Schedule.
3. The Ministry of Corporate Affairs Circular No. 21/2014 dated June 18, 2014 has clarified that
expenses incurred by companies for the fulfilment of any Act/ Statute of regulations (such as
Labour Laws etc.) would not count as CSR expenditure under the Companies Act, 2013.
4. The Ministry of Corporate Affairs has vide General Circular No. 21/2014 dated June 18, 2014
has clarified that Contribution to Corpus of a Trust/ Society/ Section 8 companies etc. will qualify
as CSR expenditure as long as (a) the Trust/ Society/ Section 8 company etc. is created
exclusively for undertaking CSR activities
5. 16 may 2016 general circular 05/2016 While undertaking CSR activities companies shall
not contravene any other prevailing law of land including cigarettes and other tobacco
products act (cotpa), 2003

Companies (Corporate Social Responsibility Policy) Amendment Rules, 2016

The Board of a company may decide to undertake its CSR activities approved by the CSR Committee
through

1. a company established under section 8 of the Act or a registered trust or a registered society,
established by the company, either singly or along with any other company, or
2. a company established under section 8 of the Act or a registered trust or a registered society,
established by the Central Government or State Government or any entity established under an
Act of Parliament or a State legislature :

Provided that- if, the Board of a company decides to undertake its CSR activities through a company
established under section 8 of the Act or a registered trust or a registered society, other than those
specified in this sub-rule, such company or trust or society shall have an established track record of
three years in undertaking similar programs or projects; and the company has specified the projects or
programs to be undertaken, the modalities of utilisation of funds of such projects and programs and
the monitoring and reporting mechanism.

SOME SPECIAL QUESTIONS ON CSR

Whether the ‘average net profit’ criteria for section 135(5) is net profit before tax or net profit
after tax?
Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which is
primarily profit before tax (PBT).

Can the CSR expenditure be spent on the activities beyond schedule vii?
General circular no. 21/2014 dated june 18, 2014 of mca has clarified that the statutory provision and
provisions of CSR rules, 2014, is to ensure that activities undertaken in pursuance of the CSR policy
must be relatable to schedule vii of the companies act, 2013. The entries in the said schedule vii must
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be interpreted liberally so as to capture the essence of the subjects enumerated in the said schedule.
The items enlisted in the schedule vii of the act, are broad-based and are intended to cover a wide
range of activities. The general circular also provides an illustrative list of activities that can be
covered under CSR. In a similar way many more can be covered. It is for the board of the company to
take a call on this

What tax benefits can be availed under CSR?

No specific tax exemptions have been extended to CSR expenditure per se. The finance act, 2014 also
clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax
exemption has been extended to expenditure incurred on CSR, spending on several activities like
contributions to prime minister’s relief fund, scientific research, rural development projects, skill
development projects, agricultural extension projects, etc. Which find place in schedule vii, already
enjoy exemptions under different sections of the income tax act, 1961.

Which activities would not qualify as CSR?

The CSR projects or programs or activities that benefit only the employees of the company and their
families.

 One- off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships
of TV programmes etc.
 Expenses incurred by companies for the fulfillment of any other act/ statue of regulations (such as
labour laws, land acquisition act, 2013, apprentice act, 2013, apprentice act, 1961 etc.)
 Contribution of any amount directly or indirectly to any political party.
 Activities undertaken by the company in pursuance of its normal course of business.
 The project or programmes or activities undertaken outside India.

Whether display of CSR policy of a company on website of the company is mandatory or not?
As per section 135(4) the board of directors of the company shall, after taking into account the
recommendations of CSR committee, approve the CSR policy for the company and disclose contents
of such policy in its report and the same shall be displayed on the company’s website, if any (refer
rule 8 & 9 of CSR policy, rules 2014).

Whether it is mandatory for foreign company to give report on CSR activity?

In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section
381 shall contain an annexure regarding report on CSR.

Whether contribution in kind can be monetized to be shown as CSR expenditure?

Section 135 prescribes “….. Shall ensure that company spends…..”. The company has to spend the
amount.

If a company spends in excess of 2% of its average net profits of three preceding years on CSR
in a particular year, can the excess amount spent be carried forward to the next year and be
offset against the required 2% CSR expenditure of the next year?
Any excess amount spent (i.e., more than 2% as specified in section 135) cannot be carried forward to
the subsequent years and adjusted against that year’s CSR expenditure.

What is the role of government in monitoring implementation of CSR by companies under the
provision of the companies act, 2013?
The main thrust and spirit of law is not to monitor but to generate conductive environment for
enabling the corporates to conduct themselves in a socially responsible manner, while contributing
towards human development goals of the country.

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The existing legal provisions like mandatory disclosures, accountability of the CSR committee and
the board, provisions for audit of the accounts of the company etc., provide sufficient safeguards in
this regard. Government has no role to play in monitoring implementation of CSR by companies.

Whether government is proposing to establish any mechanism for third parties to monitor the
quality and efficacy of CSR expenditure as well as to have an impact assessment of CSR by
companies?
Government has no role to play in engaging external experts for monitoring the quality and efficacy
of CSR expenditure of companies. Boards / CSR committees are fully competent to engage third
parties to have an impact assessment of its CSR programme to validate compliance of the CSR
provisions of the law.

Can CSR funds be utilized to fund government scheme?

The objective of this provision is indeed to involve the corporates in discharging their social
responsibility with their innovative ideas and management skills and with greater efficiency and better
outcomes. Therefore, CSR should not be interpreted as a source of financing the resource gaps in
government scheme. Use of corporate innovations and management skills in the delivery of ‘public
goods’ is at the core of CSR implementation by the companies. In- principle, CSR fund of companies
should not be used as a source of funding government schemes. CSR projects should have a larger
multiplier effect than that under the government schemes.

SOME SPECIAL POINTS ON CSR

1. If the hospitals and educational institutions are part of the business activity of the company they
would not be considered as CSR activity. However, if some charity is done by these hospitals or
educational institutions, without any statutory obligation to do so, then it can be considered as
CSR activity.
2. Rule 3(1) of Companies (CSR Policy) Rules, 2014 provides that every company including its
holding or subsidiary which fulfils the criteria shall comply with the provisions of section 135.
The criterion needs to be fulfilled by individual company.
3. Section 8 companies, foreign company having its branch office or project office in India and
private companies are required to follow CSR provisions.
4. The Finance Act, 2014 provides that amount spent by a company towards CSR can not be
claimed as business expenditure.

Is section 135 relating to Corporate Social Responsibility applicable to OPCs?

Section 135 is applicable to every company having

1. Net worth of Rs 500 crore or more; or

2. Turnover of Rs 1000 crore or more; or
3. A net profit of Rs 5 crore or more during any of the three preceding financial years.

An OPC loses if its status if paid up capital exceeds Rs. 50 lakhs or average annual turnover is more
than 2 crores in three immediate preceding consecutive years. In view of this, it is unlikely that an
OPC would meet the criteria specified in section 135.
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SECTION 138: INTERNAL AUDIT (NEW PROVISION)

INTERNAL AUDIT: The following class of companies shall appoint internal auditor which may
be either an individual or a partnership firm or a body corporate

APPLICABILITY ON COMPANIES Who can be an Internal Auditor

a. Every listed company

a. A Chartered Accountant or
b. Every unlisted public company having b. A Cost Accountant or
1. Paid up share capital of fifty crore rupees or more c. Such other professional as may be
during the preceding financial year; or decided by the Board to conduct
internal audit of the functions and
2. Turnover of two hundred crore rupees or more activities of the Company.
during the preceding financial year; or
SPECIAL NOTE:
3. Outstanding loans or borrowings from banks or public
financial institutions exceeding one hundred crore
An existing company covered under any
rupees or more at any point of time during the
preceding financial year; or
of the above criteria shall comply with
the requirements of section 138 and this
4. Outstanding deposits of twenty five crore rupees or rule within six months of
more at any point of time during the preceding commencement of such section.
financial year; and

c. Every private company having Internal auditor may or may not be

1. Turnover of two hundred crore rupees or more employee of company.
during the preceding financial year; or

2. Outstanding loans or borrowings from banks or public

financial institutions exceeding one hundred crore
rupees or more at any point of time during the
preceding financial year.

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CHAPTER-17 AUDIT OF ACCOUNTS

TOTAL SECTIONS: 139 TO 148
RULES USED: COMPANIES AUDIT AND AUDITORS RULES 2014
Audit is an examination of accounting records undertaken with a view to establish the
correctness or otherwise of the transactions reflected therein. It involves the intelligent
scrutiny of the books of account of a company with reference to documents, vouchers and
other relevant records to ensure that the entries made therein give a true picture of the
business conducted during the period under review.

The main object of audit is to

(i) Detection and prevention of errors.

(ii) Detection and prevention of fraud.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 In case of Kingston An auditor is not bound to be a detective or to approach his
Cotton Mills Co work with a foregone conclusion that there is something
wrong. He is a watch dog but not a blood hound. He is
justified in believing the servants of the company in whom
confidence is placed by the company
2 Institute of Auditor is expected to examine the accounts maintained by
Chartered the Directors with a view to inform the shareholders of the
Accountants of India true financial position of the accounts of the company.
v. P.K. Mukherjee
3 In case of London & Auditors are not advisers: It is no part of an Auditor’s duty
General Bank to give advice either to the Directors or to the shareholders
as to what they ought to do.

ELIGIBILITY & QUALIFICATIONS OF AUDITOR

Section 141 (1) & (2) of the Act prescribed the following eligibility and qualifications of
auditor which are as under:-

1. Only a Chartered Accountant (individual) or a firm where majority of partners practicing

in India are Chartered Accountants can be appointed as auditor.
2. Where a firm including a limited liability partnership (LLP) is appointed as an auditor of
a company, only the partners who are chartered accountants shall be authorized to act and
sign on behalf of the firm.

Disqualifications of auditor

Section 141 (3) of the Act read with Rule 10 prescribed the following persons shall not be
eligible for appointment as an auditor of a company, namely:
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a. a body corporate other than a limited liability partnership registered under the Limited
Liability Partnership Act, 2008
b. an officer or employee of the company;
c. a person who is a partner, or who is in the employment, of an officer or employee of the
company
d. a person who, or his relative or partner
i. is holding any security of or interest in the company or its subsidiary, or of its holding or
associate company or a subsidiary of such holding company:Provided that the relative may
hold security or interest in the company of face value not exceeding one thousand rupees or
such sum as may be prescribed.
ii. is indebted to the company, or its subsidiary, or its holding or associate company or a
subsidiary of such holding company, in excess of such amount as may be prescribed
iii. has given a guarantee or provided any security in connection with the indebtedness of any
third person to the company, or its subsidiary, or its holding or associate company or a
subsidiary of such holding company, for such amount as may be prescribed
e. a person or a firm who, whether directly or indirectly, has business relationship with the
company, or its subsidiary, or its holding or associate company or subsidiary of such
holding company or associate company of such nature as may be prescribed
f. a person whose relative is a director or is in the employment of the company as a director
or key managerial personnel;
g. a person who is in full time employment elsewhere or a person or a partner of a firm
holding appointment as its auditor, if such persons or partner is at the date of such
appointment or reappointment holding appointment as auditor of more than twenty
companies
h. a person who has been convicted by a court of an offence involving fraud and a period of
ten years has not elapsed from the date of such conviction;
i. a person who, directly or indirectly, renders any service referred to in section 144 to the
company or its holding company or its subsidiary company.
Explanation.—For the purposes of this clause, the term "directly or indirectly" shall have the
meaning assigned to it in the Explanation to section 144.
(4) Where a person appointed as an auditor of a company incurs any of the disqualifications
mentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor
and such vacation shall be deemed to be a casual vacancy in the office of the auditor.

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APPOINTMENT OF FIRST AUDITOR

SECTION 139(6) AND 139(7) OF THE COMPANIES ACT, 2013

[Section 139(7)] In case of Government Company [Section 139(6)]: In case any other Company:
or any other company owned or controlled, directly or
indirectly, by the Central Government, or by one or a) The first auditor shall be appointed by
more State Government, or partly by the Central the Board of directors within 30 days of
Government and partly by one or more State registration of the company.
Government:

a) The first auditor shall be appointed by CAG b) In case of failure of the Board to appoint
within 60 days of registration of the company. the first auditor within the said period of
b) In case, CAG does not appoint the first auditor the 30 days, the Board shall inform the
Board shall appoint the first auditor within next 30
members of the company who shall
days.
appoint the first auditor within 90 days at
c) In case of failure of the Board to appoint the first
auditor within the said period of 30 days, the
an extraordinary general meeting.
Board shall inform the members of the company
who shall appoint the first auditor within 60 days
at an extraordinary general meeting.
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APPOINTMENT OF SUBSEQUENT AUDITOR SECTION 139(5) AND 139 (1)

SUBSEQUENT AUDITOR

In case of a Government Company or any Other than Government Company Section 139(1)
other company owned or controlled, directly
or indirectly, by the Central Government; or a) At the 1st AGM, every company shall appoint an
One or more State Government; or Partly by individual or a firm as an auditor. The auditor so
the Central Government and partly by one or appointed shall hold office from the conclusion of
more State Government. Section 139(5) 1st AGM till the conclusion of 6th AGM.
b) After the 1st AGM, when any appointment of
Appointment or reappointment of auditor
auditor is made at any AGM, the auditor so
1. In case of aforementioned companies, appointed shall hold office till the conclusion of 6th
CAG shall, in respect of a financial year, AGM, with the AGM wherein such appointment
appoint an auditor duly qualified to be has been made being counted as the first AGM
appointed as an auditor of companies [Section 139(1) read with Rule 3(7)].
under this Act, within 180 days from the c) At every AGM the appointment of auditor shall be
commencement of the financial year. ratified by the members.
d) If the appointment is not ratified at any AGM, the
2. The auditor shall hold office till the auditor shall have to vacate his office, and such
conclusion of the AGM. vacancy shall amount to casual vacancy. The Board
shall fill such casual vacancy in accordance with
sub-section (8) of section 139.

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Manner and procedure of selection of auditors (Rule 3)

Rule 3 of the Companies (Audit and Auditors) Rules, 2014 prescribes the following procedure:

The Audit committee shall recommend the name of an individual or a firm as auditor to the
Board for consideration or In case the company is not required to constitute the Audit
Committee, the Board shall consider and recommend an individual or a firm as auditor to the
members in the AGM for appointment
case-1 case-2

Board agree with the

Board does not agree with the recommendation of audit
recommendation of audit
committee, then send to members committee

Refer back the recommendation Audit

Board
committee
stating reasons for disagreement
Members

Case 1: Case 2:

Audit committee reconsiders its original Audit committee decides not to reconsider
recommendation its original recommendation

New recommendation Own recommendation

Audit Board Board Members
committee of name of individual after recording reasons
/ firm for disagreement

SPECIAL POINTS
1. While considering the appointment, the Board / Audit Committee shall have due regard to
a) Any order of professional misconduct passed against the proposed auditor; and
b) Any proceedings of professional misconduct pending against the proposed auditor.

2. In case of Government Companies, the appointment of Auditor is done by the CAG and
accordingly, the requirement of the Audit Committee to recommend the appointment and
terms of appointment of Auditor in case of Government Company has been done away
with

Special note: In case of Government Companies, the appointment of Auditor is done by the CAG and
accordingly, the requirement of the Audit Committee to recommend the appointment and terms of
appointment of Auditor in case of Government Company has been done away with.
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Reappointment of retiring auditor [Section 139(9) & 139(10) of the Companies Act, 2013]
Reappointment of retiring auditor
A retiring auditor may be re-appointed at an AGM, if
1. He is not disqualified for re-appointment;
2. He has not given to the company a notice in writing of his unwillingness to be re-
appointed; and
3. A special resolution has not been passed at the AGM appointing some other auditor or
providing expressly that he shall not be re-appointed.
No auditor is appointed or reappointed at AGM – Consequences
Where at any AGM, no auditor is appointed or re-appointed, the existing auditor shall
continue to be the auditor of the company.
Rotation of auditors [Section 139(2) and 139(4) of the Companies Act, 2013]
Applicability of concept of rotation of auditors [Section 139(2)]
1. The concept of rotation of auditors is applicable to –
a) Listed companies; and
b) All companies belonging to such class or classes of companies as may be prescribed.

2. Following classes of companies have been prescribed for the purpose of rotation of
auditors [Rule 5 of the Companies (Audit and Auditors) Rules, 2014]:
a) All unlisted public companies having paid up share capital of Rs. 10 crore or more;
b) All private limited companies having paid up share capital of Rs. 50 crore or more;
c) All companies having paid up share capital below the limits mentioned in (a) and (b) above,
but having public borrowings from financial institutions, banks or public deposits of Rs. 50
crore or above.
3. The concept of rotation of auditors shall not apply to One Person Companies or Small
Companies.
Manner of rotation of auditors
In case, the auditor is an individual
a) No individual shall be appointed or reappointed as auditor for more than 1 term of 5
consecutive years.
b) An individual auditor who has completed his term of 5 consecutive years, shall not be
eligible for re-appointment as auditor in the same company for 5 years from the
completion of his term.
In case, the auditor is a firm
a) No audit firm shall be appointed or reappointed as auditor for more than 2 terms of 5
consecutive years.
b) An audit firm which has completed its 2 terms of 5 consecutive years, shall not be eligible
for re-appointment as auditor in the same company for 5 years from the completion of
such terms.

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Restriction on other audit firm(s) having common partner(s)

An audit firm having one or more common partner to the other audit firm, whose tenure has
expired, shall not be appointed as the auditor of the same company for a period of 5 years.
In other words, if two or more audit firms have common partner(s), and one of these firms
has completed its 2 terms of 5 consecutive years, none of such audit firms shall be eligible for
reappointment as auditor in the same company for 5 years.
Right of removal or resignation not affected
a) The right of the company to remove an auditor before expiry of one/two term(s) of 5
consecutive years shall not be affected due to any provision contained in Section 139(2).

b) The right of the auditor to resign from the office of auditor before expiry of one/two
terms(s) of 5 consecutive years shall not be affected due to any provision contained in
Section 139(2).
SPECIAL POINTS

1. In case of an auditor (whether an individual or audit firm), the period for which the
individual or the firm has held office as auditor prior to the commencement of the Act
shall be taken into account for calculating the period of 5 consecutive years or 10
consecutive years, as the case may be,
2. A break in the term for a continuous period of 5 years shall be considered as fulfilling the
requirement of rotation.

ILLUSTRATION EXPLAINING ROTATION IN CASE OF INDIVIDUAL AUDITOR

Column I Column II Column III

Number of consecutive years for Maximum number of Aggregate period which
which an individual auditor has been consecutive years for the auditor would
functioning as auditor in the same which he may be complete in the same
company [in the first AGM held after appointed in the same company in view of
the commencement of provisions of company (including column I and II
section 139(2)] transitional period)
5 years (or more than 5 years) 3 years 8 years or more
4 years 3 years 7 years
3 years 3 years 6 years
2 years 3 years 5 years
1 year 4 year 5 years

Certificate and consent by auditor, and notice of appointment by company (Section 139
of the Companies Act, 2013)
Certificate and Consent to be given by the Auditor
Before any appointment of auditor is made, the auditor shall furnish to the company –
1. His written consent for such appointment; and
2. A certificate that –
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a) The appointment, if made, shall be in accordance with the conditions as may be

prescribed; and
b) The auditor satisfies the criteria provided in section 141.

Conditions prescribed for appointment and notice to Registrar (Rule 4)

The auditor proposed to be appointed shall submit a certificate that
1. The individual or the firm is eligible for appointment and is not disqualified for appointment
under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder;
2. The proposed appointment is as per the term provided under the Act;
3. The proposed appointment is within the limits laid down by or under the authority of the Act;
4. The list of proceedings against the auditor or audit firm or any partner of the audit firm pending
with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

Notice of Appointment to be given by the company

The Company shall inform the auditor concerned of his or its appointment and also file a
notice of such appointment with the Registrar in Form ADT-1 within 15 days of the meeting
in which the auditor is appointed.

CASUAL VACANCY IN THE OFFICE OF AUDITOR – Section 139 (8)

Meaning of casual vacancy

1. The term ‘casual vacancy’ has not been defined under the Companies Act, 2013. It
generally means a vacancy caused by the auditor ceasing to act as such after accepting a
valid appointment, e.g. due to death, disqualification, resignation, etc.
2. Where no auditor is appointed or reappointed it does not result in a casual vacancy.
3. It must be noted that a vacancy created because of resignation of an auditor falls within
the meaning of ‘casual vacancy’ as explained above. However, such a casual vacancy
shall be filled up by the Board and shall be approved by the members in general meeting.

Filling of casual vacancy in the office of auditors [Section 139(8) of the Companies Act, 2013]

The casual vacancy arises in a company The casual vacancy arises in any other
whose accounts are subject to audit by company.
an auditor appointed by CAG.
1. Such casual vacancy shall be filled
1. Such casual vacancy shall be filled within 30 days by the Board of directors.
within 30 days by CAG. 2. In case the casual vacancy arose due to
2. In case, CAG does not fill the casual the resignation of auditor, it shall be
vacancy within 30 days, the Board filled within 30 days by the Board of
shall fill the casual vacancy within directors, and the appointment made by
next 30 days.
the Board shall be approved in a general
meeting convened within 3 months of
the recommendation of the Board

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Any auditor appointed to fill a casual vacancy shall hold office till the conclusion of the next AGM.

REMOVAL OF AUDITOR- Section 140 (1) and Rule 7

The auditor appointed under section 139 may be removed from his office before the expiry of
the term only by –
1. Obtaining the prior approval of the Central Government (R.D.) by filling an application in
form ADT-2 within 30 days of resolution passed by the Board
2. The company shall hold the general meeting within sixty days of receipt of approval of
the Central Government for passing the special resolution.
3. The auditor concerned shall be given a reasonable opportunity of being heard.

Particulars Removal of Auditor Provisions

Authority to Remove Company in General Meeting Special resolution
Approval of C.G. C.G. APPROVAL Form ADT-2

RESIGNATION OF AUDITOR Section 140 (2) and Rule 8

The auditor who has resigned from the company shall file a statement in Form ADT-3
indicating the reasons and other facts as may be relevant with regard to his resignation as
follows:

1. In case of other than Government Company, the auditor shall within 30 days from the
date of resignation, file such statement to the company and the registrar.
2. In case of Government Company or government controlled company, auditor shall within
30 days from the resignation, file such statement to the company and the Registrar and
also file the statement with the Comptroller and Auditor General of India (CAG).

PENALTY FOR CONTRAVENTION OF SECTION 140(2) Section 140 (3)

If the auditor does not comply with the provisions of sub-section (2), he or it shall be liable to
a penalty of fifty thousand rupees or an amount equal to the remuneration of the auditor,
whichever is less, and in case of continuing failure, with further penalty of five hundred
rupees for each day after the first during which such failure continues, subject to a maximum
of 2 lakh rupees.

Special Notice for not reappointing the retiring auditor [Section 140(4)]
Requirement of special notice
At an AGM, special notice shall be required for –
 Appointing as auditor a person other than the retiring auditor; or
 Providing expressly that the retiring auditor shall not be re-appointed.

However, special notice shall not be required if the retiring auditor has completed
consecutive tenure of 5 years / 10 years, as provided under section 139(2).
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Copy to be sent to the retiring auditor

On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to
the retiring auditor.

Right of auditor to make a representation and to get it circulated

 The retiring auditor is entitled to make a representation against his removal. The
representation (not exceeding a reasonable length) shall be in writing and shall be sent to
the company,
 He may request the company to circulate the representation to the members of the
company.
Duties of the company
 The company shall state the fact that the retiring auditor has made a representation against
his removal, in any notice of the resolution that is given to the members of the company.
 The company shall send a copy of the representation to every member of the company to
whom notice of the meeting is sent (unless the representation is received by the company
too late).
 If a copy of the representation is not sent because it was received too late or because of
the company’s default, then –
 The auditor may require that the representation shall be read out at the meeting;
 A copy of the representation shall be filed with the Registrar.

POWERS OF TRIBUNAL- Section 140 (5)

A National Company Law Tribunal (NCLT) can either
1. Suo Moto or
2. on an application from Central Government, or
3. on an application from person concerned

Can direct the company to change the auditor if it is satisfied that the Auditor of a Company
has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any
fraud by, or in relation to, the company or its directors or officers.
In the case of application being made by the Central Government and the NCLT being
satisfied that change of auditor is required, it shall within 15 days of the receipt of such
application, make an order that the Auditor shall not function as an auditor of the company
and the Central Government may appoint another auditor in his place. This will happen only
when an application is made by the Central Government and not by any other person.

NCLT RULES 2016 RULE 78

Application under Section 140.

(1) An application may be filed by the director on behalf of the company or the aggrieved
auditor to the Tribunal in Form NCLT-1

(2) Where the Tribunal is satisfied on an application of the company or the aggrieved person
that the rights conferred by the provisions of section 140 are being abused by the auditor,
then, the copy of the representation need not be sent and the representation need not be read
out at the meeting.

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(3) If the application is made by the Central Government and the Tribunal is satisfied that any
change of the auditor is required, it shall within fifteen days of receipt of such application
make an order that the auditor shall not function as an auditor and the Central Government
may appoint another auditor in his place.

REMUNERATION OF AUDITOR – Section 142

Section 142 of the Act prescribed that the remuneration of the auditor of a company shall be
fixed in its general meeting or in such manner as may be determined therein. Board may fix
remuneration of the first auditor appointed by it. The remuneration will be in addition to the
out of pocket expensed incurred by the auditor in connection with the audit of the company
and any remuneration paid to him for any other service rendered by him at the request of the
company.
POWERS AND DUTIES OF AUDITORS SECTION 143(1)

Section 143(1) provided that Every auditor can access at all times to the books of accounts,
vouchers and seek such information and explanation from the company and enquire such
matters as he considers necessary. It is the duty of every auditor to make proper enquiry
regarding these matters, besides other matters and if he is satisfied, it is not necessary to
disclose this fact in his report. However, on enquiry, if he finds some adverse features, it is
his duty to report the same.

Provided that the auditor of a company which is a holding company shall also have the right
of access to the records of all its subsidiaries and associate companies in so far as it relates to
the consolidation of its financial statements with that of its subsidiaries and associate
companies

AUDIT REPORT SECTION 143 (2)

Section 143 (2) prescribed that auditor shall make a report to the members of the company on
the accounts examined by him and on every financial statement which is required to be laid in
the general meeting of the company. The Audit report should take into consideration the
provisions of this Act, the Accounting and Auditing standards and matters which are required
under this Act or rules made thereunder or under any order made U/S 143(11).

The Audit report should state that to the best of his information and knowledge, the said
accounts and financial statements give a true and fair view of the state of the company’s
affair as at the end of the financial year and the profit or loss and the cash flow for the year
and such other matters as may be prescribed.

Companies (Audit and Auditors) Amendment Rules, 2014.

For the purposes of clause (i) of sub-section (3) of section 143, for the financial years
commencing on or after 1st April, 2015, the report of the auditor shall state about existence of
adequate internal financial controls system and its operating effectiveness.
BRANCH AUDIT – SECTION 143 (8) AND RULE 12

Branch Auditor: Accounts of branch office can be audited by

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The following Persons Are Eligible For Appointment Of Branch Auditors

IN CASE OF LOCAL IN CASE OF FOREIGN BRANCHES

BRANCHES
1. Company’s auditor 1. Company’s auditor
2. Another qualified auditor 2. Another qualified auditor
3. A person qualified to audit accounts according to
laws of that country

Report of Branch Auditor

 The branch auditor shall prepare a report on the accounts of the branch examined by him.
 The branch auditor shall send his report to the auditor of the company.
 The auditor of the company shall deal with the report of the branch auditor, in his report
in such manner as he considers necessary.
 The provisions regarding reporting of fraud by the auditor shall also extend to such
branch auditor to the extent it relates to the concerned branch.
AUDITING STANDARDS – SECTION 143 (9) & (10)

Every auditor must comply with the auditing standards. While the Central Government
prescribes the Auditing Standards or addendums thereto, it shall consult with and take
recommendations of the Institute of Chartered Accountants of India (ICAI) and the National
Financial Reporting Authority (NFRA). Till such time the Auditing Standards are notified by
the Central Government, the auditing standards specified by the ICAI are deemed to be the
auditing standards.

Reporting of fraud by an auditor [Section 143(12) to (15) of the Companies Act, 2013]
Section 143(12) subsitituted as follows by companies amendment act 2015
Notwithstanding anything contained in this section, if an auditor of a company in the course
of the performance of his duties as auditor, has reason to believe that an offence of fraud
involving such amount or amounts as may be prescribed, is being or has been committed in
the company by its officers or employees, the auditor shall report the matter to the Central
Government within such time and in such manner as may be prescribed: Provided that in
case of a fraud involving lesser than the specified amount, the auditor shall report the matter
to the audit committee constituted under section 177 or to the Board in other cases within
such time and in such manner as may be prescribed:
Provided further that the companies, whose auditors have reported frauds under this sub-
section to the audit committee or the Board but not reported to the Central Government, shall
disclose the details about such frauds in the Board’s reporting such manner as may be
prescribed.

If any auditor, cost accountant, or company secretary in practice does not comply with the
provisions of sub-section (12), he shall,— (a) in case of a listed company, be liable to a
penalty of five lakh rupees; and (b) in case of any other company, be liable to a penalty of
one lakh rupees. Section 143(15) (COMPANIES AMENDMENT ACT 2020)

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Rule 13 of Companies (Audit and Auditors) Amendment Rules, 2015 14th December,
2015

Reporting of frauds by auditor and other matters:

1. If an auditor of a company, in the course of the performance of his duties as statutory

auditor, has reason to believe that an offence of fraud, which involves or is expected to
involve individually an amount of rupees one crore or above, is being or has been
committed against the company by its officers or employees, the auditor shall report the
matter to the Central Government.

2. The auditor shall report the matter to the Central Government as under:-

a. The auditor shall report the matter to the Board or the Audit Committee, as the case may
be, immediately but not later than two days of his knowledge of the fraud, seeking
their reply or observations within forty-five days;
b. On receipt of such reply or observations, the auditor shall forward his report and the reply
or observations of the Board or the Audit Committee along with his comments (on such
reply or observations of the Board or the Audit Committee) to the Central
Government within fifteen days from the date of receipt of such reply or observations;
c. In case the auditor fails to get any reply or observations from the Board or the Audit
Committee within the stipulated period of forty-five days, he shall forward his report to
the Central Government along with a note containing the details of his report that was
earlier forwarded to the Board or the Audit Committee for which he has not received any
reply or observations;
d. The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover
by Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail
in confirmation of the same
e. The report shall be on the letter-head of the auditor containing postal address, e-mail
address and contact telephone number or mobile number and be signed by the auditor
with his seal and shall indicate his Membership Number; and
f. The report shall be in the form of a statement as specified in Form ADT-4.

3. In case of a fraud involving lesser than the amount specified in sub-rule (1), the
auditor shall report the matter to Audit Committee constituted under section 177 or to the
Board immediately but not later than two days of his knowledge of the fraud and he
shall report the matter specifying the following:-

 Nature of Fraud with description;

 Approximate amount involved; and
 Parties involved.

4. The following details of each of the fraud reported to the Audit Committee or the Board
under sub-rule (3) during the year shall be disclosed in the Board’s Report:-

 Nature of Fraud with description;

 Approximate Amount involved;
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 Parties involved, if remedial action not taken; and

 Remedial actions taken.

5. The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a
Secretarial Auditor during the performance of his duties under section 148 and section
204 respectively.

Punishment for non-compliance

a) Minimum Fine: Rs. 1,00,000
b) Maximum Fine: Rs. 25,00,000.

AUDITOR NOT TO RENDER CERTAIN SERVICES (PROHIBITED SERVICES) –

Section 144
An auditor shall provide to the company only such other services as are approved by the
Board of Directors/ the audit committee, but which shall not include any of the following
services (whether such services are rendered directly or indirectly to the company or its
holding company or subsidiary company, namely:-

a) Accounting and book keeping services;

b) Internal audit;
c) Design and implementation of any financial information system;
d) Actuarial services;
e) Investment advisory services;
f) Investment banking services;
g) Rendering of outsourced financial services;
h) Management services; and
i) Any other kind of services as may be prescribed.

SIGNING OF AUDIT REPORTS – Section 145

Auditor shall sign the auditor’s report of the company. Any qualifications, observations or
comments on financial transactions matters, which have any adverse effect on the functioning
of the company mentioned in the auditor’s report shall be read before the company in general
meeting and shall be open to inspection by any member of the company.

AUDITOR’S RIGHT TO ATTEND GENERAL MEETING Section 146

All notices of any general meeting shall be forwarded to the auditor of the company and he
must attend any general meeting either by himself or through his authorised representative
(qualified to be an auditor) and shall have right to be heard at such meeting on any part of the
business which concerns him as the auditor.
PUNISHMENT FOR CONTRAVENTION – Section 147

Punishment for contravention (Section 147 of the Companies Act, 2013)

S.NO. contravention Penalty
1 Section 147(1) If any of the provisions of sections 139 to 146 (both
Punishment for inclusive) is contravened, the company shall be punishable
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contravention of with fine which shall not be less than twenty-five thousand
Section 139 to 146 rupees but which may extend to five lakh rupees and every
officer of the company who is in default shall be
punishable Omitted with fine which shall not be less than
ten thousand rupees but which may extend to one lakh
rupees. (COMPANIES AMENDMENT ACT 2020)

2 Section 147(2) (2) If an auditor of a company contravenes any of the

Punishment for provisions of section 139, section 143, section
contravention of 144 or section 145, the auditor shall be punishable with fine
Section 139, 143, which shall not be less than twenty-five thousand rupees but
144, or 145 which may extend to five lakh rupees or four times the
remuneration of the auditor, whichever is less
Provided that if an auditor has contravened such provisions
knowingly or wilfully with the intention to deceive the
company or its shareholders or creditors or tax authorities,
he shall be punishable with imprisonment for a term which
may extend to one year and with fine which shall not be
less than fifty thousand rupees but which may extend to
twenty-five lakh rupees or eight times the remuneration of
the auditor, whichever is less. (COMPANIES
AMENDMENT ACT 2020)
3 Section 147(3) Where an auditor has been convicted under sub-section (2),
Refund of he shall be liable to
remuneration by (i) refund the remuneration received by him to the
auditors company; and
(ii) pay for damages to the company, statutory bodies or
authorities or to members or creditors of the company for
loss arising out of incorrect or misleading statements of
particulars made in his audit report. (COMPANIES
AMENDMENT ACT 2020)

COST RECORDS & AUDIT – Section 148

Order by the Central Government for maintenance of Cost records
Maintenance of cost records is mandatory only if such an order is made by the Central
Government.

Order for which companies

 Such class of companies as are engaged in the production of such goods as may be
prescribed.
 Such class of companies providing such services as may be prescribed.

Nature of cost records to be maintained

 The utilization of material;

 Labour; and
 Other items of cost.
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Order by the Central Government for conduct of cost audit

Conduct of cost audit is mandatory only if such an order is made by the Central Government.

Order for which companies

Such class of companies –
1. For which the central Government has made an order for maintenance of cost records;
and
2. Which have –
 Net worth of such amount as may be prescribed; or
 Turnover of such amount as may be prescribed.

Appointment of Cost Auditor by Board [Section 148(3)]

 Cost audit shall be conducted by a Cost Accountant.

 Only a Cost Accountant in practice or a firm of Cost Accountants can be appointed as a
cost auditor.
 The Cost Auditor shall be appointed by the Board.
 The Cost audit shall be in addition to the audit conducted under section 143.
 The auditor appointed under section 139 shall not be appointed as the Cost Auditor.
 The remuneration of the Cost Auditor shall be determined by the members in such
manner as may be prescribed.
 The company shall give all assistance and facilities to the cost auditor.

Procedure for appointment and fixation of remuneration of the Cost Auditor (Rule 14)
The company is required to constitute an audit committee

 The Board shall appoint the cost auditor on the recommendations of the Audit
Committee.
 The Audit Committee shall recommend the remuneration of the cost auditor.
 The remuneration of the cost auditor shall be considered and approved by the Board and
ratified subsequently by the members.

The company is not required to constitute an audit committee

 The Board shall appoint the cost auditor.

 The remuneration of the cost auditor shall be fixed by the Board and ratified subsequently
by the members.

Disqualifications, rights and duties of cost auditor

The qualifications, disqualifications, rights, duties and obligations applicable to auditors
under sections 141 and 143 shall, so far as may be applicable, apply to the cost auditor.
Cost Audit Report
 The cost auditors shall submit his report to the Board of directors.
 Within 30 days of receipt of cost audit report, the company shall furnish to the Central
Government
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a) A copy of the cost audit report; and

b) Along with full information and explanation on every reservation or qualification
contained in the cost audit report.
 The Central Government may call for such further information and explanation as it may
deem fit.
 The company shall furnish such further information and explanation within such time as
may be specified by the Central Government.
Every cost auditor, who conducts an audit of the cost records of a company, shall submit the
cost audit report along with his or its reservations or qualifications or observations or
suggestion, if any in FORM CRA-3.
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CHAPTER- 18 CHARGES
TOTAL SECTIONS: 77 TO 87
RULES USED: COMPANIES REGISTRATION OF CHARGES RULES 2014

AN INTRODUCTION
A charge is a right created by any person including a company referred to as “the borrower”
on its assets and properties, present and future, in favour of a financial institution or a bank,
referred to as “the lender”, which has agreed to extend financial assistance.

WHAT IS A CHARGE

AS PER COMPANIES ACT, 2013 AS PER TRANSFER OF PROPERTY ACT, 1882

Section 2(16) of the Companies Act, 2013 According to Section 100 where immovable property
defines charges so as to mean an interest or of one person is by act of parties or operation of law
lien created on the property or assets of a made security for the payment of money to another;
company or any of its undertakings or both and the transaction does not amount to a mortgage, it
as security and includes a mortgage. is called charge.

TYPES OF CHARGES

FIXED CHARGES FLOATING CHARGES

EXISTING EXISTING Existing+Future Purchase Existing+Future Purchase

Immovable property movable property Immovable property movable property

CRYSTALLISATION OF A FLOATING CHARGE

(CONVERESION OF FLOATING CHARGE IN TO FIXED CHARGE)
Meaning of crystallization
‘Crystallization’ means that the right of the company to deal in the assets, which are subject
of floating charge, comes to an end.

Cases in which crystallization Takes place

(a) Where the company is ordered to be wound up.

(b) Where the company ceases to carry on business.
(c) Where the company makes a default in payment of interest or repayment of principal to
the charge holder in accordance with the terms of the charge, and the charge holder brings
an action to enforce his security.

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REGISTRATION OF CHARGES

Section 77(1) provides that it shall be the duty of every company creating a charge
1. within or
2. outside India,
on its property or assets or any of its undertakings, whether tangible or otherwise, and
situated in or outside India, to register the particulars of the charge signed by the company
and the charge-holder together with the instruments, if any, creating such charge in Form No.
CHG-1 (for other than debentures) or Form No. CHG-9 (for debentures including
rectification), with the Registrar within 30 days of its creation.
Provided that the Registrar may, on an application by the company, allow such registration
to be made
(a) in case of charges created before the commencement of the Companies (Amendment) Act,
2019, within a period of three hundred days of such creation; or
(b) in case of charges created on or after the commencement of the Companies (Amendment)
Act, 2019, within a period of sixty days of such creation, on payment of such additional fees
as may be prescribed:
Provided further that if the registration is not made within the period specified
(a) in clause (a) to the first proviso, the registration of the charge shall be made within six
months from the date of commencement of the Companies (Amendment) Act, 2019, on
payment of such additional fees as may be prescribed and different fees may be prescribed
for different classes of companies;
(b) in clause (b) to the first proviso, the Registrar may, on an application, allow such
registration to be made within a further period of sixty days after payment of
such advalorem fees as may be prescribed.
Provided also that any subsequent registration of a charge shall not prejudice any right
acquired in respect of any property before the charge is actually registered.
Provided also that this section shall not apply to such charges as may be prescribed in
consultation with the Reserve Bank of India.
SPECIAL POINT: Nothing shall apply to any charge required to be created or modified by a banking
company under section 77 in favour of the Reserve Bank of India when any loan or advance has been
made to it under sub-clause (d) of clause (4) of section 17 of the Reserve Bank of India Act, 1934.
CERTIFICATE OF REGISTRATION OF CHARGE Section 77(2)
Section 77(2) of the Act states that when a charge is registered with the Registrar under
section 77(1), he shall issue a certificate of registration of such charge in Form No. CHG-2
and for registration of modification of Charge in Form No. CHG-3, to the person in whose
favour the charge is created.
(3) Notwithstanding anything contained in any other law for the time being in force, no
charge created by a company shall be taken into account by the liquidator appointed under
this Act or the Insolvency and Bankruptcy Code, 2016, as the case may be, or any other
creditor unless it is duly registered under sub-section (1) and a certificate of registration of
such charge is given by the Registrar under sub-section (2).
(4) Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of
the money secured by a charge
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Non-application of section 77 for charges arising by operation of law

It has been decided by the SUPREME COURT in the case of Indian Bank v Official Liquidator,
Chemmeens Exports (P) Ltd. (SC), that 77 of the Companies Act, 2013, applies only to a
charge created by a company and not to a charge arising by operation of law, e.g., where a
charge is created by an order or decree of the Court.

REGISTRATION OF CREATION OR MODIFICATION OF CHARGE RULE 3

(1) For registration of charge as provided in sub-section (1) of section 77, section
78 and section 79, the particulars of the charge together with a copy of the instrument, if any,
creating or modifying the charge inForm No.CHG-1(for other than Debentures) or Form
No.CHG-9 (for debentures including rectification), as the case may be, duly signed by the
company and the charge holder [shall be filed] with the Registrar within a period of thirty
days of the date of creation or modification of charge along with the fee.
(2) If the particulars of a charge are not filed in accordance with sub-rule (1), such creation or
modification shall be filed in Form No. CHG-l or Form No. CHG- 9 within the period as
specified in section 77 on payment of additional fee or advalorem fee as prescribed in the
Companies (Registration Offices and Fees) Rules, 2014.
(3) Where the company fails to register the charge in accordance with sub-rule (1) and the
registration is effected on the application of the charge-holder, such charge-holder shall be
entitled to recover from the company the amount of any fees or additional fees
or advalorem fees paid by him 'to the Registrar for the purpose of registration of charge.
(4) A copy of every instrument evidencing any creation or modification of charge and
required to be filed with the Registrar in pursuance of section 77, 78 or 79 shall be verified as
follows-
(a) where the instrument or deed relates solely to the property situated outside India, the copy
shall be verified by a certificate issued either under the seal, if any, of the company, or under
the hand of any director or company secretary of the company or an authorised officer of the
charge holder or under the hand of some person other than the company who is interested in
the mortgage or charge;
(b) where the instrument or deed relates, whether wholly or partly, to the property situated in
India, the copy shall be verified by a certificate issued under the hand of any director or
company secretary of the company or an authorised officer of the charge holder.

APPLICATION TO REGISTRAR RULE 4

(1) For the purposes of the first proviso and clause (b) of the second proviso to sub-section
(1) of section 77, the Registrar may, on being satisfied that the company had sufficient cause
for not filing the particulars and instrument of charge, if any, within a period of thirty days of
the date of creation of the charge including modification thereto, allow the registration of the
same after thirty days but within the period as specified in the said provisos, on payment of
fee, additional fee or advalorem fee, as may be applicable.
(2) The application under sub-rule (1) shall be made in Form No.CHG-l and Form No.
CHG-9 supported by a declaration from the company signed by its company secretary or a
director that such belated filing shall not adversely affect the rights of any other intervening
creditors of the company.

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CONSEQUENCES OF NON-REGISTRATION

 The charge shall be void against the liquidator appointed under this Act or the Insolvency and
Bankruptcy Code, 2016, as the case may be and any creditor of the company. Thus, in case of
liquidation, the unregistered charge holder becomes an unsecured creditor.
 The company shall be liable for the repayment of the money secured by the charge.
 The money secured by the charge becomes payable immediately.
 Company shall be punishable with fine minimum 1 lack and max. 10 lack.
 Officer in default liable to imprisonment up to 6 month or with a fine min. 25000/- max. 1
lack or with both.

APPLICATION FOR REGISTRA-TION OF CHARGE BY CHARGEHOLDER

SECTION 78

Where a company fails to register the charge within the period of 30 days specified in
section 77, without prejudice to its liability in respect of any offence under this Chapter, the
person in whose favour the charge is created may apply to the Registrar for registration of the
charge along with the instrument created for the charge, within such time and in such form
and manner as may be prescribed and the Registrar may, on such application, within a period
of fourteen days after giving notice to the company, unless the company itself registers the
charge or shows sufficient cause why such charge should not be registered, allow such
registration on payment of such fees, as may be prescribed:
Provided that where registration is effected on application of the person in whose favour the
charge is created, that person shall be entitled to recover from the company the

Applicability of provisions relating to modification of charge SECTION 79

It provides that the provisions of Section 77 relating to registration of charge shall apply to:

 A company acquiring any property subject to a charge within the meaning of that section;
OR
 modification of the charge.
Modification of charge is a stage subsequent to the creation of charge. It is quite likely that
the terms and conditions or limits of charge already created/registered with the concerned
Registrar of Companies are subsequently changed or modified due to further developments
like creation of equitable mortgage on a subsequent date or enhancement or reduction of
credit facilities, etc
The underlying object behind the concept of modification of charge is to keep the particulars
filed with the concerned Registrar of Companies in connection with registration of charge up
to date.

NOTICE OF CHARGE SECTION 80

According to section 80, where any charge on any property or assets of a company or any of
its undertakings is registered under section 77, any person acquiring such property, assets,
undertakings or part thereof or any share or interest therein shall be deemed to have notice of
the charge from the date of such registration. The section clarifies that if any person acquires
a property, assets or undertaking for which a charge is already registered, it would be deemed
that he has complete knowledge of charge from the date the charge is registered
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REGISTER OF CHARGES
Register of charges maintained by ROC and Company

REGISTER OF CHARGES MAINTAINED BY ROC SECTION 81

The Registrar of Companies is required to maintain a Register of charges, separately, in respect of
each company pursuant to the provisions of section 81 of the Companies Act, 2013.

Section 81(2) provides that the Register of charges shall be open to inspection by any person on
payment of fees of Rs. 100 as prescribed under the Companies (Registration Offices and Fees) Rules,
2014 for each inspection.

Rule 7 of the Companies (Registration of Charges) Rules, 2014 provides that the particulars of
charges maintained on the MCA portal shall be deemed to be the register of charges for the purposes
of section 81.

REGISTER OF CHARGES MAINTAINED BY A COMPANY SECTION 85

Section 85(1) read with Rule 10 provides that every company shall keep at its registered
office a Register of charges in Form CHG-7 and enter therein all particulars of charges
registered with the Registrar any property, assets or undertaking of the company and the
particulars of any property acquired subject to a charge as well as particulars of any
modification of a charge and satisfaction of charge.

Entries in the register of charges needs to be made forthwith

Rule 10(2) provides that the entries in the register of charges mentioned by the Company
shall be made forthwith after the creation or modification of charge, as the case may be.

Preservation of the Register of Charge and instruments creating or modification of

charge
The register of charges shall be preserved permanently and the instrument creating charge or
modification thereon shall be preserved for a period of eight years from the date of
satisfaction of charge by the company. [Rule 10(4)]

Inspection of the Register of charges

Section 85(2) read with Rule 11 provides that the register of charges and instrument of
charges kept by the company shall be open for inspection
(a) By any member or creditor without any payment of fees;
(b) By any other person on payment of such fees as may be prescribed

SATISFACTION OF CHARGE SECTION 82

Satisfaction of charge is another important aspect relating to debts created by a charge. In

case of a full and complete payment of the secured charge registered with the Registrar of
Companies.

Section 82 and Rule 8(1) of the Companies (Registration of Charges) Rules, 2014
A company or charge holder shall within a period of three hundred days from the date of the
payment or satisfaction in full of any charge registered give intimation of the same to the
Registrar in Form No.CHG-4

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Registration of satisfaction of charge

The Registrar shall, on receipt of intimation of satisfaction of charge in prescribed form,
cause a notice to be sent to the holder of the charge calling upon him to show cause within
such time not exceeding 14 days, as may be specified in such notice, as to why payment or
satisfaction in full should not be recorded as intimated to the Registrar, and if no cause is
shown, by such holder of the charge, the Registrar shall order that a memorandum of
satisfaction shall be entered in the register of charges kept by him under section 81 and shall
inform the company that he has done so. [Section 82(2)]

Where the Registrar enters a memorandum of satisfaction of charge in full in pursuance

of section 82 or 83, he shall issue a certificate of registration of satisfaction of charge in Form
No.CHG-5. (Rule 8(2))

INTIMATION OF APPOINTMENT OF RECEIVER OR MANAGER SECTION 84

Section 84 provides that if any person obtains an order for the appointment of a receiver of,
or of a person to manage, the property, subject to a charge, of a company or if any person
appoints such receiver or person under any power contained in any instrument, he shall,
within a period of thirty days from the date of the passing of the order or of the making of the
appointment, give notice of such appointment to the company and the Registrar along with a
copy of the order or instrument and the Registrar shall, on payment of the prescribed fees,
register particulars of the receiver, person or instrument in the register of charges.

Any person so appointed shall, on ceasing to hold such appointment, give to the company and
the Registrar a notice to that effect and the Registrar shall register such notice. The notice of
appointment or cessation of a receiver of, or of a person to manage, the property, subject to
charge, of a company shall be filed with the Registrar in Form No. CHG.6 along with fee.

PUNISHMENT FOR CONTRAVENTION SECTION 86

If any company is in default in complying with any of the provisions of this Chapter, the
company shall be liable to a penalty of five lakh rupees and every officer of the company
who is in default shall be liable to a penalty of fifty thousand rupees. (COMPANIES
AMENDMENT ACT 2020)

If any person wilfully furnishes any false or incorrect information or knowingly suppresses
any material information, required to be registered in accordance with the provisions of
section 77, he shall be liable for action under section 447

RECTIFICATION BY CENTRAL GOVERNMENT IN REGISTER OF CHARGES

SECTION 87 (companies amendment Act 2019)
The Central Government on being satisfied that —
(a) the omission to give intimation to the Registrar of the payment or satisfaction of a charge,
within the time required under this Chapter; or
(b) the omission or misstatement of any particulars with respect to any such charge or
modification or with respect to any memorandum of satisfaction or other entry made in
pursuance of section 82 or section 83,
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was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to
prejudice the position of creditors or shareholders of the company, it may, on the application
of the company or any person interested and on such terms and conditions as the Central
Government deems just and expedient, direct that the time for the giving of intimation of
payment or satisfaction shall be extended or, as the case may require, that the omission or
misstatement shall be rectified.

Rectification in register of charges on account of omission or misstatement of

particulars in charge previously recorded and extension of time in filing of satisfaction
of charge.-RULE 12
The Central Government may on an application filed in Form No. CHG-8 in accordance with
section 87
a. direct rectification of the omission or misstatement of any particulars, in
any filing, previously recorded with the Registrar with respect to any charge or
modification thereof, or with respect to any memorandum of satisfaction or other entry
made in pursuance of section 82 or section 83
b. direct extension of time for satisfaction of charge, if such filing is not made within
a period of three hundred days from the date of such payment or satisfaction.
CASE LAWS

S.NO. CASE NAME PROVISONS

1 Official Liquidator v. The plant and machinery of a company embedded in the earth or
Sri Krishna Deo permanently fastened to things attached to the earth became a
part of the company’s immovable property and therefore apart
from the registration under the Companies Act, registration
under the Indian Registration Act would also be necessary to
make the charge valid and effective.
2 Cosslett (Contractors) A construction company’s washing machine which was in use at
Ltd. the site was declared under the terms of the contract to be the
employer’s property during the period of construction. This was
held to have created a fixed charge and not a floating charge on
the machine because the machine was only one fixed item and
was not likely to change.
3 Lord Macnaghten in A “floating security”, “is an equitable charge on the assets for
Government Stock the time being of a going concern. It attaches to the subject
Investment Company charged in the varying condition in which it happens to be from
Ltd. v. Manila Rly. time to time. It is the essence of such a charge that it remains
Company Ltd. dormant until the undertaking charged ceases to be a going
concern, or until the person in whose favour the charge is
created intervenes
4 Illingworth & A floating charge is ambulatory and shifting in its nature
Another v. hovering over and so to speak floating with the property which
Holdsworth& it is intended to affect until some event occurs or act is done
Another which causes it to settle and fasten on the subject of the charge
within its reach and grasp.
5 Maturi U. Rao v. When the floating charge crystallizes it becomes fixed and the
Pendyala A.I.R. assets comprised therein are subject to the same restrictions as

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the fixed charge.

MORTGAGES

(SEC. 58) MORTGAGE

Mortgage" is the transfer of an interest in specific OR the performance of an

immoveable property for the purpose of securing the payment engagement which may give
of money advanced or to be advanced by way of loan rise to pecuniary liability.

An existing debt or future debt

The transferor is called a mortgagor, the transferee a mortgagee and the instrument by which
the transfer is effected is called a mortgage deed.

KINDS OF MORTGAGE

(a) Simple Mortgage

(b) Mortgage by conditional sale
(c) English mortgage
(d) Usufructuary mortgage.
(e) Mortgage by deposit of title deeds or equitable mortgage.
(f) Anomalous mortgage.

DISTINCTION BETWEEN MORTGAGE AND CHARGE

BASIS MORTGAGE CHARGE

Meaning A mortgage is transfer of an Charge is not the transfer of any
interest in the property made by interest in the property though it is
the mortgagor as a security for the security for the payment of an amount.
loan
Section Section 58 OF TPA 1882 Section 100 OF TPA 1882
Mode of creation A mortgage can only be created by charge may be created by act of parties
act of parties or by operation of law
Attestation A mortgage deed must be while a charge need not be made in
registered and attested by two writing, and if reduced to writing, it
witnesses need not be attested or registered
Right of foreclose In certain types of mortgage, the In case of charge, the charge-holder
mortgagor can foreclose the cannot foreclose though he can get the
mortgaged property property sold as in a simple mortgage
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CHAPTER-19 PRODUCER COMPANY

AN INTRODUCTION

1. A producer company is company form of business organization. these types of companies

are working like co-operative societies. mainly these types of companies are registered in
rural areas by the producers. these companies are incorporated to develop the rural
economies and bridge the gap between industry and agriculture, rural and urban area and
industry and labour etc. these companies are basically for the promotion of rural
economies.
2. Companies Amendment Act 2020 has made amendment under Companies Act 2013,
After section 378 of the Companies Act 2013 Act, the CHAPTER XXIA is inserted,
containing the provisions of producers company.
3. SECTION 378A TO SECTION 378ZU DEALS WITH PRODUCERS COMPANY

OBJECTS OF PRODUCER COMPANY SECTION 378B

The objects of the Producer Company shall relate to all or any of the following matters,
namely.

A. Production, harvesting, procurement, grading, pooling, handling, marketing, selling,

export of primary produce of the Members or import of goods or services for their benefit
Provided that the Producer Company may carry on any of the activities specified in this
clause either by itself or through other institution;
B. Processing including preserving, drying, distilling, brewing, vinting, canning and
packaging of produce of its Members;
C. Manufacture, sale or supply of machinery, equipment or consumables mainly to its
Members;
D. Providing education on the mutual assistance principles to its Members and others;
E. Rendering technical services, consultancy services, training, research and development
and all other activities for the promotion of the interests of its Members;
F. Generation, transmission and distribution of power, revitalisation of land and water
resources, their use, conservation and communications relatable to primary produce;
G. Insurance of producers or their primary produce;
H. Promoting techniques of mutuality and mutual assistance;
I. Welfare measures or facilities for the benefit of Members as may be decided by the
Board;
J. any other activity, ancillary or incidental to any of the activities referred to in clauses (a)
to (i) or other activities which may promote the principles of mutuality and mutual
assistance amongst the Members in any other manner;
K. Financing of procurement, processing, marketing or other activities specified in clauses
(a) to (j) which include extending of credit facilities or any other financial services to its
Members.

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FORMATION OF PRODUCERS COMPANY SECTION 378C

(1) Any ten or more individuals, each of them being a producer or any two or more Producer
Institutions, or a combination of ten or more individuals and Producer Institutions, desirous
of forming a Producer Company having its objects specified in section 378B and otherwise
complying with the requirements of this Chapter and the provisions of this Act in respect of
registration, may form an incorporated company as a Producer Company under this Act.

(2) If the Registrar is satisfied that all the requirements of this Act have been complied with
in respect of registration and matters precedent and incidental thereto, he shall, within thirty
days of the receipt of the documents required for registration, register the memorandum, the
articles and other documents, if any, and issue a certificate of incorporation under this Act.

(3) A Producer Company so formed shall have the liability of its Members limited by the
memorandum to the amount, if any, unpaid on the shares respectively held by them and be
termed a company limited by shares.

(4) The Producer Company may reimburse to its promoters all other direct costs associated
with the promotion and registration of the company including registration, legal fees, printing
of a memorandum and articles and the payment thereof shall be subject to the approval at its
first general meeting of the Members.

(5) On registration under sub-section (2), the Producer Company shall become a body
corporate as if it is a private limited company to which the provisions contained in this
Chapter apply, without, however, any limit to the number of Members thereof, and the
Producer Company shall not, under any circumstance, whatsoever, become or be deemed to
become a public limited company under this Act.

MEMBERSHIP AND VOTING RIGHTS OF MEMBERS OF PRODUCER

COMPANY SECTION 378D

(1)(a) In a case where the membership consists solely of individual Members, the voting
rights shall be based on a single vote for every Member, irrespective of his shareholding or
patronage of the Producer Company.

(b) In a case where the membership consists of Producer Institutions only, the voting rights of
such Producer Institutions shall be determined on the basis of their participation in the
business of the Producer Company in the previous year, as may be specified by articles:
Provided that during the first year of registration of a Producer Company, the voting rights
shall be determined on the basis of the shareholding by such Producer Institutions.

(c) In a case where the membership consists of individuals and Producer Institutions, the
voting rights shall be computed on the basis of a single vote for every Member.

(2) The articles of any Producer Company may provide for the conditions, subject to which a
Member may continue to retain his membership, and the manner in which voting rights shall
be exercised by the Members.
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(3) Notwithstanding anything contained in sub-section (1) or sub-section (2), any Producer
Company may, if so authorised by its articles, restrict the voting rights to active Members, in
any special or general meeting.

(4) No person, who has any business interest which is in conflict with business of the
Producer Company, shall become a Member of that Company.

OPTION TO INTER-STATE CO-OPERATIVE SOCIETIES TO BECOME

PRODUCER COMPANIES SECTION 378J

An ‘Inter-State Co-operative Society’ means a Multi-State Co-operative Society as defined

in Section 3(p) of Multi-State Co-operative Societies Act, 2002 and includes any co-
operative society registered under any other law in force and which has after its formation,
extended any of its objects to more than one State.

(1) Notwithstanding anything contained in sub-section (1) of section 378C, any inter-State
co-operative society with objects not confined to one State may make an application to the
Registrar for registration as Producer Company under this Chapter.

(2) Every application under sub-section (1) shall be accompanied by— (a) a copy of the
special resolution, of not less than two-thirds of total members of inter-State co-operative
society, for its incorporation as a Producer Company under this Act; (b) a statement
showing— (i) names and addresses or the occupation of the directors and the Chief
Executive, if any, by whatever name called, of such co-operative; and (ii) list of members of
such inter-State co-operative society; (c) a statement indicating that the inter-State co-
operative society is engaged in any one or more of the objects specified in section 378B; (d) a
declaration by two or more directors of the inter-State co-operative society certifying that
particulars given in clauses (a) to (c) are correct.

(3) When an inter-State co-operative society is registered as a Producer Company, the words
"Producer Company Limited" shall form part of its name with any word or expression to
show its identity preceding it.

(4) On compliance with the requirements of sub-sections (1) to (3), the Registrar shall, within
a period of thirty days of the receipt of application, certify under his hand that the inter-State
co-operative society applying for registration is registered and thereby incorporated as a
Producer Company under this Chapter.

(5) A co-operative society formed by producers, by federation or union of co-operative

societies of producers or co-operatives of producers, registered under any law for the time
being in force which has extended its objects outside the State, either directly or through a
union or federation of co-operatives of which it is a constituent, as the case may be, and any
federation or unions of such co-operatives, which has so extended any of its objects or
activities outside the State, shall be eligible to make an application under sub-section (1) and
to obtain registration as a Producer Company under this Chapter.

(6) The inter-State co-operative society shall, upon registration under sub-section (1), stand
transformed into a Producer Company, and thereafter shall be governed by the provisions of
this Chapter to the exclusion of the law by which it was earlier governed, save in so far as
anything done or omitted to be done before its registration as a Producer Company, and
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notwithstanding anything contained in any other law for the time being in force, no person
shall have any claim against the co-operative institution or the company by reason of such
conversion or transformation.

(7) Upon registration as a Producer Company, the Registrar of Companies who registers the
company shall forthwith intimate the Registrar with whom the erstwhile inter-State co-
operative society was earlier registered for deletion of the society from its register.

NUMBER OF DIRECTORS

Section 378-O provides that, every Producer Company shall have minimum five and not
more than fifteen directors. Provided that in the case of an Inter-State Co-operative Society
as a Producer Company, such company may have more than fifteen directors for a period of
one year from the date of its incorporation as a Producer Company.

MATTERS TO BE TRANSACTED AT THE GENERAL MEETING

Section 378S states that the following powers shall be exercised by the Board of directors on
behalf of the company only by means of passing of resolutions at the annual general meeting
of the company:

1. Approval of budget and adoption of annual accounts

2. Approval of patronage bonus
3. Issue of bonus shares
4. Declaration of limited return and decision on the distribution of patronage
5. Specify the conditions and limits of loans that may be given by the Board to any director
6. Approval of any transaction of the nature as is to be reserved in the Articles.

SECRETARY OF PRODUCER COMPANY

Section 378X of the Act provides that every Producer Company having an average annual
turnover exceeding five crore rupees in each of three financial years shall appoint a member
of the Institute of Company Secretaries of India as a whole-time Secretary of the company. If
a Producer Company fails to appoint Company Secretary, the company and every officer of
the company who is in default, shall be punishable with fine 100 rs per day maximum limit 1
lakh rs.

QUORUM OF THE GENERAL MEETING

Section 378Y of the Act provides that unless Articles of Association require a larger number,
one-fourth of the total membership shall constitute the quorum at a general meeting.

STRIKING OFF NAME OF PRODUCER COMPANY SECTION 378ZP

(1) Where a Producer Company fails to commence business within one year of its registration
or ceases to transact business with the Members or if the Registrar is satisfied, after making
such inquiry as he thinks fit, that the Producer Company is no longer carrying on any of its
objects specified in section 378B, he shall make an order striking off the name of the
Producer Company, which shall thereupon cease to exist forthwith: Provided that no such
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order cancelling the registration as aforesaid shall be passed until a notice to show cause has
been given by the Registrar to the Producer Company with a copy to all its directors on the
proposed action and reasonable opportunity to represent its case has been given.

(2) Where the Registrar has reasonable cause to believe that a Producer Company is not
maintaining any of the mutual assistance principles specified, he shall strike its name off the
register in accordance with the provisions contained in section 248.

(3) Any Member of a Producer Company, who is aggrieved by an order made under sub-
section (1), may appeal to the Tribunal within sixty days of the order. (4) Where an appeal is
filed under sub-section (3), the order of striking off the name shall not take effect until the
appeal is disposed of.

DIFFERENCE BETWEEN A PRODUCER COMPANY & PRIVATE COMPANY

PRODUCER COMPANY PRIVATE COMPANY

It can be established for objective specified It can be established for any objective
under section 581B of Act
Liability of member is always limited Liability of member may be limited or
unlimited, depend upon type of company
Individual member has single vote Voting right is based upon provision of
irrespective of shareholding AOA.
Every producer company has minimum 5 and Private company should have at least 2
maximum 15 directors directors
Quorum for board meeting should be 1/4th of Quorum for board meeting should be 1/3rd of
total strength of director subject to minimum total strength subject to minimum 2 directors
3 directors
14 days advance notice required to be given 21 days advance notice required to be given
for general meeting for general meeting
Quorum for general meeting is 1/4th of total 2 members personally present shall be
No. of members quorum
Producer company can issue only equity Private company can issue equity and
shares preference shares too.

DISTINGUISH BETWEEN PRODUCER CO-OPERATIVE AND PRODUCER

COMPANY

FEATURES PRODUCER CO- PRODUCER COMPANY

OPERATIVE
Registration Co-operative Societies Act Companies Act
Membership Open only to individuals and co- Only those who participate in
operatives the activity
Voting Rights One person, one vote. One person, one vote. Those not
Government and RCS holds veto having transactions with
powers company can’t vote
Shares Not tradable Not tradable but transferable
Reserves Created if there are profits Mandatory to create every year
Dispute Settlement Through co-operative By arbitration
mechanism.

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CHAPTER- 20 DEBENTURES
INTRODUCTION
Raising of funds by issue of debentures or bonds is also a source of long-term capital for a
company like share capital. Persons who subscribe to the equity shares of a company are its
owners while debenture holders are its creditors.
REGULATORY FRAMEWORK FOR DEBT SECURITIES

1. SEBI(ICDR) Regulations 2018

2. SEBI (Issue and Listing of Debt Securities) Regulations, 2008
3. The Companies Act, 2013

DEBT MARKET IN INDIA – REGULATORY FRAMEWORK

Issue and listing of non-convertible debt Issue of debt securities that are
securities are required to be made in convertible into equity shares shall be
accordance with the provisions of the SEBI guided by the SEBI (ICDR) Regulations,
(issue and listing of Debt securities) 2018
.
Regulations, 2008.

DEFINITION AND MEANING OF DEBENTURE

Section 2 (30) of the Companies Act, 2013 defines a debenture as
Debenture includes debenture stock, bonds or any other instrument of a company evidencing
a debt, whether constituting a charge on the assets of the company or not”.
Provided that
(a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and
(b) such other instrument, as may be prescribed by the Central Government in consultation
with the Reserve Bank of India, issued by a company, shall not be treated as debenture

In simple terms, a debenture may be defined as an instrument acknowledging a debt by a

company to some person or persons.
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SECTION 71 DEBENTURES (SEE THE BARE ACT LANGUAGE)

SIMPLIFIED LANGUAGE GIVEN AFTER BARE ACT LANGUAGE FOR WRITING IN

EXAMS.

71. (1) A company may issue debentures with an option to convert such debentures into
shares, either wholly or partly at the time of redemption:
Provided that the issue of debentures with an option to convert such debentures into shares,
wholly or partly, shall be approved by a special resolution passed at a general meeting.
(2) No company shall issue any debentures carrying any voting rights.
(3) Secured debentures may be issued by a company subject to such terms and conditions as
may be prescribed. (RULE 18 OF SHARE CAPITAL AND DEBENTURE RULES 2014)
(4) Where debentures are issued by a company under this section, the company shall create a
debenture redemption reserve account out of the profits of the company available for
payment of dividend and the amount credited to such account shall not be utilised by the
company except for the redemption of debentures.
(5) No company shall issue a prospectus or make an offer or invitation to the public or to its
members exceeding five hundred for the subscription of its debentures, unless the company
has, before such issue or offer, appointed one or more debenture trustees and the conditions
governing the appointment of such trustees shall be such as may be prescribed.
(6) A debenture trustee shall take steps to protect the interests of the debenture-holders and
redress their grievances in accordance with such rules as may be prescribed.
(7) Any provision contained in a trust deed for securing the issue of debentures, or in any
contract with the debenture-holders secured by a trust deed, shall be void in so far as it would
have the effect of exempting a trustee thereof from, or indemnifying him against, any liability
for breach of trust, where he fails to show the degree of care and due diligence required of
him as a trustee, having regard to the provisions of the trust deed conferring on him any
power, authority or discretion:
Provided that the liability of the debenture trustee shall be subject to such exemptions as may
be agreed upon by a majority of debenture-holders holding not less than three-fourths in
value of the total debentures at a meeting held for the purpose.
(8) A company shall pay interest and redeem the debentures in accordance with the terms and
conditions of their issue.
(9) Where at any time the debenture trustee comes to a conclusion that the assets of the
company are insufficient or are likely to become insufficient to discharge the principal
amount as and when it becomes due, the debenture trustee may file a petition before the
Tribunal and the Tribunal may, after hearing the company and any other person interested in
the matter, by order, impose such restrictions on the incurring of any further liabilities by the
company as the Tribunal may consider necessary in the interests of the debenture-holders.
(10) Where a company fails to redeem the debentures on the date of their maturity or fails to
pay interest on the debentures when it is due, the Tribunal may, on the application of any or
all of the debenture-holders, or debenture trustee and, after hearing the parties concerned,
direct, by order, the company to redeem the debentures forthwith on payment of principal and
interest due thereon.

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(11) If any default is made in complying with the order of the Tribunal under this section,
every officer of the company who is in default shall be punishable with imprisonment for a
term which may extend to three years or with fine which shall not be less than two lakh
rupees but which may extend to five lakh rupees, or with both. (COMPANIES
AMENDMENT ACT 2020)
(12) A contract with the company to take up and pay for any debentures of the company may
be enforced by a decree for specific performance.
(13) The Central Government may prescribe the procedure, for securing the issue of
debentures, the form of debenture trust deed, the procedure for the debenture-holders to
inspect the trust deed and to obtain copies thereof, quantum of debenture redemption reserve
required to be created and such other matters.
FEATURES/ CHARACTERISTICS OF DEBENTURE

1. A debenture is usually in the form of a certificate (like a share certificate) issued under
the common seal (if any) of the company.
2. The certificate is an acknowledgement by the company of indebtedness to a holder.
3. A debenture usually provides for the payment of a specified sum at a specified date.
4. A debenture usually provides for payment of interest until the principal sum is paid back.
5. A company shall not issue any debentures carrying voting rights. [Sec. 71(2)]
6. A contract with the company to take up and pay for any debentures of the company may
be enforced by a decree for specific performance. [Sec. 71(12)]

Same provisions for Public issue of shares and debentures—Section 23

The provisions in the Companies Act regarding issue of shares to the public by prospectus
would also mutatis mutandis apply to the issue of debentures by prospectus.

KINDS OF DEBENTURE

Redeemable Debentures Secured and Unsecured/ Naked Debentures

Debentures are generally redeemable, that Where debentures are secured by a mortgage
is to say, they are issued on the terms that or a charge on the property of the company,
the company is bound to repay the amount they are called secured debentures. Where
of debentures, either at a fixed date, or they are not secured by any mortgage or
upon demand, or after notice, or under a charge on any property of the company, they
system of periodical drawings. are said to be naked or unsecured.

Convertible Debentures

Convertible debentures are those in which an option is given to the debentureholders to exchange a part
or whole of their debentures for shares in the company under certain conditions and limitations
imposed regarding the period during which the option may be exercised. This enables the investor to
change his position from a debentureholders to a shareholder when he finds that company is in a sound
position financially and begins to make profit.
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SHAREHOLDERS’ APPROVAL FOR ISSUE OF DEBENTURES

A company may issue convertible debentures subject to the approval of shareholders by way
of special resolution passed at a general meeting.
PRIOR APPROVAL OF THE GENERAL MEETING TO BORROW IN EXCESS OF THE
PAID-UP CAPITAL AND FREE RESERVES

[Section 180(1)(c)] Where the amount of a proposed issue of debentures of a company

together with its existing borrowings will exceed its paid-up capital and free reserves, the
proposed issue cannot be made before a special resolution is passed by the company in
general meeting pursuant to section 180(1)(c) and (2) of the Act empowering the Board to
borrow in excess of the paid-up capital and free reserves of the company.
ISSUE OF DEBENTURES AT A DISCOUNT
There is no prohibition to issue debentures at a discount unlike the prohibition contained in
section 53 of the Act for the issue of shares at a discount. But where the debentures are
convertible into equity shares, the conversion shall be at par or above the nominal value of
the equity shares as per the terms of issue approved by shareholders by special resolution
before such issue.—See the proviso under section 71(1) and also Section 62(3).
Fully convertible debenture Partially convertible Debenture

These are converted into equity shares of the It consist of two parts
company on the expiry of a specified period (s) a) Convertible portion – converted into equity
shares at expiry of specified period.
b) Non-convertible portion – redeemed at the
expiry of certain period
It is Classified as equity for debt equity ratio Convertible portion is classified as “equity’ and
computation. non convertible portion as ‘debt.’

on conversion higher equity capital on conversion relatively lower equity capital

It is suitable to those Companies without It is suitable to those Companies with

established track record. established track record.

Buy back arrangement not Required Buy back arrangement required for non-
convertible portion

BONDS
Bonds are typically issued by financial institutions, government undertakings and large
companies. The interest rate is assured and is paid at a fixed interval. On maturity, the
principal is repaid. Bond is a form of loan.
The holder of the bond is the lender and the issuer of the bond is the borrower. Bonds are
issued to fund long-term capital expenditure needs. As per Section 2(30) of the Companies
Act 2013 “debenture” includes bonds.
Therefore all the provisions applicable for debentures given in the Companies Act 2013 and
other relevant statutes are applicable for bonds also

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TYPES OF BONDS
S.NO. TYPE PROVISONS
1 Deep discount bonds Deep discount bonds, also known as zero-coupon bonds, are
bonds wherein there is no interest or coupon payment and
the interest amount is factored in the maturity value.
2 Corporate bonds Corporate bonds are issued by companies and offer interest
rates higher than bonds issued by public sector units and
other financial institutions. The interest rate on these bonds
is governed by their credit rating and higher the rating,
lower is the interest rate offered by them.
3 Sovereign bonds Sovereign bonds are issued by the Reserve Bank of India.
These can be referred to as low-risk or even riskfree bonds.
4 Convertible bonds Convertible bonds are another category wherein the bond
holder has an option to convert the bonds into equity after a
fixed tenor. These may be fully or partially convertible
where only a part is converted and the other part matures

SECTION 71(3)
A company shall not issue secured debentures, unless it complies with the following
conditions namely (Rule 18 of share capital and debenture rules 2014)
1. PRE CONDITIONS FOR ISSUING DEBENTURES

a) An issue of secured debentures may be made, provided the date of its redemption shall
not exceed ten years from the date of issue.
EXCEPTIONS
However, following companies may issue secured debentures for a period exceeding ten
years but not exceeding thirty years

 Companies engaged in setting up of infrastructure projects

 Infrastructure Finance Companies’ as defined in clause (viia) of sub-direction (1) of
direction 2 of NonBanking Financial ( Non-deposit accepting or holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007
 Infrastructure Debt Fund Non-Banking Financial Companies’ as defined in clause (b) of
direction 3 of Infrastructure Debt Fund Non-Banking Financial Companies (Reserve
Bank) Directions, 2011
 Companies permitted by a Ministry or Department of the Central Government or by
Reserve Bank of India or by the National Housing Bank or by any other statutory
authority to issue debentures for a period exceeding ten years.

b) Such an issue of debentures shall be secured by the creation of a charge on the properties
or assets of the company or its subsidiaries or its holding company or its associates
companies, having a value which is sufficient for the due repayment of the amount of
debentures and interest thereon.
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c) the company shall appoint the debenture trustee before the issue of prospectus or letter of
offer for subscription of its debentures and not later than sixty days after the allotment of
the debentures, execute a debenture trust deed to protect the interest thereon;

d) the security for the debentures by way of a charge or mortgage shall be created in favour
of the debenture trustee on:-

 any specific movable property of the company or its holding company or subsidiaries
or associate companies or otherwise.
 any specific immovable property wherever situate, or any interest therein.

Provided that in case of a non-banking financial company, the charge or mortgage under sub-
clause (i) may be created on any movable property

Provided further that in case of any issue of debentures by a Govemment company which is
fully secured by the guarantee given by the Central Government or one or more State
Government or by both, the requirement for creation of charge under this sub-rule shall not
apply.

Provided also that in case of any loan taken by a subsidiary company from any bank or
financial institution the charge or mortgage under this sub-rule may also be created on the
properties or assets of the holding company;

e) The company shall appoint a debenture trustee before the issue of prospectus or letter of
offer for subscription of its debentures; and
f) The company shall execute a debenture trust deed in Form No. SH.12 or as near
thereto as possible, within 3 months from the closure of issue.

12th August, 2016 Companies (Share Capital and Debentures) Fourth Amendment
Rules, 2016
in rule 18, the following sub-rule shall be inserted, namely:- “(11) Nothing contained in this
rule shall apply to rupee denominated bonds issued exclusively to overseas investors in terms
of A.P. (DIR Series) Circular No. 17 dated September 29, 2015 of the Reserve Bank of
India.”.
DEBENTURE TRUST DEED & DEBENTURE TRUSTEE [SECTION 71]
Meaning of Debenture Trust Deed
1. When debentures are issued for public subscription, involving a considerable number of
debentureholders, who do not have the time to look after their interests in the properties
mortgaged or charged to them, a trustee may be appointed for the supervision of their
common interest.
2. A trust deed is made under which some person is appointed as trustee, whereby the
properties of the company are mortgaged or charged to trustee.
3. The trust deed also contains provisions dealing with the rights of the debentureholders
and the company.

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Advantages of a Trust Deed

There are several advantages of having a trust deed, some of which are as follows

1. The trustees hold the title deeds of the mortgaged property, which prevents the company
from misusing the title deeds for any purpose.
2. The trustees are given power under the trust deed so that the property mortgaged is kept
insured and is maintained in proper condition.
3. In case of default by the company, the trustees can take necessary steps to realise the
security without the aid of the Court.

Appointment of Debenture Trustee

The company shall not issue prospectus to more than five hundred persons without
appointing a debenture-trustee. Thus, when the company issues prospectus or make an offer
or invitation to the public or to its members exceeding 500 for the subscription of its
debentures, then only it is required to appoint a debenture trustee.

Disqualification of Debenture Trustee

A person shall not be appointed as a debenture trustee, if he

a) Beneficially holds shares in the company;

b) Is a promoter, director or key managerial personnel or any other officer or an employee of
the company or its holding, subsidiary or associate company;
c) Is beneficially entitled to moneys which are to be paid by the company otherwise than as
remuneration payable to the debenture trustee;
d) Is indebted to the company, or its subsidiary or its holding or associate company or a
subsidiary of such holding company.
e) Has furnished any guarantee in respect of the principal debts secured by the debentures or
interest thereon
f) Has any pecuniary relationship with the company amounting to two per cent. or more of
its gross turnover or total income or fifty lakh rupees or such higher amount as may be
prescribed, whichever is lower, during the two immediately preceding financial years or
during the current financial year;
g) Is relative of any promoter or any person who is in the employment of the company as a
director or key managerial personnel

Right to obtain copies of, and inspection of Trust Deed

Any member or debentureholders of the company may inspect the debenture trust deed and
take the extracts thereof, during business hours being not less than two hours on every
working day, without any fees.
Further, a copy of the trust deed shall be forwarded to every member or debentureholders of
the company, at his request, within 7 days of the making of the request, on payment of
such fee as may be specified in the articles of association of the company but not exceeding
ten rupees for each page.
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Liability of Trustee to Debentureholders

In general, a debenture trustee is liable to debentureholders for any type of breach of trust.
However, he may escape the liability in the following cases

 Where the trustee can show that he took such care and diligence as required of him as a
trustee having regard to the powers, authorities and discretions conferred on him by the
trust deed;
 Where a majority of, not less than 3/4th in value, debentureholders, present and voting in
person agree, at a meeting summoned for the purpose, with respect to specific acts or
omissions of the trustee.

REDEMPTION OF DEBENTURES [SECTION 71

Debenture Redemption Reserve (DRR)
The company shall create a Debenture Redemption Reserve for the purpose of redemption of
debentures, in accordance with the conditions given below –
The Debenture Redemption Reserve shall be created out of the profits of the company
available for payment of dividend
CONDITIONS FOR CREATING DEBENTURE REDEMPTION RESERVE RULE 18 (7)

The company shall comply with the requirements with regard to Debenture Redemption
Reserve (DRR) and investment or deposit of sum in respect of debentures maturing during
the year ending on the 31st day of March of next year, in accordance with the conditions
given below:-
(a) Debenture Redemption Reserve shall be created out of profits of the company available
for payment of dividend;
(b) the limits with respect to adequacy of Debenture Redemption Reserve and investment or
deposits, as the case may be, shall be as under;-
(i) Debenture Redemption Reserve is not required for debentures issued by All India
Financial Institutions regulated by Reserve Bank of India and Banking Companies for both
public as well as privately placed debentures;
(ii) For other Financial Institutions within the meaning of clause (72) of section 2 of the
Companies Act, 2013, Debenture Redemption Reserve shall be as applicable to Non -
Banking Finance Companies registered with Reserve Bank of India.
(iii) For listed companies (other than All India Financial Institutions and Banking Companies
as specified in sub-clause (i)), Debenture Redemption Reserve is not required in the
following cases -
(A) in case of public issue of debentures -
A. for NBFCs registered with Reserve Bank of India under section 45- IA of the RBI Act,
1934 and for Housing Finance Companies registered with National Housing Bank;
B. for other listed companies;
(B) in case of privately placed debentures, for companies specified in sub items A and B.

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(iv) for unlisted companies, (other than All India Financial lnstitutions and Banking
Companies as specified in sub-clause (i)) -
(A) for NBFCs registered with RBI under section 45-IA of the Reserve Bank of India Act,
1934 and for Housing Finance Companies registered with National Housing Bank, Debenture
Redemption Reserve is not required in case of privately placed debentures.
(B) for other unlisted companies, the adequacy of Debenture Redemption Reserve shall be
ten percent. of the value of the outstanding debentures;
(v) In case a company is covered in item (A) of sub-clause (iii) of clause (b) or item (B) of
sub-clause (iv) of clause (b), it shall on or before the 30th day of April in each year, in respect
of debentures issued by such a company, invest or deposit, as the case may be, a sum which
shall not be less than fifteen percent., of the amount of its debentures maturing during the
year, ending on the 31st day of March of the next year in any one or more methods of
investments or deposits as provided in sub-clause (vi):
Provided that the amount remaining invested or deposited, as the case may be, shall not any
time fall below fifteen percent. of the amount of the debentures maturing during the year
ending on 31st day of March of that year.
(vi) for the purpose of sub-clause (v), the investments, as the case may be, are as follows: -
(A) in deposits with any scheduled bank, free
(B) in unencumbered securities of the Central methods of deposits or from any charge or lien;
Government or any State Government;
(C) in unencumbered securities mentioned in sub-clause (a) to (d) and (ee) of section 20 of
the Indian Trusts Act, 1882;
(D) in unencumbered bonds issued by any other company which is notified under sub-clause
(f) of section 20 of the Indian Trusts Act, 1882
Provided that the amount invested or deDosited as above shall not be used for any purpose
other than for redemption of debentures maturing during the year referred above.
(c) in case of partly convertible debentures, Debenture Redemption Reserve shall be created
in respect of non-convertible portion of debenture issue in accordance with this sub-rule.
(d) the amount credited to Debenture Redemption Reserve shall not be utilized by the
company except for the purpose of redemption of debentures.
(8) (a) A trust deed for securing any issue of debentures shall be open for inspection to any
member or debenture holder of the company, in the same manner, to the same extent and on
the payment of the same fees, as if it were the register of members of the company; and
(b) A copy of the trust deed shall be forwarded to any member or debenture holder of the
company, at his request, within seven days of the making thereof, on payment of fee.
(9) Nothing contained in this rule shall apply to any amount received by a company against
issue of commercial paper or any other similar instrument issued in accordance with the
guidelines or regulations or notification issued by the Reserve Bank of India.

(10) In case of any offer of foreign currency convertible bonds or foreign curency bonds
issued in accordance with the Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depository Receipt Mechanism) Scheme, 1993 or regulations or directions issued
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by the Reserve Bank of India, the provisions of this rule shall not apply unless otherwise
provided in such Scheme or regulations or directions.
Failure in Redemption of Debentures

1. A company shall pay interest and redeem the debentures in accordance with the terms and
conditions of their issue. Where at any time the debenture-trustee comes to a conclusion
that the assets of the company are insufficient or are likely to become insufficient to
discharge the principal amounts as and when it becomes due, the debenture-trustee may
file a petition before the Tribunal and the Tribunal may by order, impose such restrictions
as may consider necessary in the interests of the debenture-holders. 71 (9)
2. Where a company fails to redeem the debentures on the date of their maturity or fails to
pay interest on the debentures when it is due, the Tribunal may, on the application of any
or all of the debenture-holders, or debenture-trustee and, after hearing the parties
concerned, direct, by order, the company to redeem the debentures forthwith on payment
of principal and interest due thereon. 71(10)
3. If any default is made in complying with the order of the Tribunal under this section,
every officer of the company who is in default shall be punishable with imprisonment for
a term which may extend to three years or with fine which shall not be less than two lakh
rupees but which may extend to five lakh rupees, or with both. 71(11)

NOMINATION OF SECURITIES [SECTION 72]

This section is already explained in chapter of share capital

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CHAPTER- 21 DEPOSITS
Sections used = 73 to 76
Rules used = Companies (Acceptance of Deposits) Rules, 2014

Introduction:
Companies find that funds obtained by way of deposits from their members and others play a
useful part in supplementing their need of resources for working capital. It is, therefore, in the
interest of all concerned that the Companies Act contains suitable provisions to regulate the
acceptance of deposits by companies.

1. Deposit/Public Deposit/Fixed Deposit is a kind of borrowing made by the companies.

2. It may be noted that deposits may be secured or unsecured borrowings.
3. Sections 73 and 76 of the Companies Act, 2013 and Companies (Acceptance and Deposits) Rules,
2014 are the relevant provisions relating to concept of Public Deposits.

TYPE OF COMPANIES ON THE BASIS OF BUSINESS ACTIVITIES

BANKING COMPANY NBFC: NON BANKING NBNFC: NON BANKING NON

FINANCIAL COMPANIES FINANCIAL COMPANIES
EXAMPLE:
AXIS BANK LTD. EXAMPLE: EXAMPLE: RELIANCE
RELIANCE CAPITAL LTD. INDUSTRIES LTD.

IF these companies IF these companies accept IF these companies accept

accept deposits Sections deposits Sections 73 and 76 deposits Sections 73 and 76
73 and 76 and (Deposits) and (Deposits) Rules, and (Deposits) Rules,
Rules, DO NOT APPLY DO NOT APPLY APPLY

SPECIAL NOTE:

it is clarified by MCA that such amounts received by private companies prior to 1st April,
2014 shall not be treated as ‘deposits’ under the Companies Act, 2013 and Companies
(Acceptance of Deposits) Rules, 2014 subject to the condition that relevant private company
shall disclose, in the notes to its financial statement for the financial year commencing on or
after 1st April, 2014 the figure of such amounts and the accounting head in which such
amounts have been shown in the financial statement.

Any renewal or acceptance of fresh deposits on or after 1st April, 2014 shall, however, be in
accordance with the provisions of Companies Act, 2013 and rules made thereunder.
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KINDS OF DEPOSIT

Acceptance of deposit from Members Acceptance of deposits from the Public

(Section 73) (case-1) (Section 76) (case-2)

Any company (whether private or public) Only a public company, having a NET WORTH of
can accept deposits from its members, not less than one hundred crore rupees OR a
TURNOVER of not less than five hundred crore
subject to the passing of a resolution in
rupees, can accept deposits from the Public. Such
general meeting and subject to certain
kind of public company, for the purpose of this
specified conditions. Chapter, shall be referred to as ‘Eligible Company’.

PROCEDURE FOR ACCEPTANCE OF DEPOSIT (CASE-1)

PROHIBITION ON ACCEPTANCE OF DEPOSITS FROM PUBLIC SECTION 73(1)

No company shall invite, accept or renew deposits under this Act from the public except in a
manner provided under section 76
Provided that nothing in this sub-section shall apply to a banking company and non-banking
financial company and to such other company as the Central Government may, after
consultation with the Reserve Bank of India, specify in this behalf.
73(2) A company by passing ordinary resolution may accept deposits from its members
subject to the fulfilment of the following conditions, namely
a. Issue of circular to the members
A circular shall be issued to the members containing a statement showing:
 The financial position of the company
 The credit rating obtained
 Total number of existing depositors
 Amount due to existing depositors
b. FILING OF CIRCULAR TO ROC
filing a copy of the circular along with such statement with the Registrar within thirty days
before the date of issue of the circular
c. Maintenance of liquid fund
The company shall deposit, on or before the thirtieth day of April each year, such sum which
shall not be less than twenty per cent. of the amount of its deposits maturing during the
following financial year and kept in a scheduled bank in a separate bank account to be called
deposit repayment reserve account.
d. [Omitted)
e. DEFAULT IN EXISITING DEPOSITS
Certifying that the company has not committed any default in the repayment of deposits
accepted either before or after the commencement of this Act or payment of interest

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on such deposits and where a default had occurred, the company made good the default
and a period of five years had lapsed since the date of making good the default and
f. providing security, if any for the due repayment of the amount of deposit or the interest
thereon including the creation of such charge on the property or assets of the company:
Provided that in case where a company does not secure the deposits or secures such deposits
partially, then, the deposits shall be termed as "unsecured deposits" and shall be so quoted in
every circular, form, advertisement or in any document related to invitation or acceptance of
deposits.
(3) Every deposit accepted by a company under sub-section (2) shall be repaid with interest
in accordance with the terms and conditions of the agreement referred to in that sub-section.
(4) Where a company fails to repay the deposit or part thereof or any interest thereon under
sub-section (3), the depositor concerned may apply to the Tribunal for an order directing the
company to pay the sum due or for any loss or damage incurred by him as a result of such
non-payment and for such other orders as the Tribunal may deem fit.
(5) The deposit repayment reserve account referred to in clause (c) of sub-section (2) shall
not be used by the company for any purpose other than repayment of deposits.
SPECIAL POINTS
Notification Dated 13th June, 2017 In case of private company - Clause (a) to (e) of Sub-
section 2 of Section 73 shall not apply to private Companies

(A) which accepts from its members monies not exceeding one hundred per cent. of aggregate
of the paid up share capital, free reserves and securities premium account; or
(B) which is a start-up, for five years from the date of its incorporation; or
(C) which fulfils all of the following conditions, namely:-
o which is not an associate or a subsidiary company of any other company;
o if the borrowings of such a company from banks or financial institutions or any body
corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is
lower and
o such a company has not defaulted in the repayment of such borrowings subsisting at the time
of accepting deposits under this section:
DISCLAIMER CLAUSE
It is to be distinctly understood that filing of circular or circular in the Form of advertisement
with the Regishar should not in any way be deemed or construed that the same has been
cleared or approved by the Registrar or Central Government. The Registrar or Central
Governrnent does not take any responsibility either for the financial soundness of any deposit
scheme or which the deposit is being accepted or invited or for the corectness of the
statements made or opinions expressed in the circular or circular in the Form of
advertisement. The depositors should exercise due diligence before investing in the deposits
schemes.
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CASE-2
COMPANY ACCEPTING DEPOSITS FROM PUBLIC— SECTION 76
Section 76 provides that a public company having such net worth or turnover as mentioned
above may accept deposits from persons other than members of the company, namely from
the public.
Conditions to be complied with
1. A public company of the nature referred to above shall comply with the conditions
stipulated Case-1

2. Prior credit rating and annual renewal

Every eligible company shall obtairy at least once in a year, credit rating for deposits
accepted by it and a copy of the rating shall be sent to the Registrar of Companies
alongwith the retun of deposits in Form DPT-3

The credit rating shall not be below the minimum investment grade rating or other
specified credit rating or fixed deposits, from any one of the approved credit rating
agencies as specified for Non_Banking Financial Companies in the Non-Banking
Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998,
issued by the Reserve Bank of India, as amended from time to time

RULE 3(8) Every eligible company shall obtain, at least once in a year, credit rating for
deposits accepted by it and a copy of the rating shall be sent to the Registrar of
Companies alongwith the return of deposits in Form DPT-3.

3. Creation of charge on the assets The Company shall, within thirty days of the
acceptance of deposits from the public, create charge on its assets in favour of the deposit
holders for the full value of such deposits.

4. Issue of circular in newspaper

Every eligible company intending to invite deposits shall issue a circular in the form of an
advertisement in form DPT-1 for the purpose in English language in an English
newspaper having country wide circulation and in vetnacular language in a vernacular
newspaper having wide circulation in the State in which the registered office of the
company is situated, and shall also place such circular on the website of the company, if
any.
MEANING OF DEPOSIT

Definition of Deposit [Rule 2(1)(c)]: It INCLUDES

Any receipt of money by way of deposit or loan or in any other form, by a company.
And it EXCLUDES the following

S.N HEADING PROVISONS

O
1 Amount Any amount received from—
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from a) The central government or a state government, or

government b) Any other source whose repayment is guaranteed by the central
government or a state government or
c) A local authority, or
d) A statutory authority constituted under an act of parliament or a state
legislature
2 Amount Any amount received from—
from foreign a) Foreign governments.
govts b) Foreign or international banks,
c) Foreign Governments owned development financial institutions,
d) Foreign Authorities, or
e) Persons resident outside India
3 Loan from Any amount received as a loan or facility from
banking A) Any banking company or
company/ B) The state bank of India or any of its subsidiary banks, or
Public C) A banking institution notified by the central government u/s 51 of the
Financial banking regulation act. 1949 or
Institutions D) A co-operative bank
etc. E) Public financial institutions
F) Any regional financial institutions
G) Insurance companies
H) Scheduled banks as defined in the reserve bank of India act, 1934
4 Commercial Any amount received against issue of commercial paper or any other
paper, etc. instruments, issued in accordance with the guidelines or notification
issued by RBI
5 Inter- Any amount received by a company from any other company (SECTION
company 186 WILL APPLY)
LOAN
6 Share a) Amount received and held pursuant to an offer towards subscription
Application to any securities,
Money etc. b) Share application money, or
c) Advance towards allotment of securities pending allotment,
If such amount is appropriated only against the amount due on
allotment of the securities applied for.
d) If the securities for which application money or advance for such
securities was received cannot be allotted within 60 days from the
date of receipt of money and such money is not refunded to the
subscribers within 15 days thereafter, such amount shall be treated as
a deposit.
e) Any adjustment of the amount for any other purpose shall not be
treated as refunds.
7 Amount Any amount received from a person who, at the time of the receipt of the
from amount, was director of the company. The director from whom money is
director received should furnish a written declaration to the company, that the
amount is not being given out of funds acquired by him by borrowing or
accepting loans or deposits from others.
8 Bonds or Any amount raised by the issue of---
debentures a) Bonds or debentures secured by a First Charge or a Charge ranking
pari passu with the first charge on tangible assets of the company or
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b) Bonds or debentures compulsorily convertible into shares of the

company with 10 years. .
any amount raised by issuc of non_convertible debenture not
constltuting a charge on the assets of the company and listed on a
recognised stock exchange as per applicable regulations made by
Securities and Exchange Board of India
9 Amount Any amount accepted by a nidhi company, in accordance with the rules
accepted by made u/s 406
nidhi a) Any amount received by the company whether in the form of
company installments or otherwise, from a person with promise or offer to give
retunes, in cash or in kind, on completion of the period specified in
the promise or offer, or earlier, accounted of in any manner
whatsoever, or

b) Any additional contributions, over and above the amount under items
(a) above, made by the company as part of such promise or offer,
Shall be treated as a deposit.
10 Unsecured Any amount brought in by the promoters of the company by way of
loans from unsecured loan.
promoters
11 Employee Any amount received from an employee of the company not exceeding
security his annual salary under a contract of employment with the company in
deposit the nature on non-interest bearing security deposit.

12 Trust Any non-interest bearing amount received and held in trust

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13 Supplier Any amount received in the course of, or for the purposes of , the
Advances, business of the company
security
deposits  As an advance for the supply of goods or provision of services,
capital accounted for in any manner whatsoever, provided that such advance
advances, is appropriated against supply of goods. Or provision of services
etc. within 365 days from the date of acceptance of such advance. Note:
in case of any advance which is subject matter of any legal
proceedings before any court of law, the time limit of 365 days shall
not apply.

 As advance, accounted for in any manner whatsoever received in

connection with consideration for property under an agreement or
arrangement provided that such advance is adjusted against the
property in accordance with the terms of agreement or arrangement.

 As security deposit for the performance of the contract for supply of

goods or provision of services

 as an advance towards consideration for providing future services in

the form of a warranty or maintenance contract as per written
agreement or arangement, if the period for providing such services
does not exceed the period prevalent as per common business practice
or five years, from the date of acccptancc of such service whichever
is less;

 as an advance received and as allowed by any sectoral regulator or in

accordance with directions of Central or State Government.

 as an advance for subscription towards publication, whether in print

or in electronic to be adjusted against receipt of such publications.

14 Amount Any amount received by way of subscription in respect of a chit under

accepted by the Chit Fund Act,1982
Chit Fund
company
15 Amount Any amount received by the company undcr any collective investment
accepted by scheme in compliancc with regulations framed by the SEBI.
collective
investment
scheme
16 Amount an amount of twenty five lakh rupces or more received by a start-up
accepted by company, by way of a convcrtible notc (convcrtible into equity sharcs or
start-up repayable within a period not exceeding 10 years from the date of issue)
company in a single tranche, from a pcrson.

start-up company" mcans a private company incorporated under the

Companics Act, 2013 or Companies Act, 1956 and recogniscd as such in
accordance with notification datcd 17'h February, 2016 issuecl by the
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Department of Industrial Policy and Promotion, Ministry of Commerce

and lndustry
17 Amount any amount rcccived by a company from Alternate Investmcnt Funds,
accepted by Domestic Venture Capital Funds, Infrastructure Investment Trusts, “Real
Alternate Estate Investment Trusts” and Mutual Funds registcred with the
Investmcnt Securitics and Exchange Board of Inclia in accordance with rcgulations
Funds made by it.".

Definition of Depositor [Rule 2(1)(d)]

 Any member of the company who has made a deposit with the company in accordance
with the provisions of Section 73 of the Companies Act; or
 Any person who has made a deposit with a eligible company in accordance with the
provisions of Section 76 of the Companies Act.

TERMS AND CONDITIONS OF ACCEPTANCE OF DEPOSITS BY COMPANIES [RULE 3]

Periods of Acceptance of Deposits [Rule 3(1)(a)]

Minimum or maximum period of deposit RULE3 (1) (a)

Minimum period Maximum period

6 MONTH (1 exception Short term deposit not exceeding 10% 36 month

of (paid up capital+ free reserves and security premium account)
repayable after 3 month may be accepted

Joint Depositors [Rule 3(2)]

Where depositors so desire, deposits may be accepted in joint names, but not exceeding
three, with or without any of the clauses, namely,
1. “Jointly”,
2. “Either or Survivor”,
3. “First named or Survivor”,
4. “Anyone or Survivor”.
Ceiling limits for acceptance of Deposits [Rule 3(3), (4) & (5)]

QUANTUM OF DEPOSITS
Type of Members Public
company
Eligible Upto 10% of aggregate of the Upto 25% of aggregate of the paid up
Company paid up share capital and free share capital and free reserves
reserves and security premium

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NON Eligible Upto 35% of aggregate of the Prohibited

public Company paid up share and free reserves
and security premium account
Provided that a Specified IFSC Public company and a private company may accept from
its members monies not exceeding one hundred per cent. of aggregate of the paid up share
capital, free reserves and securities premium account and such company shall file the details
of monies so accepted to the Registrar in Form DPT-3.
Provided further that the maximum limit in respect of deposits to be accepted from members
shall not apply to following classes of private companies, namely:-
(i) a private company which is a start-up, for five years from the date of its incorporation;
(ii) a private company which fulfils all of the following conditions, namely:-
(a) which is not an associate or a subsidiary company of any other company;
(b) the borrowings of such a company from banks or financial institutions or any body
corporate is less than twice of its paid up share capital or fiffy crore rupees, whichever is less
; and
(c) such a company has not defaulted in the repayment of such borrowings subsisting at the
time of accepting deposits under section 73:
Provided also that all the companies accepting deposits shall file the details of monies so
accepted to the Registrar in Form DPT-3.
No Government company eligible to accept deposits under section 76 shall accept or renew
any deposit, if the amount of such deposits together with the amount of other deposits
outstanding as on the date of acceptance or renewal exceeds thirty five per cent. of the
aggregate of its Paid-up share capital, free Reserves and securities premium account of the
company.

Ceiling on Rate of Interest and Brokerage [Rule 3(6)]

No company shall accept/renew deposits at a rate of interest exceeding the maximum rate of
interest prescribed by RBI that the NBFCs can pay on their public deposits.
Similarly, no company shall pay brokerage at a rate exceeding the maximum rate of
brokerage prescribed by RBI that the NBFCs can pay on their public deposits.

Form and Particulars of Advertisements or Circulars RULE 4

(1) Every company referred to in sub-section (2) of section 73 intending to invite deposit
from its members shall issue a circular to all its members by registered post with
acknowledgement due or speed post or by electronic mode in Form DPT-1 and the circular
may be published in English language in an English newspaper and in vernacular language in
a vernacular newspaper having wide circulation in the State in which the registered office of
the company is situated.
Provided further that a certificate of the statutory auditor of the company shall be attached in
Form DPT-1, stating that the company has not committed default in the repayment of
deposits or in the payment of interest on such deposits accepted either before or after the
commencement of the Act and in case a company had committed a default in the repayment
of deposits accepted either before or after the commencement of the Act or in the payment of
interest on such deposits, a certificate of the statutory auditor of the company shall be
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attached in Form DPT-1, stating that the company had made good the default and a period of
five years has lapsed since the date of making good the default as the case may be.
(2) Every eligible company intending to invite deposits shall issue a circular in the form of an
advertisement in Form DPT-1 for the purpose in English language in an English newspaper
having country wide circulation and in vernacular language in a vernacular newspaper having
wide circulation in the State in which the registered office of the company is situated.
(3) Every company inviting deposits from the public shall upload a copy of the circular on its
website, if any.
(4) No company shall issue or allow any other person to issue or cause to be issued on its
behalf, any circular or a circular in the form of advertisement inviting deposits, unless such
circular or circular in the form of advertisement is issued on the authority and in the name of
the Board of directors of the company.
(5) No circular or a circular in the form of advertisement shall be issued by or on behalf of a
company unless, not less than thirty days before the date of such issue, there has been
delivered to the Registrar for registration a copy thereof signed by a majority of the directors
of the company as constituted at the time the Board approved the circular or circular in the
form of advertisement, or their agents, duly authorised by them in writing.
Validity of circular/advertisement—Rule 4(6)
The circular or circular in the form of advertisement issued under Section 73 or 76 shall be
valid on the earlier date of the following dates
1. Until the expiry of six months after the end of the financial year in which it is issued or
2. Until the date on which the financial statement is laid before the annual general meeting
or
3. Where the annual general meeting for any year has not been held, the latest day on which
that meeting should have been held.
A fresh circular or advertisement shall be issued in each suceeding financial year for inviting
deposits during that financial year.

Creation of Security [Rule 6]

Every company inviting secured deposits shall, within 30 days from the date of acceptance,
provide for security by way of a charge on its assets, by way of either mortgage or
hypothecation only.
It may be noted that the company shall ensure that the total value of the security either by
way of deposit insurance or by way of charge or by both on company’s assets shall not be
less than the amount of deposits accepted and the interest payable thereon.
Appointment of Trustee for Depositors, etc. [Rules 7, 8 & 9]
Every company, inviting secured deposits, shall appoint one or more trustees for depositors
for creating security for the deposits. The company shall execute a deposit trust deed in Form
DPT-2 at least seven days before issuing the circular or circular in the form of advertisement.
The duties and functions of depositor trustee shall generally be

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1. To protect the interest of holders of depositors (including creation of securities within the
stipulated time); and
2. To redress the grievances of holders of depositors effectively.
The trustee for depositors shall call a meeting of all the depositors on-
1. Requisition in writing signed by at least one-tenth of the depositors in value for the time
being outstanding;
2. The happening of any event, which constitutes a default or which, in the opinion of the
trustee for depositors, affects the interest of the depositors.
Nomination Facility to Depositors [Rule 11]
Every depositor may, at any time, nominate any person to whom his deposits shall vest in the
event of his death and the provisions of Section 72 of Companies Act, 2013 shall, as far as
possible, apply to the nomination made by the depositor.
Deposit Receipt [Rule 12]
Every company shall, on the acceptance or renewal of a deposit, furnish to the depositor or
his agent a receipt for the amount received by the company, within a period of twenty one
(21) days from the date of receipt of money or realization of cheque or date of renewal, as the
case may be.
Register of Deposits [Rule 14]
Every company accepting deposits shall keep, at its registered office, one or more registers in
which there shall be entered, separately in the case of each depositor, the following
particulars, namely :-

a) Name and address of the depositor;

b) Date and amount of each deposit;
c) Duration of the deposit and the date on which each deposit is repayable;
d) Rate of interest;
e) Date or dates on which payment of interest will be made;
f) Any other particulars relating to the deposit.

The register or registers must be preserved in good order for a period of not less than eight
calendar years from the financial year in which the latest entry is made in the register.
Premature Surrender of Deposits [Rule 15]: Rule 15 provides that if a company makes
repayment of any deposit after the expiry of 6 months from the date of such deposit but
before, the maturity date of deposit, it should, reduce the interest on such deposit by 1% from
the rate which the company would have paid, had the deposit been accepted for the period for
which such deposit had run; and the company should not pay interest at a rate higher than the
rate so reduced. Where the period for which the deposit had run contains any part of year,
then if such part is 6 months or more, it should be reckoned as one year for the purpose of
this Rule.
Return of Deposits [Rule 16]: Every company shall file a return of deposits, in Form DPT-
3, with the Registrar of Companies on or before 30th June of every year. This return shall
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contain information as on 31st March and shall be duly certified by the Auditors of the
Company.
Explanation.- It is hereby clarified that Form DPT-3 shall be used for filing return of deposit
or particulars of transaction not considered as deposit or both by every company other than
Government company.

RULE 16A Disclosures in the financial statement

Every company, other than a private company, shall disclose in its financial statement, by
way of notes, about the money received from the director.

Every private cornpany shall disclose in its financial statement, by way of notes, about the
money received from the directors, or relatives of directors.

Every company other than Government company shall file a onetime return of outstanding
receipt of money or loan by a company but not considered as deposits, in terms of clause (c)
of sub-rule 1 of rule 2 from the 01st April, 2014 to the date of publication of this notification
in the Official Gazette, as specified in Form DPT-3 within ninety days from the date of 31
march 2019.

Penal rate of interest [Rule 17]: A penal rate of interest of 18% per annum shall be paid for
the overdue period, in case of public deposits, whether secured or unsecured, matured and
claimed but remaining unpaid.
REPAYMENT OF DEPOSITS ACCEPTED UNDER THE PREVIOUS ACT
SECTION 74(1) (a) and Rule 20 of the Companies (Acceptance of Deposits) Rules, 2014
Where, in respect of deposits accepted under the previous Act, any amount of deposit or
interest is due on the commencement of the new Act or becomes due later, the company shall
file with the Registrar in Form DPT-4 within three months from the commencement of the
Act or from the date the payments are due, a statement of all deposits accepted by the
company and sums remaining unpaid and the interest due thereon and the arrangements made
for repayment. The company shall repay the deposits within one year from the date of such
commencement or from the date on which the payments are due.
Tribunal has power to hear such defaults—Section 74(2) : On the application by the
company in respect of inability to make repayment, the Tribunal after considering the
financial position of the company and other matters, allow further time as considered
reasonable to the company to repay the deposit.
Failure of the company to pay the dues—Section 74(3) : Where a company fails to repay
the deposits by the time extended by the Tribunal, in addition to the amounts payable, the
company shall be punishable with fine of one crore rupees which may extend to ten crore
rupees and every officer of the company, who is in default shall be punishable with
imprisonment up to seven years or fine of twenty-five lakh rupees which may extend to two
crore rupees or with both.

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Damages for fraud by officers of the company—Section 75

(1) Where a company fails to repay the deposit or part thereof or any interest thereon referred
to in section 74 within the time specified in sub-section (1) of that section or such further
time as may be allowed by the Tribunal under sub-section (2) of that section, and it is proved
that the deposits had been accepted with intent to defraud the depositors or for any fraudulent
purpose, every officer of the company who was responsible for the acceptance of such
deposit shall, without prejudice to the provisions contained in sub-section (3) of that section
and liability under section 447, be personally responsible, without any limitation of liability,
for all or any of the losses or damages that may have been incurred by the depositors.
(2) Any suit, proceedings or other action may be taken by any person, group of persons or
any association of persons who had incurred any loss as a result of the failure of the company
to repay the deposits or part thereof or any interest thereon.
COMPANIES AMENDMENT ACT 2015 HAS INTRODUCED NEW SECTION 76A
Where a company accepts or invites or allows or causes any other person to accept or invite
on its behalf any deposit in contravention of the manner or the conditions prescribed under
section 73 or section 76 or rules made thereunder or if a company fails to repay the deposit or
part thereof or any interest due thereon within the time specified under section 73 or section
76 or rules made thereunder or such further time as may be allowed by the Tribunal under
section 73
(h) the company shall, in addition to the payment of the amount of deposit or part thereof and
the interest due, be punishable with fine which shall not be less than one crore rupees or
twice the amount of deposit accepted by the company, whichever is lower but which may
extend to ten crore rupees; and
(b) every officer of the company who is in default shall be punishable with imprisonment
which may extend to seven years and with fine which shall not be less than twenty-five lakh
rupees but which may extend to two crore rupees.
Provided that if it is proved that the officer of the company who is in default, has contravened
such provisions knowingly or wilfully with the intention to deceive the company or its
shareholders or depositors or creditors or tax authorities, he shall be liable for action under
section 447.

PROCEDURE OF ACCEPTANCE OF DEPOSITS FROM MEMBERS

1. Convene a Board meeting to consider and approve the business to propose and accept
deposits from members and decide the day, date, time and place of the general meeting.
2. Issue notice of general meeting to the members of the company.
3. Hold the general meeting and pass resolution for acceptance of deposits.
4. Comply with the Rules prescribed in consultation with RBI and terms and conditions
mutually agreed by the company and deposit holders either for acceptance or for
repayment of deposits.
5. Issue circular to the members of the company including therein a statement showing the
financial position of the company, the credit rating obtained, the total number of
depositors and the amount due towards depositors in respect of any previous deposits and
such other particulars as may be prescribed. These details indicate the soundness of the
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company or a warning about risks involved. The circular shall be published at least once
in English language in a leading English newspaper and in vernacular language in a
vernacular newspaper having wide circulation in the State in which the registered office
of the company is situated.
6. File the copy of aforesaid circular in the Form DPT-1 along with such statement with the
Registrar within thirty days before the date of issue of circular.
7. In case, a company does not secure the deposits or secures such deposit partially, then, the
deposits shall be termed as “unsecured deposits” and shall be so quoted in every circular,
form, advertisement or in any document related to invitation or acceptance of deposits.
8. Eligible company inviting secured deposits shall provide for security by way of a charge
on its assets for the due repayment of the amount of deposit and interest thereon. The
company shall submit Form CHG- 1 with Registrar for assets other than intangible assets
and for an amount which shall not be less than the amount remaining unsecured by the
deposit insurance. Secured deposits including interest thereon can in no case exceed the
market value of the charged assets assessed by the registered valuer.
9. After the expiry of 30 days of filing Form DPT-1, the circular in Form DPT-1 along with
application form is sent to all members by registered post with acknowledgement due/
speed post/electronic mail.
10. Collect duly signed application form along with money from the members.
11. Issue receipts of deposits within 21 days of the receipts of money/realisation of cheque.
12. Maintain register of deposits at its registered office which shall contain the details as
prescribed under rule 14 Companies (Acceptance of Deposits) Rules, 2014 from the date
of such acceptance.

The procedure to accept deposits from public (other than members) can be summarised
as under:-

1. Convene a Board meeting to consider and approve the business to propose and accept
deposits from public and to decide the day, date, time and place of the general meeting.
2. Hold the general meeting and pass special resolution, for acceptance of deposits.
3. Submit Form MGT-14 with the Registrar of Companies within 30 days of passing the
resolution.
4. Once the proposal is approved, Directors are required to approach to the credit rating
agency for the grant of rating, execution of deposit insurance contract, appointment of
depositor trustee and execution of trust deed, if the deposits are secured, appointment of
registered valuer, discussion and preparation of circular for the issue of deposits may be
given.
5. Circular shall be issued to its members of the company by registered post with
acknowledgement due or by speed post or by electronic mode in FormDPT-1 and in
addition to such issue of circular to publish the same in one English newspaper and one
vernacular language in vernacular newspaper having wide circulation in the state of
registered office of the company. The eligible companies have to file a copy of the text of
advertisement signed by a majority of directors with the Registrar before 30 days of
publication. They shall upload the same on their website, if any.
6. File the copy of aforesaid circular in the Form DPT-1 along with such statement with the
Registrar within thirty days before the date of issue of circular.

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7. In case, a company does not secure the deposits or secures such deposit partially, then, the
deposits shall be termed as “unsecured deposits” and shall be so quoted in every circular,
form, advertisement or in any document related to invitation or acceptance of deposits.
8. The company shall execute a deposit trust deed in FormDPT-2at least seven days before
issuing circular or circular in the form of advertisement.
9. Eligible company inviting secured deposits shall provide for security by way of a charge
on its assets for the due repayment of the amount of deposit and interest thereon. the
company shall submit form chg- 1 with registrar for assets other than intangible assets
and for an amount which shall not be less than the amount remaining unsecured by the
deposit insurance. Secured deposits including interest thereon can in no case exceed the
market value of the charged assets assessed by the registered valuer.
10. Eligible companies proposed to accept deposits from public is required to issue
advertisement one in English newspaper and one newspaper in vernacular language
having wide circulation in the state in which the registered office of the company is
situated. said circular/ advertisement shall be valid till before the expiry of six months
from the end of respective financial year in which it was issued or up to the date of annual
general meeting(or last due date of AGM), if not held) wherein the financial statement is
laid before members, whichever is earlier.
11. Upload the circular/advertisement on the company website, if any.
12. Collect duly signed application form along with money from the members.
13. Issue receipts of deposits within 21 days of the receipts of money/realisation of cheque.
14. Maintain register of deposits at its registered office which shall contain the details as
prescribed under rule 14 companies (acceptance of deposits) rules, 2014 from the date of
such acceptance.
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CHAPTER-22 DIVISIBLE PROFITS AND DIVIDENDS

Rules used: Companies (declaration and payment of dividend) Rules, 2014
DEFINITION AND MEANING OF DIVIDEND
Dividend defined under Section 2(35) of the companies act, 2013, includes any interim
dividend.
1. Dividends are sums of money to be paid to the members of the Company out of the
profits made by the Company.
2. It is a share of profits of the company.
3. It may be noted that dividend is paid to shareholders in proportion to the amount paid –
up on the share held by them.
4. Preference shareholders are always paid the dividend in preference to the equity
shareholders.
5. All companies subject to the provisions of the Companies Act, 2013, except companies
registered under Section 8 (i.e., non-profit companies), can declare dividend.

Types of Dividend

Based on Declaration Based on Shares

Final Dividend Interim Dividend Preference Shares Equity Shares

Cumulative Non
Cumulative
Difference in Meaning
Final Dividend Interim Dividend
Proposed by: BOD The Dividend will be
The dividend can be in arrears for any
Finalised by: GM-OR proposed and finalized
by BOD. number of years. And it shall be paid for all
The dividend declared at The dividend declared years on declaration. Preference
AGM is final dividend. between 2 AGM is shareholders also earned voting rights if
interim dividend dividend for 2 years has not paid (for detail
refer section 47

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DIFFERENCE BETWEEN DIVIDEND AND INTEREST

(a) Dividend is paid on preference and equity shares, whereas interest is paid on debentures and long
term and short term loans/borrowings including fixed deposits.
(b) Interest is a debt, whereas a dividend becomes a debt only after it has been declared by the
company.
(c) Generally interest is paid out of the company’s assets, whereas Dividend cannot be paid out of the
assets of the company, generally it can be declared only out of the profit available for the purpose.
(d) Interest is a charge on profits whereas dividend is an appropriation of profits.

CHART ANALYSIS HOW DIVIDEND DECALERD AND PAID BY COMPANY

Declaration of Dividend by Company u/s 123 in BORAD MEETING

WITH IN 5 DAYS Deposit dividend in

seprate dividend account
30 Days
Payment of Dividend in
30 days u/s 127
With in 90 days

If not then Publish on the Website:

in Next 7 days
a. Names of the shareholder who’s dividend is
unpaid.
Transfer amount in b. Their address. (in case of change in address then
unpaid dividend account last known address.)
c. The amount of unpaid dividend.

The company needs to pay the interest @ of 12% for

After 7 years delayed transfer in unpaid dividend account.

Transfer of Dividend to
IEPF u/s 124(5)

Sources of Dividend Section 123 (1)

a) Profits of the company for the year for which the dividend is to be paid
b) Undistributed profits of the previous financial years. Provided that in computing profits
any amount representing unrealised gains, national gains or revaluaiton of assets and any
changes in carrying amount of an asset or of a liability on measurement of the asset or the
liability at fair valus shall be excluded
c) Moneys provided by the Central Government or a State Government for payment of
dividend in pursuance of a guarantee given by the concerned Government.
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Q: CAN COMPANY PAY DIVIDEND OUT OF CAPITAL PROFIT

ANSWER:
Capital profits, I.e. profits gained by sale of capital assets can be utilized for distribution of
dividend, only on following conditions
1. Capital profit should be actually realized.
2. Articles of company should permit such distribution.
3. The surplus should remain after valuation of whole of the assets and liabilities.
Thus, dividend cannot be paid by revaluation of assets, as the surplus not been actually
realized.

Transfer to reserves under previous Act [First proviso under Section 123(1)
Every company may, before declaration of dividend in any financial year, transfer a portion
of its net profits to free reserve as it may consider necessary. Transfer of profits to free
reserves not mandatory as per the companies Act 2013
Declaration of dividend out of profits transferred to reserves in past years
[Second and Third provisos to Section 123(1) and Rule 3 of the Companies (Declaration and Payment
of Dividend) Rules, 2014]

Rule 3 of the said Rules provides that in the event of inadequacy or absence of profits in any year, a
company may declare dividend out of “surplus” subject to fulfilment of the conditions.

 The rate of dividend declared shall not exceed the average of the rates at which dividend
was declared by it in the three years immediately preceding that year.
 However, the above restriction shall not apply to a company, which has not declared any
dividend in each of the three preceding financial years.
 The total amount to be drawn from such accumulated profits shall not exceed an amount
equal to one-tenth of the sum of its paid-up share capital and free reserves as appearing in
its latest audited financial statement.
 The amount so drawn shall first be utilised to set off the losses incurred in the financial
year before any dividend in respect of equity shares is declared.
 The balance of reserves after such withdrawal shall not fall below fifteen percent of its
paid-up share capital as appearing in its latest audited financial statement.
No company shall declare dividend unless carried over previous losses and depreciation not
provided in previous year are set off against profit of the company of the current year the loss
or depreciation, whichever is less, in previous years is set off against the profit of the
company for the year for which dividend is declared or paid. (omitted by Companies
(Declaration and Payment of Dividend) Second Amendment Rules, 2015)
Third provisos to Section 123(1)

Provided also that no dividend shall be declared or paid by companyfrom its reserves other than free
reserves

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A fourth proviso to sub-section (1) is being added, as follows by Companies Amendment

Act 2015
Provided also that no company shall declare dividend unless carried over previous losses and
depreciation not provided in previous year or years are set off against profit of the company
for the current year.

Compulsory requirement for making provisions for depreciation before payment of dividend

In terms of the provisions of section 123 of the Act, no company can pay dividend in any
year without charging depreciation in the profit and loss account for the current year and that
there is no balance of un provided depreciation of any earlier year or years.
Depreciation shall be provided in accordance with the provisions of Schedule II to the
Companies Act, 2013. [sub-section (2) of section 123]
Restriction on payment of dividend [sub-section (6) of section 123]
A company which has failed to repay the principal or pay interest in respect of fixed deposit
as per sections 73 and 74 of the Act is forbidden to pay dividend on its equity shares as long
as such failure continues.

DECLARATION OF DIVIDEND AT ANNUAL GENERAL MEETING

 Dividend is to be declared at an annual general meeting but it has no power to declare a
dividend exceeding the amount recommended by the Board.
 On declaration, dividend becomes a debt payable by the company to the registered
shareholders, who are entitled to sue the company for the non-payment of declared
dividend.
 A company cannot pass a resolution for the declaration of dividend without passing a
resolution for the adoption of annual accounts u/s 129.
 Dividend shall be paid in cash by cheque, warrant or electronically [Second proviso of
Section 123(5)]

CASE LAWS

S.NO. CASE NAME PROVISONS

1 [Bishwanath Prasad It is beyond the powers of a company to declare a further
Khaitan v. New dividend after the declaration of a dividend at the AGM.
Central Jute Mills] However, a company, which could not declare a dividend at an
AGM, may do so at a subsequent EGM.
2 Baharat fire and Amount standing to the credit of the securities premium account
General Insurance can’t be distributed by way of dividend to the shareholders
Ltd. Vs. CIT (1964)
3 Burland vs. Earle How much of the profit shall be distributed to shareholders in the
(1902) form of dividend is matter of internal management of company.
The court will not interfere with their discussion.

4 Oxford benefit Directors who knowingly paid dividends out of capital shall be
Building & Investment held personally liable to make good the amount to the company.
Society, In re (1886)

5 Hanuman Prasad Dividend declared in the general meeting is a debt payable by the
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Gupta vs. Hiralal. company to its registered shareholders- Thus, once a dividend is
declared, it cannot be revoked by Board of Directors in ordinary
circumstances. However, it may be revoked in the general
meeting for just and proper reasons.
As the directors’ recommendation of dividend is only a proposal,
the same can be withdrawn before it is included in the notice for
the annual general meeting sent to members
Since as per section 2 (35), dividend includes interim dividend,
the provision applies to interim dividend also.
If a dividend declared in the general meeting is against provision
of act, it can be revoked

DIVIDEND MANDATE
The registered holder may ask the company to send the dividend to his banker or to any other
person which the company is bound to honour. In the case of joint holding if the dividend is
payable to a person other than the registered holder named first in the register of members,
such a request shall be signed by all the joint holders.
Dividend Warrants should be sent within 30 days [Sections 124(1) and 127)
Pursuant to the Section 127 in the new Act, where a dividend has been declared by a
company, it has to be paid or the warrant in respect thereof has to be posted within 30 days
from the date of declaration to the shareholder entitled to the same unless the above provision
could not be followed for the following reasons:—
PUNISHMENT FOR FAILURE TO DISTRIBUTE DIVIDENDS [SECTION 127]
Where a dividend has been declared by a company but has not been paid or the warrant in
respect thereof has not been posted, within 30 days from the date of declaration, to any
shareholder entitled to the payment of the dividend,

PENALTY ON DIRECTOR
Every director of the company shall, if he is knowingly a party to the default, be punishable
with simple imprisonment which may extend to 2 years and shall also be liable to fine of Rs.
1,000/- for every day during which such default continues.
PENALTY ON COMPANY
Further, company shall be liable to pay simple interest @ 18% p.a. for the period of default.
EXCEPTION (WHERE NO PENALTY APPLIES)

a) Where the dividend could not be paid by reason of the operation of any law;
b) Where a shareholder has given directions to the company regarding the payment of the dividend
and those directions cannot be complied with;
c) Where there is a dispute regarding the right to receive the dividend;
d) Where the dividend has been lawfully adjusted by the company against any sum due to it from the
shareholder;
e) Where, for any other reason, the failure to pay the dividend

Here, the term ‘payment’ implies the act of posting of dividend warrant or cheque
irrespective of the fact whether the shareholder concerned receives it or not.

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As the obligation to post the warrant arises at the registered office of the company, failure to
discharge obligation also arises at that office of the company and hence the court having
jurisdiction over that place alone can have jurisdiction to entertain the complainant.
[Hanuman Prasad Gupta v. Hiralal]

MODE OF PAYMENT OF DIVIDEND

Dividend must be paid by any of following mode:
Cash
Cheque
Dividend warrant
Electronic mode (ECS)
In case of joint shareholders, dividend can be paid to person whose name is registered first.
Payment of dividend is made to another person, if directed by shareholder or joint
shareholders in writing.
In the case if the shares are held in demat, dividend is paid to the beneficiary whose names
are provided by CDSL or NSDL to the company.
Dividend to be rounded off to nearest rupees.

INTERIM DIVIDEND [Sub-section (3) of Section 123]

 As per section 2(35) of companies Act 2013, dividend includes interim dividend.
 Interim dividend is usually paid in the middle of the year. It can also be said that interim
dividend is paid between two AGMs.
 Payment of interim dividend is optional. If Board of Directors find that profitability of
the company is good and is likely to be maintained for balance part of the year.
 After declaration of interim dividend, the amount must be deposited in a separate bank
account within 5 days of the declaration.

AS PER SECTION 123(3) INTERIM DIVIDEND

The Board of Directors of a company may declare interim dividend during any financial year
or at any time during the period from closure of financial year till holding of the annual
general meeting out of the surplus in the profit and loss account or out of profits of the
financial year for which such interim dividend is sought to be declared or out of profits
generated in the financial year till the quarter preceding the date of declaration of the interim
dividend:

Provided that in case the company has incurred loss during the current financial year up to the
end of the quarter immediately preceding the date of declaration of interim dividend, such
interim dividend shall not be declared at a rate higher than the average dividends declared by
the company during immediately preceding three financial years.".
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DEPOSIT OF INTERIM AND FINAL DIVIDEND IN BANK [123 (4)]

The amount of interim and final dividend shall be deposited in a separate account in a
scheduled bank within 5 days of declaration of interim dividend by the Board or at Annual
General Meeting, as the case may be.
The rules regulating declaration of dividend out of reserves in case of inadequacy or absence of
profits and the provision relating to depositing the amount of dividend (including interim dividend)
in a separate bank account within 5 days of declaration will not be applicable in case of those
Government Companies which the entire paid up share capital is held by the Government.

Payment of dividend in proportion to the time and amount paid SECTION 51

If the articles of the company does not authorise payment of dividend in proportion to the
amount paid up on each share, the payment of dividend will have to be made only in
proportion to the called up amount on the nominal value of the share capital of the company.
Dividend has to be paid to all the shareholders in the same ratio, irrespective of time factor

A listed company, as per directions of the SEBI and listing conditions, has to pay dividend to
all the shareholders on pari passu basis, with the existing shareholders of the company,
irrespective of the time and amount paid by them.
It means even if the company has made allotment of new shares on 28th March, 2014, the
new shareholders shall be eligible to participate and receive the dividend for whole of the
year, irrespective that they have brought the capital only on 28th March, 2014.

UNPAID DIVIDEND ACCOUNT SECTION 124

In terms of section 124(1), where a dividend declared by the Board or a company, interim or
final, as the case may be, has not been paid or claimed within 30 days from the date of the
declaration, the company shall transfer the unpaid or unclaimed dividend to an account
opened in a scheduled bank to be called “Unpaid Dividend Account of Company within
seven days from the date of expiry of the said 30 days.
PENALTY
Pursuant to section 124(3), if a company makes a default in transferring the unpaid or
unclaimed dividend to the unpaid dividend account of the company in a scheduled bank the
company shall, from the date of default, pay interest at the rate of twelve percent on such
amount of dividend as has not been transferred and the amount of interest shall accrue to the
benefit of the members in proportion to the amount remaining unpaid to them.

IN ACTUAL PRACTICE what happens is that the scheduled bank, in which the company
deposits the total amount of dividend within five days of declaration, changes the name of the
Account from Interim Dividend Account to Unpaid Dividend Account.
DETAILS OF UNPAID DIVIDEND TO BE PLACED ON WEBSITE
[Section 124(2) and Rule 4 of the Companies (Declaration and Payment of Dividend) Rules, 2014]

The company, in terms of Section 124(2) shall, within ninety days of transferring the unpaid
dividend to unpaid Dividend Account in the bank containing the names and last known

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address of the shareholders and the unpaid dividend payable to each of them and place it on
the website of the company.

Banks may honour dividend warrants up to seven years [section 124(4) and (5)]
Section 124(4) allows companies to ensure that members, who have not encashed their
dividend warrants, claim their dividend by presenting their revalidated warrants to the banks
before expiry of seven years after transfer of the unpaid dividend to the Unpaid Dividend
Account kept with the banks.
ACTION BY COMPANY AFTER SEVEN YEARS [Section 124(5)]
Where any money remains unpaid/unclaimed for seven years after the date of transfer to the
Unpaid Dividend Account, then pursuant to Section 124(5) the said money along with
interest, if any, accrued shall be transferred to the Fund to be called Investor Education and
Protection Fund established under Section 125.
The company shall send a statement in the prescribed form to the authority or Committee
which administers such Fund against receipt from such authority/committee.
Shares in respect of unpaid dividend Sub-section (6) of Section 124
All shares, in respect of which dividend has not been paid or claimed for seven consecutive
years or more shall be transferred by company in name of investor education and protection
fund along with a statement with such details as may be prescribed.
Provided that any claimant of shares transferred above shall be entitled to claim the transfer
of shares from Investor Education and Protection Fund in accordance with such procedure
and on submission of such documents as may be prescribed.

Explanation.—For the removals of doubts it is hereby clarified that in case any dividend is
paid or claimed for any year during the said period of seven consecutive years, the share shall
not be transferred to Investor Education and Protection Fund.’

Punishment in respect of default on dividend [section 124] (7)

If a company fails to comply with any of the requirements of this section, such company shall
be liable to a penalty of one lakh rupees and in case of continuing failure, with a further
penalty of five hundred rupees for each day after the first during which such failure
continues, subject to a maximum of ten lakh rupees and every officer of the company who is
in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing
failure, with a further penalty of one hundred rupees for each day after the first during which
such failure continues, subject to a maximum of two lakh rupees. (COMPANIES
AMENDMENT ACT 2020)
INVESTOR EDUCATION & PROTECTION FUND [IEPF] [SECTION 125]
The Central Government has established a Fund to be known as ‘Investor Education &
Protection Fund’ under Section 125 C of the Companies Act, 2013.
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Following amounts shall be credited to IEPF

a) Unpaid Dividend;
b) Unpaid application money received by companies for allotment of securities and due for
refund;
c) Unpaid matured deposits;
d) Unpaid matured debentures;
e) Interest accrued on (a) to (d) above;
f) Grants and donations given to IEPF by the C/G, S/Gs, companies or any other institutions
for the purposes of IEPF;
g) Interest or other income received out of the investments made from the IEPF;
h) Sale proceeds of fractional shares arising out of issuance of bonus shares, merger and
amalgamation for seven or more years;
i) Redemption amount of preference shares remaining unpaid or unclaimed for seven or
more years; and
j) Such other amount as may be prescribed:

It may noted that amounts mentioned in clauses (a) to (d) shall be transferred to IEPF only
after they have remained unpaid and unclaimed for a period of 7 years from the date they
become due for payment. The Fund shall be utilized for –
a) The refund in respect of unclaimed dividends, matured deposits, matured debentures, the
application money due for refund and interest thereon;
b) Promotion of investors’ education, awareness and protection;
c) Distribution of any disgorged amount among eligible and identifiable applicants for
shares or debentures, shareholders, debenture-holders or depositors who have suffered
loss due to wrong actions by any person, in accordance with the orders made by the Court
which had ordered disgorgement;
d) Reimbursement of legal expenses incurred in pursuing class action suits under sections 37
and 245 by members, debenture-holders or depositors as may be sanctioned by the
NCLT; and
e) Any other purpose incidental thereto, in accordance with such rules as may be prescribed.

The Central Government hereby appoints the 13th day of January, 2016 as the date on
which the provisions of sub-section (5), sub-section (6) [except with respect to the manner
of administration of the Investor Education and Protection Fund] and sub-section (7) of
section 125 of the said Act shall come into force.

125 (5) The Central Government shall constitute, by notification, an authority for
administration of the Fund consisting of a chairperson and such other members, not
exceeding seven and a chief executive officer, as the Central Government may appoint.

125 (6) The manner of administration of the Fund, appointment of chairperson, members and
chief executive officer, holding of meetings of the authority shall be in accordance with such
rules as may be prescribed.

125(7) The Central Government may provide to the authority such offices, officers,
employees and other resources in accordance with such rules as may be prescribed.

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125 (8) The authority shall administer the Fund and maintain separate accounts and other
relevant records in relation to the Fund in such form as may be prescribed after consultation
with the Comptroller and Auditor-General of India.

125(10) The accounts of the Fund shall be audited by the Comptroller and Auditor-General of
India at such intervals as may be specified by him and such audited accounts together with
the audit report thereon shall be forwarded annually by the authority to the Central
Government.

125(11) The authority shall prepare in such form and at such time for each financial year as
may be prescribed its annual report giving a full account of its activities during the financial
year and forward a copy thereof to the Central Government and the Central Government shall
cause the annual report and the audit report given by the Comptroller and Auditor-General of
India to be laid before each House of Parliament.

Investor Education and Protection Fund Authority (Appointment of Chairperson and

Members holding of meetings and provision for offices and officers) Rules, 2016
13TH JANUARY 2016

S.NO. PARTICULARS PROVISIONS

1
Establishment of The Authority shall be established on such date as may be notified
the authority by the Central Government. The Authority shall be a body
corporate by the name aforesaid having perpetual succession
and a common seal with power to acquire, hold and dispose of
property, both movable and immovable, and to contract and
shall, by the said name, sue or be sued.”.
2  Chairperson
Composition of  Six members
the authority  Chief Executive Officer
3
Chairperson of The Secretary Ministry of Corporate Affairs shall be the ex-officio
the Authority Chairperson of the Authority.
4
Chief Executive The Central Government shall appoint a person to be the Chief
Officer of the Executive Officer of the Authority.
Authority
5
Members of The Central Government may appoint the following as the members
the of the Authority, namely:
Authority.  A person not below the rank of Executive Director to be
nominated by the Reserve Bank of India as ex-officio member:
 A person not below the rank of Executive Director to be
nominated by the Securities and Exchange Board of India as ex-
officio member:
 Four persons having special knowledge and experience of not
less than fifteen years, in finance, management. Accountancy
or law with one person from each discipline and such person
shall have special knowledge, or professional experience, which
shall in the opinion of the Central Government shall be useful to
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the Authority.
6
Term of  The members of the Authority appointed shall hold office for a
office of period of three years and shall be eligible for reappointment
members of Provided that no member shall hold office for more than three
the authority terms. Provided further that a member shall be eligible for
reappointment after expiration of cooling off period of three
years also his term.

 The members appointed shall hold office for a period of three

years or till attaining the age of 65 years whichever is earlier.
The Central Government shall remove a member from office if
he

 Is, or at any time has been, adjudicated as insolvent

 Is of unsound mind and stands so declared by a competent court

 Has been convicted of an offence which, in the opinion of the

central government, involves a moral turpitude

 Has, in the opinion of the central government, so abused his

position as to render his continuation in office detrimental to the
public interest
Provided that no member shall be removed under this sub-rule
unless he has been given a reasonable opportunity of being heard in
the matter
7  The Authority shall have the duty to administer the Fund for
Functions of Investor Education and Protection.
the authority  The general management of the affairs of the Authority shall
vest in the Chief Executive Officer, who may exercise powers,
which may be authorised by the Authority.
 The Chief Executive Officer shall function under
superintendence and direction of the Chairperson.
 The Authority may constitute permanent Committees for
overseeing its functions:
8  The Authority and its Committees shall meet at such tinges and
Meetings places as it may consider necessary.
 The Authority and its Committees shall determine its own
procedure for holding of meetings.
 The Authority and the Committees shall meet at least once in a
quarter and at least four such meetings shall be held in a
financial year. Provided that not more than one hunched and
twenty days shall intervene between two consecutive meetings.
 The meeting of the Authority shall be presided over by the
Chairperson.
 If for any reason, the Chairperson is unable to attend a meeting,
any other Member chosen by the Members present from
amongst themselves at the meeting shall preside over the
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meeting.
 In case of difference in opinion on any question before the
Authority, or any of its Committees, the views of the majority
shall be taken as the final decision.
 More than fifty percent appointed Members of the Authority
shall constitute the quorum for the transaction of business at a
meeting of the Authority.
 Two members of a Committee shall constitute the quorum for
the transaction of business at a meeting of the Committee.
9
Member not A member who has any pecuniary interest, direct or indirect in any
to matter that is brought up for consideration at a meeting of the
participate Authority and its Committees, shall, as soon as possible after
in meetings relevant circumstances have come to his knowledge, disclose the
in certain nature of his interest at such meeting and such disclosure shall be
cases recorded in the proceedings of the Authority and its Committees,
and the member shall not take any part in any deliberation or
decision of the Authority and its Committees with respect to that
matter.
10
Vacancies, No act or proceeding of the Authority and its Committees shall be
etc., not to invalid merely by reason of-
invalidate
proceedings  Any vacancy in, or any defect in the constitution of the
of authority Authority and its Committees;

 Any defect in the appointment of a person acting as a member

of the Authority and its Committees;
11
Protection of No suit, prosecution or other legal proceedings shall lie against the
action taken Central Government or Authority or any officer of the Central
in good faith Government or any member, officer or other employee of the
Authority for anything, which is in good faith done or intended to
be clone under these rules.
Page 296 of 623 PEN DRIVES AVAILABLE AT (www.academy99.in)

Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and
Refund) Rules, 2016. 5 SEPTEMBER 2016
S.NO. PARTICULARS PROVISIONS

3 RULE 5 (1) Any amount required to be credited by the companies to the Fund
as provided under clauses (a) to (n) of sub-section (2) of section 125 of
Statement to the Act shall be remitted online along with a Statement in Form No.
be furnished IEPF 1 containing details of such transfer to the Authority within a
to the Fund period of thirty days of such amounts becoming due to be credited to
the Fund.]
(2) The amount shall be tendered by the companies along
with challan (in triplicate) to the specified Bank Branches of Punjab
National Bank and other authorised banks under MCA-21 system who
will return two copies of the challan, duly stamped in token of having
received the amount, to the Company. The third copy of the challan
will be forwarded along with the daily credit scroll by the receiving
branch to its Focal Point Branch of the Bank for onward transmission
to the Pay and Accounts Office, Ministry of Corporate Affairs.
(3) Every company shall file with the concerned Authority one copy of
the challan referred to in sub-rule (2) indicating the deposit of the
amount to the Fund and shall fill in the full particulars of the amount
tendered, including the head of account to which it has been credited.
(4) The company shall, along with the copy of the challan as required
under sub-rule (3), furnish a Statement in Form No. IEPF 1 containing
details of such transfer to the Authority within thirty days of
submission of challan.]
(4A) The companies which have transferred any amount referred to in
clauses (a) to (d) of sub-section (2) of section 205C of the Companies
Act, 1956 (1 of 1956) to Investor Education and Protection Fund or
Central Government, but have not filed the statement or have filed the
statement in any format other than in excel template, as required under
sub-rule (1) of rule 5, shall submit details mentioned in sub-rule (1) of
rule 5 in Form No. IEPF – 1A along with excel template within sixty
days of notification of these amended rule.]
(5) The amount may also be remitted by Electronic Fund Transfer in
such manner, as may be specified by the Central Government.
(6) (a) On receipt of the statement, the Authority shall enter the details
of such receipt in a Register maintained physically or electronically by
it in respect of each company every year, and reconcile the amount so
remitted and collected, with the concerned designated bank on monthly
basis.
(b) Each designated bank shall furnish an abstract of such receipts
during the month to the Authority within seven days after the close of
every month.
(c) The company shall maintain the record filed under sub – rule (1) in
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the same format along with all supporting documents and the Authority
shall have the powers to inspect such records.]
(7) The provisions of this rule shall be applicable mutatis mutandis in
respect of the amounts to be credited to the Fund in pursuance of
clauses (h) to (m) of sub-section (2) of section 125.
(8) Every company shall within a period of sixty days after the holding
of Annual General Meeting or the date on which it should have been
held as per the provisions of section 96 of the Act, whichever is earlier
and every year thereafter till completion of the seven years period,
identify the unclaimed amounts, as referred in subsection (2) of section
125 of the Act, as on the date of closure of financial year the account of
which are to be adopted in the Annual General Meeting as per sub-
section (1) of section 137 of the Act, separately furnish and upload on
its own website and also on website of Authority or any other website
as may be specified by the Government, a statement or information of
unclaimed and unpaid amounts separately for each of the previous
seven financial years through Form No. IEPF-2, containing following
information, namely:-
(a) the names and last known addresses of the persons entitled to
receive the sum;
(b) the nature of amount;
(c) the amount to which each person is entitled;
(d) the due date for transfer into the Investor Education and Protection
Fund; and
(e) such other information as may be considered necessary.]
4 RULE 6 (1) The shares shall be credited to DEMAT Account of the Authority to
be opened by the Authority for the said purpose, within a period of
Manner of thirty days of such shares becoming due to be transferred to the Fund:
transfer of
shares under Provided that, in case the beneficial owner has encashed any dividend
sub-section (6) warrant 5[or any dividend amount has been credited to bank account of
of section 124 the owner of such shares] during the last seven years, such shares shall
to the Fund not be required to be transferred to the Fund even though some
dividend warrants may not have been encashed:
Provided further that in cases where the period of seven years provided
under sub-section (5) of section 124 has been completed or being
completed during the period from 7th September, 2016 to 31st October,
2017, the due date of transfer of such shares shall be deemed to be
31st October, 2017.
Provided further that transfer of shares by the companies to the Fund
shall be deemed to be transmission of shares and the procedure to be
followed for transmission of shares shall be followed by the companies
while transferring the shares to the fund.
Explanation.- For removal of all doubts, it is hereby clarified that all
shares in respect of which dividend has been transferred to Investor
Education and Protection Fund on or before the 7th September 2016,
shall also be transferred by the company in the name of Investor
Page 298 of 623 PEN DRIVES AVAILABLE AT (www.academy99.in)

Education and Protection Fund.

(2) For the purposes of effecting transfer of such shares, the Board
shall authorise the Company Secretary or any other person to sign the
necessary documents.
(3) The company shall follow the following procedure while
transferring the shares, namely:-
(a) The company shall inform, at the latest available address, the
shareholder concerned regarding transfer of shares three months before
the due date of transfer of shares and also simultaneously publish a
notice in the leading newspaper in English and regional language
having wide circulation informing the concerned that the names of such
shareholders and their folio number or DP ID - Client ID are available
on their website duly mentioning the website address.
(b) In case, where there is a specific order of Court or Tribunal or
statutory Authority restraining any transfer of such shares and payment
of dividend or where such shares are pledged or hypothecated under
the provisions of the Depositories Act, 1996 or shares already been
transferred under sub-rule (1) above, the company shall not transfer
such shares to the Fund:
Provided that the company shall furnish details of such shares and
unpaid dividend to the Authority in Form No. IEPF 3 within thirty days
from the end of financial year.
(c) For the purposes of effecting the transfer, where the shares are dealt
with in a depository-
(i) the Company shall inform the depository by way of corporate
action, where the shareholders have their accounts for transfer in
favour of the Authority.
(ii) on receipt of such intimation, the depository shall effect the transfer
of shares in favour of DEMAT account of the Authority.
(d) For the purposes of effecting the transfer shares held in physical
form-
(i) the Company Secretary or the person authorised by the Board shall
make an application, on behalf of the concerned shareholder, to the
company, for issue of a new share certificate;
(ii) on receipt of the application under clause (a), a new share
certificate for each such shareholder shall be issued and it shall be
stated on the face of the certificate that
“Issued in lieu of share certificate No. for the purpose of transfer to
IEPF” and the same be recorded in the register maintained for the
purpose;
(iii) particulars of every share certificate shall be in Form No. SH-1 as
specified in the Companies (Share Capital and Debentures) Rules,

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2014;
(iv) after issue of a new share certificate, the company shall inform the
depository by way of corporate action to convert the share certificates
into DEMAT form and transfer in favour of the Authority."
(4) The company shall make such transfers through corporate action
and shall preserve copies for its records.
7
[(5) While effecting such transfer, the company shall send a statement
to the Authority in Form No. IEPF-4 within thirty days of the corporate
action taken under clause (c) of sub-rule (3) of rule 6 containing details
of such transfer and the company shall also attach a copy of the public
notice published under clause (a) of sub-rule (3) of rule 6 in Form No
IEPF-4.]
(6) The voting rights on shares transferred to the Fund shall remain
frozen until the rightful owner claims the shares:
Provided that for the purpose of the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, the shares which have been transferred to the Authority shall not
be excluded while calculating the total voting rights.
(7) The company shall maintain all such statements filed under sub –
rule (5) in the same format along with all supporting documents and the
Authority shall have the powers to inspect such records].
(8) All benefits accruing on such shares like bonus shares, split,
consolidation, fraction shares and the like except right issue shall also
be credited to such DEMAT account [by the company which shall send
a statement to the Authority in Form No. IEPF-4 within thirty days of
the corporate action containing details of such transfer.]]
(9) The shares held in such DEMAT account shall not be transferred or
dealt with in any manner whatsoever except for the purposes of
transferring the shares back to the claimant as and when he approaches
the Authority or in accordance with sub-rule (10) and (11).
(10) If the company is getting delisted, the Authority shall surrender
shares on behalf of the shareholders in accordance with the Securities
and Exchange Board of India (Delisting of Equity Shares) Regulations,
2009 and the proceeds realised shall be credited to the Fund and a
separate ledger account shall be maintained for such proceeds.
(11) In case the company whose shares or securities are held by the
Authority is being wound up, the Authority may surrender the
securities to receive the amount entitled on behalf of the security holder
and credit the amount to the Fund and a separate ledger account shall
be maintained for such proceeds.
(12) Any further dividend received on such shares shall be credited to
the Fund and a separate ledger account shall be maintained for such
proceeds
Page 300 of 623 PEN DRIVES AVAILABLE AT (www.academy99.in)

(13) Any amount required to be credited by the companies to the Fund

as provided under sub-rules (10), (11) and sub-rule (12) shall be
remitted into the specified account of the IEPF Authority maintained in
the Punjab National Bank.
(14) Authority shall furnish its report to the Central Government as and
when noncompliance of the rules by companies came to its knowledge.
(1) The shares shall be credited to DEMAT Account of the Authority to
RULE 6A be opened by the Authority for the said purpose, within a period of
thirty days of such shares becoming due to be transferred to the Fund:
Manner of Provided that transfer of shares by the companies to the Fund shall be
transfer of deemed to be transmission of shares and the procedure to be followed
shares under for transmission of shares shall be followed by the companies while
sub-section transferring the shares to the fund: Provided further that such shares
(9) of section shall be transferred to the Authority without any restrictions and no
90 of the Act application shall be filed for claiming back such shares from the
to the Fund. Authority.

(2) For the purposes of effecting transfer of such shares, the Board
shall authorise the Company Secretary or any other person to sign the
necessary documents.

(3) The company shall follow the following procedure while

transferring the shares, namely:- (A) for the purposes of effecting the
transfer, where the shares are dealt with in a depository- (i) the
company shall inform the depository by way of corporate action, where
the shareholders have their accounts for transfer in favour of the
Authority, (ii) on receipt of such intimation, the depository shall effect
the transfer of shares in favour of DEMAT account of the Authority;
(B) for the purposes of effecting the transfer of shares held in physical
form- (i) the Company Secretary or the person authorised by the Board
shall make an application, on behalf of the concerned shareholder, to
the company, for issue of a new share certificate; (ii) on receipt of the
application under clause (a), a new share certificate for each such
shareholder shall be issued and it shall be stated on the face of the
certificate that “Issued in lieu of share certificate No. for the purpose
of transfer to IEPF under subsection (9) of section 90 of the Act” and
the same be recorded in the register maintained for the purpose; (iii)
particulars of every share certificate shall be in Form No. SH-1 as
specified in the Companies (Share Capital and Debentures) Rules,
2014; (iv) after issue of a new share certificate, the company shall
inform the depository by way of corporate action to convert the share
certificates into DEMAT form and transfer in favour of the Authority.

(4) The company shall make such transfers through corporate action
and shall preserve copies for its records.

(5) While effecting such transfer, the company shall send a statement to
the Authority in Form No. IEPF-4 within thirty days of the corporate
action taken under sub-rule (4) of rule 6A containing details of such
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transfer and the company shall also attach a copy of order of the
Tribunal under sub-section (8) of section 90 of the Act along with a
declaration that no application under sub-section (9) of section 90 of
the Act has been made or is pending before the Tribunal.

(6) The voting rights on shares transferred to the Fund shall remain
frozen: Provided that for the purpose of the Securities and Exchange
Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011, the shares which have been transferred to the
Authority shall not be excluded while calculating the total voting
rights.

(7) The company shall maintain all such statements filed under sub –
rule (3) in the same format along with all supporting documents and the
Authority shall have the powers to inspect such records.

(8) All benefits accruing on such shares like bonus shares, split,
consolidation, fraction shares and the like except right issue shall also
be credited to such DEMAT account [by the company which shall send
a statement to the Authority in Form No. IEPF-4 within thirty days of
the corporate action containing details of such transfer.

(9) If the company is getting delisted, the Authority shall surrender

shares on behalf of the shareholders in accordance with the Securities
and Exchange Board of India (Delisting of Equity Shares) Regulations,
2009 and the proceeds realised shall be credited to the Fund and a
separate ledger account shall be maintained for such proceeds.

(10) In case the company whose shares or securities are held by the
Authority is being wound up, the Authority may surrender the
securities to receive the amount entitled on behalf of the security holder
and credit the amount to the Fund and a separate ledger account shall
be maintained for such proceeds.

(11) Any further dividend received on such shares shall be credited to

the Fund and a separate ledger account shall be maintained for such
proceeds.

(12) Any amount required to be credited by the companies to the Fund

as provided under sub-rules (9), (10) and sub-rule (11) shall be remitted
into the specified account of the IEPF Authority maintained in the
Punjab National Bank and the details thereof shall be furnished to the
Authority in Form No. IEPF-7 within thirty days from the date of
remittance. Provided further that all such amounts shall be transferred
to the Authority without any restrictions and no application shall be
filed for claiming back such amounts from the Authority.

(13) Authority shall furnish its report to the Central Government as and
when noncompliance of the rules by companies came to its knowledge.
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5 RULE 7 (1) Any person whose shares, unclaimed dividend, matured deposits,
matured debentures, application money due for refund, or interest
Refunds to thereon, sale proceeds of fractional shares, redemption proceeds of
claimants preference shares etc., has been transferred to the Fund, may claim the
from Fund. shares under proviso to sub-section (6) of section 124 or apply for
refund under clause (a) of sub-section (3) of section 125 or under
proviso to sub-section (3) of section 125, as the case may be, to the
Authority by submitting an online application in Form IEPF-5
available on the website www.iepf.gov.in along with fee specified by
the Authority from time to time in consultation with the Central
Government.
(2) Upon submission, FormNo. IEPF-5 shall be transmitted online to
the Nodal Officer of the company for verification of claim:
Provided that the claimant after making an application in Form No.
IEPF-5 under sub rule 1, shall send original physical share certificate,
original bond, deposit certificate, debenture certificate, as the case may
be, along with Indemnity Bond, Advance Receipts, any other document
as enumerated in Form No. IEPF-5, duly signed by him, to the Nodal
Officer of the concerned company at its registered office for
verification of the claim.]
(2A) Every company which is required to credit amounts or shares to
the fund or has deposited the amount or transferred the shares to the
Fund shall nominate a Nodal Officer, who shall either be a Director or
Chief financial Officer or Company Secretary of the company, for the
purposes of verification of claims and coordination with Investor
Education and Protection Fund Authority:
Provided that a company may appoint one or more Officer as Deputy
Nodal Officer to assist the Nodal Officer for the purposes of
verification of claim and for coordination with Investor Education and
Protection Fund Authority:
Provided further that the Nodal Officer shall be solely liable for all
actions of any officer appointed as Deputy Nodal Officer:
Provided also that in case a company fails to appoint Nodal Officer,
every director of the company shall be deemed to be nodal officer and
be liable for any failure to comply with requirement of these rules.
(2B) The details of the Nodal Officerand Deputy Nodal Officerduly
indicating his or her designation, postal address, telephone and mobile
number and company authorized e-mail ID shall be communicated to
the Investor Education and Protection Fund Authority in Form No.
IEPF – 2 within fifteen days from the date of publication of these rules
and the company shall display the name of Nodal Officer and his e-
mail ID on its website:
Provided that any change in the Nodal Officer or his details shall be
communicated to the Authority through Form No. IEPF-2 within seven
days of such change along with board resolution thereof.]
(3) The company shall, within thirty days from the date of receipt of
claim, send an online verification report to the Authority after

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verification of details in Form No. IEPF-5 in the format specified by

the Authority along with all the documents submitted by the claimant
and shall attach the scanned copy of all the original documents
submitted by the claimant in physical form duly certified by its Nodal
Officer alongwith the e-verification report along with a scanned copy
of both sides of original physical share certificate or original bond or
deposit or debenture certificate/s duly cancelled and certified:
Provided that if the online verification report is not sent by the
company within thirty days of filing of claim, the company may do so
by paying additional feeof fifty rupees for every day subject to
maximum of two thousand and five hundred rupees:

Provided further that the company shall be liable to maintain the

original documents submitted to it by the claimant and shall produce
such documents whenever required:

Provided also that in case of non-receipt of verification report along

with documents by the Authority after the expiry of sixty days from the
date of filing of Form No. IEPF-5, the Authority may reject Form No.
IEPF-5, after sending a communication to the claimant and the
concerned company, on the e-mail address of the claimant and the
company, to furnish response within a period of fifteen days:

Provided also that for failure to submit verification report of the claim
in accordance with these rules, the company and its Nodal Officer
shall be punishable as per the provisions of the Act.

Explanation.-In case (i) loss of original physical share certificate or

original bond or deposit or debenture certificate or proof of
entitlement, the company and the claimant shall follow the procedure
as laid down in the Companies (Share Capital and Debenture) Rules,
2014 , theSecurities and Exchange Board of India (Listing Obligation
and Disclosure Requirements) Regulation, guidelines, procedures and
circulars issued from time to time and Schedule IIIof these rules and
attach certified copies of all documents as may be required under the
said rules or guidelines with the e-verification report; (ii) In addition,
the company shall attach a scanned copy of both sides of share
certificate generated under clause (d) of sub-rule (3) of rule 6 of these
rules along with the e-verification report;(iii) The Company shall be
solely responsible for collecting original physical share certificate or
original bond or deposit or debenture certificate or proof of entitlement
from the claimant and shall be liable for any misuse thereof.]
(4) After verification of the entitlement of the claimant-
(a) to the amount claimed, the Authority and then Drawing and
Disbursement Officer of the Authority shall present a bill to the Pay
and Accounts Office for e- payment as per the guidelines,
(b) to the shares claimed, the Authority shall issue a refund sanction
order with the approval of the Competent Authority and shall credit the
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shares to the DEMAT account of the claimant to the extent of the

claimant’s entitlement.
(5) The Authority shall, in its records, cause a note to be made of all
the payments made under sub-rule (4).
(6) An application received for refund of any claim under this rule duly
verified by the concerned company shall be disposed off by the
Authority within sixty days from the date of receipt of the verification
report from the company, complete in all respects and any delay
beyond sixty days shall be recorded in writing specifying the reasons
for the delay and the same shall be communicated to the claimant in
writing or by electronic means.
(7) Where the Authority, on examining any application for claim, finds
it necessary to call for further information or finds such application or
e-form or document to be defective or incomplete in any respect, the
Authority shall give intimation of such information called for or defects
or incompleteness, by e-mail on the email address of the claimant and
the company, which has filed such application or e-form or document,
directing him or it to furnish such information or to rectify such defects
or incompleteness or to re-submit such application or e-Form or
document within fifteen days from the date of receipt of such
communication, failing which the Authority may reject the claim or e-
form No. IEPF-5:
Provided that if such information or incompleteness is called from the
claimant, he shall file the e-form and shall send such documents as
called for within fifteen days, duly signed by him, to the Nodal Officer
of the concerned company at its registered office for verification of the
claim and company shall send a revised verification report:

Provided further that if any such information or incompleteness is

called from the company, the company shall file the revised
verification report and shall send such documents as called for within
thirty days:
Provided also that the provisions of sub-rule (3) of rule 7 shall
apply mutatis mutandis to this sub-Rule.]
(8) In case, claimant is a legal heir or successor or administrator or
nominee of the registered share holder, the claimant shall ensure to
submission of self-attested scanned copy of all documents detailed in
Schedule II of these rules online along with the Form No. IEPF-5:
Provided that in case of loss of securities held in physical form, he has
to ensure to submission of self-attested scanned copy of additional
documents detailed in Schedule III of these rules online along with the
Form No. IEPF-5:

Provided further that the claimant shall submit in original all these
documents duly signed by him, to the Nodal Officer of the concerned
company at its registered office for verification of the claim.]

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(9) In case, claimant is a legal heir or successor or administrator or

nominee of any other registered security or in cases where request of
transfer or transmission of shares is received after the transfer of shares
by company to the Authority, the company shall verify all requisite
documents required for registering transfer or transmission and shall
issue letter to the claimant indicating his entitlement to the said security
and furnish a copy of the same to the Authority while verifying the
claim of such claimant 9[through its e-verification report:
Provided that the authority shall dispose such request of transfer or
transmission based on the e-verification report of the company subject
to verification of such request.]
(10) The claimant shall file only one consolidated claim in respect of a
company in a financial year.]

RIGHT TO DIVIDEND, ETC. PENDING REGISTRATION OF SHARES [SECTION 126]

Where any instrument of transfer of shares has been delivered to any company for
registration and the transfer of such shares has not been registered by the company, then the
dividend is required to be paid to the transferee in case the transferor has given a mandate to
that effect. In case no mandate has been given, the dividend in respect of the shares should
be transferred to the Unpaid Dividend Account. Further, the company shall keep in abeyance
the rights shares and bonus shares, to be issued in respect of transferred shares but not
registered.
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CHAPTER-22-A
INSPECTION, INQUIRY AND INVESTIGATION
INSPECTION

Meaning of Inspection

Section 206 to 209 of the Companies Act, 2013 contains provisions in respect of inspection of books
of accounts and other books and papers of every company. Inspection is neither audit of books of
accounts, nor investigation into the affairs of a company. It can only be an appraisal of the overall
activities of a company, except in complaint cases. Such appraisal cannot be done merely by
inspecting the records on ‘as is where is’ basis but certain amount of verification and cross
verification, on the style of auditing, is necessary.

Purposes of Inspection
Inspection can be carried out for the following purposes:
1. To determine concealment of income by falsification of accounts.
2. To secure knowledge about the mismanagement of the business of a company.
3. To ascertain whether statutory auditors have discharged their functions and duties.
4. To detect misapplication of funds.
5. To detect misuse of position by company’s management for their personal advantage.

Power to call for information, inspect books and conduct inquiries [Section 206]

(1) Where on a scrutiny of any document filed by a company or on any information received by him,
the Registrar is of the opinion that any further information or explanation or any further documents
relating to the company is necessary, he may by a written notice require the company
a) to furnish in writing such information or explanation
b) to produce such documents, within such reasonable time, as may be specified in the notice.
(2) On the receipt of a notice under sub-section (1), it shall be the duty of the company and of
its officers concerned to furnish such information or explanation to the best of their
knowledge and power and to produce the documents to the Registrar within the time
specified or extended by the Registrar.
(3) If no information or explanation is furnished to the Registrar within the time specified
under sub-section (1) or if the Registrar on an examination of the documents furnished is of
the opinion that the information or explanation furnished is inadequate or if the Registrar is
satisfied on a scrutiny of the documents furnished that an unsatisfactory state of affairs exists
in the company and does not disclose a full and fair statement of the information required, he
may, by another written notice, call on the company to produce for his INSPECTION
such further books of account, books, papers and explanations as he may require at such
place and at such time as he may specify in the notice.
(4) If the Registrar is satisfied on the basis of information available with or furnished to
him or on a representation made to him by any person that the business of a company is
being carried on for a fraudulent or unlawful purpose or not in compliance with the
provisions of this Act or if the grievances of investors are not being addressed, the Registrar
may, after informing the company of the allegations made against it by a written order, call

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on the company to furnish in writing any information or explanation on matters specified in

the order within such time as he may specify therein and carry out such inquiry as he deems
fit after providing the company a reasonable opportunity of being heard:
Provided that where business of a company has been or is being carried on for a fraudulent or
unlawful purpose, every officer of the company who is in default shall be punishable for
fraud in the manner as provided in section 447.
(5) Without prejudice to the foregoing provisions of this section, the Central Government
may, if it is satisfied that the circumstances so warrant, direct inspection of books and papers
of a company by an inspector appointed by it for the purpose.
(6) The Central Government may, having regard to the circumstances by general or special
order, authorise any statutory authority to carry out the inspection of books of account of a
company or class of companies.
(7) If a company fails to furnish any information or explanation or produce any document
required under this section, the company and every officer of the company, who is in default
shall be punishable with a fine which may extend to one lakh rupees and in the case of a
continuing failure, with an additional fine which may extend to five hundred rupees for every
day after the first during which the failure continues.
CONDUCT OF INSPECTION AND INQUIRY SECTION 207

(1) Where a Registrar or inspector calls for the books of account and other books and papers under
section 206, it shall be the duty of every director, officer or other employee of the company to produce
all such documents to the Registrar or inspector and furnish him with such statements, information or
explanations in such form as the Registrar or inspector may require and shall render all assistance to
the Registrar or inspector in connection with such inspection.

(2) The Registrar or inspector, making an inspection or inquiry under section 206 may, during
the course of such inspection or inquiry, as the case may be,
a) make or cause to be made copies of books of account and other books and papers;
b) place or cause to be placed any marks of identification in such books in token of the
inspection having been made.
Report on Inspection made [Section 208]
This section requires the Registrar or Inspector to submit a report to the Central Government after
inspection of books of accounts such report may include recommendations that further investigation
into the affairs of the company is necessary giving reasons in support.

Search and Seizure [Section 209]

Section 209 empowers the Registrar or Inspector appointed by the Central Government to enter and
search the place or places where books of account are kept if he has reasonable ground to believe that
the books and papers of a company, or relating to the key managerial personnel or any director or
auditor or company secretary in practice (if the company has not appointed a company secretary) are
likely to be destroyed, mutilated, altered, falsified or secreted. He may search the place after having
obtained an order from the special court for the seizure of such books and papers.
For search and seizure of documents, Registrar/Inspector shall be required to seek permission of
Special Court. The Registrar or inspector shall return the books and papers seized not later than 180
days after such seizure, to the company from whose custody or power such books or papers were
seized. The provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures shall
apply, mutatis mutandis, to every search and seizure made under this section.
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INVESTIGATION

Meaning of Investigation
Investigation, within the relevant provisions of the Companies Act, 2013, is a form of probe; a deeper
probe; into the affairs of a company. It is a fact-finding exercise. The main object of the investigation
is to collect evidence and to see if any illegal acts or offences are disclosed and then decide the action
to be taken. The said expression also includes investigation of all its business affairs, profits and
losses, assets including goodwill, contracts and transactions, investment and other property interests
and control of subsidiary companies too.

KINDS OF INVESTIGATION
The Companies Act, 2013 provides for carrying out the following kinds of investigation:
1. Investigation of the affairs of the company if its necessary to investigate into the affairs of the
company in public interest [Section 210]
2. Investigation by Serious Fraud Investigation Office directed by Central government under
[Section 212]
3. Investigation on the order of Tribunal [Section 213]
4. Investigation about the ownership of a Company [Section 216]
5. Investigation of the affairs of related companies [Section 219]
6. Investigation of foreign companies [Section 228]

Investigation into affairs of Company [Section 210]

Section 210 empowers the Central Government to order an investigation into the affairs of a
company either on the report of Registrar or on special resolution passed by a company or in public
interest.

This section also empowers Court or the National Company Law Tribunal (NCLT) to order that
the affairs of a company ought to be investigated, upon which Central Government shall order
investigation.

For the purpose of investigation, the Central Government has the power to appoint inspector(s) and
seek report.

Establishment of Serious Fraud Investigation Office [Sections 211]

(1) This section mandates the Central Government to constitute Serious Fraud Investigation Office
(‘SFIO’) through notification, to investigate frauds relating to a company.

(2) The Serious Fraud Investigation Office shall be headed by a Director and consist of such number
of experts from the following fields to be appointed by the Central Government from amongst
persons of ability, integrity and experience in
 banking;
 corporate affairs;
 taxation;
 forensic audit;
 capital market;
 information technology;
 law; or

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 such other fields as may be prescribed.

(3) The Central Government shall, by notification, appoint a Director in the Serious Fraud
Investigation Office, who shall be an officer not below the rank of a Joint Secretary to the
Government of India having knowledge and experience in dealing with matters relating to
corporate affairs.
Investigation into Affairs of Company by Serious Fraud Investigation Office [Sections 212]

(1) The Central Government may refer any matter for investigation into affairs of the company to the
SFIO, if it is of the opinion that it is necessary to investigate, on the basis of:

a) Receipt of a report of the Registrar or inspector

b) Intimation of a special resolution passed by a company that its affairs are required to be
investigate
c) In the public interest
d) A request from any Department of the Central Government or a State Government.

(2) Where any case has been assigned by the Central Government to the SFIO for investigation, no
other investigation agency of Central Government or any State Government shall proceed with
investigation.

(3) Where the investigation into the affairs of a company has been assigned by the Central
Government to Serious Fraud Investigation Office, it shall conduct the investigation in the
manner and follow the procedure provided in this Chapter; and submit its report to the
Central Government within such period as may be specified in the order.
(4) The Director, Serious Fraud Investigation Office shall cause the affairs of the company to
be investigated by an Investigating Officer who shall have the power of the inspector under
section 217.
(5) The company and its officers and employees, who are or have been in employment of the
company shall be responsible to provide all information, explanation, documents and
assistance to the Investigating Officer as he may require for conduct of the investigation.
(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, offence
covered under section 447 of this Act shall be cognizable and no person accused of any
offence under those sections shall be released on bail or on his own bond unless
(i) the Public Prosecutor has been given an opportunity to oppose the application for such
release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are
reasonable grounds for believing that he is not guilty of such offence and that he is not likely
to commit any offence while on bail:
Provided that a person, who, is under the age of sixteen years or is a woman or is sick or
infirm, may be released on bail, if the Special Court so directs:
(7) The limitation on granting of bail specified in sub-section (6) is in addition to the
limitations under the Code of Criminal Procedure, 1973 or any other law for the time being in
force on granting of bail.
(8) If the Director, Additional Director or Assistant Director of Serious Fraud Investigation
Office authorised in this behalf by the Central Government, has on the basis of material in his
possession reason to believe that any person has been guilty of any offence punishable under
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sections referred to in sub-section (6), he may arrest such person and shall, as soon as may be,
inform him of the grounds for such arrest.
(9)The Director, Additional Director or Assistant Director of Serious Fraud Investigation
Office shall, immediately after arrest of such person under sub-section (8), forward a copy of
the order, along with the material in his possession, referred to in that sub-section, to the
Serious Fraud Investigation Office in a sealed envelope, in such manner as may be prescribed
and the Serious Fraud Investigation Office shall keep such order and material for such period
as may be prescribed.
(10) Every person arrested under sub-section (8) shall within twenty-four hours, be taken to
a Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction:
Provided that the period of twenty-four hours shall exclude the time necessary for the journey
from the place of arrest to the Magistrate's court.
(11) The Central Government if so directs, the Serious Fraud Investigation Office shall
submit an interim report to the Central Government.
(12) On completion of the investigation, the Serious Fraud Investigation Office shall submit
the investigation report to the Central Government.
(13) Notwithstanding anything contained in this Act or in any other law for the time being in
force, a copy of the investigation report may be obtained by any person concerned by making
an application in this regard to the court.
(14) On receipt of the investigation report, the Central Government may, after examination of
the report (and after taking such legal advice, as it may think fit), direct the Serious Fraud
Investigation Office to initiate prosecution against the company and its officers or employees,
who are or have been in employment of the company or any other person directly or
indirectly connected with the affairs of the company.
Companies (Arrests in connection with Investigation by Serious Fraud Investigation Office)
Rules, 2017.
Where the Director, Additional Director or Assistant Director of the Serious Fraud Investigation
Office (herein after referred to as SFIO) investigating into the affairs of a company other than a
Government company or foreign company has, on the basis of material in his possession, reason to
believe that any person has been guilty of any offence punishable under section 212 of the Act, he
may arrest such person; Provided that in case of an arrest being made by Additional Director or
Assistant Director, the prior written approval of the Director SFIO shall be obtained.

The Director SFIO shall be the competent authority for all decisions pertaining to arrest.

Where an arrest of a person is to be made in connection with a Government company or a foreign

company under investigation, such arrest shall be made with prior written approval of the Central
Government. Provided that the intimation of such arrest shall also be given to the Managing Director
or the person in-charge of the affairs of the Government Company and where the person arrested is
the Managing Director or person in-charge of the Government Company, to the Secretary of the
administrative ministry concerned, by the arresting officer.

The Director, Additional Director or Assistant Director, while exercising powers under sub-section (8)
of section 212 of the Act, shall sign the arrest order together with personal search memo in the Form
appended to these rules and shall serve it on the arrestee and obtain written acknowledgement of
service.

The Director, Additional Director or Assistant Director shall forward a copy of the arrest order along

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with the material in his possession and all the other documents including personal search memo to the
office of Director, SFIO in a sealed envelope with a forwarding letter after signing on each page of
these documents, so as to reach the office of the Director, SFIO within twenty-four hours through the
quickest possible means.

An arrest register shall be maintained in the office of Director, SFIO and the Director or any officer
nominated by Director shall ensure that entries with regard to particulars of the arrestee, date and time
of arrest and other relevant information pertaining to the arrest are made in the arrest register in
respect of all arrests made by the arresting officers.
The entry regarding arrest of the person and information given to such person shall be made in the
arrest register immediately on receipt of the documents as specified under rule 5 in the arrest register
maintained by the SFIO office.

The office of Director, SFIO shall preserve the copy of arrest order together with supporting materials
for a period of five years a) from the date of judgment or final order of the Trial Court, in cases where
the said judgment has not been impugned in the appellate court; or b) from the date of disposal of the
matter before the final appellate court, in cases where the said judgment or final order has been
impugned, whichever is later.

The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to arrest shall be applied
mutatis mutandis to every arrest made under this Act.

Investigation into Company’s affairs in other cases on the order of Tribunal [Section 213]

This section empowers the Tribunal to order an investigation by the Central Government in case an
application (IN FORM NCLT-1 RULE 80 NCLT RULES 2016) is made by at least 100 members or
by member having one-tenth of total voting power; in the case of a company having a share capital
and in case an application is made by at least one-fifth of the total number of members; in case of
company with no share capital, seeking an investigation into the affairs of the company or on an
application suggesting fraud, misfeasance or misconduct or when any information is withheld.

PENALTY FOR FRAUD: if after investigation it is proved that the business of the company is
being conducted with intent to defraud its creditors, members or any other persons or otherwise for a
fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful
purpose, or any person concerned in the formation of the company or the management of its affairs
have in connection therewith been guilty of fraud, then, every officer of the company who is in default
and the person or persons concerned in the formation of the company or the management of its affairs
shall be punishable for fraud in the manner as provided in section 447.

Security for Payment of Costs and Expenses of Investigation section 214

Where an investigation is ordered by the Central Government in pursuance of section 210, or in

pursuance of an order made by the Tribunal under section 213, the Central Government may before
appointing an inspector under subsection (3) of section 210 or clause (b) of section 213, require the
applicant to give such security not exceeding twenty-five thousand rupees as may be prescribed, as it
may think fit, for payment of the costs and expenses of the investigation and such security shall be
refunded to the applicant if the investigation results in prosecution.

Firm, Body Corporate or Association Not to be Appointed as Inspector section 215

No firm, body corporate or other association shall be appointed as an inspector

Investigation of Ownership of Company [Section 216]

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(1) Where it appears to the Central Government that there is a reason so to do, it may appoint
one or more inspectors to investigate and report on matters relating to the company, and its
membership for the purpose of determining the true persons
(a) who are or have been financially interested in the success or failure, whether real or
apparent, of the company; or
(b) who are or have been able to control or to materially influence the policy of the company
(c) who have or had beneficial interest in shares of a company or who are or have been
beneficial owners or significant beneficial owner of a company.
(2) Without prejudice to its powers under sub-section (1), the Central Government shall
appoint one or more inspectors under that sub-section, if the Tribunal, in the course of any
proceeding before it, directs by an order that the affairs of the company ought to be
investigated as regards the membership of the company and other matters relating to the
company, for the purposes specified in sub-section (1).
Procedure, Powers, etc., of Inspectors Section 217

1. It shall be the duty of all officers and other employees and agents including the former officers,
employees and agents of a company which is under investigation in accordance with the
provisions contained in this Chapter, and where the affairs of any other body corporate or a person
are investigated under section 219, of all officers and other employees and agents including
former officers, employees and agents of such body corporate or a person

 to preserve and to produce to an inspector or any person authorised by him in this behalf all books
and papers of, or relating to, the company or, as the case may be, relating to the other body
corporate or the person, which are in their custody or power; and
 otherwise to give to the inspector all assistance in connection with the investigation which they
are reasonably able to give.

2. The inspector may require any body corporate, other than a body corporate referred to in
sub-section (1), to furnish such information to, or produce such books and papers before
him or any person authorised by him in this behalf as he may consider necessary, if the
furnishing of such information or the production of such books and papers is relevant or
necessary for the purposes of his investigation.
3. The inspector shall not keep in his custody any books and papers produced under sub-
section (1) or sub-section (2)for more than one hundred and eighty days and return the
same to the company, body corporate, firm or individual by whom or on whose behalf the
books and papers were produced Provided that the books and papers may be called for by
the inspector if they are needed again for a further period of one hundred and eighty days
by an order in writing.
4. An inspector may examine on oath
 any of the persons referred to in sub-section (1); and
 with the prior approval of the Central Government, any other person,
in relation to the affairs of the company, or other body corporate or person, as the case may
be, and for that purpose may require any of those persons to appear before him personally:
Protection of Employees during Investigation [Section 218]
This section provides protection to the employees of the company during investigation. The company

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shall obtain approval of Tribunal if, during the pendency of any investigation into the affairs of the
company or during the pendency of any proceeding against the company, the company proposes to
discharge or suspend, terminate, change the terms of employment, dismiss or reduce in rank any
employee.

If the Tribunal has any objection to the action proposed, it shall send by post notice thereof in writing
to the company, other body corporate or person concerned. If the company does not receive within
thirty days any notice of objection from the Tribunal, it may proceed to take against the employee the
action proposed.

Investigation into affairs of Related Companies, etc. [Section 219]

If an inspector appointed under section 210 or section 212 or section 213 to investigate into the affairs
of a company considers it necessary for the purposes of the investigation, to investigate also the
affairs of

 any other body corporate which is, or has at any relevant time been the company’s subsidiary
company or holding company, or a subsidiary company of its holding company
 any other body corporate which is, or has at any relevant time been managed by any person as
managing director or as manager, who is, or was, at the relevant time, the managing director or
the manager of the company
 any other body corporate whose Board of Directors comprises nominees of the company or is
accustomed to act in accordance with the directions or instructions of the company or any of its
directors;
 any person who is or has at any relevant time been the company’s managing director or manager
or employee,

he shall, subject to the prior approval of the Central Government, investigate into and report
on the affairs of the other body corporate or of the managing director or manager, in so far as
he considers that the results of his investigation are relevant to the investigation of the affairs
of the company for which he is appointed.
Seizure of Documents by Inspector Section 220
(1) Where in the course of an investigation under this Chapter, the inspector has reasonable grounds to
believe that the books and papers of, or relating to, any company or other body corporate or managing
director or manager of such company are likely to be destroyed, mutilated, altered, falsified or
secreted, the inspector may

(a) enter, with such assistance as may be required, the place or places where such books and papers
are kept in such manner as may be required; and
(b)seize books and papers as he considers necessary after allowing the company to take copies of, or
extracts from, such books and papers at its cost for the purposes of his investigation.
(2) The inspector shall keep in his custody the books and papers seized under this section for such a
period not later than the conclusion of the investigation as he considers necessary and thereafter shall
return the same to the company or the other body corporate, or, as the case may be, to the managing
director or the manager or any other person from whose custody or power they were seized:
Provided that the inspector may, before returning such books and papers as aforesaid, take copies of,
or extracts from them or place identification marks on them or any part thereof or deal with the same
in such manner as he considers necessary.
(3) The provisions of the Code of Criminal Procedure, 1973, relating to searches or seizures shall
apply mutatis mutandis to every search or seizure made under this section.
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Freezing of Assets of Company on Inquiry and Investigation Section 221

(1) Where it appears to the Tribunal, on a reference made to it by the Central Government or
in connection with any inquiry or investigation into the affairs of a company under this
Chapter or on any complaint made by such number of members as specified under sub-
section (1) of section 244 or a creditor having one lakh amount outstanding against the
company or any other person having a reasonable ground to believe that the removal, transfer
or disposal of funds, assets, properties of the company is likely to take place in a manner that
is prejudicial to the interests of the company or its shareholders or creditors or in public
interest, it may by order direct that such transfer, removal or disposal shall not take place
during such period not exceeding three years as may be specified in the order or may take
place subject to such conditions and restrictions as the Tribunal may deem fit.
(2) In case of any removal, transfer or disposal of funds, assets, or properties of the company
in contravention of the order of the Tribunal under sub-section (1), the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend to
twenty-five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to three years or with fine which
shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with
both.
Imposition of Restrictions Upon Securities Section 222

(1) Where it appears to the Tribunal, in connection with any investigation under section 216
or on a complaint made by any person in this behalf, that there is good reason to find out the
relevant facts about any securities issued or to be issued by a company and the Tribunal is of
the opinion that such facts cannot be found out unless certain restrictions, as it may deem fit,
are imposed, the Tribunal may, by order, direct that the securities shall be subject to such
restrictions as it may deem fit for such period not exceeding three years as may be specified
in the order.
(2) Where securities in any company are issued or transferred or acted upon in contravention
of an order of the Tribunal under sub-section (1), the company shall be punishable with fine
which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees
and every officer of the company who is in default shall be punishable with imprisonment for
a term which may extend to six months or with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh rupees, or with both.
Inspector’s Report [Section 223]
The section provides for submission of the interim and final report of investigation to the Central
Government. Such a report shall be in writing or printed. A copy of the report may be obtained by
making application in this regard to the Central Government. Such report shall be authenticated by
the seal of the company or by public officer having custody of the report in accordance with Indian
Evidence Act, 1872. Such report can be submitted as evidence in any legal proceedings.

The provisions of this section shall not apply to the report of investigation carried out by SFIO under
section 212.

Actions to be taken in pursuance of Inspector’s Report [Section 224]

1. If, from an inspector’s report, made under section 223, it appears to the Central Government that
any person has, in relation to the company or in relation to any other body corporate or other
person whose affairs have been investigated under this Chapter been guilty of any offence for
which he is criminally liable, the Central Government may prosecute such person for the offence

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and it shall be the duty of all officers and other employees of the company or body corporate to
give the Central Government the necessary assistance in connection with the prosecution.

2. If any company or other body corporate is liable to be wound up under this Act or under
the Insolvency and Bankruptcy Code, 2016 and it appears to the Central Government
from any such report made under section 223 that it is expedient so to do by reason of any
such circumstances as are referred to in section 213, the Central Government may, unless
the company or body corporate is already being wound up by the Tribunal, cause to be
presented to the Tribunal by any person authorised by the Central Government in this
behalf
(a) a petition for the winding up of the company or body corporate on the ground that it is
just and equitable that it should be wound up
(b) an application under section 241
(c) both.
(3) Where the report made by an inspector states that fraud has taken place in a company and
due to such fraud any director, key managerial personnel, other officer of the company or
any other person or entity, has taken undue advantage or benefit, whether in the form of
any asset, property or cash or in any other manner, the Central Government may file an
application before the Tribunal for appropriate orders with regard to disgorgement of such
asset, property, or cash, as the case may be, and also for holding such director, key
managerial personnel, officer or other person liable personally without any limitation of
liability.
Expense of Investigation [Section 225]
The section provides that the expenses of investigation by an inspector appointed by the Central
Government shall be borne, in the first instance, by the Central Government but shall be reimbursed
by person to convicted on a prosecution instituted or who is ordered to pay damages or restore the
property to the extent he may be ordered to pay the said expenses as specified by the court.
Any amount, which company is liable to pay, shall be the first charge on the property of the company.

Voluntary Winding Up not to stop Investigation proceedings [Section 226]

This section enables continuation of investigation even after voluntary winding up or application is
pending before the Tribunal. Winding up order shall not absolve director or employee from
participating in the proceedings before the Inspector or any liability as a result of findings by
Inspector.

Legal Advisers and Bankers Not to Disclose Certain Information Section 227

Nothing in this Chapter shall require the disclosure to the Tribunal or to the Central Government or to
the Registrar or to an inspector appointed by the Central Government

 by a legal adviser, of any privileged communication made to him in that capacity, except as
respects the name and address of his client; or
 by the bankers of any company, body corporate, or other person, of any information as to the
affairs of any of their customers, other than such company, body corporate, or person.

Investigation of Foreign Companies [Section 228]

The aforesaid provisions of inspection and investigation shall also apply, mutatis mutandis, to
inspection and investigation in relation to foreign companies.
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PREPARATION BY A COMPANY SECRETARY TO FACE INVESTIGATION

Before an inspector commences investigation into the affairs of a company, it is advisable for the
Secretary to prepare a report touching upon various aspects of the activities of his company
particularly those transactions in respect of which fraud or misfeasance or mismanagement is alleged.
This exercise will enable the secretary to handle the investigation into the affairs of his company with
courage and confidence.
The aspects which should be considered by the secretary include:
1. Basic information about the company - Name of the company; date of incorporation; location of
the registered Office, branches, factories and other Offices; status of the company - public or
private; objects of the company - capital structure; voting rights attached to the shares;
shareholding pattern of the company.
2. Business activities - Nature of existing business, licensed and installed capacities, expansion
programme and sources of finance, whether the company belongs to a particular group; if so the
names of other companies falling within the same group.
3. Debentures, bank finance and deposits.
4. Foreign collaboration agreements.
5. Management—Brief history of past management set up; existing management set up; composition
of Board of Directors; whether the terms and conditions of the appointment of managerial
personnel are being adhered to; details regarding appointment of directors and their relatives to an
Office or place of pro t.
6. Whether all the statutory registers including minute’s books are being maintained up-to-date?
7. Whether the internal checks and internal control system is being properly followed?
8. Working results and financial position - General assessment of working of the company,
evaluation of the level of performance and efficiency of the management, a review of the profits
of the company, performance data, financial position of the company in the context of its working
results for the last three years.
9. Compliance by the company and its Officer s with the provisions of the Companies Act,
1956/2013.
10. Compliance with the provisions of other Acts applicable to the company.
11. Whether the loans taken and loans advanced to Directors, the fi rms in which they are partners or
companies in which they are Directors are in accordance with the provisions of the Act.
12. The investments made by the company.
13. Sole selling agency agreement.
14. Instance of mismanagement and other irregularities.
15. Acquisition/disposal of substantial assets.
16. A scrutiny of abnormal/heavy expenditure items.
17. Complaints, if any, against the company and its management and steps taken to redress them.

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CHAPTER- 23 LOANS AND INVESTMENTS BY COMPANIES

SECTION 186 AND COMPANIES (MEETING OF BOARD AND ITS POWER) RULES, 2014

INTRODUCTION
1. The power to invest the funds of the company is the prerogative of
the Board of Directors. This power is derived by the Board under Section
179 of the Act.
2. However, the Companies Act, 2013 contains provisions for
restrictions on investments that a company can make and loans it can
provide.
3. Moreover, giving corporate guarantee or security is also as good as
giving a loan, because the person to whom guarantee or security is given can
decide to enforce the guarantee or security in certain conditions and in such a
situation, the company will have to pay the amount.
4. Thus apart from loan and investments, restrictions are also
placed on the guarantees which the company can give or security it can
provide for a loan.
MEANING OF FREE RESERVES
As per section 2(43) “free reserves” means such reserves which, as per the latest
audited balance Sheet of a company, are available for distribution as dividend.

Scope of sec. 186

Sec. 186 is attracted in the following cases:
a) Give any loan to any person or other body corporate
b) Give any guarantee, or provide security, in connection with a loan to any other person body
corporate or person
c) Acquire, by way of subscription, purchase or otherwise the securities of any other body corporate

ANALYSIS ON SECTION 186

What is the meaning of the word ‘Person’ used in the Section?

Ans.: The word ‘Person’ has not been defined in the Act. Section 2(42) of
General Clauses Act 1897 provides that ‘Person’ shall include any company,
association or body of individuals, whether incorporated or not

Whether various advances and deposits will also be covered under the Section?
Ans.: There is a difference between advance and loan. Loan is lending of money
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with absolute promise to repay whereas advances is to be adjusted against supply

of goods and services.
Genuine trade advances given to suppliers against orders for supply of goods
will not be considered as loans and hence will be out of purview of Section 186.
Similarly, advances given to employees against current month’s salary will also
not be in the nature of loans.Sale on credit is also not a loan. [Bombay High
Court in Fredie Ardeshir Mehta v. Union of India (1991)]

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Whether book debts will also be considered as loans?

Ans.: Courts have held in various judgements that credit extended beyond normal credit
period may be considered in the nature of loans and hence provisions of the Section may get
attracted to such book debts also.
Whether investment in mutual funds are also covered under the Section?
Ans.: As per SEBI regulations, most of the mutual funds are managed by trusts which are not
body corporates. Hence investment in mutual funds are not covered under the Section.
However, Unit Trust of India is an exception since it has been constituted under UTI Act and
is a body corporate.

REQUIREMENTS OF MAKING INTER CORPORATE LOANS AND INVESTMENTS BY COMPANIES

APPROVAL OF BOARD APPROVAL OF SHAREHOLDERS APPROVAL OF P.F.I.

Approval of all the directors at the Board Meeting (Section 186(5))

When is approval of Board required?

The approval of board is required for making intercorporate loan, investment, guarantee or
security of any amount.

Conditions regarding approval of board

a) The approval of Board must be obtained prior to making any intercorporate loan,
investment, guarantee or security.
b) The approval of Board must be obtained by passing a unanimous resolution.

The unanimous resolution shall be passed in BM only. (NOT BY RESOLUTION BY

CIRCULATION)

(All directors present at meeting must vote in favour of resolution.)

RESTRICTION ON INTER-CORPORATE TRANSACTION (SECTION 186(2)

No Company shall, directly or indirectly:

a. give any loan to any person or other body corporate;

b. give any guarantee, or provide security, in connection with a loan to any other person
body corporate or person; and
c. acquire, by way of subscription, purchase or otherwise the securities of any other body
corporate;

 Exceeding 60% of its paid-up share capital, free reserves and securities premium account
OR
 100% of its free reserves and securities premium account,
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Whichever is more.

Explanation.—For the purposes of this sub-section, the word "person"does not include any
individual who is in the employment of the company.

APPROVAL OF SHAREHOLDERS (SECTION 186(3)

Where the aggregate of the loans and investment so far made, the amount for which
guarantee or security so far provided to or in all other bodies corporate along with the
investment, loan, guarantee or security proposed to be made or given by the Board, exceed
the limits specified under sub-section (2), no investment or loan shall be made or guarantee
shall be given or security shall be provided unless previously authorised by a special
resolution passed in a general meeting:

Provided that where a loan or guarantee is given or where a security has been provided by a
company to its wholly owned subsidiary company or a joint venture company, or acquisition
is made by a holding company, by way of subscription, purchase or otherwise of, the
securities of its wholly owned subsidiary company, the requirement of this sub-section shall
not apply:

Provided further that the company shall disclose the details of such loans or guarantee or
security or acquisition in the financial statement as provided under sub-section (4).”.

RULE 13 OF MBP RULES 2014

A resolution passed at a general meeting in terms of sub section (3) of section .186 to give
any loan or guarantee or investment or providing any security or the acquistion under sub
section (2) of section 186 shall specify the total amount up to which the Board of
Directors are authroised to give such loan or gurantee,to provide such security or make such
acquistion ;
Provided that the company shall disclose to the members in the financial statement the full
particulars in accordance with the provisions of sub-section(4) of section 186.
SPECIAL POINTS

The requirement of seeking member’s approval by means of a special resolution for making
loans/ investment or giving or guarantee / security in excess of the threshold limits specified
in Section 186 has been relaxed for government companies engaged in defence production
and other unlisted government companies which seek prior approval of their administrative
Ministry or Department for the proposed transactions.

Disclosure in financial statements (Section 186(4)

The company shall disclose to the members in the financial statement the full particulars of
the loans given, investment made or guarantee given or security provided and the purpose for
which the loan or guarantee or security is proposed to be utilised by the recipient of the loan
or guarantee or security.

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Approval of Public Financial Institution SECTION 186(5) PROVISO

If any term loan from a public financial institution is subsisting, then

1. No prior approval of public financial institution is required, if the inter – corporate

loans/investments and other loans is only up to 60% or 100%; as the case may be;
provided there is no default in repayment of loan installments or payment of interest
thereon.
2. If the inter – corporate loans/investments and other loans is beyond 60% or 100%, as the
case may be, then prior approval of the public financial institution is required in all cases.

Restriction on taking loan on the companies registered with SEBI under section 12 of the SEBI
Act.

Section 186(6) provides that no company, which is registered under section 12 of the SEBI
Act, 1992 and covered under such class or classes of companies as may be prescribed, shall
take inter-corporate loan or deposits exceeding the prescribed limit and such company shall
furnish in its financial statement the details of the loan or deposits.
INTEREST RATE SECTION 186(7)
No loan shall be given under this section at a rate of interest lower than the prevailing yield of
one year, three year, five year or ten year Government Security closest to the tenor of the
loan.
Provided that nothing contained in this sub-section shall apply to a company in which twenty-
six per cent. or more of the paid-up share capital is held by the Central Government or one or
more State Governments or both, in respect of loans provided by such company for funding
Industrial Research and Development projects in furtherance of its objects as stated in its
memorandum of association.
it is hereby clarified by MCA that in cases where the effective yield (effective rate of return) on tax
free bonds is greater than the prevailing yield of one year, three year, five year or ten year
Government Security closest to the tenor of the loan, there is no violation of sub-section (7) of section
186 of the Companies Act, 2013.

Section 186(8) Restriction on providing loan, guarantee or security in case of default

committed in repayment of deposit and/or interest thereon
Section 186(8) provides that no company which is in default in the repayment of any deposits
accepted before or after the commencement of this Act or in payment of interest thereon,
shall give any loan or give any guarantee or provide any security or make an acquisition till
such default is subsisting.
Register of Loans, investment, guarantee or security Section 186(9) (10) read with Rule 12(1)

Every company giving loan or giving a guarantee or providing security or making an

acquisition of securities shall, from the date of its incorporation, maintain a register in the
Form MBP-2 and enter therein separately, the particulars of loans and guarantees given,
securities provided and acquisitions made as aforesaid.
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Entries to be made in the register within 7 days

Rule 12(2) provides that entries in the register shall be made chronologically in respect of
each such transaction within seven days of making such loan or giving guarantee or providing
security or making acquisition.

Place of keeping and preservation of the Register

Rule 12(3) provides that the register shall be kept at the registered office of the company. The
register shall be preserved permanently and shall be kept in the custody of the secretary of the
company or any other person authorised by the Board for the purpose.
Inspection of the Register
The register referred in section 186(9) shall be kept at the registered office of the company
and

 Shall be open to inspection at such office; and

 Extracts may be taken there from by any member, and copies thereof may be furnished to
any member of the company on payment of such fees as may be prescribed.
NON – APPLICABILITY OF SECTION 186(1) SECTION 186(11)

SECTION 186(11)

This section {except sub-section (1)} does This section {except sub-section (1)} does not
not apply to loans made or guarantee or apply to any investment made by
security provided or (investment) by
1. A company whose principal business is the
1. A banking company acquisition of shares, stock, debentures or other
2. An insurance company securities (Investments Company)
3. A housing finance company
2. A Non-Banking Financial Company (NBFC).
4. A company engaged in the business of
financing of companies or of providing 3. while making investments in the ‘Rights Shares’
infrastructural facilities. under Section 62(1)(a) of the Companies At, 2013.
However, at the time of further investments,
investments already made in Rights Shares shall be
taken into account.

EXPLANATION:

INVESTMENT COMPANY MEANS a company whose principal businessis acquisition of

shares, debenture or other securities "and a company will be deemed to be principally
engaged in the business of acquisition of shares, debentures or other securities, if its assets in
the form of investment in shares, debentures or other securities constitute not less than fifty
per cent. of its total assets, or if its income derived from investment business constitutes not
less than fifty per cent. as a proportion of its gross income.

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RESTRICTIONS ON MAKING INVESTMENT THROUGH NOT MORE THAN 2 LAYERS

Section 186(1) A company shall, unless, otherwise prescribed, make investment through not
more than two layers of investment companies:
Provided that the provisions of this sub-section shall not affect

1. A company from acquiring any other company incorporated in a country outside India if such
other company has investment subsidiaries beyond two layers as per the laws of such country;
2. A subsidiary company from having any investment subsidiary for the purposes of meeting the
requirements under any law or under any rule or regulation framed under any law for the time
being in force.

The Central Government may make rules for the purposes of this section SECTION 186(12)
PENALTY UNDER SECTION 186 SECTION 186(13)
If a company contravenes the provisions of this section, the company shall be punishable with fine
which shall not be less than 25,000 but which may extend to 5 Lakhs and every officer of the
company who is in default shall be punishable with imprisonment for a term which may extend to 2
years and with fine which shall not be less than 25,000 but which may extend to 1 lakh.

PROCEDURES INVOLVED IN MAKING LOAN, GIVING GUARANTEEAND PROVIDING

SECURITY

1. A meeting of Board of Directors is to be convened after giving proper notice and

proposals of giving loan or giving guarantee or providing security etc. are to be discussed.
2. No investment shall be made or loan or guarantee or security given by the company
unless the resolution sanctioning it is passed at a meeting of the Board with the consent of
all the directors present at the meeting.
3. It is to be checked whether there is any existing loan from any public financial institution,
If so, prior approval of that public financial institution is also required for any subsequent
loan from any other source.
4. Arrange to convene a general meeting of shareholders after giving proper notice and to
pass special resolution therein, where the giving of any loan or guarantee or providing
any security or the acquisition exceeds the limits specified i.e 60% of its paid up capital,
free reserves and security premium account or 100% of its reserves and security premium
whichever is more.
5. File the copy of special resolution in Form No. MGT-14 with the Registrar within 30 days
of passing the resolution.
6. Registers are to be maintained in Form MBP-2 by every company giving loan or giving
guarantee or providing security or making an acquisition shall, from the date of its
registration and the particulars of loan and guarantee given, securities provided and
acquisition are to be entered therein.
7. It is to be ensured that no loan shall be given at a rate of interest lower than the prevailing
yield of one year, three year, five year or ten year Government security closest to the
tenor of the loan.

Investments of company to be held in its own name [Section 187]

All investment made or held by a company in a property, security or other asset must be
made and held by it in its own name. The company may hold any shares in its subsidiary
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company in the name of any nominee or nominees of the company, if it is necessary to do so

to ensure that the number of members of the subsidiary company is not reduced below the
statutory limit.
EXCEPTIONS

1. A company may deposit with a bank, being the bankers of the company, any shares or
securities for the collection of any dividend or interest payable thereon; or
2. A company may deposit with, or transferring to, or holding in the name of, the State Bank
of India or a scheduled bank, being the bankers of the company, shares or securities, in
order to facilitate the transfer thereof, but required to again hold the shares or securities in
its own name within a period of six months;
3. A company may deposit with, or transferring to, any person any shares or securities, by
way of security for the repayment of any loan advanced to the company or the
performance of any obligation undertaken by it;
4. A company may hold investments in the name of a depository when such investments are
in the form of securities held by the company as a beneficial owner.

Maintenance of Register: Every company shall maintain a register in Form MBP 3 and
enter therein, chronologically, the particulars of investments in shares or other securities
beneficially held by the company but which are not held in its own name and the company
shall also record the reasons for not holding the investments in its own name and the
relationship or contract under which the investment is held in the name of any other person.
The register shall be maintained at the registered office of the company. The said register
shall be open to inspection by any member or debenture-holder of the company without any
charge during business hours subject to such reasonable restrictions as the company may by
its articles or in general meeting impose.
Penalty: If a company is in default in complying with the provisions of this section, the
company shall be liable to a penalty of five lakh rupees and every officer of the company
who is in default shall be liable to a penalty of fifty thousand rupees. (COMPANIES
AMENDMENT ACT 2020) section 187(4)
PRACTICAL QUESTIONS
Question 1

From the following information extracted from the Balance Sheet of VCD Ltd. as at
31st Marc h, 2014, Board of Directors of the Company decide to grant a loan of Rs. 80
crores to another company JN Ltd.

Rs. (in
crores)
Paid up Share Capital:
Equity Share Capital 50
Preference Share Capital 10
General Reserves 100
Debentures 5
Debenture Redemption Reserve 5

The company has already given loans to the following companies:

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(i) Peters Ltd. Rs. 5 Crore

(ii) Steel India Ltd. Rs. 10 Crore
The Company has also given a corporate guarantee of Rs. 10 crores to NR & Co.
Ltd. Advise whether the Board can go ahead with the above proposal

Answer

Amount (Rs. Crore)

(a) Investment already made by company

 Peters Ltd. 5
 Steel India Ltd 10
 Corporate Guarantee to NR Ltd 10
Paid up capital 60
Free reserve 100
(Debenture redemption reserve is not free reserve.)
(b) 60% of (Paid up capital + FR + SPA) or 100% of Free reserve and
Securities account, Whichever higher Up to this amount Inter corporate
loan is allowed 60% of (60+100)or 100 100
Amount available for inter-corporate loan without special resolution (a-b) 75
Investment proposed to be made
 JN Ltd. 80

As per above calculation company can make further inter-corporate loan of Rs. 75 crores.
Loan upto Rs. 80 crores as proposed can be given provided that prior approval by way of
special resolution is obtained as required under Section 186 of the Companies Act, 2013. If
the said company is listed company, than special resolution shall be passed by postal ballot.
The notice of special resolution must state specified particulars.

Question 2

Following information is available from the audited Balance Sheet as at 31st March,
2014 of ASK Ltd.:
Share Capital: Rs.
Equity Share Capital (5,00,000 shares of Rs.10 each fully paid up in cash) 50,00,000
Less: Calls in arrear 50,000
49,50,000
Preference Share Capital 15,00,000
Share Application Money 10,00,000
Reserves and Surplus:
Securities Premium 15,00,000
Capital Redemption Reserve 12,00,000
Fixed Assets Revaluation Reserve 10,50,000
Sinking Fund Reserve 11,00,000
General Reserve 40,00,000
Profit and Loss Account 22,00,000
Dividend Equalisation Reserve 6,00,000
Secured Loans:
Cash Credit facility from Bank 1,00,00,000
You are required to find out, explaining the relevant provisions of the Companies Act, 2013,
the amount upto which the Board of Directors can invest in securities of other bodies
corporate and/or give loans.

Answer
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As per Section 186, Companies Act, 2013 a company cannot grant any loans or inter-corporate
investment exceeding 60% of its paid up capital, free reserves and securities Premium account or
100% of its free reserves and securities premium account, whichever is more, without the previous
approval of the members by way of special resolution in general meeting.

In order to arrive at the conclusion whether the directors of ASK Ltd. can, make the proposed
investments without seeking approval from the shareholders, the amount upto which they can invest
has to be arrived at.

Amount (Rs.)

(a) Investment already made by company Nil

Paid up capital (Calls In arrear excluded) 64,50,000
Free reserve* 83,00,000
(b) 60% of (Paid up capital + FR+SPA) or 100% of Free reserve and
securities premium account, whichever higher Up to this amount
Inter corporate loan Is allowed 88 50,000
(60% of (64,50,000 + 68,00,000 + 15,00,000) or 83,00,000)
Amount available for inter-corporate loan without special resolution (a-b) 88,50,000

Capital Redemption Reserve, Fixed Assets Revaluation Reserve and Sinking Fund Reserve are
excluded not being free reserve. General reserve, amount of profit and loss account and dividend
equalization reserve are free reserves. Cash credit facility obtained from bank for short term is not
counted within loan.

The directors of ASK Ltd can advance loans and make investments in other bodies corporate upto a
total limit of Rs. 88,50,000 without obtaining prior approval from the shareholders.

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CHAPTER 24 GLOBAL DEVLOPMENTS

Discuss directors’ remuneration report in the light of Companies Act, 2006 of the
United Kingdom.

Duty to prepare directors’ remuneration report under UK Companies Act, 2006

(Section 420 & 422)

The directors of a quoted company shall for each financial year prepare a directors’
remuneration report which shall contain the information specified in the Schedule to Act and
comply with any requirement of that Schedule as to how the information is to be set out in the
report. The directors’ remuneration report shall be approved by the Board of directors and
signed on behalf of the Board by a director or the secretary of the company. Every copy of
said report which is laid before the company in general meeting or which is otherwise
circulated, published or issued, shall state the name of the person who signed it on behalf of
the Board. The copy of the directors’ remuneration report which is delivered to the registrar
shall be signed on behalf of the Board by a director or the secretary of the company.

During the period of about past one and a half decades, a number of countries in the
world have engaged themselves in modernizing their respective company laws. Can you
identify the motivating factors underlying this effort? Mention Indian scene in
particular.

A number of countries including India, Australia, Canada, UK and Hong Kong have initiated
comprehensive effort to modernize their respective company laws. The need to become more
competitive, techno savvy, simple to understand and interpret to facilitate greater compliance,
economic to operate, attractive as a worthwhile investment destination to accelerate economic
growth, to emphasize on corporate social responsibility, better regulation and greater
transparency in corporate governance and reporting are some of the underlying objectives
that motivated them.

Precisely, in India the process has started to evolve the modern, transparent, investor friendly,
well governed company law i.e. Companies Bill, 2009. Modernization of corporate regulation
governing setting – up and running of enterprises, governance and accountability to the
investors and other stakeholders and structural changes in law commensurate with global
standards have become critical for the maintenance and enhancement of a vibrant corporate
sector and business environment. By putting in place, a best legal framework would enable
the Indian Corporate Sector to operate in an environment of best international practices in a
global competitive market.

Account for the significance of Hong Kong as a vibrant business centre, having some
special advantage. Name the law that governs companies in Hong Kong.

1. The advantages of Setting Up Business in Hong Kong:

Hong Kong is an international city with advanced information, and the freest harbour for
trading in the world. It provides wonderful business situations for entrepreneurs and
businessmen. The advantages for setting up Hong Kong Company are as follows:
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2. Free to Choose the Name of the Company:

The Hong Kong government allows the names of the company to include the words such as
international, chamber of commerce, united group, foundation, association for promotion, etc.

3. Utile Restriction of the Business Areas

Jewellery, treasury, shipment, transportation, import and export, house estate, website,
research institution and other hi – tech industry. All these can be businesses.

4. Great Development in Low Taxation Environment:

The taxation in Hong Kong is very low.

5. Easy to Get the International Credit:

It is known to all that Hong Kong is the economic and financial centre in Asia, every street of
which has banks. Credit is the basis to develop international businesses and is easily
available.

6. Doing Best to Get the Inhabitant Right in Hong Kong:

If your enterprises have done contributions to Hong Kong, you can apply to the people’s
inbound affairs office of Hong Kong to arrange the visa for doing businesses. If people have
inhabitanted in Hong Kong for 7 years, they can get the eternal inhabitation right in Hong
Kong.

Hong Kong Companies are guided by the Hong Kong Companies Ordinance.

State the requirements under the UK Companies Act, 2006 for audited accounts and the
duties of an auditor.

According to section 475 of UK Act, 2006, a company’s annual accounts for a financial year
must be audited unless the company is exempt from audit under section 477 (small
companies), or section 480 (dormant companies); or is exempt from the requirements under
section 482 (non – profit – making companies subject to public sector audit).
A company is not entitled to any such exemption unless its balance sheet contains a statement
by the directors to the effect that (a) the members have not required the company to obtain an
audit of its accounts for the year in question and the directors acknowledge their
responsibilities for complying with the requirements of this Act with respect to accounting
records and the preparation of accounts.

Section 498 specifies the duties of auditor. According to it, a company’s auditor, in preparing
his report, must carry out such investigations as will enable him to form an opinion as to –

1. whether adequate accounting records have been kept by the company and returns
adequate for their audit have been received from branches not visited by him, and
2. whether the company’s individual accounts are in agreement with the accounting records
and returns, and
3. in the case of a quoted company, whether the auditable part of the company’s directors’
remuneration report is in agreement with the accounting records and returns.

The auditor shall state that fact in his report according to his opinion on the above.

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He shall state the following facts in his report:

a) If the auditor fails to obtain all the information and explanations, which, to the best of his
knowledge and belief, are necessary for the purposes of his audit.

b) If the requirements of regulations under section 412 (disclosure of directors’ benefits:

remuneration, pensions and compensation for loss of office) are not complied with in the
annual accounts, or in the case of a quoted company, the requirements of regulations
under section 421 as to information forming the auditable part of the directors’
remuneration report are not complied with in that report.

c) If the directors of the company have prepared accounts in accordance with the small
companies regime, or have taken advantage of small companies exemption in preparing
the directors’ report, and in the auditor’s opinion they were not entitled to do so.

As per section 498A, where the company is required to prepare a corporate governance
statement in respect of a financial year and no such statement is included in the directors’
report, the company’s auditor, in preparing his report on the company’s annual accounts for
that year, must ascertain whether a corporate governance statement has been prepared, and if
it appears to the auditor that no such statement has been prepared, he must state that fact in
his report.

Mention the provisions of the Singapore Companies Act relating to formation of

companies.

Formation of companies under the provisions of Singapore Companies Act

Any person may, whether alone or together with another person, by subscribing his name or
their names to a memorandum and complying with the requirements as to registration, form
an incorporated company.
A company may be

(a) a company limited by shares;

(b) a company limited by guarantee; or
(c) an unlimited company.

Any company, association or partnership consisting of more than 20 persons cannot be

formed for the purpose of carrying on any business that has for its object the acquisition of
gain by the company, association or partnership, or by the individual members thereof, unless
it is registered as a company under this Act, or is formed in pursuance of some other written
law in Singapore or letters patent.

A company must have at least one member.

The first consideration is to decide on the right business entity that will meet the business
needs. The most common three business entities available in Singapore are Sole
Proprietorship, Limited Liability Partnership and Private Limited Company.
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Singapore Private Limited Company:

Private Limited Company is the most popular business entity in Singapore. It has a separate
legal status from its shareholders and directors who have limited liabilities for the debts and
losses of the company. It usually has the words “Pte Ltd” or “Ltd” as part of its name. In
many European countries or the US, it is commonly known as a Corporation.

“The provisions of the Hong Kong Companies Ordinance relating to formation of an

incorporated company are broadly similar to the provisions of the Companies Act,
2013.” Comment.

The statement that “the provisions of the Hong Kong Companies Ordinance relating to
formation of an incorporated company are broadly similar to the provisions of the Companies
Act, 2013”, appears to be correct for the following reasons:
In Hong Kong a company may be formed by one person or more than one person by
subscribing his / their names to a memorandum of association. In India, the process is the
same i.e. subscribing to a memorandum but by at least two persons as against even by one
person in Hong Kong.

The types of companies that can be formed in Hong Kong are

(a) Company limited by share;

(b) Company limited by guarantee;
(c) Company limited by guarantee and not having a share capital; and
(d) Unlimited Liability Company having a share capital.

Under the Companies Act, 2013 same types of companies can be incorporated

A company which is being incorporated in Hong Kong need to deliver to the Registrar the
memorandum and articles of the company. In India, requirements are broadly the same.
Sections 26, 33 of Companies Act, 2013 similarly requires submission of memorandum in all
cases to the Registrar for incorporation of the company and also of the articles in prescribed
format (except a public company limited by shares where Table A may be deemed as the
Articles). This means that a public company limited by shares must also have its articles
registered or allow a deeming of Table A as its articles.

Once memorandum and articles are registered by a company in Hong Kong, the Registrar
shall certify in his hand that the company has been incorporated. The certificate so issued
shall be the conclusive evidence that all matters requiring compliance have been complied
with and the entity so certified will have perpetual succession with a common seal. A
compliance certificate by an advocate of High Court or by one of the directors or Secretary
named in the Articles to the Registrar is a precondition for issue of certificate of
incorporation.

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Briefly explain how the U.K. White Paper, 2005 envisages to reform the role of
directors.

U.K. White Paper, 2005 envisages to reform the role of directors by inserting provisions as
below:
1. Primary role of directors will be to promote the success of the company for the benefits of
its shareholders as a whole.
2. Director’s general duties has been codified in detail and include duties of trust care etc.
3. A person may not be appointed as director of a company unless he has attained the age of
16 years. Restrictions on appointment of the directors over 70 years has been removed.
4. A company must have atleast one director who is a natural person. This requirement is
met even when the office of such director is occupied by a natural person as a corporation
sole or otherwise by virtue of an office.
5. Directors and Officers (D&O) insurance has been permitted to be taken out under which
the company may indemnify directors against most liabilities to third parties and pay
directors legal costs upfront, provided that the director repays if he or she is convicted in
any criminal proceedings.
6. Every director has been given the option of providing a service address for the public
address with the home address bring kept on a separate record to which access will be
restricted. This will help directors at serious risk of violence and intimidation to have
their home address kept off the public record.
How is election of directors dealt with by the Canadian company law?

The Board of Directors is elected by the shareholders. The articles may provide for different
classes of directors to be elected by different classes of shareholders. Unless the election is
pursuant to a resolution in writing signed by all the shareholders, the election must take place
at a General Meeting which has to be held within Canada. However, a General Meeting may
be held outside Canada if all shareholders entitled so agree and those who attend such a
meeting are deemed to have agreed to if being so held outside Canada. Directors may be
elected for a term expiring not later than the close of the third annual General Meeting of
shareholders following the election for the same term. If a director is not elected for an
expressly stated term, he ceases to hold office at the first annual meeting of shareholders after
his election.
The articles may provide for cumulative voting in the election of directors, i.e. every
shareholders will have for this purpose the number of votes attached to his shares multiplied
by the number of votes attached to his shares multiplied by the number of directors to be
elected and that such votes may be cast for one candidate or distributed amongst several
candidates.
Where no election of directors has effectively have been made at the proper time which will
ordinarily be at the annual general meeting, such election may take place at a subsequent
special meeting of the shareholders called for the purpose. If there is no quorum of directors
or if there has been a failure to elect the minimum number of directors or if there has been a
failure to elect the minimum number of directors required by the articles, the directors then in
office are required to forthwith call special meeting of shareholders to fill the vacancy.
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The provisions of the Hong Kong Companies Ordinance relating to formation of an

incorporated company are broadly similar to the provisions of the Companies Act,
2013.” Comment.

The statements that the provisions of Hong Kong Companies ordinance relating to provisions
of the Companies Act, 2013, appears to be correct for the following reasons.
Similarities are given below:
Hong Kong India
1 A company may be formed by one person or more than In India, the process is the
one person by subscribing their names to the same
memorandum of association
2 The different types of company can be formed are : Under the Companies Act,
a. Company Ltd. By share 2013 same types of company
b. Company Ltd. By guarantee- can be incorporated
c. Unlimited Company
3 A companies which is being incorporated in Hong Kong In India the process is the
need to deliver to the Registrar the MOA/AOA same
4 Once MOA/AOA are registered by a company in Hong In India, the process is the
Kong. The Registrar shall certify in his hand that the same applicable.
company has been incorporated.

What are the special features of the Corporations Act, 2001 of Australia, which are
distinct and different from the provisions of the Companies Act, 2013 in India.

Corporation Act, 2001 and the Corporate Regulations 2001 framed under the Corporations
Act, 2001 govern the functioning of the companies in Australia. Following are the special and
distinct features of the corporate laws in Australia. Following are the special and distinct
features of the corporate laws in Australia as compared to the Indian Companies Act, 2013:
1. The Australian Corporation Act imposes duties on directors and officers of incorporated
bodies. Breach of statutory duties draws penalties under the Act which range up to $
220000. Defaulting Officers or directors may also be required to pay compensation or to
account for profits. In some cases, directors may also be disqualified from office.
2. It distinguishes proprietary company and public company. a public company must have at
least 3 directors out of whom at least 2 directors must ordinarily reside in Australia.
3. Australian Securities and Investment Commission (ASIC) controls and regulates the
affairs of the companies. A person who is disqualified from managing corporations may
only be appointed as director of a company if the appointment is made with permission
granted by Australian Securities and Investment Commission under the leave granted by
the Court/Tribunal.
4. A person who is the only director and only shareholder of a proprietory company can
exercise all the powers of the company.
5. A company secretary’s obligations may continue even after the company has been
deregistered.
6. The company secretary must notify ASIC about changes:-
i. To the identities, names and address of the company’s directors and company
secretaries; and
ii. To the register of members; and To any ultimate holding company.

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CHAPTER-25
MAJORITY POWERS AND MINORITY RIGHTS
The concept of shareholders’ democracy in the present day corporate world denotes the
shareholders’ supremacy in the governance of the business and affairs of corporate sector
either directly or through their elected representatives.

POWERS OF MAJORITY

It is a cardinal rule of company law that prima facie a majority of members of a company are
entitled to exercise the powers of the company and generally to control its affairs. The
resolution of a majority of shareholders, passed at a duly convened and held general meeting,
upon any question with which the company is legally competent to deal, is binding upon the
minority and consequently upon the company.

‘THE PRINCIPLE OF NON-INTERFERENCE’ (Rule in Foss v. Harbottle)

The court will not usually intervene at the instance of shareholders in matters of internal
administration, and will not interfere with the management of a company by its directors so
long they are acting within the powers conferred on them under the articles of the company.
The basic principle of non-interference with the internal management of company by the
court is laid down in the case of Foss v. Harbottle.

Facts of the case

 Two shareholders instituted a suit against the directors.

 The shareholders alleged that-

 the directors had effected various fraudulent and illegal transactions acting on
behalf of the company;

 The directors had misapplied, alienated and wasted the property of the company.

 The shareholders claimed damages from the directors for loss caused to the company.

Decision
The suit was dismissed.

Reasons for decision

(a) Proper plaintiff is the company.
(b) Recognition of `majority rule’.
(c) Avoiding unproductive litigation.
(d) Avoiding multiplicity of suits.
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Rule in Foss v Harbottle

 The `majority rule’ was laid down in Foss v Harbottle.
 The `majority rule’ is also called as `rule in Foss v Harbottle.
 The `majority rule’ states that the will of the majority must prevail.

Principle emerged from Foss v Harbottle

 A company has a separate legal identity. It can sue in its own name.
 A company is regulated like a democracy. The affairs of a company are conducted by the
majority of members.
 The resolution passed by the majority of members is binding on the company and
consequently on the minority.
 The courts do not usually intervene in the matters of internal management of the
company.

EXCEPTION OF GENERAL RULE

EXCEPTIONS AS PER DECIDED CASES

 Ultra vires and illegal acts

If funds of the company are misapplied by entering into ultra vires transactions, even a single
member can sue the directors for recovery of damages.

Even a single member can apply to the Court to grant an injunction restraining the company
from entering into an ultra vires contract.
 Fraud on minority
Where the majority misuses its power to defraud or oppress the minority, an action can be
brought by an individual member.

 Wrongdoers in control
Where the directors control majority of share capital, they will not permit the company to
bring a suit against themselves. Therefore, even a single member can sue.
 Breach of fiduciary duties
If directors make a secret profit, then any member can compel the directors to pay
back the profits made by them

 Infringement of rights of a member

If any individual right of a member is infringed, the member has a right to sue the company
for the enforcement of his right.

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CASE LAWS
Menier v Hooper’s Telegraph Works Ltd.

(Majority diverting the profits of the company to another company in which they are
majority shareholders)

 A compromise was made between `Company A’ and `Company B’.

 The compromise was detrimental to the interests of `Company A’ but was favourable to
`Company B’.
 Majority of members of `Company A’ were also the members of `Company B’.
 It was held that the majority had tried to put something in their pockets at the cost of the
minority and thus minority was empowered to take an action.

Brown v BRITISH Abrasive Wheel Co.(Compulsory acquisition of shares of a

minority shareholder)

 A large majority of 98% wished to buy the shares held by the minority shareholders.
 The minority shareholders refused to sell their shares.
 In order to grab the shares of minority shareholders, the majority shareholders passed a
resolution altering the articles so as to enable 9/10th of the shareholders to buy the shares
of any other shareholder.
 It was held that the minority could not be compelled to sell its shares to the majority.

Daniels v Daniels (sale at gross undervalue)

 A husband and wife were the only two directors in a company. They held majority
shares of the company.

 The land of the company was sold to one of the directors at gross undervalue.
It was held that minority shareholders had a valid cause to bring an action against the
directors.

EXCEPTIONS UNDER COMPANIES ACT

 Dissenting shareholders (if not less than 10%) may apply to the Court for the
cancellation of the variation made in class rights (Sec. 48).
 Dissenting shareholders may apply to the Court for the purpose of restraining the
transferee company from acquiring their shares (Sec.235)
 Requisite number of members (may make an application to NCLT for seeking relief
from oppression and mismanagement (Sec. 241,242,243 and 244).
 Requisite number of members can demand a poll (Sec.109 Companies act 2013).
 Any member can apply to CLB to call AGM if default is made in holding AGM (Sec.97
Companies Act 2013).
 Any member can apply to CLB to call EGM if default is made in holding EGM (Sec.98
Companies Act 2013).
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PREVENTION OF OPRESSION AND MISMANAGEMENT

The minority shareholders are empowered to bring action with a view to preventing the
majority from oppression and mismanagement. These are the statutory rights of the minority
shareholder.
OPPRESSION AND MISMANAGEMENT- MEANING
SECTION 241 TO 244 READ WITH NCLT RULES 2016

The words “oppression” and “mismanagement” are not defined in the Act. The meaning of
these words for the purpose of Company Law should be used in a broad generic sense and not
in any strict literal sense.

In general, oppression refers to an act of majority which is harsh and burdensome on

minority.

Mismanagement refers to gross negligence. Mere un-wise conduct of business cannot be

considered as mismanagement.

 Minor acts of mismanagement, however, are not to be regarded as oppression. As far as

possible shareholders should try to resolve their differences by mutual readjustment.
(Lalita Rajya Lakshmi v. Indian Motor Co.)

 There must be an unfair abuse of powers and impairment of confidence in the probity
with which the company’s affairs are being conducted.(Shanti Prasad Jain v. kalinga
tubes ltd.)
 A member can complain of oppression only in his capacity as a member and not in his
capacity as director or creditor (In Re. Bellador Silk Ltd)

 The legal representatives of a deceased member whose name is still on the register of
members are entitled to file a petition under Sections 397 and 398 of the Companies Act,
1956, for relief against oppression or mismanagement.(Worldwide Agencies Pvt. Ltd.
v.mrs. Margaret T. Deposor)

 “Oppression must be a continuous process. This is suggested by the words, 'are being
conducted in a manner...’ used in Section 397. Hence isolated acts of oppression or
mismanagement will not give rise to an action under Section 397 of the Act. (Shanti
Prasad Jain v. kalinga tubes ltd.)

Application to Tribunal for relief in cases of oppression, etc. Section 241

S.NO. PARTICULARS PROVISIONS

1 Section 241(1) Any member of a company who complains that
(a) the affairs of the company have been or are being conducted
in a manner prejudicial to public interest or in a manner
prejudicial or oppressive to him or any other member or
members or in a manner prejudicial to the interests of the
company; or
(b) the material change, not being a change brought about by, or
in the interests of, any creditors, including debenture holders
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or any class of shareholders of the company, has taken place

in the management or control of the company, whether by an
alteration in the Board of Directors, or manager, or in the
ownership of the company’s shares, or if it has no share
capital, in its membership, or in any other manner
whatsoever, and that by reason of such change, it is likely
that the affairs of the company will be conducted in a manner
prejudicial to its interests or its members or any class of
members, may apply (IN FORM NCLT-1) to the Tribunal,
provided such member has a right to apply under section 244,
for an order under this Chapter.
2 Section 241(2) The Central Government, if it is of the opinion that the affairs of
the company are being conducted in a manner prejudicial to
public interest, it may itself apply to the Tribunal for an order
under this Chapter.
RULE 82 OF 1. An application under clause (a) or clause (b) of sub-section (1) of
NCLT RULES section 241 of the Act, shall not be withdrawn without the leave of
2016. Withdrawal the Tribunal.
of Application 2. An Application for withdrawal under sub-rule (1) shall be filed in
filed under the Form NCLT-9.
section 241

Power of Tribunal Section 242

S.NO. PARTICULARS PROVISIONS

1 Section 242(1) (1) If, on any application made under section 241, the Tribunal is
of the opinion—
(a) that the company’s affairs have been or are being conducted
in a manner prejudicial or oppressive to any member or members
or prejudicial to public interest or in a manner prejudicial to the
interests of the company; and
(b) that to wind up the company would unfairly prejudice such
member or members, but that otherwise the facts would justify
the making of a winding-up order on the ground that it was just
and equitable that the company should be wound up, the
Tribunal may, with a view to bringing to an end the matters
complained of, make such order as it thinks fit.
2 Section 242(2) (2) Without prejudice to the generality of the powers under sub-
section (1), an order under that sub-section may provide for—
(a) the regulation of conduct of affairs of the company in future;
(b) the purchase of shares or interests of any members of the
company by other members thereof or by the company;
(c) in the case of a purchase of its shares by the company as
aforesaid, the consequent reduction of its share capital;
(d) restrictions on the transfer or allotment of the shares of the
company;
(e) the termination, setting aside or modification, of any
agreement, howsoever arrived at, between the company and the
managing director, any other director or manager, upon such
terms and conditions as may, in the opinion of the Tribunal, be
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just and equitable in the circumstances of the case;

(f) the termination, setting aside or modification of any
agreement between the company and any person other than those
referred to in clause (e):
Provided that no such agreement shall be terminated, set aside or
modified except after due notice and after obtaining the consent
of the party concerned;
(g) the setting aside of any transfer, delivery of goods, payment,
execution or other act relating to property made or done by or
against the company within three months before the date of the
application under this section, which would, if made or done by
or against an individual, be deemed in his insolvency to be a
fraudulent preference;
(h) removal of the managing director, manager or any of the
directors of the company;
(i) recovery of undue gains made by any managing director,
manager or director during the period of his appointment as such
and the manner of utilisation of the recovery including transfer to
Investor Education and Protection Fund or repayment to
identifiable victims;
(j) the manner in which the managing director or manager of the
company may be appointed subsequent to an order removing the
existing managing director or manager of the company made
under clause (h);
(k) appointment of such number of persons as directors, who
may be required by the Tribunal to report to the Tribunal on such
matters as the Tribunal may direct;
(l) imposition of costs as may be deemed fit by the Tribunal;
(m) any other matter for which, in the opinion of the Tribunal, it
is just and equitable that provision should be made.
3 Section 242(3) A certified copy of the order of the Tribunal under sub-section
(1) shall be filed by the company with the Registrar within thirty
days of the order of the Tribunal.
4 Section 242(4) The Tribunal may, on the application of any party to the
proceeding, make any interim order which it thinks fit for
regulating the conduct of the company’s affairs upon such terms
and conditions as appear to it to be just and equitable.
5 Section 242(5) Where an order of the Tribunal under sub-section (1) makes any
alteration in the memorandum or articles of a company, then,
notwithstanding any other provision of this Act, the company
shall not have power, except to the extent, if any, permitted in
the order, to make, without the leave of the Tribunal, any
alteration whatsoever which is inconsistent with the order, either
in the memorandum or in the articles.
6 Section 242(6) Subject to the provisions of sub-section (1), the alterations made
by the order in the memorandum or articles of a company shall,
in all respects, have the same effect as if they had been duly
made by the company in accordance with the provisions of this
Act and the said provisions shall apply accordingly to the
memorandum or articles so altered.
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7 Section 242(7) A certified copy of every order altering, or giving leave to alter, a
company’s memorandum or articles, shall within thirty days after
the making thereof, be filed by the company with the Registrar
who shall register the same.
8 Section 242(8) If a company contravenes the provisions of sub-section (5), the
company shall be punishable with fine which shall not be less
than one lakh rupees but which may extend to twenty-five lakh
rupees and every officer of the company who is in default shall
be punishable with imprisonment for a term which may extend to
six months or with fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees, or
with both. (COMPANIES AMENDMENT ACT 2020)

Consequence of termination or modification of certain agreements section 243

S.NO. PARTICULARS PROVISIONS

1 Section 243(1) (1) Where an order made under section 242 terminates, sets aside
or modifies an agreement such as is referred to in sub-section (2)
of that section,—
(a) such order shall not give rise to any claims whatever against
the company by any person for damages or for compensation for
loss of office or in any other respect either in pursuance of the
agreement or otherwise;
(b) no managing director or other director or manager whose
agreement is so terminated or set aside shall, for a period of five
years from the date of the order terminating or setting aside the
agreement, without the leave of the Tribunal, be appointed, or
act, as the managing director or other director or manager of the
company:
Provided that the Tribunal shall not grant leave under this clause
unless notice of the intention to apply for leave has been served
on the Central Government and that Government has been given
a reasonable opportunity of being heard in the matter.

RULE 83 OF (1) An application under clause (b) of sub-section (1) of section

NCLT RULES 243 of the Act for leave to any of the persons mentioned therein
2016 to be appointed or to act as the managing director or other
director or manager of the company, shall be filed as per the
Application appropriate Form NCLT-1 and shall be accompanied with such
under section documents as are mentioned in Annexure B.
243
(2) An application under sub - rule (1) shall state whether a
notice of intention to apply for such leave, as required under the
proviso to sub-section (1) of section 243 of the Act, has been
given to the Central Government and such application shall also
be accompanied by a copy of such notice.

(3) The notice of the date of hearing of the application together

with a copy of the application shall be served on the Central
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Government not less than fifteen days before the date fixed for
the hearing.
2 Section 243(2) (2) Any person who knowingly acts as a managing director or
other director or manager of a company in contravention of
clause (b) of sub-section (1), and every other director of the
company who is knowingly a party to such contravention, shall
be punishable with imprisonment for a term which may extend to
six months or with fine which may extend to five lakh rupees, or
with both. (COMPANIES AMENDMENT ACT 2020)

Right to apply under section 241 section 244

S.NO. PARTICULARS PROVISIONS

1 Section 244(1) (1) The following members of a company shall have the right to
apply under section 241, namely
(a) in the case of a company having a share capital, not less than
one hundred members of the company or not less than one-tenth
of the total number of its members, whichever is less, or any
member or members holding not less than one tenth of the issued
share capital of the company, subject to the condition that the
applicant or applicants has or have paid all calls and other sums
due on his or their shares;
(b) in the case of a company not having a share capital, not less
than one-fifth of the total number of its members:
Provided that the Tribunal may, on an application made to it in
this behalf, waive all or any of the requirements specified in
clause (a) or clause (b) so as to enable the members to apply
under section 241.
Explanation.—For the purposes of this sub-section, where any
share or shares are held by two or more persons jointly, they
shall be counted only as one member.

RULE 83A OF NCLT RULES 2016

Application under sub-section (1) of section 244.-
An application in Form No. NCLT. 9 may be filed before the
Tribunal for waiver of requirement of clause (a) or (b) of Section
244 of the Act
2 Section 244(2) Where any members of a company are entitled to make an
application under subsection
(1), any one or more of them having obtained the consent in
writing of the rest, may make the application on behalf and for
the benefit of all of them.

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CHAPTER-26
OVERVIEW OF CORPORATE REORGANISATION
CONCEPT OF BUSINESS ACQUISITION
Business acquisition is the process of acquiring a company to build on strengths or weaknesses of the
acquiring company.

It is a corporate action in which a company buys most, if not all, of another company ownership
stakes in order to assume control. Acquisitions are often made as part of a company's growth strategy
whereby it is more beneficial to take over an existing firm's operations and niche compared to
expanding on its own. A merger is similar to an acquisition but refers more strictly to combining all of
the interests of both companies into a stronger single company.

TWO TYPES OF BUSINESS ACQUISITION

MERGER AND AMALGAMATION TAKEOVER

REGULATED BY SECTION UNLISTED COMPANY LISTED COMPANY

230 AND 232 OF
SECTION 235, 236 and 238 OF SEBI TAKEOVER CODE 2011
COMPANIES ACT 2013
COMPANIES ACT 2013

THREE PERSPECTIVES OF MERGER AND AMALGAMTION

AS PER COMPANIES ACT

AS PER INCOME TAX ACT AS PER ACCOUNTING
STANDARD - 14

(AS)-14 RECOGNIZES TWO TYPES OF

AMALGAMATION:-
No definition of merger and 1. Amalgamation in the nature of
Only definition of
amalgamation merger.
amalgamation and not of
2. Amalgamation in the nature of
merger purchase.
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The Regulatory Framework of Mergers and Amalgamations covers

 The Companies Act, 2013
 Companies (Compromises, Arrangements and Amalgamations) Rules,
2016.(RULE 1 to 29)
 Income Tax Act, 1961
 LISTING REGULATIONS 2015
 The Indian Stamp Act, 1899
 Competition Act, 2002
 FEMA
 Banking Regulation Act 1949
 AS-14/ Companies (Indian Accounting Standards) Rules, 2015/ Indian Accounting Standard
103

IN GENERAL SENSE

A merger means absorption of one company by another company, wherein one of the two
existing companies loses its legal identity after transferring all its assets, liabilities and other
properties to the other company.

Amalgamation is an ‘arrangement’ or ‘reconstruction’. Amalgamation is a legal process by

which two or more companies are joined together to form a new entity or one or more
companies are to be absorbed or blended with another and as a consequence the
amalgamating company loses its existence and its shareholders become the shareholders of
new company or the amalgamated company.

AS PER LAW

The word ‘amalgamation’ or ‘merger’ is not defined in the COMPANIES ACT, 2013.

However Section 2(1B) of the Income Tax Act, 1961 defines ‘amalgamation

Amalgamation in relation to companies, means the merger of one or more companies with
another company or the merger of two or more companies to form one company (the
company or companies which so merge being referred to as amalgamating company or
companies and the

Company with which they merge or which is formed as result of the merger, as the
amalgamated company), in such a manner that:

a. All the property of the amalgamating company or companies immediately before the
amalgamation becomes the property of the amalgamated company by virtue of the
amalgamation
b. All the liabilities of the amalgamating company or companies immediately before the
amalgamation become the liabilities of the amalgamated company by virtue of the
amalgamation
c. Shareholders holding not less than three-fourth in value of the shares in the amalgamating
company or companies (other than shares already held therein immediately before the

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amalgamation by or by a nominee for, the amalgamated company or it subsidiary)

become shareholders of the amalgamated company by virtue of the amalgamation.

Thus, for a merger to qualify as an ‘amalgamation’ for the purpose of the Income Tax Act,
the above three conditions have to be satisfied

ACCOUNTING STANDARD (AS)-14 RECOGNIZES TWO TYPES OF AMALGAMATION

ACCOUNTING STANDARD (AS)-14 RECOGNIZES TWO TYPES OF AMALGAMATION

Amalgamation in the nature of purchase are

Amalgamation in the nature of merger are in
in effect a mode by which one company
effect a mode by which one company
acquires another company and hence, the
acquires another company’s asset and
equity shareholders of the combining entities
liabilities in such a way that, the equity
do not continue to have a proportionate share
shareholders of the combining entities
in the equity of the combined entity or the
continue to have a proportionate share in
business of the acquired company is not
the equity of the combined entity.
intended to be continued after amalgamation

DIFFERENCE BETWEEN MERGER AND AMALGAMATION

The terms merger, amalgamation are sometimes used interchangeably, however, in strict
sense, merger is commonly used for the fusion of two companies. Amalgamation is an
arrangement for bringing the assets of two companies under the control of one company,
which may or may not be one of the original two companies.

REASONS / OBJECTIVES FOR MERGER AND AMALGAMATION

(a) Economies of scale

(b) Reduction in production, administrative, selling, legal and
professional expenses.
(c) Optimum use of capacities and factors of production.
(d) Tax advantages (Carry forward and set off of losses)
(e) Removing financial constraints for expansion
(f) Diversification.
(g) Competitive advantage
(h) Revival of a weak or sick company.
(i) OPERATIONAL SYNERGY

OPERATIONAL SYNERGY

 Synergy refers to a situation where the combined firm is more valuable than the sum of
individual combining firms.
 The gains obtained from working together of amalgamated undertakings result into
synergistic operating gains.
 When two undertaking combine their resources and efforts, they may with combined
efforts produce better result as compared to two separate undertakings because of saving
in operating cost i.e. combined sales offices, staff facilities, plants management etc. which
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lower the operating costs. The resultant economies are known as synergistic operating
economies.
 Thus we can conclude that operational synergy is the synergy due to improvement in
operations.

CATEGORIES OF MERGERS CATEGORIES OF MERGERS

CATEGORIES OF MERGERS

A. Congeneric Merger B. Conglomerate Merger

Congeneric mergers means This type of merger involves

merger within same industries coming together of two or more
and taking place at the same companies engaged in different
level of economic activity. industries and/or services. Their
businesses or services are
neither horizontally nor
vertically related to each other.

Vertical Merger Horizontal Merger

Vertical mergers occur between This class of merger is a merger

firms which are complementary between business competitors
to each other. For e.g. one of the who are manufacturers or
companies is engaged in the distributors of the same type of
manufacture of a particular products or who render similar
product and the other is or same type of services for
established and expert in the profit. Horizontal mergers result
marketing of that product. A in a reduction in the number of
vertical merger may result into a competing companies in an
industry.
smooth and efficient flow of
production and distribution of a
particular product and reduction
in handling and inventory costs.

BACKWARD MERGER FORWARD MERGER

When a company combines with Where it combines with the

the supplier of material, it is called customer, it is known as
a backward merger forward merger.

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OTHER CLASSIFICATION / TYPES /CATEGORISATION OF MERGER

A. Cash Merger

A merger in which certain

shareholders are required to E. Short-Form Merger
accept cash for their shares
while other shareholders The merger of a wholly-owned
receive shares in the subsidiary into its parent company
continuing enterprise is known as a short form merger.
This type of merger is less
expensive and time consuming than
the normal type of merger.

B. Defacto Merger

Defacto merger has been

defined as a transaction that
has the economic effect of a
statutory merger but is cast in
the form of an acquisition of
assets.
F. Triangular Merger

Triangular merger means the

C. Down Stream Merger amalgamation of two companies by
The merger of parent which the disappearing company is
company into its merged into subsidiary of surviving
subsidiary is called company and shareholders of the
downstream merger. disappearing company receive shares
of the surviving company

D. UP Stream Merger

The merger of subsidiary

company into its parent
company is called an
upstream merger.
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REVERSE MERGER

Reverse merger takes place when a healthy company merges with a

financially weak company. In the context of Companies Act, 2013
there is no distinction between a merger or a reverse merger
because in either case one company merges with another company.
Reverse merger like any amalgamation or merger is carried out
through NCLT route under the provisions of Sections 230 to 232 of
the Companies Act, 2013.
When the reverse merger of a sick company becomes effective, the
healthy units lose its name and surviving sick company retains its
name. In reverse merger, Transferee Company becomes entitled to
various tax benefits.

REASONS BEHIND REVERSE MERGERS

 Generally, a loss making or less profit earning company merges with a company with
track record, to obtain the benefits of economies of scale of production, marketing
network, etc.
 This situation arises when the sick company’s survival becomes more important for
strategic reasons and to conserve the interest of community.
 However, in a reverse merger, a healthy company merges with a financially weak
company. The main reason for this type of reverse merger is the tax savings under the
Income-Tax Act, 1961.
 Section72A of the Income-Tax Act ensures the tax relief, which becomes attractive for
such reverse mergers, since the healthy and profitable company can take advantage of the
carry forward losses of the other company. The healthy units lose its name and surviving
sick company retains its name.

CONCEPT OF REVERSE MERGER UNDER SICA

The scheme of merger prepared by the operating agency shall be examined by the BIFR and
copies of the scheme with modifications, if any, made by BIFR, shall be sent to the sick
industrial company, the operating agency and in case of amalgamation, also to any other
company concerned and the BIFR shall also publish or caused to be published the draft
scheme in brief in such daily newspapers as the BIFR may consider necessary for suggestions
and objections if any, within the specified period.
With the above amendments, for a reverse merger of a sick industrial company, the
compliance under Section 72A of the Income tax Act, 1961 is not required. Similarly, once
the reverse merger is approved by the BIFR, the procedures outlined in Sections 230 TO 232
of the Companies Act, 2013 are not required to be followed. The BIFR can thus make
distinctive provisions in a scheme of rehabilitation of a sick company through reverse merger.

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MERGER/ AMALGAMATION AND COMPANIES ACT- 2013

The scheme of Chapter XV goes as follows

1. Section 230-231 deals with compromise or arrangements.

2. Section 232 deals with mergers and amalgamation including demergers.
3. Section 233 deals with amalgamation of small companies (also called fast track
mergers)
4. Section 234 deals with amalgamation with foreign company (also called cross border mergers)
5. Section 235 deals acquisition of shares of dissenting shareholders.
6. Section 236 deals with purchase of minority shareholding.
7. Section 237 deals with power of central government to provide for amalgamation of
companies in public interest.
8. Section 238 deals with registration of offer of schemes involving transfer of shares.
9. Section 239 deals with preservation of books and papers of amalgamated companies.
10. Section 240 deals with liability of officers in respect of offences committed prior to
merger, amalgamation etc.

IMPORTANT LEGAL ASPECTS OF MERGER AND AMALGMATION

LEGAL ASPECTS OF MERGER AND AMALGMATION UNDER COMPANIES ACT 2013

SECTIONS 230, 231,232,233,234,237 Companies (Compromises, Arrangements

239 AND 240 of Companies Act 2013 and Amalgamations) Rules, 2016.
(RULE 1 to 29)

CONNECTIVITY OF SECTION 232 and 232

230 deals with compromise and arrangement (C&A).

SECTION 230

232 deals with merger and amalgamation (M&A). M&A is special

SECTION 232 type of compromise and arrangement so for M&A we have to
follow section 230

SPECIAL NOTE: MCA NOTIFICATION 13 JUNE 2017

FOR GOVERNMENT COMPANIES In Section 230, 231 and 232 the word “Tribunal”
wherever it occurs, the word “Central Government” shall be substituted.
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Power to Compromise or Make Arrangements with Creditors and Members section 230
SEE THE BARE ACT LANGUAGE (for exams purpose simplified language is given after bare act language)

Section 230 (1) (1st application for making compromise and arrangement)

Where a compromise or arrangement is proposed-

(a) Between a company and its creditors or any class of them; or
(b) Between a company and its members or any class of them,

The Tribunal may, on the application of the company or of any creditor or member of the
company, or in the case of a company which is being wound up, of the liquidator appointed
under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,
order a meeting of the creditors or class of creditors, or of the members or class of members,
as the case may be, to be called, held and conducted in such manner as the Tribunal directs.

Explanation.--For the purposes of this sub-section, arrangement includes a reorganisation of

the company's share capital by the consolidation of shares of different classes or by the
division of shares into shares of different classes, or by both of those methods.

Section 230 (2) (additional documents to tribunal)

The company or any other person, by whom an application is made under subsection (1),
shall disclose to the Tribunal by affidavit—

(a) all material facts relating to the company, such as the latest financial position of the
company, the latest auditor's report on the accounts of the company and the pendency of any
investigation or proceedings against the company;
(b) Reduction of share capital of the company, if any, included in the compromise or
arrangement;
(c) Any scheme of corporate debt restructuring consented to by not less than seventy-five
per cent. of the secured creditors in value, including

(i) A creditor's responsibility statement in the prescribed form;

(ii) Safeguards for the protection of other secured and unsecured creditors;
(iii) report by the auditor that the fund requirements of the company after the corporate debt
restructuring as approved shall conform to the liquidity test based upon the estimates
provided to them by the Board;
(iv) where the company proposes to adopt the corporate debt restructuring guidelines
specified by the Reserve Bank of India, a statement to that effect; and
(v) A valuation report in respect of the shares and the property and all assets, tangible and
intangible, movable and immovable, of the company by a registered valuer.

Section 230 (3) (notice of compromise and arrangement)

Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub-
section (1), a notice of such meeting shall be sent to all the creditors or class of creditors and
to all the members or class of members and the debenture-holders of the company,
individually at the address registered with the company which shall be accompanied by a
statement disclosing the details of the compromise or arrangement, a copy of the valuation
report, if any, and explaining their effect on creditors, key managerial personnel, promoters

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and non-promoter members, and the debenture-holders and the effect of the compromise or
arrangement on any material interests of the directors of the company or the debenture
trustees, and such other matters as may be prescribed:

Provided that such notice and other documents shall also be placed on the website of the
company, if any, and in case of a listed company, these documents shall be sent to the
Securities and Exchange Board and stock exchange where the securities of the companies are
listed, for placing on their website and shall also be published in newspapers in such manner
as may be prescribed:

Provided further that where the notice for the meeting is also issued by way of an
advertisement, it shall indicate the time within which copies of the compromise or
arrangement shall be made available to the concerned persons free of charge from the
registered office of the company.

Section 230 (4) (voting in general meeting)

A notice under sub-section (3) shall provide that the persons to whom the notice is sent may
vote in the meeting either themselves or through proxies or by postal ballot to the adoption
of the compromise or arrangement within one month from the date of receipt of such notice:

Provided that any objection to the compromise or arrangement shall be made only by persons
holding not less than ten per cent. of the shareholding or having outstanding debt
amounting to not less than five per cent. of the total outstanding debt as per the latest
audited financial statement.

Section 230 (5) (various authorities to whom notice shall be sent)

A notice under sub-section (3) along with all the documents in such form as may be
prescribed shall also be sent to the Central Government (R.D.), the income-tax
authorities, the Reserve Bank of India, the Securities and Exchange Board, the
Registrar, the respective stock exchanges, the Official Liquidator, the Competition
Commission of India established under sub-section (1) of section 7 of the Competition Act,
2002 (12 of 2003), if necessary, and such other sectoral regulators or authorities which are
likely to be affected by the compromise or arrangement and shall require that representations,
if any, to be made by them shall be made within a period of thirty days from the date of
receipt of such notice, failing which, it shall be presumed that they have no representations to
make on the proposals.

Section 230 (6) (special special resolution)

Where, at a meeting held in pursuance of sub-section (1), majority of persons representing
three-fourths in value of the creditors, or class of creditors or members or class of members,
as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise
or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an
order, the same shall be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be, or, in case of a company being wound up,
on the liquidator appointed under this Act or under the Insolvency and Bankruptcy Code,
2016, as the case may be and the contributories of the company.

Section 230 (7) (power of tribunal)

An order made by the Tribunal under sub-section (6) shall provide for all or any of the
following matters, namely:--
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(a) where the compromise or arrangement provides for conversion of preference shares into
equity shares, such preference shareholders shall be given an option to either obtain arrears of
dividend in cash or accept equity shares equal to the value of the dividend payable;
(b) The protection of any class of creditors;
(c) If the compromise or arrangement results in the variation of the shareholders' rights, it
shall be given effect to under the provisions of section 48;
(d) if the compromise or arrangement is agreed to by the creditors under sub-section (6), any
proceedings pending before the Board for Industrial and Financial Reconstruction established
under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)
shall abate;
(e) such other matters including exit offer to dissenting shareholders, if any, as are in the
opinion of the Tribunal necessary to effectively implement the terms of the compromise or
arrangement:

Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a

certificate by the company's auditor has been filed with the Tribunal to the effect that the
accounting treatment, if any, proposed in the scheme of compromise or arrangement is in
conformity with the accounting standards prescribed under section 133.

Section 230 (8) (effective date)

The order of the Tribunal shall be filed with the Registrar by the company within a period of
thirty days of the receipt of the order.

Section 230 (9) (dispense with calling of a meeting of creditor)

The Tribunal may dispense with calling of a meeting of creditor or class of creditors where
such creditors or class of creditors, having at least ninety per cent. value, agree and
confirm, by way of affidavit, to the scheme of compromise or arrangement.

Section 230 (10) (scheme of buy back)

No compromise or arrangement in respect of any buy-back of securities under this section
shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions
of section 68.

Section 230 (11) (compromise or arrangement and takeover)

Any compromise or arrangement may include takeover offer made in such manner as may be
prescribed:
Provided that in case of listed companies, takeover offer shall be as per the regulations
framed by the Securities and Exchange Board.

Section 230 (12) (Application to tribunal)

An aggrieved party may make an application to the Tribunal in the event of any grievances
with respect to the takeover offer of companies other than listed companies in such manner as
may be prescribed and the Tribunal may, on application, pass such order as it may deem fit

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Analysis on Section 230 with rules in Question – Answer Form

ANALYSIS OF SECTION 230 (1)

Q-A: Who can make first application to NCLT for the purpose of compromise and
arrangement?

As per section 230 (1), an application for compromise or arrangement with creditors or
members may be made to the NCLT either by company or by a creditor or by a member,
while it is a going concern. Where company is being wound up, application for
compromise or arrangement shall be made by liquidator of company.
An application under sub-section (1) of section 230 of the Act may be submitted in Form no.
NCLT-1 with An affidavit in Form No. NCLT-6

(CASE LAW) However, in the case of S.K. GUPTA V. K. P. JAIN, it has been decided that
a member does not cease to be member just because the company is in winding up process.
So also a creditor continues to be a creditor despite commencement of winding up of
company. The liquidator is legally in the shoes of the Board of Directors and can act for
company only.
Hence anyone of them i.e., company (through liquidator) or a member of a creditor could be
an applicant in winding up of company.

Q-B: Is it mandatory for the NCLT to give an order for calling the meeting when
application is made to it for the purpose of compromise and arrangement?

When an application for compromise or arrangement of company with its creditors or

members is made to NCLT, the NCLT may order a meeting of the creditors of members.
The word may shall be construed in the sense that NCLT has full discretion whether to call
the meeting or refuse to call the meeting. The NCLT’s order on the application shall be in
form no. 35 of companies (NCLT) Rules, 1959.

Q-C: what is the meaning of arrangement under section 230?

For the purposes of this sub-section, arrangement includes a reorganisation of the company’s
share capital by the consolidation of shares of different classes or by the division of shares
into shares of different classes, or by both of those methods. (For example 100 equity shares
and 100 preference shares consolidated in to 200 equity shares)

Q-D: what is the meaning of compromise under section 230?

The word compromise is not defined by companies Act 2013. In general sense Compromise”
denotes an agreement between two or more parties, for the ascertainment of their mutual rights and
obligations, when there is an existing dispute or controversy between them, or some difficulty in the
enforcement of their rights.
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COMPROMISE AND ARRANGEMENT

MEMBERS

A company may make CLASS OF MEMBERS

compromise and
arrangement with CREDITORS

CLASS OF CREDITORS

COMPROMISE
CREDITORS /CLASS OF There can be dispute
CREDITORS between company and
X LTD.
creditors/ class of creditors/
(COMPANY)
members/ class of members.
To remove the dispute they
can make compromise as per
MEMBERS /CLASS section 230 of Companies Act
OF MEMBERS 2013

ARRANGEMENT
In Arrangement no dispute
CREDITORS /CLASS OF between company and creditors/
CREDITORS class of creditors/ members/
X LTD.
class of members. To CHANGE
(COMPANY) THEIR RIGHTS they can make
ARRANGEMENT as per section
230 of Companies Act 2013
MEMBERS /CLASS OF
MEMBERS

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Q-E: arrangement is wider term than compromise comment?

ANSWER.

ARRANGEMENT

COMPROMISE

WITH DISPUTE

SPECIAL NOTE: With the help of this chart we can say

 Arrangement is wider term than Compromise
 All Compromise are Arrangement but all Arrangement are not Compromise

Q-F: what is the difference between compromise and arrangement under section 230?

ANSWER.

PARTICULARS COMPROMISE ARRANGEMENT

DEFINITION The term “Compromise” has not been Arrangement” includes a re - organization
defined in the Act. of the Share Capital of the Company by –
consolidation of Shares of different
classes, and / or Division of Shares into
Shares of different classes.
MEANING Compromise” denotes an agreement Arrangement” –
between two or more parties, for the Involves re – adjustment of rights and
ascertainment of their mutual rights and liabilities of Members or Creditors or any
obligations, when there is an existing class thereof.
dispute or controversy between them, or
some difficulty in the enforcement of their
rights.
EXISTENCE Compromise implies the existence of a There need not be any existing dispute, to
OF DISPUTE dispute. Without dispute, there cannot be arrive at an “arrangement”
any compromise as such. Amicable
settlement of dispute constitutes
compromise.
SCOPE Comparatively limited in scope Wider in scope
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Q-G what is the meaning of creditor used in section 230 (1)

There is no meaning of creditors under Companies Act 2013. In general creditors means a
person to company owes a debt. Case law: seksaria cotton mills ltd. Creditors include
contingent creditors.
Case law: sovereign life assurance co. v. Dodd: Even the policy holders are considered
creditors. Those holders whose policies are matured are of different class of creditors than
those whose policies are not matured

Q-H what is the meaning of class of creditor used in section 230 (1)

There are 2 classes like secured and unsecured creditors, but there can be further sub-classes.
For instance, in the case of secured creditors, some creditors may have sufficient security and
others may have insufficient security and hence will form different classes. Similarly, some
secured creditors may have first charge and others may have second charge. Further, some
secured creditors may have fixed charge and others may have floating charge.

Q-I what is the meaning of member used in section 230 (1)

Member has same meaning as used in Section 2(55) under Companies Act 2013.

Q-J what is the meaning of class of member used in section 230 (1)

The Companies Act recognizes only two main classes, namely, equity shareholders and
preference shareholders. However, consequent to the introduction of concept of equity shares
with differential rights, there could be more than one class of equity shareholders. Further,
where equity shares are issued with differential rights, each category of members having the
same rights could form a class by themselves. Similarly, preference shares can also be
further sub-divided such as participating and non-participating, cumulative and non-
cumulative preference shares. However, the mere fact that the shares, equity or preference,
are issued at different times would not make them a different class. Similarly, the mere fact
that the preference shares are redeemable on different dates would not make them shares of
different classes. However, in some cases, the equity shares which are fully paid-up and
equity shares which are partly paid-up may form a different class.
Another test is to see whether the rights of two or more groups of members or creditors are so
dissimilar that they cannot reasonably be expected to have a common interest and are not
likely to consult together to have a common view of their common interest. If their interests
are so dissimilar that they are reasonably unlikely to take the same view about the scheme
and would reasonably feel that any one view would unreasonably benefit one or unreasonably
prejudice the other, then they would form different classes.
In the case of Mihir H. Mafatlal v. Mafatlal Industries Ltd., the Supreme Court held that the
member or members or the creditor or creditors claiming right against one or more directors
of the company cannot claim that he or they constitute a separate class only by reason of
having a separate private right or interest.

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ANALYSIS OF SECTION 230 (2)

Q-A: What are various document submitted to NCLT along with application filed
under section 230(1)?
The company or any other person, by whom an application is made under subsection (1),
shall disclose to the Tribunal by affidavit

1. Following material facts relating to the company,

 latest financial position of the company

 the latest auditor’s report on the accounts of the company
 and the pendency of any investigation or proceedings against the company

2. Reduction of share capital of the company, if any

3. Any scheme of corporate debt restructuring in Form No. CAA.1 consented to by not less
than seventy-five per cent. of the secured creditors in value, including

 A creditor’s responsibility statement in the prescribed form

 Safeguards for the protection of other secured and unsecured creditors
 report by the auditor that the fund requirements of the company after the corporate debt
restructuring as approved shall conform to the liquidity test based upon the estimates
provided to them by the Board
 where the company proposes to adopt the corporate debt restructuring guidelines
specified by the Reserve Bank of India, a statement to that effect
 A valuation report by a registered valuer in respect of the shares and the property and all
assets, tangible and intangible, movable and immovable, of the company

Q-B: What are various directions given by NCLT receiving application under section
230(1)?
Answer
RULE 5 Upon hearing the application under sub-section (1) of section 230 of the Act, the
Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such
directions as it may think necessary in respect of the following matters

 Determining the class or classes of creditors or of members whose meeting or meetings

have to be held
 Fixing the time and place of the meeting or meetings;
 Appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the
case may be and fixing the terms of his appointment including remuneration;
 Fixing the quorum and the procedure to be followed at the meeting or meetings,
including voting in person or by proxy or by postal ballot or by voting through
electronic means.
 Notice to be given of the meeting or meetings and the advertisement of such notice;
 Notice to be given to sectoral regulators or authorities as required under sub-section (5) of
section 230;
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 The time within which the chairperson of the meeting is required to report the result of
the meeting to the Tribunal

Q-C: Who appoints the chairman for the meeting convened for the purpose of
compromise and arrangement? And what are the functions of chairman?

Chairman of the Meeting: The Chairman of the meeting shall be a person appointed by the
NCLT. The powers of Chairman would be very similar to powers of a Chairman of any other
meeting.
FUNCTIONS OF CHAIRMAN
Affidavit to be filed to NCLT: Rule 12 provides that the Chairman appointed for the meeting
shall file an affidavit, not less than 7 days before the date fixed for the meeting showing that
the directions regarding issue of notice and advertisement have been duly complied with.
Report of Results to the NCLT: Rule 14 The Chairperson of the meeting (or where there are
separate meetings, the Chairperson of each meeting) shall, within the time fixed by the
Tribunal, or where no time has been fixed, within three days after the conclusion of the
meeting, submit a report to the Tribunal on the result of the meeting in Form No. CAA.4

Q-D: What are requirements of quorum for the meeting convened for the purpose of
compromise and arrangement?

NCLT HAS discretion fixing the quorum and the procedure to be followed at the meeting or
meetings, including voting in person or by proxy or by postal ballot or by voting
through electronic means. Explanation.- For the purposes of these rules, “voting through
electronic means” shall take place, mutatis mutandis, in accordance with the procedure as
specified in rule 20 of Companies (Management and Administration) Rules, 2014.
ANALYSIS OF SECTION 230 (3)
Q-A How to send notice to members/creditors for calling the meeting for approving the
scheme of compromise and arrangement under section 230

AS PER RULE 6 AND 7 AND SECTION 230(3)

Where a meeting of any class or classes of creditors or members has been directed to be
convened, the notice of the meeting pursuant to the order of the Tribunal to be given in the
manner provided in sub-section (3) of section 230 of the Act shall be in Form No. CAA.2
and shall be sent individually to each of the creditors or members.

The notice shall be sent by the Chairperson appointed for the meeting, or, if the Tribunal so
directs, by the company (or its liquidator), or any other person as the Tribunal may direct, by
registered post or speed post or by courier or by e-mail or by hand delivery or any other mode
as directed by the Tribunal to their last known address at least one month before the date
fixed for the meeting. It is hereby clarified that the service of notice of meeting shall be
deemed to have been effected in case of delivery by post, at the expiration of forty eight
hours after the letter containing the same is posted.
The notice of the meeting under sub-section (3) of Section 230 of the Act shall be advertised
in Form No. CAA.2 in at least one English newspaper and in at least one vernacular
newspaper having wide circulation in the State in which the registered office of the company
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is situated, or such newspapers as may be directed by the Tribunal and shall also be placed,
not less than thirty days before the date fixed for the meeting, on the website of the company
(if any) and in case of listed companies also on the website of the SEBI and the recognized
stock exchange where the securities of the company are listed

CONTENTS WITH NOTICE (STATEMENT)

 Disclosing the details of the compromise or arrangement,

 A copy of the valuation report, if any,
 Explaining their effect on creditors, key managerial personnel, promoters and non-
promoter members, and the debenture-holders and
 the effect of the compromise or arrangement on any material interests of the directors
of the company or the debenture trustees, and
 such other matters as may be prescribed:

Q-B: Can shareholders appoint proxy in the meeting convened for the purpose of
compromise and arrangement?

RULE 9

The person who receives the notice may within one month from the date of receipt of the
notice vote in the meeting either in person or through proxy or through postal ballot or
through electronic means to the adoption of the scheme of compromise and arrangement.

RULE 10

1. Voting by proxy shall be permitted, provided a proxy in the prescribed form duly signed
by the person entitled to attend and vote at the meeting is filed with the company at its
registered office not later than 48 hours before the meeting.
2. Where a body corporate which is a member or creditor (including holder of debentures)
of a company authorises any person to act as its representative at the meeting, of the
members or creditors of the company, or of any class of them, as the case may be, a copy
of the resolution of the Board of Directors or other governing body of such body
corporate authorising such person to act as its representative at the meeting.
3. No person shall be appointed as a proxy who is a minor.
4. The proxy of a member or creditor blind or incapable of writing may be accepted if such
member or creditor has attached his signature or mark thereto in the presence of a witness
who shall add to his signature his description and address : provided that all insertions in
the proxy are in the handwriting of the witness and such witness shall have certified at the
foot of the proxy that all such insertions have been made by him at the request and in the
presence of the member or creditor before he attached his signature or mark
5. The proxy of a member or creditor who does not know English may be accepted if it is
executed in the manner prescribed in the preceding sub-rule and the witness certifies that
it was explained to the member or creditor in the language known to him, and gives the
member’s or creditor’s name in English below the signature.
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Q-C What is the meaning of effect of scheme?

Meaning of ‘Effect of Scheme’: In the case of Jitendra R. Sukhadia, it was held that when
section 230 speaks of explaining the scheme’s effect, the basis of working on which certain
consequence or result of scheme would flow from the scheme is not required to be stated. It is
only the resultant effect of scheme which is required to be state. For instance, if share
exchange ratio is clearly mentioned in scheme, no mention is required to be made in the
statement accompanying notice calling the meeting as to in what manner this exchange ratio
was worked out.

ANALYSIS OF SECTION 230 (4)

Q-A: how the shareholders vote in the meeting convened for the purpose of compromise
and arrangement?

Persons to whom the notice is sent may vote in the meeting either themselves or through
proxies or by postal ballot to the adoption of the compromise or arrangement within one
month from the date of receipt of such notice:
Q-B: who can object to scheme of compromise and arrangement?
Following person can make objection to scheme of compromise and arrangement

 Persons holding not less than ten per cent. of the shareholding
 Persons having outstanding debt amounting to not less than five per cent. of the total
outstanding debt as per the latest audited financial statement.

ANALYSIS OF SECTION 230 (5)

Q-A: what are the various authorities to whom notice of compromise and arrangement
is required to sent

The notice shall also required to sent to following authorities in form CAA-3

 Central Government, the income-tax authorities,

 the Reserve Bank of India,
 the Securities and Exchange Board, the Registrar,
 the respective stock exchanges,
 the Official Liquidator,
 the Competition Commission of India if necessary,
 and such other sectoral regulators or authorities which are likely to be affected by the
compromise or arrangement

RULE 8 If the authorities desire to make any representation under sub-section (5) of section
230, the same shall be sent to the Tribunal within a period of thirty days from the date of
receipt of such notice and copy of such representation shall simultaneously be sent to the
concerned companies and in case no representation is received within the stated period of
thirty days by the Tribunal, it shall be presumed that the authorities have no representation to
make on the proposed scheme of compromise or arrangement.

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ANALYSIS OF SECTION 230 (6)

Q-A: Which type of resolution (Ordinary/ Special) shareholders are required to pass for
the approving the scheme of compromise and arrangement as per section 230?
Member’s/Creditor’ Approval : Section 230(6) provides that the scheme of compromise or
arrangement is required to be approved by majority in number, representing 3/4th in value of
creditors or members, PRESENT AND VOTING at the meeting.
Thus, there are two requirements firstly, a majority in number of those members of the
class (Whether of creditors of shareholders) who are present and voting at the meeting and
secondly it must be 3/4 in value of the holding of such persons.
Conclusion: So requirement under section 230 is neither ordinary resolution nor special
resolution. We can say it is somehow extraordinary special resolution.

Q-B: when the scheme of compromise and arrangement get binding?

When scheme is approved by NCLT
Q-C: Who can make second application to NCLT for the purpose of compromise and
arrangement?

Where the proposed compromise or arrangement is agreed to by the members or creditors or

both as the case may be, with or without modification, the company (or its liquidator), shall,
within seven days of the filing of the report by the Chairperson, present a petition to the
Tribunal in Form No. CAA.5 for sanction of the scheme of compromise or arrangement.

Where the company fails to present the petition for confirmation of the compromise or
arrangement as aforesaid, it shall be open to any creditor or member as the case may be, with
the leave of the Tribunal, to present the petition and the company shall be liable for the cost
thereof.

RULE 16
The Tribunal shall fix a date for the hearing of the petition, and notice of the hearing shall be
advertised in the same newspaper in which the notice of the meeting was advertised, or in
such other newspaper as the Tribunal may direct, not less than ten days before the date fixed
for the hearing.
The notice of the hearing of the petition shall also be served by the Tribunal to the objectors
or to their representatives under sub-section (4) of section 230 of the Act and to the Central
Government and other authorities who have made representation under rule 8 and have
desired to be heard in their representation.

RULE 17
The NCLT ORDER FOR APPROVING THE SCHEME shall be in Form No. CAA. 6, with
such variations as may be necessary.
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PROCEDURE FOR (C/A) Section 230 – IN CHART FORM

Company (BOD) / any member / Creditor / Liquidator file preliminary petition and draft
Scheme of C/A (NCLT-1,NCLT-2,NCLT-6)

NCLT

NCLT. Hearing AND NCLT may by order Fix date, time & place of class meeting, and
Appoint chairpersons

In the class meeting, the scheme of C/A shall be approved by such members/creditors who are
majority by number and also hold 3/4th by value

AT LEAST 7 days

The Chairman shall report to NCLT

WITH IN NEXT 3 DAYS

File final application to NCLT to obtain sanction for the scheme

NCLT sanction the scheme of C/A NCLT does not sanction the scheme of

File to ROC Copy of scheme, Copy of File an appeal to NCLAT

NCLT order, E – Form INC-28 (30 DAYS)
1.6
POWER OF TRIBUNAL TO ENFORCE COMPROMISE AND ARRANGEMENT SECTION 231

231(1) (power of NCLT to supervise)

Where the Tribunal makes an order under section 230 sanctioning a compromise or an
arrangement in respect of a company, it
(a) Shall have power to supervise the implementation of the compromise or arrangement; and
(b) May, at the time of making such order or at any time thereafter, give such directions in
regard to any matter or make such modifications in the compromise or arrangement as it may
consider necessary for the proper implementation of the compromise or arrangement.

231(2) (power of NCLT to wind up)

If the Tribunal is satisfied that the compromise or arrangement sanctioned under section 230
cannot be implemented satisfactorily with or without modifications, and the company is
unable to pay its debts as per the scheme, it may make an order for winding up the company
and such an order shall be deemed to be an order made under section 273.

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231(3) (retrospective effect

The provisions of this section shall, so far as may be, also apply to a company in respect of
which an order has been made before the commencement of this Act sanctioning a
compromise or an arrangement.

ANALYSIS OF SECTION 231 IN QUESTION ANSWER FORM

Q-A what are the powers of NCLT when application is presented to it under Section 231 (1)

Power of the NCLT to supervise the scheme: Section 231(1) (a) empowers the NCLT to
supervise the implementation of the scheme of compromise and arrangement sanctioned by
it. The purpose of supervision is to examine the nuts and bolts of the scheme at the stage it is
launched. Thus the powers of NCLT are very wide and include both judicial as well as
supervisory powers.
Modification of scheme: The NCLT has the power to modify a scheme of compromise or
arrangement for the proper working of compromise and arrangement.

Q-B Can NCLT give order for winding up if compromise or an arrangement sanctioned
under section 230 cannot be worked satisfactorily with or without modifications?

Winding up of the Company: When the NCLT is satisfied that scheme of compromise or
arrangement cannot be worked out, with/without modification. Then it may make an order for
winding up of the company such an order shall be deemed to be an order passed under
section 273 of the companies Act 2013 the aforesaid order of winding up may be passed by
the NCLT either sue motto or on application of any person interested in the affairs of the
company.

4.9 Provisions for facilitating Reconstruction and Amalgamation of Companies Section 232
(SEE THE BARE ACT LANGUAGE)

SECTION 232(1) (Scheme of amalgamation/ reconstruction)

Where an application is made to the Tribunal under section 230 for the sanctioning of a
compromise or an arrangement proposed between a company and any such persons as are
mentioned in that section, and it is shown to the Tribunal—
(a) that the compromise or arrangement has been proposed for the purposes of, or in
connection with, a scheme for the reconstruction of the company or companies involving
merger or the amalgamation of any two or more companies; and
(b) that under the scheme, the whole or any part of the undertaking, property or liabilities of
any company (hereinafter referred to as the transferor company) is required to be transferred
to another company (hereinafter referred to as the transferee company), or is proposed to be
divided among and transferred to two or more companies,
the Tribunal may on such application, order a meeting of the creditors or class of creditors or
the members or class of members, as the case may be, to be called, held and conducted in
such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of
section 230 shall apply mutatis mutandis.
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SECTION 232(2) (Additional documents with notice of general meeting)

Where an order has been made by the Tribunal under sub-section (1), merging companies or
the companies in respect of which a division is proposed, shall also be required to circulate
the following for the meeting so ordered by the Tribunal, namely
(a) The draft of the proposed terms of the scheme drawn up and adopted by the directors of
the merging company;
(b) Confirmation that a copy of the draft scheme has been filed with the Registrar;
(c) a report adopted by the directors of the merging companies explaining effect of
compromise on each class of shareholders, key managerial personnel, promoters and non-
promoter shareholders laying out in particular the share exchange ratio, specifying any
special valuation difficulties;
(d) the report of the expert with regard to valuation, if any;
(e) a supplementary accounting statement if the last annual accounts of any of the merging
company relate to a financial year ending more than six months before the first meeting of the
company summoned for the purposes of approving the scheme.
SECTION 232(3) (Special power of NCLT to give orders)
The Tribunal, after satisfying itself that the procedure specified in sub-sections (1) and (2)
has been complied with, may, by order, sanction the compromise or arrangement or by a
subsequent order, make provision for the following matters, namely:—
(a) the transfer to the transferee company of the whole or any part of the undertaking,
property or liabilities of the transferor company from a date to be determined by the parties
unless the Tribunal, for reasons to be recorded by it in writing, decides otherwise;
(b) the allotment or appropriation by the transferee company of any shares, debentures,
policies or other like instruments in the company which, under the compromise or
arrangement, are to be allotted or appropriated by that company to or for any person:
Provided that a transferee company shall not, as a result of the compromise or arrangement,
hold any shares in its own name or in the name of any trust whether on its behalf or on behalf
of any of its subsidiary or associate companies and any such shares shall be cancelled or
extinguished;
(c) the continuation by or against the transferee company of any legal proceedings pending by
or against any transferor company on the date of transfer;
(d) dissolution, without winding-up, of any transferor company;
(e) the provision to be made for any persons who, within such time and in such manner as the
Tribunal directs, dissent from the compromise or arrangement;
(f) where share capital is held by any non-resident shareholder under the foreign direct
investment norms or guidelines specified by the Central Government or in accordance with
any law for the time being in force, the allotment of shares of the transferee company to such
shareholder shall be in the manner specified in the order;
(g) The transfer of the employees of the transferor company to the transferee company;
(h) Where the transferor company is a listed company and the transferee company is an
unlisted company,—

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(A) the transferee company shall remain an unlisted company until it becomes a listed
company;
(B) if shareholders of the transferor company decide to opt out of the transferee company,
provision shall be made for payment of the value of shares held by them and other benefits in
accordance with a pre-determined price formula or after a valuation is made, and the
arrangements under this provision may be made by the Tribunal:
Provided that the amount of payment or valuation under this clause for any share shall not be
less than what has been specified by the Securities and Exchange Board under any
regulations framed by it;
(i) where the transferor company is dissolved, the fee, if any, paid by the transferor company
on its authorised capital shall be set-off against any fees payable by the transferee company
on its authorised capital subsequent to the amalgamation; and
(j) such incidental, consequential and supplemental matters as are deemed necessary to secure
that the merger or amalgamation is fully and effectively carried out:
Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a
certificate by the company’s auditor has been filed with the Tribunal to the effect that the
accounting treatment, if any, proposed in the scheme of compromise or arrangement is in
conformity with the accounting standards prescribed under section 133.

SECTION 232(4) (Order of NCLT behave like sale deed)

Where an order under this section provides for the transfer of any property or liabilities, then,
by virtue of the order, that property shall be transferred to the transferee company and the
liabilities shall be transferred to and become the liabilities of the transferee company and any
property may, if the order so directs, be freed from any charge which shall by virtue of the
compromise or arrangement, cease to have effect.

SECTION 232(5) (Order of NCLT to be filed to ROC)

Every company in relation to which the order is made shall cause a certified copy of the order
to be filed with the Registrar for registration within thirty days of the receipt of certified
copy of the order.

SECTION 232(6) (Appointed date and effective date)

The scheme under this section shall clearly indicate an appointed date from which it shall be
effective and the scheme shall be deemed to be effective from such date and not at a date
subsequent to the appointed date.

SECTION 232(7) (Continuous filing with ROC)

Every company in relation to which the order is made shall, until the completion of the
scheme, file a statement in such form and within such time as may be prescribed with the
Registrar every year duly certified by a chartered accountant or a cost accountant or a
company secretary in practice indicating whether the scheme is being complied with in
accordance with the orders of the Tribunal or not.
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SECTION 232(8) (PENALTY)

If a transferor company or a transferee company contravenes the provisions of this section,

the transferor company or the transferee company, as the case may be, shall be punishable
with fine which shall not be less than one lakh rupees but which may extend to twenty-
five lakh rupees and every officer of such transferor or transferee 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 one lakh rupees but which may extend to three lakh
rupees, or with both.
Explanation.—For the purposes of this section
(i) in a scheme involving a merger, where under the scheme the undertaking, property and
liabilities of one or more companies, including the company in respect of which the
compromise or arrangement is proposed, are to be transferred to another existing company, it
is a merger by absorption, or where the undertaking, property and liabilities of two or more
companies, including the company in respect of which the compromise or arrangement is
proposed, are to be transferred to a new company, whether or not a public company, it is a
merger by formation of a new company
(ii) references to merging companies are in relation to a merger by absorption, to the
transferor and transferee companies, and, in relation to a merger by formation of a new
company, to the transferor companies
(iii) a scheme involves a division, where under the scheme the undertaking, property and
liabilities of the company in respect of which the compromise or arrangement is proposed are
to be divided among and transferred to two or more companies each of which is either an
existing company or a new company; and
(iv) Property includes assets, rights and interests of every description and liabilities include
debts and obligations of every description.

Analysis on Section 232 in Question Answer Form

Introduction of Section 232

Section 232 of the companies act contains the provisions which are required to be complied
with along with the provisions of sections 230 and 231, where the scheme of compromise or
arrangement is for the purposes of or in connection with the reconstruction of a company or
the amalgamation of companies.

Q-A: Which company should file application to NCLT for amalgamation Transferor
Company or Transferee Company?

In the case of Kirloskar Electrical Co. Ltd., the Court (NOW NCLT) held that that both the
transferor and the transfer company shall make an application to the NCLT under section
230/232 of the Companies Act, 2013 for sanction of the scheme of compromise or
arrangement involving amalgamation of the companies.
Hence both the transferor and the transferee company shall make an application in the form
of petition to the NCLT under section 230/232 of the Companies Act, 2013 for the purpose of
sanctioning the scheme of amalgamation.

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Q-B: Whether Companies can make joint petition for Merger and Amalgamation?

Where the registered office of the two companies falls under different jurisdiction of NCLT,
there will be two NCLT having the jurisdiction over those, companies, hence separate
petition will have to be filed.
On the contrary, if the registered offices of two companies are situated in the jurisdiction of
same BENCH, the companies may file a joint petition for sanction of the scheme of
amalgamation.
In the case of Mohan Exports Ltd. V/S Tarun Overseas Pvt. Ltd., it was held that if both
the companies are under the jurisdiction of the same NCLT, joint petition may be made.

Q-C: What are the additional documents required to be sent to members with notice of
general meeting called for the purpose of merger, demerger and reconstruction?

ANSWER:
o The draft of the proposed terms of the scheme drawn up and adopted by the directors of
the merging company;
o confirmation that a copy of the draft scheme has been filed with the Registrar;
o a report adopted by the directors of the merging companies explaining effect of
compromise on each class of shareholders, key managerial personnel, promoters and
non-promoter shareholders laying out in particular the share exchange ratio, specifying
any special valuation difficulties;
o the report of the expert with regard to valuation, if any;
o a supplementary accounting statement if the last annual accounts of any of the merging
company relate to a financial year ending more than six months before the first meeting
of the company summoned for the purposes of approving the scheme
Section 233 FAST TRACK MERGER

Introduction of Section 233

what do you mean by fast track merger?

A fast track merger is a merger which can carried out without complying with the strict
provisions of section 230 and 232.
The merger of following companies are possible without complying with the provisions of
section 230 and 232
 merger or amalgamation may be entered into between two or more small companies or
 between a holding company and its wholly-owned subsidiary company or
 such other class or classes of companies as may be prescribed, subject to section 233
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CHART ANALAYSIS OF FAST TRACK MERGER

A notice in Form No. CAA.9 of the proposed scheme inviting objections or suggestions, if any, from
the Registrar and Official Liquidators is issued by the transferor company or companies and the
transferee company

Each of the companies involved in the merger files a declaration of solvency in Form No. CAA.10, with the
Registrar of the place where the registered office of the company is situated.

The scheme is approved by the respective members or class of members at a general meeting
holding at least ninety per cent. of the total number of shares and the by majority representing
nine-tenths in value of the creditors or class of creditors of respective companies by giving a
notice of twenty-one days or otherwise approved in writing.

The transferee company shall, within seven days after the conclusion of the meeting of members
or class of members or creditors or class or creditors, file a copy of the scheme in Form No.
CAA.11 with the Central Government, the Registrar of Companies in Form No. GNL-1 and The
Official Liquidator through hand delivery or by registered post or speed post.

If the ROC or O.L. has any objections or suggestions, he may communicate the same in writing to
the Central Government (R.D.) within a period of thirty days.

Where no objection or suggestion is received to the scheme from the Registrar of Companies and Official
Liquidator or where the objection or suggestion of Registrar and Official Liquidator is deemed to be not
sustainable and the Central Government (R.D.) is of the opinion that the scheme is in the public interest or
in the interest of creditors, the Central Government shall issue a confirmation order in Form No. CAA.12
otherwise C.G. (R.D.) may file an application before the Tribunal in Form No. CAA.13 within sixty days
of the receipt of the scheme stating its objections or opinion and requesting that Tribunal may consider the
scheme under section 232 of the Act.

IF Tribunal is of the opinion that the scheme should be considered as per the procedure laid down in section
232, the Tribunal may direct accordingly or it may confirm the scheme by passing such order as it deems fit

The confirmation order of the scheme issued by the Central Government or Tribunal shall be filed, within
thirty days of the receipt of the order of confirmation, in Form INC-28 with the Registrar of Companies

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Section 234 Merger or amalgamation of company with foreign company

SEE THE BARE ACT LANGUAGE (CROSS BORDER MERGER)
S.NO. PARTICULARS PROVISIONS
1 234(1) Merger The provisions of this Chapter unless otherwise provided under
or any other law for the time being in force, shall apply mutatis
amalgamation of mutandis to schemes of mergers and amalgamations between
company with companies registered under this Act and companies incorporated
foreign company in the jurisdictions of such countries as may be notified from
time to time by the Central Government:
Provided that the Central Government may make rules, in
consultation with the Reserve Bank of India, in connection with
mergers and amalgamations provided under this section.
2 234(2) Merger Subject to the provisions of any other law for the time being in
or force, a foreign company, may with the prior approval of the
amalgamation of Reserve Bank of India, merge into a company registered under
company with this Act or vice versa and the terms and conditions of the scheme
foreign company of merger may provide, among other things, for the payment of
consideration to the shareholders of the merging company in
cash, or in Depository Receipts, or partly in cash and partly in
Depository Receipts, as the case may be, as per the scheme to be
drawn up for the purpose.
Explanation.—For the purposes of sub-section (2), the
expression “foreign company” means any company or body
corporate incorporated outside India whether having a place of
business in India or not

AMALGAMATION OF COMPANIES IN PUBLIC INTEREST (Sec. 237)

A. PREPARATION OF DRAFT ORDER OF THE SCHEME

When can CG make an order of amalgamation u/s 237

a) CG is empowered to make an order of amalgamation of two or more Companies u/s 237

b) CG can make such an order only if it is satisfied that amalgamation of companies is in
public interest.
c) If order of amalgamation is made by CG u/s 237, THEN Sec. 230 or Sec. 232 shall not
apply.
d) Rights and interest of every member, debenture holder and creditor of each of the
companies involved in the amalgamation shall remain same in the resulting company
(i.e., amalgamated company) as he possessed before amalgamation.
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B. DETERMINATION OF COMPENSATION

When payable?
A member, creditor or debenture holder shall be entitled to compensation if his rights and
interests in the amalgamated company are less than his rights and interests before
amalgamation.

Determined by whom?
The compensation shall be determined by the Authority prescribed by CG

Payable by whom?
The compensation shall be paid by the transferee company.

Publication of compensation
Following particulars shall be published in the Official Gazette:
 The amount of compensation
 The members, debenture holders or creditors who are entitled to compensation.

C. APPEAL AGAINST AWARD OF COMPENSATION

Appeal by whom?
Any person aggrieved by the assessment of compensation may prefer an appeal.

Appeal to whom?
The appeal shall be filed with the NCLT

Time limit
The appeal shall be filed within 30 days of issue of notification in the Official Gazette.

Duties of the NCLT

NCLT shall determine the amount of compensation payable.

D. OPPORTUNITY OF BEING HEARD TO THE COMPANIES

Draft order of amalgamation
The draft order of amalgamation shall be sent by CG to each of the companies.

Objections and suggestions

The companies shall be entitled to forward their objections and suggestions.
These objections and suggestions shall be forwarded within such time as may be fixed by CG
(not being less than 2 months).

Modifications in the draft order

After considering the objections and suggestions, CG may make such modifications in the
draft order of amalgamation, as it deems fit.

E. FINAL ORDER OF AMALGAMATION

When can final order be made?

The final order can be made only if no appeal is pending against the determination of
compensation.
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How is the final order made?

The final order is made by CG by way of a notification in the Official Gazette.

F. TERMS OF THE FINAL ORDER

Specify constitution etc. of new company

The final order shall specify the amalgamated company's constitution property, powers,
fights, interests, privileges, liabilities, duties and obligations.

Legal proceedings
The final order may specify the continuation of any legal proceedings by or against the
amalgamated company which may be pending in the name of any amalgamating company.

G. APPROVAL OF PARLIAMENT
The copies of every order made under this section shall, as soon as may be after it has been
made, be laid before each House of Parliament
MERGER AMALGAMATION AND TAXATION ASPECTS

The word ‘amalgamation’ or ‘merger’ is not defined anywhere in the Companies Act, 2013.
However, Section 2(1B) of the Income Tax Act, 1961 defines ‘amalgamation WHICH IS
ALREADY EXPLAINED EARLIER IN CHAPTER 3.

SET-OFF AND CARRY FORWARD OF LOSS

Under Section 72A of Income Tax 1961, if there is an amalgamation of a

 company owning an industrial undertaking or a ship or a hotel with another company

 banking company within the meaning of banking regulation act 1949, with a specified
bank or
 one or more public sector company or companies engaged in the business of operation of
aircraft with one or more public sector company
 companies engaged in similar business

Then accumulated loss and the unabsorbed depreciation of the amalgamating company shall
be deemed to be the loss or; as the case may be, allowance for depreciation of the
amalgamated company for the previous year in which the amalgamation was effected

It is to be noted that the amalgamated company will have right to carry forward the loss for a
period of 8 assessment years immediately succeeding the assessment year relevant to the
previous year in which the amalgamation was effected.

Conditions for availing benefits of set-off & carry forward

The above relaxations shall be allowed to the amalgamated company only if the
amalgamated company:-

(a) Holds continuously for a minimum period of five years from the date of
amalgamation at least three-fourths in the book value of fixed assets of amalgamating
company acquired in a scheme of amalgamation.
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(b) Continues the business of the amalgamating company for a minimum period of five
years from the date of amalgamation.
(c) Fulfills such other conditions as may be prescribed to ensure the revival of the
business of the amalgamating company or to ensure that the amalgamation is for
genuine business purpose.

MERGER AMALGAMATION AND STAMP ACT

The incidence of stamp duty is an important consideration in the planning of any merger. In
fact, in some cases, the whole form in which the merger is sought to take place is selected
taking into account the savings in stamp duty. The fact that, in India, stamp duty is
substantially levied by the States has given considerable scope for savings in stamp duty.
STAMP DUTY IS LEVIED ON “INSTRUMENTS.

INSTRUMENT
The term ‘instrument’ is defined in Section 2(i) of the Bombay Stamp Act, 1958 as follows

Instrument” includes every document by which any right or liability is or purports to be

created, transferred limited extended, extinguished or recorded but does not include a bill of
exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance,
transfer of shares, debentures, proxy and receipt.

This definition is an inclusive definition and any document which purports to transfer assets
or liabilities considered as an instrument.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Hindustan Steel Ltd. v. An award is an instrument within the meaning of the Stamp Act
Dilip Construction Co. and the same is required to be stamped as was decided in the case
2 (Hindustan Lever v. The scheme of amalgamation sanctioned by the court (now
State of Maharashtra) NCLT) would be an instrument within the meaning of Indian
Stamp Act, where by the properties are transferred from the
transferor company to the transferee company based on
compromise arrived at between the two companies. The state
legislature would have the jurisdiction to levy stamp duty
3 Re: Emami Biotech The Calcutta High Court held that a Court (now NCLT) order
Ltd sanctioning scheme of amalgamation or demerger under section
230 TO 232 of the Companies Act, 2013 is an instrument and
conveyance within the meaning of the Stamp Act applicable to
the State of West Bengal and is accordingly, subject to stamp
duty.

STAMP DUTY ON ORDER OF THE NCLT

In amalgamation the undertaking comprising property, assets and liabilities, of one (or more)
company (amalgamating or Transferor Company) are absorbed by and transferred company
merges into or integrates with Transferee Company. The former loses its entity and is
dissolved (without winding up).

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For the purpose of conveying to the transferee company the title to the immovable property
of the transferor company, necessary registration in the lands records in the concerned office
of the State in which the property is situated, will be done on the basis of the High Court
(now NCLT) order sanctioning the amalgamation. If any stamp duty is payable under the
Stamp Act of the State in which the property is situated, it will be paid on the copy of the
High Court (now NCLT) order.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Gemini Silk Ltd. v. In the High Court has held that a court (now NCLT) order
Gemini Overseas Ltd. sanctioning a scheme of reconstruction or amalgamation under
Section 391/394 (now section 230) is covered by the definition
of the words ‘CONVEYANCE’ and ‘instrument’ under the
Stamp Act and was, therefore liable to stamp duty.
2 Li Taka Stamp duty would be levied on the value of shares allotted
Pharmaceuticals v. plus other consideration paid.
State of Maharashtra

Order of the High Court (now NCLT) sanctioning a scheme of amalgamation under Section
232 of the Companies Act is liable to stamp duty only in those states where the states stamp
law provides.

Usually, in a merger, several other documents, agreements, indemnity bonds, etc. are
executed, depending on the facts of each case and requirements of the parties. Stamp duty
would also be leviable as per the nature of the instrument and its contents.

No stamp duty is payable on an order issued by the Board for Industrial and Financial
Reconstruction (BIFR), sanctioning an amalgamation, apparently on the ground that such an
order aims at rehabilitating business and undertaking of a sick industrial company.

NOTE: Amalgamated Company shall pay the additional stamp duty and
additional ROC registration fees on incremental authorized capital. But,
amalgamated company is entitled to obtain the deduction of amount of stamp
duty and ROC registration fees already paid by amalgamating company on its
authorized capital.

TAKEOVER OF UNLISTED COMPANY

CONCEPT OF SECTION 235

1. When a Company intends to take over another Company through acquisition of 90% or
more in value of the shares of that Company, the procedure laid down under Section 235
of the Act could be beneficially utilized.

2. When one Company has been able to acquire more than 90% control in another
Company, the shareholders holding the remaining control in the other Company are
reduced to a miserable minority.
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3. They do not even command a 10% stake so as to make any meaningful utilization of the
power. Such minority does not have any say in management and they are on mercy of
majority. Even they don’t have any role in passing resolutions in general meetings. Hence
the statute itself provides them a meaningful exit route.

4. The advantage of going through the route is the facility for acquisition of minority stake.
But even without going through this process, if an acquirer is confident of acquiring the
entire control, there is no need to go through Section 235 of the Act. It is purely an option
recognized by the statute.

5. The principle underlying section 235 is that where a company obtains 90% of the shares
or class of shares under scheme of arrangement, it can compel the dissenting-minority to
part with-its shares. Conversely, the dissenting shareholders are also entitled to compel
the company to acquire their shares.
ANALYSIS ON SECTION ON 235 SIMPLIFIED

1. The Company, which intends to acquire control over another Company under Section 235
of the Act as the “TRANSFEREE COMPANY”.

2. The Company whose shares are proposed to be acquired is called the “TRANSFEROR
COMPANY”.

3. Every offer shall contain a statement by or on behalf of the Transferee Company,

disclosing the steps it has taken to ensure that necessary cash will be available.

4. Every circular containing or recommending acceptance of the offer made by the

transferee Company shall be duly accompanied by Form No. CAA. 15 of the Companies
compromise and arrangement rules 2016. It shall be filed with the Registrar for
registration.

5. Only after such registration the transferee company arrange for circulation of the scheme
or contract or the recommendatory letter, if any, of the directors of the transferor
company to the shareholders of the Transferor Company.

6. If Registrar refuses to register any such circular, an appeal shall lie to the NCLT against
an order of the Registrar refusing to register any such circular.

7. The director who issues a circular which has not been presented for registration and
registered under clause (c) of sub-section (1), shall be punishable with fine which shall
not be less than twenty-five thousand rupees but which may extend to five lakh rupees.

8. The proposed transfer of shares by the transferor company must be approved by the
holders of 9/10 in value of the shares whose transfer is involved and this approval should
be obtained within 4 months of the offer being floated. It may be noted that in calculating
90%, the shares already held by the transferee company, a nominee for-the transferee
company and any subsidiary of the transferee company shall be excluded from the total
shares.

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9. The transferee company may give notice, within 2 months of the aforesaid 4 months, to
the dissentient shareholders for compulsory acquisition of minority interest.
10. If the dissentient shareholders does not obtain contrary order within 1 month of the above
notice, the transferee company is entitled and bound to acquire the shares on the terms as
stated in the scheme or contract.

11. The transferee company shall, on the expiry of 1 month from the date on which the
optional notice has been given, or, if an application to the NCLT by the dissenting
shareholders is there pending, after that application has been disposed of, approach the
transferor company along with the duly executed transfer deed and pay the transfer
consideration to the transferor company and whereupon the transferor company is
required to register the transfer and within 1 month inform the dissentient shareholders of
this fact.

12. Any sum received by the transferor company under this section shall be paid into a
separate bank account, and any such sum and any other consideration so received shall be
held by that company in trust for the several persons entitled to the shares in respect of
which the said sum or other consideration were respectively received and shall be
disbursed to the entitled shareholders within sixty days.

Section 235 – Procedure for Takeover of Unlisted Company (CHART ANALYSIS)

TRANSFEREE CO. GIVES OFFER TO THE MEMBERS OF THE TRANSFEROR COMPANY TO ACQUIRE THEIR
SHARES

WITH IN MAX. 4 MONTHS

Members of the transferor company give their approval by nine-tenths in, value of shares

MAX. 2 MONTHS AFTER the EXPIRY OF 4 MONTHS

Transferee Co MAY give the notice to dissenting members of the TRANSFEROR company to acquire
their shares.

If the dissentient shareholders does not obtain contrary order within 1 month of the above notice, the
transferee company is entitled and bound to acquire the shares on the terms as stated in the scheme or
contract.

The transferee company shall, on the expiry of 1 month from the date on which the optional notice has
been given, or, if an application to the NCLT by the dissenting shareholders is there pending, after that
application has been disposed of, approach the transferor company along with the duly executed transfer
deed and pay the transfer consideration to the transferor company and whereupon the transferor company is
required to register the transfer and within 1 month inform the dissentient shareholders of this fact.
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CHAPTER-27 REGISTERED VALUER

Valuation by Registered Valuers SECTION 247
247(1) Where a valuation is required to be made in respect of any property, stocks, shares,
debentures, securities or goodwill or any other assets (herein referred to as the assets) or net
worth of a company or its liabilities under the provision of this Act, it shall be valued by a
person having such qualifications and experience, registered as a valuer and being a
member of an organisation recognised, in such manner, on such terms and conditions as
may be prescribed and appointed by the audit committee or in its absence by the Board of
Directors of that company.
247(2) The valuer appointed under sub-section (1) shall,

(a) make an impartial, true and fair valuation of any assets which may be required to be valued;
(b) exercise due diligence while performing the functions as valuer;
(c) make the valuation in accordance with such rules as may be prescribed; and
(d) not undertake valuation of any assets in which he has a direct or indirect interest or becomes so
interested at any time during a period of 3 years prior to his appointment as valuer or 3 years
after valuation of assets was conducted by him.

247(3) If a valuer contravenes the provisions of this section or the rules made thereunder, the
valuer shall be punishable with fine which shall not be less than twenty-five thousand rupees
but which may extend to one lakh rupees:
Provided that if the valuer has contravened such provisions with the intention to defraud the
company or its members, he shall be punishable with imprisonment for a term which may
extend to one year and with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.

247(4)Where a valuer has been convicted under sub-section (3), he shall be liable to
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company or to any other person for loss arising out of incorrect or
misleading statements of particulars made in his report.
Institute of Company Secretaries of India –Registered Valuer Organisation
(ICSI-RVO)

What is ICSI – RVO?

As specified above, Section 247 of the Companies Act, 2013 provides that where a valuation
is required to be made in respect of any assets it shall be valued by a person who, having the
necessary qualifications and experience, and being a valuer member of a recognised valuer
organisation, is registered as a valuer with the Authority. Accordingly, to enable the members
of the Institute/others to practice as Registered Valuers, the Institute incorporated ICSI-
RVO. ICSI- RVO is a Section 8 company which has been formed with the intent to enrol,
register, educate, train, promote, develop and regulate Registered Valuers Rules while
establishing and promoting high standards of practice and professional conduct and
furthermore, to promote good professionalism, ethical conduct and competency of Registered
Valuers for ensuring quality of valuation work.
The IBBI vide Registered Valuers Organisation Recognition No. IBBI/RVO/2018/003
recognised ICSI RVO as a Registered Valuers Organisation for the Asset Class(es):-
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 Land and Building

 Plant and Machinery
 Securities or Financial Assets

Who can offer Valuation services?

For conducting valuations required under the Companies Act, 2013 and the Insolvency and
Bankruptcy Code, 2016, a person is to be registered with the IBBI as a registered valuer. For
registering with IBBI, a person must have necessary qualification and experience, has to be
enrolled as a valuer member with a Registered Valuer Organisation (RVO), has to complete a
recognised educational course conducted by the RVO, and pass valuation examination
conducted by IBBI. IBBI, being the Authority, in pursuance of the first proviso to rule 5 (1)
of the Companies (Registered Valuers and Valuation) Rules, 2017 specified the details of
educational course for the Asset Class of ‘Securities or Financial Assets’. These courses shall
be delivered by the RVOs in not less than 50 hours.

A person, who is rendering valuation services under the Companies Act, 2013, may continue
to do so without a certificate of registration up to 31st March, 2018, thereafter with effect
from 1st April, 2018 for conducting valuations required under the Companies Act, 2013 and
the Insolvency and Bankruptcy Code, 2016, a person is to be registered with the IBBI as a
registered valuer. In pursuance of the Rule 5 (3) of the Companies (Registered Valuers and
Valuation) Rules, 2017, IBBI, being the Authority, has also published the syllabus, format
and frequency of the valuation examination for the Asset Class of ‘Securities or Financial
Assets’. A person wishing to be a valuer needs to pass this valuation examination.

Power of Central Government to Direct Companies to Furnish Information or Statistics

Section 405 of the Companies, Act, 2013 states that the Central Government may, by order,
require companies or any class of companies, to furnish such information or statistics with
regard to their or its constitution or working, and within such time, as may be specified in the
order. Every such order shall be published in the Official Gazette and may be addressed to
companies or to any class of companies, in such manner, as the Central Government may
think fit and the date of such publication shall be deemed to be the date on which requirement
for information or statistics is made on such companies or class of companies, as the case
may be. For the purpose of satisfying itself that any information or statistics furnished by a
company or companies in pursuance of any order stated above is correct and complete, the
Central Government may by order require such company or companies to produce such
records or documents in its possession or allow inspection thereof by such officer or furnish
such further information as that Government may consider necessary.

Failure to furnish information or statistics by the companies required by the Central

Government
If any company fails to comply with an order specified above, or knowingly furnishes any
information or statistics which is incorrect or incomplete in any material respect, the
company shall be punishable with fine which may extend to twenty-five thousand rupees and
every officer of the company who is in default, shall be punishable with imprisonment for a
term which may extend to six months or with fine which shall not be less than twenty-five
thousand rupees but which may extend to three lakh rupees, or with both.
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CHAPTER-28 TRANSPARENCY AND DISCLOSURES

Transparency is a pivotal feature in the market based monitoring of companies and is central
to shareholders’ ability to exercise their ownership rights on an informed basis, which can
help attract capital and maintain confidence in the capital markets.

Adequate disclosure also helps improve public understanding of the structure and activities of
enterprises, corporate policies and performance with respect to environmental and ethical
standards, and companies’ relationships with the communities in which they operate.
Disclosures are made both through the print media and the electronic media.

There are no of legislations where corporates have to make various disclosure. Some of
important legislations are as follows:

1. SEBI (LODR) Regulations, 2015

2. Sexual Harassment (Prevention, Prohibition and Redressal) Act, 2013
3. Companies Act, 2013

DISCLOSURES UNDER SEBI (LODR) REGULATIONS, 2015

REGULATION PRESERVATION OF DOCUMENTS

9
The listed entity shall have a POLICY for preservation of documents, approved by its
board of directors. Listed entity may keep documents in electronic mode.
Company will classifying them in at least Two categories as follows-
 Documents whose preservation shall be PERMANENT IN NATURE
 Documents with preservation period of NOT LESS THAN EIGHT YEARS after
completion of the relevant transactions

13 GRIEVANCE REDRESSAL MECHANISH:-

The listed entity shall ensure that Adequate Steps Are Taken for expeditious redressal of
investor complaints.
The listed entity shall ensure that it is registered on the SCORES platform or such other
electronic platform or system of the Board as shall be mandated from time to time, in
order to handle investor complaints electronically in the manner specified by the Board.
The listed entity shall file with the recognized stock exchange(s) on a quarterly basis,
within twenty one days from the end of each quarter, a statement giving
 The number of investor complaints pending at the beginning of the quarter,
 Those received during the quarter,
 Disposed of during the quarter and
 Those remaining unresolved at the end of the quarter

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AUDIT COMMITTEE:
18
1. Every listed entity shall constitute a qualified and independent audit committee
2. Minimum 3 directors SHALL BE MEMBERS OF AUDIT COMMITEE
3. 2/3RD SHALL BE INDEPENDENT DIRECTOR
4. All members shall be financial literate and at least 1 member shall have accounting and
financial management expertise
5. The chairperson of the audit committee shall be an Independent Director.
6. He shall be present at Annual general meeting to answer shareholder queries
7. The Company Secretary shall act as the secretary to the audit committee.
8. The audit committee at its discretion shall invite the finance director or head of the
finance function, head of internal audit and a representative of the statutory auditor and
any other such executives to be present at the meetings of the committee

Frequency of Meetings:

 At least 4 Board Meetings in a Year

 Maximum Gap B/w Two Meetings 120 days.

Quorum of Meetings:

2 Members or 1/3 Members of audit committee and at least 2 independent director

Powers of Committee:

The audit committee shall have powers to investigate any activity within its terms of
reference, seek information from any employee, obtain outside legal or other professional
advice and secure attendance of outsiders with relevant expertise, if it considers necessary.

Financially Literate shall mean the ability to read and understand basic financial
statements i.e. balance sheet, profit and loss account, and statement of cash flows.

a member shall be considered to have accounting or related financial management

expertise if he or she possesses experience in finance or accounting, or requisite
professional certification in accounting, or any other comparable experience or
background which results in the individual’s financial sophistication, including
being or having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities

19 NOMINATION & REMUNERATION COMMITTEE:

1. Board of Directors shall constitute the nomination and remuneration committee.

Constitution of N&R Committee will be as follow:
2. Minimum 3 directors SHALL BE MEMBERS OF COMMITTEE
3. 50% SHALL BE INDEPENDENT DIRECTOR
4. THE CHAIRMAN SHALL BE INDEPENDENT DIRECTOR
5. Chairman of the company shall not Chair such Committee.
6. Chairman of Company can appoint as Member of committee.
7. Chairperson of Committee may be present at the Annual General Meeting.
8. The quorum for a meeting of the nomination and remuneration committee shall
be either two members or one third of the members of the committee, whichever
is greater, including at least one independent director in attendance
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9. The nomination and remuneration committee shall meet at least once in a year.”

20 STAKE HOLDER RELATIONSHIP COMMITTEE:

 The listed entity shall constitute a Stakeholders Relationship Committee to specifically

look into the various aspects of interest of shareholders, debentureholders and other
security holders.
 The chairperson of this committee shall be a non-executive director.
 The board of directors shall decide other members of this committee.
 At least three directors, with at least one being an independent director, shall be
members of the Committee
 The Chairperson of the Stakeholders Relationship Committee shall be present at
the annual general meetings to answer queries of the security holders
 The stakeholders relationship committee shall meet at least once in a year

21 RISK MANAGEMENT COMMITTEE:

 Board of Directors shall constitute the risk management committee.

 The provisions of this regulation shall be applicable to top 500 Listed Entities,
determined on the basis of market capitalization, as at the end of the immediate
previous financial year.
 Majority of Members of committee will be members of the board..
 The board of directors shall define the role and responsibility of the Risk Management
Committee and may delegate monitoring and reviewing of the risk management plan to
the committee and such other functions as it may deem fit
 The risk management committee shall meet at least once in a year

22 VIGIL MECHANISM:

 The listed entity shall formulate a vigil mechanism for directors and employees to
report genuine concerns.
 The vigil mechanism shall provide for adequate safeguards against victimization of
director(s) or employee(s) or any other person who avail the mechanism.
 The Vigil Mechanism also provides for direct access to the chairperson of the audit
committee in appropriate or exceptional cases.

23 RELATED PARTY TRANSACTIONS.

1. The listed entity shall formulate a policy on materiality of related party transactions
and on dealing with related party transactions

2. All related party transactions shall require prior approval of the audit committee.

3. Audit committee may grant omnibus approval for related party transactions proposed
to be entered into by the listed entity

4. All material related party transactions shall require approval of the shareholders
through resolution and no related party shall vote to approve on such
resolutions whether the entity is a related party to the particular transaction or
not.

5. The provisions of sub-regulations (2), (3) and (4) shall not be applicable in the
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following cases:
 Transactions entered into between two government companies;
 Transactions entered into between a holding company and its wholly owned
subsidiary whose accounts are consolidated with such holding company and placed
before the shareholders at the general meeting for approval.

6. For the purpose of this regulation, all entities falling under the definition of
related parties shall not vote to approve the relevant transaction irrespective of
whether the entity is a party to the particular transaction or not.

7. The listed entity shall submit within 30 days from the date of publication of its
standalone and consolidated financial results for the half year, disclosures of
related party transactions on a consolidated basis, in the format specified in the
relevant accounting standards for annual results to the stock exchanges and
publish the same on its website.
24 Corporate governance requirements with respect to subsidiary of listed entity

1. At least one independent director on the board of directors of the listed entity shall be a
director on the board of directors of an unlisted material subsidiary, incorporated in
India or not
2. The audit committee of the listed entity shall also review the financial statements, in
particular, the investments made by the unlisted subsidiary.
3. The minutes of the meetings of the board of directors of the unlisted subsidiary shall
be placed at the meeting of the board of directors of the listed entity.
4. The management of the unlisted subsidiary shall periodically bring to the notice of the
board of directors of the listed entity, a statement of all significant transactions and
arrangements entered into by the unlisted subsidiary.
5. A listed entity shall not dispose of shares in its material subsidiary resulting in
reduction of its shareholding (either on its own or together with other subsidiaries) to
less than fifty percent or cease the exercise of control over the subsidiary without
passing a special resolution in its General Meeting except in cases where such
divestment is made under a scheme of arrangement duly approved by a
Court/Tribunal.
6. Selling, disposing and leasing of assets amounting to more than twenty percent of
the assets of the material subsidiary on an aggregate basis during a financial year shall
require prior approval of shareholders by way of special resolution, unless the
sale/disposal/lease is made under a scheme of arrangement duly approved by a
Court/Tribunal.
7. Where a listed entity has a listed subsidiary, which is itself a holding company, the
provisions of this regulation shall apply to the listed subsidiary in so far as its
subsidiaries are concerned.

Explanation. For the purpose of this regulation, the term “significant transaction or
arrangement” shall mean any individual transaction or arrangement that exceeds or is likely
to exceed ten percent of the total revenues or total expenses or total assets or total
liabilities, as the case may be, of the unlisted material subsidiary for the immediately
preceding accounting year.

MEANING OF MATERIAL SUBSIDIARY (REGULATION 16(1)(c)

Material Subsidiary shall mean a subsidiary, whose income or net worth exceeds 20
percent of the consolidated income or net worth respectively, of the listed entity and its
subsidiaries in the immediately preceding accounting year.
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24A SECRETARIAL AUDIT

Every listed entity and its material unlisted subsidiaries incorporated in India shall
undertake secretarial audit and shall annex with its annual report, a secretarial audit
report, given by a company secretary in practice, in such form as may be specified with
effect from the year ended March 31, 2019.
27 OTHER CORPORATE GOVERNANCE COMPLIANCE REQUIREMENT:

Quarterly Compliance Report on Corporate Governance:

 The listed entity shall submit a quarterly compliance report on corporate governance in
the format as specified by the Board from time to time to the recognized stock
exchange(s) within fifteen days from close of the quarter.
 Details of all material transactions with related parties shall be disclosed.

Report shall be sign Either by Compliance officer or Chief Executive officer.

29 PRIOR INTIMATIONS

1. The listed entity shall give prior intimation to stock exchange about the meeting
of the board of directors in which any of the following proposals is due to be
considered:
Financial results viz. quarterly, half yearly, or annual, as the case may be
Proposal for buy back of securities
Proposal for voluntary delisting by the listed entity from the stock exchange(s);
Fund raising by way of further public offer, rights issue, American Depository
Receipts/Global Depository Receipts/Foreign Currency Convertible Bonds,
qualified institutions placement, debt issue, preferential issue or any other method
and for determination of issue price(Provided that intimation shall also be given in
case of any annual general meeting or extraordinary general meeting or postal
ballot that is proposed to be held for obtaining shareholder approval for further
fund raising indicating type of issuance.)
Declaration/ recommendation of dividend, issue of convertible securities including
convertible debentures or of debentures carrying a right to subscribe to equity
shares or the passing over of dividend.
2. The intimation required under sub-regulation (1), shall be given at least TWO
WORKING DAYS in advance, excluding the date of the intimation and date
of the meeting: Provided that intimation regarding item specified in clause (a)
of sub-regulation (1), to be discussed at the meeting of board of directors shall
be given AT LEAST FIVE DAYS in advance (excluding the date of the
intimation and date of the meeting), and such intimation shall include the date
of such meeting of board of directors.

3. The listed entity shall give intimation to the stock exchange(s) at least
ELEVEN WORKING DAYS before any of the following proposal is placed
before the board of directors

Any alteration in the form or nature of any of its securities that are listed on the
stock exchange or in the rights or privileges of the holders thereof.

Any alteration in the date on which, the interest on debentures or bonds, or the
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redemption amount of redeemable shares or of debentures or bonds, shall be

payable.
30 DISCLOSURES UNDER REGULATION 30 AND SCHEDULE III- PART-A/B
DISCLOSURES OF EVENTS OR INFORMATION: SPECIFIED SECURITIES
1. Every listed entity shall make disclosures of any events or information which, in the opinion of the board
of directors of the listed company, is material.
2. Events specified in Para A of Part A of Schedule III are deemed to be material events and listed entity shall
make disclosure of such events.
3. The listed entity shall make disclosure of events specified in Para B of Part A of Schedule III, based on
application of the guidelines for materiality, as specified in sub-regulation (4).
Regulation 30 (6) The listed entity shall first disclose to stock exchange(s) of all events, as soon as reasonably
possible and not later than 24 hours from the occurrence of event or information. In case the disclosure is made
after twenty four hours of occurrence of the event or information, the listed entity shall, along with such
disclosures provide explanation for delay
33 FINANCIAL RESULTS

CONDITIONS FOR PREPARATION OF FINANCIAL RESULT OF LISTED ENTITY:

 The financial results shall be prepared on the basis of Accrual Accounting

Policy.

 The financial results shall be in accordance with uniform accounting

practices adopted for all the periods.

 The quarterly and year to date results shall be prepared in accordance with
the recognition and measurement principles laid down in Accounting
Standard 25 or Indian Accounting Standard 31 as applicable.

 The standalone financial results and consolidated financial results shall be

prepared as per Generally Accepted Accounting Principles in India.

 In addition to the above, the listed entity may also submit the financial
results, as per the International Financial Reporting Standards notified by
the International Accounting Standards Board

 The listed entity shall make the disclosures specified in Part A of Schedule
IV

Approval and Authentication of the Financial Results:

 The quarterly financial results submitted shall be approved by the Board of

Directors.
 The chief executive officer and chief financial officer of the listed entity shall
certify that the financial results, before placement of them before board of
Directors.
 They will certify that not contain any false or misleading statement or figures
and do not omit any material fact which may make the statements or figures
contained therein misleading.
 The financial results submitted to the stock exchange shall be signed by the
chairperson or managing director, or a whole time director or in the absence of
all of them it shall be signed by any other director of the listed entity who is
duly authorized by the board of directors to sign the financial results.
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 The limited review report shall be placed before the board of directors, at its
meeting which approves the financial results, before being submitted to the
stock exchange(s).
 The listed entity shall ensure that the limited review or audit reports submitted
to the stock exchange(s) on a Quarterly or Annual basis. Such report given
only by an auditor who has subjected himself to the peer review process of
Institute of Chartered Accountants of India And
 Such auditor holds a valid certificate issued by the Peer Review Board of the
Institute of Chartered Accountants of India

Manner of submission of Financial Results

a. The listed entity shall submit quarterly and year-to-date standalone financial
results to the stock exchange within 45 days (forty-five days) of end of each
quarter, other than the last quarter.

b. In case the listed entity has subsidiaries, in addition to the requirement of

submission of standalone financial statement, the listed entity SHALL also
submit quarterly/year-to-date consolidated financial results.

c. The quarterly and year-to-date financial results may be either audited or

unaudited subject to the following:

 In case the listed entity opts to submit unaudited financial results, they
shall be subject to limited review by the statutory auditors of the listed
entity and shall be accompanied by the limited review report. Provided
that in case of public sector undertakings this limited review may be
undertaken by any practicing Chartered Accountant

 In case the listed entity opts to submit audited financial results, they
shall be accompanied by the Audit Report.

d. The listed entity shall submit ANNUAL audited standalone financial results
for the financial year, within 60 days (sixty days) from the end of the financial
year along with the audit report and statement on impact of audit
qualifications (applicable only) for audit report with unmodified opinion.

Provided further that, in case of audit reports with unmodified opinion(s), the
listed entity shall furnish a declaration to that effect to the Stock Exchange(s)
while publishing the annual audited financial results.

IN CASE OF ENTITY HAS SUBSIDIARY:

The listed entity has subsidiaries; it shall, while submitting annual audited
standalone financial results also submit

 Annual Audited Consolidated Financial Results and;

 The Audit Report and ;
 statement on impact of audit qualifications (applicable only) for audit
report with unmodified opinion
e. The listed entity shall also submit the audited financial results in respect of the
last quarter along-with the results for the entire financial year, with a note
stating that the figures of last quarter are the balancing figures between
audited figures in respect of the full financial year and the published year-to-
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date figures up to the third quarter of the current financial year.

f. The statutory auditor of a listed entity shall undertake a limited review of

the audit of all the entities/ companies whose accounts are to be
consolidated with the listed entity as per AS 21 in accordance with
guidelines issued by the Board on this matter.”

34 ANNUAL REPORT

Time Period of Submission:

The listed entity shall submit to the stock exchange and publish on its
website-

(a) a copy of the annual report sent to the shareholders along with the notice
of the annual general meeting not later than the day of commencement of
dispatch to its shareholders

(b) in the event of any changes to the annual report, the revised copy along
with the details of and explanation for the changes shall be sent not later
than 48 hours after the annual general meeting.”

The annual report shall contain the following:

1. Audited Financial Statements i.e. balance sheets, profit and loss accounts etc;
2. Consolidated Financial Statements Audited by its statutory auditors;
3. Cash Flow Statement presented only under the indirect method as prescribed
in Accounting Standard-3 or Indian Accounting Standard 7, as applicable,
4. Directors Report
5. Management Discussion and Analysis Report – either as a part of directors
report or addition thereto;
6. For the Top 500 Listed Entities based on market capitalization (calculated as
on March 31 of every financial year), Business Responsibility
Report describing the initiatives taken by them from an environmental, social
and governance perspective, in the format as specified by the Board from time
to time:
7. Listed Entities other than top 500 listed companies based on market
capitalization and listed entities which have listed their specified securities on
SME Exchange, may include these business responsibility reports on a
voluntary basis in the format as specified.
8. The annual report shall contain any other disclosures specified in Companies
Act, 2013 along with other requirements as specified in Schedule V of these
regulations
43A. Dividend Distribution Policy

8th July, 2016 1. The top five hundred listed entities based on market capitalization
(calculated as on March 31 of every financial year) shall formulate a
dividend distribution policy which shall be disclosed in their annual
reports and on their websites.

2. The dividend distribution policy shall include the following parameters:

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a. the circumstances under which the shareholders of the listed entities

may or may not expect dividend;

b. the financial parameters that shall be considered while declaring

dividend;

c. internal and external factors that shall be considered for declaration of

dividend;

d. policy as to how the retained earnings shall be utilized; and

e. parameters that shall be adopted with regard to various classes of

shares: Provided that if the listed entity proposes to declare dividend on
the basis of parameters in addition to clauses (a) to (e) or proposes to
change such additional parameters or the dividend distribution policy
contained in any of the parameters, it shall disclose such changes along
with the rationale for the same in its annual report and on its website.

3. The listed entities other than top five hundred listed entities based on
market capitalization may disclose their dividend distribution policies
on a voluntary basis in their annual reports and on their websites.”
46 WEBSITE

The listed entity shall maintain a functional website containing the basic
information about the listed entity. The listed entity shall ensure that the
contents of the website are correct.
Updations of change:
The listed entity shall update any change in the content of its website with
in 2 working days from the date of such change in content.
Disclosures on website

 Details of its business

 Terms and conditions of appointment of independent directors
 Composition of various committees of board of directors
 Code of conduct of board of directors and senior management
personnel;
 Details of establishment of vigil mechanism/Whistle Blower policy
 Criteria of making payments to non-executive directors , if the same has
not been disclosed in annual report;
 Policy on dealing with related party transactions;
 Policy for determining‘ material subsidiaries;
 Details of agreements entered into with the media companies and/or
their associates, etc;
 The email address for grievance redressal and other relevant details
 New name and the old name of the listed entity for a continuous period
of one year, from the date of the last name change
 With effect from October 1, 2018, all credit ratings obtained by the entity
for all its outstanding instruments, updated immediately as and when there
is any revision in any of the ratings.
 separate audited financial statements of each subsidiary of the listed entity

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in respect of a relevant financial year, uploaded at least 21 days prior to the

date of the annual general meeting which has been called to inter alia
consider accounts of that financial year

DISCLOSURES UNDER SEBI (SHARE BASED EMPLOYEE BENEFITS)

REGULATIONS, 2014

Regulation 14 of the Regulations provides that in addition to the information that a company
is required to disclose, in relation to employee benefits under the Companies Act, 2013, the
Board of directors of such a company shall also disclose the details of the scheme(s) being
implemented, as specified by SEBI in this regard. SEBI vide circular dated 16th June, 2015
has provided for following disclosure requirements in the Board’s
Report.

 The Board of directors in their report shall disclose any material change in the scheme(s)
and whether the scheme(s) is / are in compliance with the regulations.

 Further, SEBI has prescribed specific details which shall be disclosed on the company's
website and a web-link thereto shall be provided in the report of board of directors.

Disclosure Requirements under the Sexual Harassment of Women at Workplace

(Prevention, Prohibition & Redressal) Act, 2013

The Act mandates that all companies having more than 10 women employees shall disclose
in annual report following details as per section 22 and 28 of the Act.

Rule 14 of Sexual Harassment of Women at Workplace (Prevention, Prohibition &

Redressal) Rules, 2013 provides that the annual report which the Complaints Committee shall
prepare shall containfollowing information-

o Number of complaints of sexual harassment received in the year

o Number of complaints disposed off during the year
o Number of cases pending for more than ninety days
o Number of workshops or awareness programme against sexual harassment carried out
o Nature of action taken by the employer or District Officer

DISCLOSURE UNDER COMPANIES ACT 2013

1. Disclosures under Annual Report (already explained in chapter of register and return)
section 92
2. Disclosures pertaining Board’s Report (already explained in chapter of accounts)
section 134
3. Disclosures pertaining to Corporate Social Responsibility (already explained in chapter
of accounts) section 135
4. Disclosures pertaining to Issue of Equity Shares with differential rights
Rule 4(4) of the Companies (Share Capital and Debentures) Rules, 2014, provides that the
Board of Directors shall, inter alia, disclose in the Board’s Report for the financial year in
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which the issue of equity shares with differential rights as to dividend, voting or otherwise
was completed, the following details, namely:-

g. total number of shares allotted with differential rights;

h. details of the differential rights relating to voting rights and dividends;
i. price at which such shares have been issued;
j. particulars of promoters, directors or key managerial personnel to whom such shares are
issued;
k. change in control, if any, in the company consequent to the issue of equity shares with
differential voting rights;
l. diluted Earnings Per Share pursuant to the issue of each class of shares, calculated in
accordance with the applicable accounting standards;
m. pre and post issue shareholding pattern along with voting rights in the format specified
under subrule (2) of rule 4.

5. Disclosures pertaining to Issue of Sweat Equity Shares

In terms of Rule 8 of Companies (Share Capital and Debentures) Rules, 2014, the Board of
Directors shall, inter alia, disclose in the Directors’ Report for the year in which such shares
are issued, the following details of issue of sweat equity shares namely:-

 the class of director or employee to whom sweat equity shares were issued;
 the class of shares issued as Sweat Equity Shares;
 the reasons or justification for the issue;
 the principal terms and conditions for issue of sweat equity shares, including pricing
formula
 the total number of shares arising as a result of issue of sweat equity shares;
 the percentage of the sweat equity shares of the total post issued and paid up share capital;
 the consideration (including consideration other than cash) received or benefit accrued to
the company from the issue of sweat equity shares;
 the diluted Earnings Per Share (EPS) pursuant to issuance of sweat equity shares.

6. Disclosures pertaining to Consolidated Financial Statements

Rule 8(1) of the Companies (Accounts) Rules, 2014 specifies that the Board’s Report

shall be prepared on the basis of standalone financial statements of the company.

shall report on the highlights of performance of subsidiaries, associates and joint venture
companies and their contribution to the overall performance of the company during the
period under report.

Proviso to Section 129(3) read with Rule 5 of the Companies (Accounts) Rules, 2014 states
that the company shall also attach along with its financial statement a separate statement

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containing the salient features of the financial statements of a company’s subsidiary or

subsidiaries, associate company or companies and joint venture or ventures in Form AOC-1.

POLICIES

The Companies incorporated under the Indian Company Law are required to frame different
Policies/ maintain systems/ plans and devise Codes of/ for the Company/ Board of Directors
and Senior Management Personnel/ Directors and Employees etc. pursuant to the provisions
of the Companies Act, 2013 and other corporate laws. However, companies whose shares are
listed on Stock Exchanges in India are additionally required to frame some other policies/
code as well, in compliance of the SEBI (LODR) and SEBI Rules and Regulations. The
Policies and Codes that are required to be framed by companies, needs also to be disclosed in
the Board’s Report forming part of the Annual Report and uploaded on Company’s website,
wherever applicable. The table below lists the various Policies/ Codes to be framed,
applicability, manner of framing and disclosure requirements etc.

 Corporate Social Responsibility (CSR)Policy

 Whistle Blower Policy – A Vigil mechanism
 Policy for formal annual evaluation by the Board of its own performance,
 Policy on directors’ appointment And remuneration of the directors, KMP and other
employees

POLICIES TO BE ADOPTED AS PER SEBI LODR REGULATIONS

o Policy for preservation of documents

o Policy for determining material subsidiary
o Policy on materiality of related party transactions
o Policy for determination of materiality
o Vigil Mechanism/ Whistle Blower policy
o Policy on diversity of board of directors
o Dividend Distribution Policy
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CHAPTER- 29
MEDIATION AND CONCILIATION UNDER COMPANIES ACT 2013
MEDIATION AND CONCILIATION PANEL SECTION 442

1. The Central Government (R.D.) shall maintain a panel of experts to be called as the
Mediation and Conciliation Panel consisting of such number of experts having such
qualifications as may be prescribed for mediation between the parties during the
pendency of any proceedings before the Central Government or the Tribunal or the
Appellate Tribunal under this Act.
2. Any of the parties to the proceedings may, at any time during the proceedings before the
Central Government or the Tribunal or the Appellate Tribunal, apply to the Central
Government or the Tribunal or the Appellate Tribunal, as the case may be, in such form
along with such fees as may be prescribed, for referring the matter pertaining to such
proceedings to the Mediation and Conciliation Panel and the Central Government or
Tribunal or the Appellate Tribunal, as the case may be, shall appoint one or more experts
from the panel referred to in sub-section (1).
3. The Central Government or the Tribunal or the Appellate Tribunal before which any
proceeding is pending may, suo motu, refer any matter pertaining to such proceeding to
such number of experts from the Mediation and Conciliation Panel as the Central
Government or the Tribunal or the Appellate Tribunal, as the case may be, deems fit.
4. Any party aggrieved by the recommendation of the Mediation and Conciliation Panel
may file objections to the Central Government or the Tribunal or the Appellate Tribunal,
as the case may be.

9th September, 2016 Companies (Mediation and Conciliation) Rules, 2016

S.NO. PARTICULARS PROVISIONS

Rule Panel of 1. Regional Director shall prepare a panel of experts willing and
3 mediators or eligible to be appointed as mediators or conciliators in the
conciliators respective regions and such panel shall be placed on the website
of the Ministry of Corporate Affairs or on any other website as
may be notified by the Central Government.
2. The Regional Director may invite applications from persons in
Form MDC-1. interested in getting empanelled as mediator or
conciliator and possessing the requisite qualifications specified
in Rule 4.
3. The Regional Director shall invite applications from persons
interested in getting empanelled as mediator or conciliator every
year during the month of February and update the Panel which
shall be effective from 1st of April of every year:
Rule Qualifications a. has been a Judge of the Supreme Court of India ; or
4 for b. has been a Judge of a High Court ; or
empanelment. c. has been a District and Sessions Judge ; or
d. has been a Member or Registrar of a Tribunal constituted at the
National level under any law for the time being in force ; or
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e. has been an officer in the Indian Corporate Law Service or

Indian Legal Service with fifteen years experience ; or
f. is a qualified legal practitioner for not less than ten years ; or
g. is or has been a professional for at least fifteen years of
continuous practice as Chartered Accountant or Cost
Accountant or Company Secretary ; or
h. has been a Member or President of any State Consumer Forum
i. is an expert in mediation or conciliation who has successfully
undergone training in mediation or conciliation.
Rule Disqualifications a. is an undischarged insolvent or has applied to be adjudicated as
5 for an insolvent and his application is pending ;
empanelment b. has been convicted for an offence which, in the opinion of the
Central Government, involves moral turpitude ;
c. has been removed or dismissed from the service of the
Government or the Corporation owned or controlled by the
Government ;
d. has been punished in any disciplinary proceeding, by the
appropriate disciplinary authority ; or
e. has, in the opinion of the Central Government, such financial or
other interest in the subject matter of dispute or is related to any
of the parties, as is likely to affect prejudicially the discharge by
him of his functions as a mediator or conciliator.
Rule Application for a. Parties concern may agree on the name of the sole mediator or
6 appointment of conciliator for mediation or conciliation between them;
Mediator or b. Where, there are two or more sets of parties and are unable to
Conciliator and agree on a sole mediator or conciliator, the Central Government
his appointment or the Tribunal or the Appellate Tribunal may ask each party to
- nominate the mediator or conciliator or the Central Government
or the Tribunal or the Appellate Tribunal may appoint the
mediator or conciliator, as may be deemed necessary for
mediation or conciliation between the parties.
c. The application to the Central Government or the Tribunal or
the Appellate Tribunal, as the case may be, for referring the
matter pertaining to any proceeding pending before it for
mediation or conciliation shall be in Form MDC-2 and shall be
accompanied with a fee of one thousand rupees.
d. On receipt of an application under sub-rule (2), the Central
Government or the Tribunal or the Appellate Tribunal shall
appoint one or more experts from the panel.
e. The Central Government or the Tribunal or the Appellate
Tribunal, as the case may be, before which any proceeding is
pending may, suo motu, refer any matter pertaining to such
proceeding to such number of experts from the Mediation and
Conciliation Panel, if it deems fit in the interest of parties.
Rule Matters not to The following matters shall not be referred to mediation or
30 be referred to conciliation, namely :—
the mediation or
conciliation.— a. The matters relating to proceedings in respect of inspection or
investigation under Chapter XIV of the Act; or the matters
which relate to defaults or offences for which applications for
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compounding have been made by one or more parties.

b. Cases involving serious and specific allegations of fraud,
fabrication of documents forgery, impersonation, coercion etc.
c. Cases involving prosecution for criminal and non-
compoundable offences.
d. cases which involve public interest or interest of numerous
persons who are not parties before the Central Government or
the Tribunal or the Appellate Tribunal as the case may be
Rule Procedure for 1. For the purposes of mediation and conciliation, the mediator or
11 disposal of conciliator shall follow the following procedure, namely :-
matters a. he shall fix, in consultation with the parties, the dates and
the time of each mediation or conciliation session, where all
parties have to be present ;
b. he shall hold the mediation or conciliation at the place
decided by the Central Government or the Tribunal or the
Appellate Tribunal, as the case may be, or such other place
where the parties and the mediator or conciliator jointly
agree
c. he may conduct joint or separate meetings with the parties
d. each party shall, ten days before a session, provide to the
mediator or conciliator a brief memorandum setting forth
the issues, which need to be resolved, and his position in
respect of those issues and all information reasonably
required for the mediator or conciliator to understand the
issue and a copy of such memorandum shall also be given to
the opposite party or parties: Provided that in suitable or
appropriate cases, the above mentioned period may be
reduced at the discretion of the mediator or conciliator;
e. each party shall furnish to the mediator or conciliator such
other information as may be required by him in connection
with the issues to be resolved.
2. Where there is more than one mediator or conciliator, the
mediator or conciliators may first concur with the party that
agreed to nominate him and thereafter interact with the other
mediator or conciliator, with a view to resolve the dispute.
Rule Mediator or The mediator or conciliator shall not be bound by the Indian
12 Conciliator not Evidence Act, 1872 or the Code of Civil Procedure, 1908 while
bound by the disposing the matter, but shall be guided by the principles of
Indian Evidence fairness and natural justice, having regard to the rights and
Act, 1872 or the obligations of the parties, usages of trade, if any, and the
Code of Civil circumstances of the dispute
Procedure, 1908
Rule Representation The parties shall ordinarily be present personally or through an
13 of parties.─ authorised attorney at the sessions or meetings notified by the
mediator or conciliator:
Provided that the parties may be represented by an authorised
person or counsel with the permission of the mediator or conciliator
in such sessions or meetings and the mediator or conciliator or the
Central Government or the Tribunal or the Appellate Tribunal as

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the case may be, shall be entitled to direct or ensure the presence of
any party to appear in person:

Provided further that the party not residing in India may, with the
permission of the mediator or conciliator, be represented by his or
her authorised representative at the sessions or meetings.
Rule Consequences of If a party fails to attend a session or a meeting fixed by the mediator
14 non-attendance or conciliator deliberately or wilfully for two consecutive times, the
of parties at mediation or conciliation shall be deemed to have failed and
sessions or mediator or conciliator shall report the matter to the Central
meetings on due Government or the Tribunal or the Appellate Tribunal, as the case
dates may be.
Rule Offer of 1. Any party to the proceeding may, “without prejudice” offer a
16 settlement by settlement to the other party at any stage of the proceedings,
parties with a notice to the mediator or conciliator.
2. Any party to the proceeding may make a, “with prejudice” offer
to the other party at any stage of the proceedings with a notice
to the mediator or conciliator.
Rule Role of The mediator or conciliator shall attempt to facilitate voluntary
17 Mediator or resolution of the dispute by the parties, and communicate the view
Conciliator of each party to the other, assist them in identifying issues, reducing
misunderstandings, clarifying priorities, exploring areas of
compromise and generating options in an attempt to resolve the
dispute, emphasising that it is the responsibility of the parties to
take decision which affect them and he shall not impose any terms
of settlement on the parties :

Provided that on consent of both the parties, the mediator or

conciliator may impose such terms and conditions on the parties for
early settlement of the dispute as he may deem fit.
Rule Parties alone The parties shall be made to understand that the mediator or
18 responsible for conciliator facilitates in arriving a decision to resolve the dispute
taking decision and that he shall not and cannot impose any settlement nor the
mediator or conciliator give any assurance that the mediation or
conciliation shall result in a settlement and the mediator or
conciliator shall not impose any decision on the parties.
Rule Time limit for 1. The process for any mediation or conciliation under these rules
19 completion of shall be completed within a period of three months from the
mediation or date of appointment of expert or experts from the Panel.
conciliation 2. On the expiry of three months from the date of appointment of
expert from the Panel, the mediation or conciliation process
shall stand terminated.
3. In case of mediation or conciliation in relation to any
proceeding before Tribunal or Appellate Tribunal which could
not be completed within three months, the Tribunal or as the
case may be, the Appellate Tribunal, may on the application of
mediator or conciliator or any of the party to the proceedings,
extend the period for mediation or conciliation by such period
not exceeding three months.
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Rule Settlement 1. Where an agreement is reached between the parties in regard to

25 agreement all the issues or some of the issues in the proceeding, the same
shall be reduced to writing and signed by the parties and if any
counsel has represented the parties, the conciliator or mediator
may also obtain the signature of such counsel on the settlement
agreement.
2. The agreement of the parties so signed shall be submitted to the
mediator or conciliator who shall, with a covering letter signed
by him, forward the same to the Central Government or the
Tribunal or the Appellate Tribunal, as the case may be.
Rule Fixing date for 1. The Central Government or the Tribunal or the Appellate
26 recording Tribunal as the case may be, shall fix a date of hearing normally
settlement and within fourteen days from the date of receipt of the report of the
passing order mediator or conciliator under rule 25 and on such date of
hearing, if the Central Government or the Tribunal or the
Appellate Tribunal, as the case may be, is satisfied that the
parties have settled their dispute, it shall pass an order in
accordance with terms thereof.
2. If the settlement disposes of only certain issues arising in the
proceeding, on the basis of which any order is passed as stated
in sub-rule (1), the Central Government or the Tribunal or the
Appellate Tribunal, as the case may be, shall proceed further to
decide the remaining issues.
Rule Expenses of the 1. At the time of referring the matter to the mediation or
27 mediation and conciliation, the Central Government or the Tribunal or the
conciliation Appellate Tribunal, as the case may be, may fix the fee of the
mediator or conciliator and as far as possible, a consolidated
sum may be fixed rather than for each session or meeting.
2. The expense shall be borne equally by the various contesting
parties or as may be otherwise directed by the Central
Government or the Tribunal or the Appellate Tribunal, as the
case may be.

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CHAPTER- 30 DRAFTING UNDER COMPANIES ACT 2013

PRACTICAL ASPECTS OF DRAFTING RESOLUTIONS

The following points should be remembered while drafting resolutions, both for Board and
general meetings

a) All essential facts are included in the resolution - e.g., the resolution for re-appointment
of a managing director should indicate that the re-appointment is subject to the approval
of the Central Government if approval of the Central Government is required and should
also cover the period of appointment, terms and conditions of such appointment.
b) Surplus and meaningless words or phrases should not be included in resolutions.
c) Resolutions must indicate the relevant provisions or sections of the Act and the Rules
pursuant to which they are being passed.
d) If a resolution is one which requires the approval of the Central Government or
confirmation of the National Company Law Tribunal/Court, this must be stated in the
resolution.
e) A resolution must indicate when it will become effective.
f) A resolution must confine itself to one subject matter and two distinct matters should not
be covered in one resolution.
g) A resolution should be crisp, concise and precise and should be flexible enough to take
care of eventualities.
h) Where lengthy resolutions have to be approved, they should be divided into paragraphs
and should be arranged in their logical order having regard to the subject matter of the
resolution.
i) A resolution must be so drafted that anybody not present at the meeting or anybody
referring to it at a later date will know clearly what the decision was at that meeting
without referring to any other document.

1. SPECIMEN OF THE SPECIAL RESOLUTION FOR ALTERING ARTICLES OF

A PRIVATE COMPANY CONVERTING IT INTO A PUBLIC COMPANY

TYPE OF REOLUTION SPECIAL RESOLUTION

TYPE OF MEETING GENERAL MEETING

“RESOLVED THAT

A. Pursuant to the applicable provisions of the Companies Act, 2013, the company be and is
hereby converted into a public company

B. The name of the company be and is hereby changed from................. Private Limited
to. ..................... Limited

C. The regulations contained in the document submitted for consideration and approval of
this meeting, and initialled by the chairman of the meeting for the purpose of
identification, be and are hereby approved and adopted as the articles of association of the
company in substitution for, and to the exclusion of, the present articles of association of
the company.”
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EXPLANATORY STATEMENT

The Board of directors of the company, at its meeting held on ................. , discussed the pros
and cons of a public limited company and a private limited company, and decided to convert
the company into a public limited company and also decided that the present articles of
association of the company, which were adopted by the company when it was incorporated as
a private limited company, be also substituted by a new set of articles.

Since the proposed alterations, deletions, insertions etc. to the present articles of association
were numerous; the Board decided that it would be convenient to adopt an altogether new set
of articles of association incorporating all the proposed alterations.

Your directors commend the proposed special resolution for your consideration and adoption
of the new set of articles of association of the company in place of the existing articles of
association of the company.

None of the directors is concerned or interested in the proposed resolution.

2. SPECIMEN OF THE SPECIAL RESOLUTION FOR CHANGE OF NAME OF

THE COMPANY

TYPE OF REOLUTION SPECIAL RESOLUTION

TYPE OF MEETING GENERAL MEETING

“RESOLVED THAT

A. subject to the approval of the Central Government, pursuant to the proviso to Section 13
of the Companies Act, 2013, as a consequence of the conversion of the company from a
private limited company into a public limited company, the name of the company be and
is hereby changed from “............ Private Limited” to “. Limited”; and

B. clause I (name clause) in the memorandum of association of the company be and is

hereby altered by substituting the same with the following:

I. The name of the company is ..................... Limited.”

EXPLANATORY STATEMENT
The Board of directors of the company had, at its meeting held on ......., resolved that
consequent upon conversion of the company from private limited company to public limited
company, the name of the company be changed from “............ Private Limited” to
“ ...................................Limited” and accordingly clause I (name clause) in the memorandum
of association of the company is to be altered by substituting the same with a clause as set out
in the notice for approval of the shareholders of the company.

No director is concerned or interested in the proposed resolution.

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3. SPECIMEN OF ORDINARY RESOLUTION FOR INCREASING THE

AUTHORISED SHARE CAPITAL OF THE COMPANY
TYPE OF REOLUTION ORDINARY RESOLUTION
TYPE OF MEETING GENERAL MEETING

“RESOLVED THAT pursuant to Section 61(1)(a) and other applicable provisions, if any, of
the Companies Act, 2013 and Article ... of the Articles of Association of the company, the
Authorised Share capital of the company be and is hereby increased from ` 50,00,000
(Rupees fifty lakh) divided into 5,00,000 (five lakh) equity shares of ` 10 each to `
5,00,00,000/- (Rupees five crore) divided into 50,00,000 (fifty lakh) equity shares of ` 10
(Rupees ten) each by creation of 45,00,000 equity shares of ` 10 each ranking pari passu in
all respect with the existing equity shares.”

(Note: If the Articles of Association prescribe that a special resolution is required for increase
of authorized share capital, pass the resolution as a special resolution.)

EXPLANATORY STATEMENT

The directors of the company have felt that for profitable working of the company, the
company needs more funds in the form of equity share capital. The present authorised share
capital of the company is only `50,00,000 (Rupees fifty lakhs) divided into 5,00,000 (five
lakh) equity shares of `10/- (Rupees ten) each and the entire authorised share capital has been
issued, subscribed and paid up. The Board, therefore, decided that the authorized share
capital of the company be increased to `5,00,00,000 (Rupees five crore) divided into
50,00,000 (fifty lakh) equity shares of ` 10/- (Rupees ten) each.

Hence the proposed resolution is recommended for consideration of and approval by the
shareholders of the company.

None of the directors is concerned or interested in the proposed resolution.

4. SPECIMEN OF THE RESOLUTION FOR CONSOLIDATION OF SHARES

TYPE OF REOLUTION ORDINARY RESOLUTION

TYPE OF MEETING GENERAL MEETING

“RESOLVED THAT—

A. Pursuant to Section 61(1)(b) and other applicable provisions, if any, of the Companies
Act, 2013, and Article... of Articles of Association of the company, all the 5,00,00,000
(five crore) equity shares of ` 5 (Rupees five) each of the company be and are hereby
consolidated into two crore and fifty lakh (2,50,00,000) equity shares of ` 10/- (Rupees
ten) each

B. all the present shareholders holding in all 2,00,00,000 (two crore) issued, subscribed and
fully paid equity shares of ` 5 (Rupees five) each be issued, in lieu of their present
shareholding, the number of fully paid consolidated equity shares of ` 10 (Rupees ten)
each;
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C. the Board of directors of the company be and is hereby authorised to take all the
necessary steps for giving effect the foregoing resolution, including recall of the existing
share certificates, issue of new share certificates in lieu of the existing issued share
certificates in terms of the foregoing resolutions and in accordance with the applicable
provisions of the Companies Act, 2013 read with Companies (Share Capital and
Debentures) Rules, 2014.”

5. SPECIMEN RESOLUTION OF THE BOARD FOR APPOINTMENT OF

ADDITIONAL DIRECTOR

TYPE OF REOLUTION BOARD RESOLUTION

TYPE OF MEETING BOARD MEETING

“RESOLVED THAT pursuant to the provisions of article ............ of the Articles of

Association of the company, Shri “Y” who has signified his consent to act as a director, be
and is hereby appointed as an additional director of the company to hold office till the next
annual general meeting.”

“RESOLVED FURTHER THAT Shri ……… Secretary/Director be and is hereby authorized

to submit Form DIR 12 with the Registrar of Companies and to do all such acts and deeds as
may be required to be done in this regard.”

6. SPECIMEN RESOLUTION OF THE BOARD TO FILL THE CASUAL

VACANCY

TYPE OF REOLUTION BOARD RESOLUTION

TYPE OF MEETING BOARD MEETING

“RESOLVED THAT pursuant to the provisions of Section 161and article............ of the

Articles of Association of the company, Shri ‘X’ be and is hereby appointed as director to fill
the casual vacancy caused by the death of Shri ‘Y’ whose office shall be liable to termination
on the date up to which Shri ‘Y’ would have held office if he were alive.”

“RESOLVED FURTHER THAT Shri ……… Secretary/Director be and is hereby authorized

to submit Form DIR 12 with the Registrar of Companies and to do all such acts and deeds as
may be required to be done in this regard.”

7. BOARD RESOLUTION FOR APPOINTMENT OF COMPLIANCE OFFICER

TYPE OF REOLUTION BOARD RESOLUTION

TYPE OF MEETING BOARD MEETING

“RESOLVED THAT the company do hereby appoint Mr. ......................., Deputy Company
Secretary of the company who has ten years experience in Listed Companies, as Compliance
Officer of the company who shall be responsible for monitoring the share transfer process
(both physical and demat mode) and report to the Board in its each meeting and liaise directly
with the authorities of the SEBI, Stock Exchanges, Registrar of Companies etc, the
shareholders of the company and investors with respect to implementation of various clauses,
rules, regulations and other directives of such authorities and investors services and

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complaints related matters and in compliance with the provisions of the Companies Act,
2013, Listing Agreement and Rules and Regulations framed thereunder.”

8. SPECIMEN RESOLUTIONS FOR APPOINTMENT OF COMPANY

SECRETARY IN PRACTICE FOR SECRETARIAL AUDIT.

TYPE OF REOLUTION BOARD RESOLUTION

TYPE OF MEETING BOARD MEETING

“RESOLVEDTHAT M/s ABC & Co., Company Secretaries be and is hereby appointed as
secretarial auditor of the company in terms of the provisions of Section 204 of the Companies
Act,2013 and to hold the office till the conclusion of the next Annual General Meeting on
such remuneration as may be determined by the Board and agreeable to them.”

9. SPECIMEN OF BOARD RESOLUTION FOR THE APPOINTMENT OF FIRST

AUDITOR

TYPE OF REOLUTION BOARD RESOLUTION

TYPE OF MEETING BOARD MEETING

“RESOLVED THAT the consent of the Board of directors be and is hereby given to the
appointment of M/s ABC and Co., Chartered Accountants, as the Auditor of the Company to
hold office up to the conclusion of the First Annual General Meeting of the company at a
remuneration of ` ............. in addition to the out of pocket expenses incurred by them in
connection with audit of company accounts.”

RESOLVED FURTHER THAT the Secretary of the company be and is hereby directed to
give intimation of the appointment to the Auditors so appointed within seven days of the date
of this resolution.”

10. SPECIMEN OF ORDINARY RESOLUTION PASSED AT A GENERAL

MEETING APPOINTING THE FIRST AUDITOR(S) WHERE BOARD FAILS TO
APPOINT WITHIN THIRTY DAYS OF OF COMPANY’S REGISTRATION

TYPE OF REOLUTION ORDINARY RESOLUTION

TYPE OF MEETING GENERAL MEETING

“RESOLVED THAT pursuant to provisos to Sub-section (6) of Section 139 of the

Companies Act, 2013, Shri................, Chartered Accountant, ...................... , be and is hereby
appointed as the auditor of the company to hold office until the conclusion of the first Annual
General Meeting on a remuneration of `................. plus reimbursement of out-of-pocket
expenses that may be incurred by the auditor in the performance of his duties as auditor of the
company.

Explanatory Statement

The company was registered on.............. The Board of directors of the company failed to
exercise its power under Sub-section (6) of Section 139 of the Companies Act, 2013 within
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thirty days of the date of registration of the company and did not appoint the first auditor of
the company.

Therefore, in exercise of its power under the proviso to Sub-section (6) of Section 139 of the
Act, the company may appoint the first auditor of the company by passing the proposed
ordinary resolution as set out in the notice of the meeting.

None of the directors of the company is concerned or interested in the proposed resolution.

Draft the specimen resolutions with requisite explanatory statement, if necessary, for
transacting the following items of business indicating the kind of meeting at which each
resolution to be passed and the types of resolution required for Donating a sum of Rs. 2,
00,000 (rupees two lakhs) to the Navrozji Tata Education Fund.

TYPE OF REOLUTION ORDINARY RESOLUTION

TYPE OF MEETING GENERAL MEETING

"RESOLVED THAT pursuant to the other applicable provisions, if any, of the Companies
Act, 2013, approval be and is hereby accorded to the Board of Directors of the Company for
donating a sum of Rs. 2,00,000 ( rupees two lakhs only) to the Navrozji Tata Education
Fund".

Explanatory Statement:

As a part of the Company's social uplift programme , the Board of Directors intend donating
a sum of Rs. 2,00,000/- to the Navrozji Data Education Fund set up by Tata Sons Ltd. to
promote higher education in the field of engineering and medical sciences. The Fund has a
penal comprising eminent industrialists, scientists and doctors to select and award merit
scholarships to deserving, capable students desiring to pursue advanced studies in
engineering and medicine. The Board recommends in the accompanying resolution for the
shareholder's approval. No director is interested in this item of business.

PREPARATION AND PRESENTATION OF REPORTS

NOTICE OF BOARD MEETING

Mr.
Director,
New Delhi

Dear Sir,

A meeting of the Board of Directors of the Company will be held on (day of

the week), the (date) (month) (year) at (a.m./p.m.) at the registered
Office of the Company.

The Agenda of the business to be transacted at the meeting is enclosed.

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You are requested to make it convenient to attend the Meeting.

Yours faithfully,
For

(Signature)
(Name)
(Designation)

AGENDA OF FIRST BOARD MEETING

1. To elect the Chairman of the Meeting.

2. To take note of the Certificate of Incorporation of the company, issued by the Registrar of
Companies.
3. To take note of the Memorandum and Articles of Association of the company, as
registered.
4. To take note of the situation of the Registered Office of the company.
5. To confirm/note the appointment of the first Directors of the company.
6. To read and record the notices of disclosure of interest given by the Directors.
7. To adopt the Common Seal (if any) of the company
8. To fix the financial year of the company.
9. To authorize printing of share certificates
10. To authorize the issue of share certificates to the subscribers to the Memorandum of
Association of the company.
11. To appoint Bankers and to open bank accounts of the company.
12. To consider the appointment of the first Auditors
13. To approve preliminary expenses and preliminary contracts.
14. To consider the appointment of the Managing Director/Whole-time Director/Manager
and Secretary, if applicable and other senior officers

Draft the Letter to directors for passing a resolution by circulation along with draft
resolution.

To

Mr.

Address in India, only

Dear Sir,
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We are stating here under following resolution which is intended to be passed as a resolution
by circulation as provided in Section 175 of the Companies Act, 2013 for your kind
consideration.

“RESOLVED that pursuant to the provision of Section 161 (2) of the Companies Act, 2013,
read with those of articles….. of the articles of Association of the Companies,
Shri…………….. be and is hereby appointed as alternate director to Shri…………………
during the latter’s absence for a period of not less than 3 months from the state of
…………..and that the alternate director shall vacate his office as and when Shri……………
returns to the said state.”

You are requested to return the duty signed duplicate copy of this letter at the registered
office of the company within days of this letter, mentioning your assent / dissent.

Yours faithfully

For

Company Secretary

DRAFT A Notice of adjourned Board meeting.

The Board of Director

J.L.K CO. Ltd.

Registered office: Address

Notice of Adjourned Board Meeting

Notice is hereby given that the meeting of the Board of Directors of the company convened
and held on ……….. At …….. a.m. / p.m. at the Registered Office of the company and
adjourned to a date to be fixed by the chairman has been decided to be convened and to be
fixed by the chairman has been decided to be convened and to be held on …….. At …….
A.m/p.m. at the Registered Office of the company to transact the following business left
incomplete at the said meeting of the Board held on ………..

You are requested to make it convenient to attend meeting.

Signature

Place - Allahabad Mr. ……………………..

Date 1st May 2011 Company Secretary

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MINUTES OF THE MEETING OF THE BOARD

MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF (NAME OF

THE COMPANY) HELD ON (DAY), (DATE, MONTH & YEAR) AT
(TIME) AT (VENUE)

PRESENT

MR. A - CHAIRMAN
MR. B - MANAGING DIRECTOR
MR. C - DIRECTOR

SPECIAL INVITEE

MR. CA REPRESENTING (NAME OF THE STATUTORY AUDITORS)

IN ATTENDANCE MR ---------------------- , Company Secretary

CHAIRMAN Mr. A Presided.

LEAVE OF ABSENCE

Mr. D and Mr. E, who had expressed their inability to attend the meeting, were granted leave
of absence.

1. CONFIRMATION OF THE MINUTES OF THE LAST BOARD MEETING

The minutes of the previous Board Meeting held on -------------- as circulated to the Directors
were confirmed and signed.

2. TO CONSIDER, APPROVE AND AUTHENTICATE THE BALANCE SHEET

AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2016

The Draft Balance Sheet and Profit & Loss Account for the year ended 31st March, 2016
along with Schedules and Notes to Accounts were placed before the Board for consideration
and approval. After some discussion, the Board passed the following resolutions:

“RESOLVED THAT The draft Balance Sheet and Profit & Loss Account as at 31st March,
2016 be and are hereby approved and that Mr. B, Managing Director, Mr. C, Director and
Mr. CS, Company Secretary of the Company be and are hereby authorized to sign the same
and the said accounts be submitted to the Auditors for their report thereon.”

(The aforesaid accounts duly signed by the said Directors were then submitted to the Auditors
for their signatures and report. For this, the Chairman decided to adjourn the meeting for a
short while and after receiving the Auditors Report on the Accounts, the Directors re-
assembled to transact the further business of Agenda).
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3. TO RECEIVE AND CONSIDER AUDITORS; REPORT ON THE ACCOUNTS

FOR THE YEAR ENDED 31ST MARCH, 2016
The Auditors’Report on Accountsfor the year ended 31stMarch, 2016 was place on the
table for perusal. TheBoard noted the Same.

4. TO DECIDE ABOUT THE DIRECTORS WHO WILL RETIRE BY ROTATION

AT THE ANNUAL GENERAL MEETING OF THE COMPANY
The Board was informed that as per the provisions of the Companies Act, 2013 at least 2/3
of the total number of Directors should be the persons whose period of office shall be liable
for retirement by rotation and 1/3 of such Directors should retire by rotation at every Annual
General Meeting.

In order to comply with the aforesaid provisions, the Board passed the following resolution

“RESOLVED THAT pursuant to the provisions of Section 152 of the Companies Act, 2013
Mr. C, Director of the Company shall retire by rotation at the Annual General Meeting of the
Company.
5. TO RECOMMEND APPOINMENT OF AUDITORS FOR THE NEXT
FINANCIAL YEAR
The letter dated August 5, 2016 received from M/s. (Name of the Auditors), Chartered
Accountants informing that their appointment, if approved, will be within requirement as per
Companies Act, 2013, was placed before the Board for information. The Board
recommended the appointment of Auditors to the Shareholders of the Company by passing
the following resolution:

“RESOLVED THAT M/s. (Name of the Auditors), Chartered Accountants, be recommended

for the appointment as Auditors of the Company for the Financial Year 2015-2016.”

6. TO CONSIDER AND APPROVE THE DIRECTORS REPORT TO THE

SHAREHOLDERS

A Draft of Directors’ Report to the members of the Company was placed before the Board
for approval. The Board considered the report and approved the same by passing the
following resolution:

“RESOLVED THAT the Directors’ Report for the year ended 31stMarch, 2016 as per the
draft submitted to this meeting be and is hereby approved and the Chairman of the Company
be and is hereby authorized to sign the same for and on behalf of the Board.

RESOLVED FURTHER THAT the Chairman be and is hereby also authorized to make such
changes / amendments in the report as may be deemed necessary before issuing the same to
the members”

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7. TO DECIDE DATE, TIME AND VENUE OF THE ANNUAL GENERAL

MEETING OF THE COMPANY
The Board noted that Annual General Meeting of the Company is statutorily required to be
held on 30th September, 2016. In view of the above, the Board passed the following
resolution:

“RESOLVED THAT the Annual General Meeting-of the Company be held at (Address of
Registered Office) on Thursday, the 31th day of September, 2016 at 11.00 am.”

8. TO CONSIDER AND APPROVE THE NOTICE TO THE

SHAREHOLDERS FOR THE ANNUAL GENERAL MEETING OF
THECOMPANY

A draft of the Notice for Annual General Meeting of the Company is statutorily required to
be held on or before 30th September, 2016. In view of the above, the Board passed the
following resolution:

“RESOLVED THAT the draft Notice with agenda be and is hereby approved and Mr. CS,
Company Secretary of the Company be and is hereby authorised to issue the same under his
signature to the persons specified under Section 101 of the Companies Act, 2013.”

CHAIRMAN

NOTICE OF ANNUAL GENERAL MEETING

NAME OF THE COMPANY

NOTICE
Notice is hereby given that the Sixth Annual General Meeting of the Shareholders of the
Company will be held on Thursday the 30th day of September, 2016 at (Address of
Registered Office) at 10AM to transact the following business :
ORDINARY BUSINESS
1. To receive, consider and adopt the audited Profit and loss Account for the year ended 31st
March, 2016, the Balance Sheet as at that date and the Reports of Directors and auditors
thereon.
2. To appoint a Director in place of Mr. D, who retires by rotation and being eligible, offers
himself for re-appointment.
3. To appoint Auditors of the Company and fix their remuneration.

SPECIAL BUSINESS
4. To consider and, if thought fit, to pass, with or without modification(s),the following
resolution as Ordinary Resolution :

“RESOLVED THAT pursuant to Section 61(1)(a) and other applicable provisions, if any, of
the Companies Act, 2013 and Article ... of the Articles of Association of the company, the
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Authorised Share capital of the company be and is hereby increased from ` 50,00,000
(Rupees fifty lakh) divided into 5,00,000 (five lakh) equity shares of ` 10 each to `
5,00,00,000/- (Rupees five crore) divided into 50,00,000 (fifty lakh) equity shares of ` 10
(Rupees ten) each by creation of 45,00,000 equity shares of ` 10 each ranking pari passu in
all respect with the existing equity shares.”

RESOLVED FURTHER THAT the existing clause V of the Memorandum of Association

of the Company be and is hereby substituted by the following:
Clause V. The authorised share capital of the company is Rs. ......................................
(Rupees .............................................................. only) divided into. ........................... equity
shares of Rs. .............................. each."

By Order of the Board

Place: New Delhi. CS
Date: 1st September, 2016. COMPANY SECRETARY
NOTES:
1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS
ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF
HIMSELF AND SUCH A PROXY NEED NOT BE A MEMBER.

2. Proxies in order to be effective must be received by the Company not less than 48 hours
before the time for holding the Meeting.

3. Explanatory Statement pursuant to Section 102 of the Companies Act, 2013 is annexed
hereto.

EXPLANATORY STATEMENT PURSUANT TO SECTION 102 OF THE

COMPANIES ACT, 2013
ITEM NO. 4
EXPLANATORY STATEMENT

The directors of the company have felt that for profitable working of the company, the
company needs more funds in the form of equity share capital. The present authorised share
capital of the company is only `50,00,000 (Rupees fifty lakhs) divided into 5,00,000 (five
lakh) equity shares of `10/- (Rupees ten) each and the entire authorised share capital has been
issued, subscribed and paid up. The Board, therefore, decided that the authorized share
capital of the company be increased to `5,00,00,000 (Rupees five crore) divided into
50,00,000 (fifty lakh) equity shares of ` 10/- (Rupees ten) each.

Hence the proposed resolution is recommended for consideration of and approval by the
shareholders of the company. None of the directors is concerned or interested in the proposed
resolution.

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INSPECTION OF DOCUMENTS
The material documents referred to hereinabove will be open for inspection by the Members
at the Registered Office of the Company from the date hereof up to date of the meeting
during business hours.
By Order of the Board
Place: New Delhi. CS
Date: 1st September, 2016 COMPANY SECRETARY
MINUTES OF ANNUAL GENERAL MEETING
MINUTES OF THE SIXTH ANNUAL GENERAL MEETING OF (NAME OF THE
COMPANY) HELD ON (TIME), THE 30TH SEPTEMBER, 2016 AT 10 A.M. AT
(VENUE)
PRESENT
Directors:-
1. Mr. A
2. Mr. B
3. Mr. C
Members:-
Members present in person : 650 (Six hundred fifty)
Members present through representative : 100 (Hundred)

 Mr. A was elected Chairman of the meeting in terms of the provision of the Articles of
Association of the Company.

 After ascertaining that the requisite Quorum for the Meeting was present, the Chairman
called the Meeting to order.

 With the consent of the members present, the Notice dated 1st September, 2016 convening
the Annual General Meeting of the company together with the Directors' Report for the
period 1st April, 2015 to 31st March, 2016 as previously circulated were taken as read.
The business of the meeting as per agenda circulated with notice was thereafter taken up item
wise.
1. Adoption of Annual Accounts – Ordinary Resolution
Proposed by: Mr. A
Seconded by: Mr. C
The following Resolution having been proposed and seconded by the aforementioned two
shareholders was taken up for consideration:
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"RESOLVED THAT the Balance Sheet of the Company as on 31st March, 2016, the Profit
and Loss Account of the Company for the period 1st April, 2015 to 31st March, 2016, together
with the Schedules and Notes, as attached thereto; the Directors' Report dated 1st September,
2016, annexed thereto; and the Auditors' Report to the Members dated 1st September, 2016 be
and are hereby adopted."
The Chairman then invited the queries. The shareholders raised certain questions, which were
suitably replied by the Chairman.
The above Ordinary Resolution was thereafter put to vote and on a show of hands was
declared carried unanimously.
2. Retirement of Directors – Ordinary Resolution
Proposed by: Mr. C

Seconded by: Mr. B

The following Resolution having been proposed and seconded by the aforementioned two
shareholders was taken up for consideration:
"RESOLVED THAT pursuant of the Section 153 of the Companies Act, 2013 Mr. E,
retiring director of the Company, be and is hereby appointed director of the Company."
The above Ordinary Resolution was thereafter put to vote and on a show of hands was
declared carried unanimously.
3. Appointment of Auditors – Ordinary Resolution
Proposed by: Mr. B
Seconded by: Mr. C
The following Resolution having been proposed and seconded by the aforementioned two
shareholders was taken up for consideration:
"RESOLVED THAT the retiring Auditors M/s (Name of the Auditors), Chartered
Accountant, be and is hereby re-appointed as Auditors of the Company, who shall hold office
from the conclusion of this Annual General Meeting until the conclusion of the next Annual
General Meeting on a remuneration to be negotiated and fixed by the Board of Directors of
the Company."
The above Ordinary Resolution was thereafter put to vote and on a show of hands was
declared carried unanimously.

Vote of Thanks
The being no other business to transact, the meeting concluded with a vote of thanks of the
Chair.

CHAIRMAN

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Draft a report of the scrutineers to the chairman on conduct of poll in annual general
meeting.

REPORT OF THE SCRUTINEERS TO THE CHAIRMAN

From: Mr. & Mr.

To:

The Chairman of the th Meeting of XYZ Limited, held on .

Dear Sir,

In terms of your directions, we the Scrutineers appointed for the conduct of the Poll, had
conducted the Poll on the Resolution at Item No. of the Notice dated
on the subject and we report that:

1. The Poll commenced at a.m.

2. The Ballot Boxes were verified by us to be empty and were locked and sealed under our
supervision

3. The Poll voting papers, duly initialed by one of us, were issued to the Members/Proxies
/Authorized Representatives who were present and were willing to vote.

4. After all of them had excised their votes, the polling was declared concluded at
a.m.

5. The sealed ballot boxes were opened in our presence thereafter and the poll voting papers
were scrutinized by us with the assistance of the staff of the secretarial department of the
company.

6. We give hereunder the voting details:

Total number of votes cast: (consisting of voting papers)

Less: invalid votes: (consisting of voting papers)

Total valid votes: (consisting of voting papers)

Votes FOR the resolution:

Votes AGAINST the resolution:

7. All the (state no.) poll voting papers are submitted here with in an
envelope duly sealed in our presence and initiated by us.

Thanking you,

Yours faithfully
Page 408 of 623 PEN DRIVES AVAILABLE AT (www.academy99.in)

1.

2.

(Signature and name of Scrutineer)

Date:

Time:

Your assistant has placed before you the following draft notice of forthcoming annual
general meeting. You are required to locate the errors therein, if any and properly re-
draft the same along with explanatory statement wherever required;

ABC Limited

4, Anna Road Chennai-600 001

NOTICE TO ANNUAL GENERAL MEETING

TO THE DIRECTORS:

Notice is hereby given that the 10th general meeting of the company will be held at the
Admn. Office of the company at 31st Rajaji Road, Chennai at 11 p.m. on Sunday, the
24th Sept, 2006 to transact the following business;

(i) To finalize the annual report for the year ended 31st March 2006
(ii) To confirm the interim dividend already paid and to recommend the final
dividend
(iii) To re-appoint X and Mrs. Y both retire by rotation as directors of the
company
(iv) To confirm the appointment of Z, who was co-opted as additional director on
26th March, 2006 by the Board
(v) To appoint auditors
(vi) To amend the object clause of the memorandum of the company.
I request the members of the Board to make it convenient to attend the meeting

Thanking You
Yours Truly,
(A.B.C)
Chief Financial Officer
Chennai
17th Sept, 20---

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Answer:

ERRORS IN DRAFT NOTICE:

1. Notice should be to the members of the company and not the directors.
2. The notice should state the meeting to be “10th AGM” and not “10th GM”
3. The notice should preferably be clearly be divided into ordinary business and special
business
4. Explanatory statement is not given for items of special business [Section 173(2)].
5. In a public company, two directors cannot be appointed by a single resolution.
6. The authorized person for sending notice should be company secretary and not chief
financial officer.
7. The notice should be sent clear 21 days before meeting, excluding the date of
meeting, excluding the date of the notice and allowing 48 hours time for notice to
reach members.
8. Theday fixed for the meeting should a working day and during the business hours.
NOTICE OF ANNUAL GENERAL MEETING

ABC Limited

Regd. Office: 4 Anna Road, Chennai- 600001

Notice is hereby given that the 10th Annual General Meeting of the Company will be held at
its Admn. Office at 31st Rajaji Road, Chennai at 11:00 A.M. on Monday, the 25th September
20-- to transact the following business:

ORDINARY BUSINESS:

1. To receive and adopt the Balance sheet as at 31st March 2006 and the Profit and Loss
Account for the year ended 31st March 2006 and the Directors’ and the Auditor’s Reports
thereon.
2. To confirm the interim dividend already paid and to recommend the final dividend.
3. To appoint a director in place of Shri X, who retires by rotation and being eligible offers
himself for re-appointment
4. To appoint auditors to hold office from the conclusion of this meeting and to fix
remuneration.
5. To appoint auditors to hold office from the conclusion of this meeting and to fix
remuneration.
SPECIAL BUSINESS:

6. To consider and, if thought fit, to pass with or without modification , the following
resolution as a SPECIAL RESOLUTION:
“Resolved that the Company hereby appoints MR. Z as a director whose term of office as an
additional director of the company expires at this annual General Meeting and in respect of
whom the company has received a notice under Section 160 of the Companies Act, 2013,
from a member proposing the candidature of Mr. Z for the office of Director, as a Director of
Page 410 of 623 PEN DRIVES AVAILABLE AT (www.academy99.in)

the company whose period of office will be liable to determination by retirement by

rotation.”

7. To consider and, if thought fit, to pass the following resolution as SPECIAL

RESOLUTION:
RESOLVED that pursuant to the provisions of Section 13 of the Companies Act, 2013,
Clause 3 being the objects clause of the memorandum of Association of the company be and
is hereby altered as follows:

(i) To substitute the followingsub-clause in place of the existing sub-clause (h):

(h) to borrow or raise money or to invite, receive or accept money on deposit for the purposes
of the company(not amounting to the business of banking as defined under the Banking
Regulation Act, 1949) in such manner and upon such terms and conditions as may seem
expedient and to secure or arrange the repayment thereof by the company and create , issue
and allot redeemable or irredeemable bonds, mortgages or other instruments, mortgage
debentures, secured or unsecured debentures issuable or payable either at par or at premium
or discount or as partly or fully paid and for any such purposes to charge all or any part of the
property and profits of the company both present and future including its uncalled capital.

(ii) The following new sub-clauses be added after the sub-clause 3(de): (df) to carry on
the business of manufacturers and processors of an dealers in paper, pulp and boards
of all kinds and articles made from paper, pulp and boards used in the manufacture
or treatment of paper and board including card boards and their by-products.
………………

By order of the Board of Directors

Date: 1 September for ABC Ltd.

Sd/-

COMPANY SECRETARY

Place: Chennai

Draft a specimen notice for publication in newspapers for closure of register of

members.

A Limited
(Address of Registered Office)
Notice is hereby given under Section 91 of the Companies Act, 2013 that the Register of
Members of the company will remain closed from ……. to………. September, 2008 (both
days inclusive) for the purpose of annual dividend on equity shares and on preference shares
for the year ended 31st March, 2008.
The dividend, when declared, will be paid to those shareholders whose names appear in the
Register of Members on ….September, 2008
Company Secretary

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As a Company Secretary, draft a specimen notice of disqualification under Section 164

(2) of Companies Act, 2013 for a director of your company who is otherwise eligible for
re-appointment in the ensuing annual General meeting.

XYZ Ltd.
Registered Office …………
To
Shri………………………….
……………………………….
We regret to write to you that since M/s, ABC Co. Ltd. (Address ............ ) of which you are a
director has not filed annual accounts and annual report for a continuous period of three
financial years from.......To ..... "Under Section 164(2) of the Companies Act, 2013, you are
not eligible for being appointed as a director of our company, therefore, our company will not
be able to re-appoint you again as the director of the company in its ensuing AGM where you
are due to retire by rotation.

You may kindly note that by virtue of this disqualification, you shall not be eligible to be
appointed as director of our company for a period of five years.
Yours faithfully,
For XYZ Ltd.
(Signed)
Company Secretary

An affidavit verifying the contents of the petition on behalf of the company.

I………..son of ……….age…………resident of…......do hereby solemnly affirm and declare

as under:-
1) That I am the Company Secretary of the company named ............ and that I am competent
and authorized to make affidavit on behalf of the company.
2) Being fully aware of the facts and circumstances of the case. I make this affidavit stating
that the contents of the petition in paragraph …………. Are true based on record and
documents available with the company and the contents of paragraph .................... are
based on the true facts of the case and the contents in paragraph… ................. based on the
legal advice obtained by the company from its Advocates.

Deponent

Verified at ……….on this……day of……..2011, that the contents of the said affidavit are
true to the best of my knowledge and belied and nothing has been concealed therefrom.

Draft Due diligence certificate to be submitted to SEBI for public issue of debentures
(mention the authority to issue

To
Securities and Exchange Board of India
Dear Sir,
Sub : Public issue of ……….by…………….
(Name of the issuer)

We, the debenture trustees to the above mentioned forthcoming issue, State as follow:
Page 412 of 623 PEN DRIVES AVAILABLE AT (www.academy99.in)

1. We have examined the documents pertaining to the said issue.

2. We have also examined the relevant documents pertaining to the security to be created.
3. On the basis of such examination and of the discussion with the issuer, its directors and
other officers, other agencies and of independent verification of the various relevant
documents,

WE CONFIRM that:
a. The issuer has made adequate provisions for and/or has taken steps to provide for
adequate security / asset cover for the secured convertible debt instrument to be issued.
b. The issuer has obtained the permissions/consents necessary for creating security on the
property as Second Charge/PariPassu charge (whenever applicable)
c. The issuer has made all the relevant disclosures about the security/asset cover.
4. We have satisfied ourselves about the ability of the issuer to service the debt Securities.

Debenture Trustee to the issue

With his official seal
Date:
Place:

Letter to Defaulting Shareholders Requiring them to pay the first and final call money
within stipulated time

XYZ Limited
Regd. Off. Address
Ref. No……
Registered Post with AD
Shri/Smt…………….

Dear Shareholder,

Subject: 1. Payment of the first and final call money of Rs.5 per share due on …. Equity
shares of the company allotted to you.

2. Final notice before forfeiture

Pursuant to Articles……and………. Of the Articles of Association of the company, and on

the authority of the resolution of the Board of Directors of the company passed at its meeting
held on 02 November, 2013, notice was given to you requiring you to pay the first and final
call money of Rs.5 per share on all partly paid equity shares of the company, on or before the
2nd Day of December, 2013.

It is observed that you have not yet paid the call money on …….. equity shares allotted to
you even after the due date for which you are liable to pay interest @12% per annum as per
Article no… of the Articles of Association of the Company.

Under the authority of the Board of Directors of the company, you are hereby called upon to
pay the said first and final call money of Rs.5 per share on ....................equity shares allotted
to you with interest @12% per annum amounting to Rs…............................. on or before 16th

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day of January, 2014 and in the event of non-payment on or before the day so named, the
shares in respect of which the call was made are liable to be forfeited.

We trust you will honor your obligation under the Articles of Association of the company
within the aforesaid date and void the inevitable consequence of forfeiture of your shares.
Thanking you,
Yours faithfully

For XYZ Limited

(Company Secretary)

Prepare directors’ report for Annual Entertainment Ltd., including inter alia response
to a qualification by auditors of the company for non-payment to creditors from small
scale industries sector amounting to rs. 5000. (State only major headings of directors’
report without giving any details except for the qualification)

The Members
(NAME OF THE COMPANY)
The Board of Directors of the Company take pleasure in presenting their report on the
working of the Company for the period from 1st April, 2015 to 31st March, 2016 together
with the audited accounts of the Company.

FINANCIAL RESULTS
2014-2015 2015-2016
Net Profit / (Loss) Before Tax ----------------------- ---------------------
Provision for Tax ----------------------- ---------------------
Deferred Income Tax ------------------------ ---------------------
Profit / (Loss) after Tax ------------------------ -------------------
Profit / (Loss) brought forward ------------------------- --------------------
Balance Carried over to Balance Sheet ------------------------- --------------------

DIVIDEND
The Board is happy to report an encouraging financial performance but regret its inability
to recommend any dividend as it is considered prudent to conserve the resources for
investments in the business.

PERFORMANCE
The Board is satisfied with the performance of the Company. The Company has earned
profits and made good turnover.

FIXED DEPOSITS
During the year, the Company has not invited any deposits from the Public.

DIRECTORS
Mr. D shall retire at the forthcoming Annual General Meeting and being eligible for re-
appointment are recommended for re-appointment.
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DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 134(3)(c) of the Companies Act, 2013 with respect
to Directors' Responsibility Statement, it is hereby confirmed:-

(a) That in the preparation of the Accounts for the Financial Year ended 31st March, 2016,
the applicable accounting standards had been followed along with proper explanation
relating to material departures

(b) That the Directors had selected such accounting policies and applied them consistently
and made judgements and estimates that were reasonable and prudent so as to give a true
and fair view of the state of affairs of the Company at the end of the financial year and of
the profit or loss of the Company-for the year under review;

(c) That the Directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act, 2013 for
safeguarding the assets of the Company and for preventing and detecting fraud and other
irregularities; and
(d) That the Directors had prepared the annual accounts for the Financial Year ended 31st
March, 2016 on a going concern basis.

AUDITORS
(Name of the Auditors), Chartered Accountants, Auditors of the Company will retire at the
ensuing Annual General Meeting of the Company and being eligible offer themselves for re-
appointment. The Notes to Accounts referred to in the Auditors’ Report are self-explanatory.

CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN

EXCHANGE EARNINGS AND OUTGO
The additional information on conservation of energy, technology and absorption required
under Section 134 of the Companies Act, 2013 read with the Companies (ACCOUNTS)
Rules, 2014 with respect to these matters are NIL.

The foreign exchange earnings and outgo is NIL.

ACKNOWLEDGEMENT
We take the opportunity to express our deep sense of gratitude to Bankers, Central and State
Government departments and Local Authorities and customers abroad for their continued
guidance and support.
Your directors would like to record their sincere appreciation of their dedicated efforts put in
by employees across all levels in the organization, which have enabled the company to start
operations.
And to you, our shareholders, we are deeply grateful for the confidence and faith that you
have always placed on us.

For and on behalf of the Board

CHAIRMAN
Place: New Delhi.
Date: 1st September, 2016.

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AFFIDAVIT

IN THE HON’BLE HIGH COURT OF /SUPREME COURT---------------

Petition No. /2005

IN THE MATTER OF:

,s/o ,aged ,r/o

….Petitioner

Versus

,s/o ,aged ,r/o

….Respondent

I, , son of , aged , resident of , do

hereby solemnly affirm and declare as under:

1. I am the petitioner in the aforesaid petition and fully aware of the facts of the case.
2. That the facts stated in the petition are true and correct to the best of my knowledge
and belief.
3. The legal submissions made in the petition are believed to be true and all these may
kindly be treated as a part of this affidavit, since not repeated for the sake of
brevity.

Verification:

Verified at on that the contents of the present affidavit are true and
correct. Nothing material has been concealed there from.

SD/-
Deponent
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CHAPTER- 31
MISCELLANEOUS PROVISIONS OF THE COMPANIES ACT, 2013
2 (59)"OFFICER"
Officer includes any director, manager or key managerial personnel or any person in
accordance with whose directions or instructions the Board of Directors or any one or more
of the directors is or are accustomed to act

2(60) "OFFICER WHO IS IN DEFAULT"

officer who is in default for the purpose of any provision in this Act which enacts that an
officer of the company who is in default shall be liable to any penalty or punishment by way
of imprisonment, fine or otherwise, means any of the following officers of a company,
namely:
 Whole-time director
 Key managerial personnel
 Where there is no key managerial personnel, such director or directors as specified by the
Board in this behalf and who has or have given his or their consent in writing to the Board
to such specification, or all the directors, if no director is so specified
 Any person who, under the immediate authority of the Board or any key managerial
personnel, is charged with any responsibility including maintenance, filing or distribution
of accounts or records, authorises, actively participates in, knowingly permits, or
knowingly fails to take active steps to prevent, any default;
 Any person in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act, other than a person who gives advice to
the Board in a professional capacity;
 Every director, in respect of a contravention of any of the provisions of this Act, who is
aware of such contravention by virtue of the receipt by him of any proceedings of the
Board or participation in such proceedings without objecting to the same, or where such
contravention had taken place with his consent or connivance
 In respect of the issue or transfer of any shares of a company, the share transfer agents,
registrars and merchant bankers to the issue or transfer

SECTION 20 SERVICE OF DOCUMENTS

20. (1) A document may be served on a company or an officer thereof by sending it to the
company or the officer at the registered office of the company by
1. registered post or
2. by speed post or
3. by courier service or
4. by leaving it at its registered office
5. or by means of such electronic or
6. other mode as may be prescribed

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Provided that where securities are held with a depository, the records of the beneficial
ownership may be served by such depository on the company by means of electronic or other
mode.
(2) A document may be served on Registrar or any member by sending it to him by post or by
registered post or by speed post or by courier or by delivering at his office or address, or by
such electronic or other mode as may be prescribed:
Provided that a member may request for delivery of any document through a particular
mode, for which he shall pay such fees as may be determined by the company in its annual
general meeting.
Explanation.—For the purposes of this section, the term "courier" means a person or agency
which delivers the document and provides proof of its delivery.
RULE 35 OF COMPANIES INCORPORATION RULES 2014
(1) A document may be served on a company/ registrar / member or an officer thereof
through electronic transmission.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
1. Directors’ and Officers’ Liability Insurance provides financial protection for the Directors
and Officers of the Company in the event they are sued in conjunction with the
performance of their duties as they relate to the Company.
2. Directors’ and Officers’ Insurance can also be treated as management Errors and
Omissions Policy. Directors’ and Officers’ Liability Insurance can usually include
Employment Practices Liability and sometimes Fiduciary Liability.
3. Since a Director can be held personally responsible for acts of the Company, most
Directors and officers will demand that they be protected rather than put their personal
assets at stake.
ESTABLISHMENT OF SPECIAL COURTS [SECTION 435 TO 440] 18 MAY 2016
435. (1) The Central Government may, for the purpose of providing speedy trial of offences
under this Act, by notification, establish or designate as many Special Courts as may be
necessary.
(2) A Special Court shall consist of
(a) a single judge holding office as Session Judge or Additional Session Judge, in case of
offences punishable under this Act with imprisonment of two years or more; and
(b) a Metropolitan Magistrate or a Judicial Magistrate of the First Class, in the case of other
offences,
who shall be appointed by the Central Government with the concurrence of the Chief Justice
of the High Court within whose jurisdiction the judge to be appointed is working.
PROVISIONS REGARDING SPECIAL COURTS

1. The Special Court may exercise the same power which a Magistrate having may exercise
under Section 167 of the Code of Criminal Procedure, 1973 in relation to an accused
person who has been forwarded to him.
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2. When a person accused of or suspected of the commission of an offence under the Act is
forwarded, a Judicial Magistrate may authorize the detention of that person for fifteen
days or an Executive Magistrate for seven days.
3. When the Magistrate consider that the detention of the person upon or before the expiry
of the period of detention is unnecessary, he shall order such person to be forwarded to
the Special Court having Jurisdiction.
4. The Special Court may try in a summary way any offence under this Act which is
punishable with imprisonment for a term not exceeding three years.
5. In case of summary trial, a sentence of imprisonment for a term exceeding one year shall
not be passed.
6. All offence under the Companies Act shall be triable only by the Special Court for the
area in which the registered office of the company in relation to which the offence is
committed. The provisions of the Code of Criminal Procedure, 1973 shall apply to the
proceedings before a Special Court. The Special Court shall be deemed to be a Court of
Session and the person conducting a prosecution before a Special Court be deemed to be
a Public Prosecutor.
7. all the offences pertaining to Companies Act, 2013 are non-cognizable, except offences
referred to Serious Fraud Investigation Office (SFIO)

In exercise of the powers conferred by sub-section (1) of section 435 of the Companies Act,
2013, the Central Government hereby, after obtaining the concurrence of the respective Chief
Justices of the High Courts, designates the following Courts mentioned in the Table below as
Special Courts for the purposes of trial of offences punishable under the Companies Act,
2013 with imprisonment of two years or more in terms of section 435 of the Companies Act,
2013, namely:-
Sl. Existing Court Jurisdiction as Special Court
No.
1 Courts of Additional Special Judge, Anti- State of Jammu and Kashmir
Corruption at Jammu and Srinagar
2 Presiding Officers of Court No’s. 37 and 58 of the State of Maharashtra
City Civil and Sessions Court, Greater Mumbai
3 Court of Principal District and Sessions Judge, Union Territories of Dadra and
Union territory of Dadra and Nagar Haveli at Nagar Haveli and Daman and Diu
Silvassa.
4 Court of District Judge-1 and Additional Sessions State of Goa
Judge, Panaji.
5 Court of Principal District and Sessions Judge, State of Gujarat
Ahmedabad (Rural), situated at Mirzapur,
Ahmedabad.
6 9th Additional Sessions Judge, Gwalior Madhya State of Madhya Pradesh
Pradesh.
7 Court of Additional District and Session Judge, Union territory of Andaman and
Port Blair, Andaman and Nicobar Islands. Nicobar Islands.
8 2nd Special Court, Calcutta. State of West Bengal

COMPOUNDING OF OFFENCE SECTION 441

Three kinds of offences are permitted to be compounded under this section:-

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(a) An offence is punishable with fine only

(b) An offence is punishable with imprisonment or fine
(c) An offence which is punishable with imprisonment or fine or with both imprisonment

SPECIAL POINTS

1. An offence punishable with imprisonment only or with imprisonment and fine is not
compoundable under this section.
2. The section empowers the NCLT to compound offences without any limit or where a
maximum amount of fine which may be imposed by an offence does not exceed Rs. 25,
00,000 it may be compounded by the Regional Director.
3. Any offence covered under this section by any company or its officer shall not be
compounded if the investigation against such company has been initiated or is pending
under this Act.
4. The offences committed by a company or its officer within a period of three years from
the date on which the similar offence was committed by it or him was compounded under
this section, are not compoundable.
5. Every application for the compounding of an offence shall be made to the Registrar of
Companies who shall forward the same, together with its comments thereon, to the
Company Law Board or the Regional Director, as the case may be. Where any offence is
compounded under this section, whether before or after the institution of any prosecution,
an intimation thereof shall be given by the Company, to the Registrar of Companies,
within 7 days from the date on which the offence is so compounded.
6. Where any offence is compounded before the institution of any prosecution, no
prosecution shall be instituted in relation to such offence, either by the Registrar or by
any shareholder of the company or by any person authorised by the Central Government
against the offender in relation to whom the offence is so compounded.
7. Where the compounding of any offence is made after the institution of any prosecution,
such compounding shall be brought by the Registrar in writing, to the notice of the court
in which the prosecution is pending and on such notice of the compounding of the
offence being given, the company or its officer in relation to whom the offence is so
compounded shall be discharged.
8. Any offence which is punishable under this Act with imprisonment only or with
imprisonment and also with fine shall not be compoundable.
PERMISSION OF THE SPECIAL COURT
Before, the Companies (Amendment) Act, 2019, Section 441(6) provides that
notwithstanding anything contained in the Code of Criminal Procedure, 1973,
(a) any offence which is punishable under this Act, with imprisonment or fine, or with
imprisonment or fine or with both, shall be compoundable with the permission of the Special
Court, in accordance with the procedure laid down in that Act for compounding of offences;
(b) any offence which is punishable under this Act with imprisonment only or with
imprisonment and also with fine shall not be compoundable.
However, the committee to review offences under the Companies Act, 2013, has
recommended that such requirement of clause (a) of sub-section (6) of section 441 should be
omitted with the following justification:
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“Clause (a) to sub-section (6) of section 441, which require the permission of the special
court for compounding of offence, us a redundant provision. NCLT in its judgment dated
29.08.2017 in Cinepolis India Pvt. Ltd. V. ROC while relying on the interpretation of Section
621A if Companies Act, 1956. (corresponding to section 441 of CA, 2013) by Supreme Court
in VLS Finance v. Union of India, held that a prior approval of Special court before
compounding of offence by NCLT is not required.
After, the amendment in section 441 in the Companies (Amendment) Act, 2019, now
Section 441(6) read as under: Notwithstanding anything contained in the Code of Criminal
Procedure, 1973, any offence which is punishable under this Act with imprisonment only or
with imprisonment and also with fine shall not be compoundable

DISSOLUTION OF COMPANY LAW BOARD AND CONSEQUENTIAL

PROVISIONS SECTION 466

Notwithstanding anything contained in section 465, Company Law Board shall stand
dissolved on the constitution of the Tribunal and the Appellate Tribunal:

CLASS - ACTION SECTION 245 (not for banking company)

Against whom a Class Action Suit can be filed? Section 245 (1)

Class action suit can be filed against the

 Company,
 Any of its directors
 Auditor, including audit firm
 Expert or advisor or consultant or any other person

Where Class Action Suit can be filed?

Before NCLT

WHAT KIND OF ORDER NCLT CAN GIVE ON CLASS ACTION SUIT

(a) To restrain the company from committing an act which is ultra vires the articles or
memorandum of the company;
(b) To restrain the company from committing breach of any provision of the company’s
memorandum or articles;
(c) to declare a resolution altering the memorandum or articles of the company as void if the
resolution was passed by suppression of material facts or obtained by mis-statement to the
members or depositors;
(d) To restrain the company and its directors from acting on such resolution;
(e) To restrain the company from doing an act which is contrary to the provisions of this Act
or any other law for the time being in force;
(f) To restrain the company from taking action contrary to any resolution passed by the
members;
(g) To claim damages or compensation or demand any other suitable action from or
against—
(i) the company or its directors for any fraudulent, unlawful or wrongful act or omission or
conduct or any likely act or omission or conduct on its or their part;

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(ii) the auditor including audit firm of the company for any improper or misleading statement
of particulars made in his audit report or for any fraudulent, unlawful or wrongful act or
conduct; or
(iii) any expert or advisor or consultant or any other person for any incorrect or misleading
statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or
any likely act or conduct on his part;
(h) To seek any other remedy as the Tribunal may deem fit.

(2) Where the members or depositors seek any damages or compensation or demand any
other suitable action from or against an audit firm, the liability shall be of the firm as well as
of each partner who was involved in making any improper or misleading statement of
particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.

WHO CAN FILE APPLICATION UNDER SECTION 245 SECTION 245 (3)

S.no. Type of Members Depositors

company
1 in the case not less than one hundred shall not be less than one hundred
of a members of the company or depositors OR not less than 5% of
company not less than 5% of the total the total number of depositors
having a number of its members whichever is less, OR any depositor
share capital whichever is less, OR any or depositors to whom the company
member or members holding owes 5% of total deposits of the
not less than 5% of the issued company
share capital of the company in
case of unlisted company OR
any member or members
holding not less than 2% of the
issued share capital of the
company in case of listed
company
2 in the case Not less than one-fifth of the shall not be less than one hundred
of a total number of its members. depositors OR not less than 5% of
company not the total number of depositors
having a whichever is less, OR any depositor
share or depositors to whom the company
capital, owes 5% of total deposits of the
company

(4) In considering an application under sub-section (1), the Tribunal shall take into account,
in particular—

o Whether the member or depositor is acting in good faith in making the application for
seeking an order
o Any evidence before it as to the views of the members or depositors of the company who
have no personal interest, direct or indirect, in the matter being proceeded under this
section;
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5. If an application filed under sub-section (1) is admitted, then the Tribunal shall have regard
to the following, namely:

(a) Public notice shall be served on admission of the application to all the members or depositors of
the class in such manner as may be prescribed;
(b) all similar applications prevalent in any jurisdiction should be consolidated into a single
application and the class members or depositors should be allowed to choose the lead applicant and in
the event the members or depositors of the class are unable to come to a consensus, the Tribunal shall
have the power to appoint a lead applicant, who shall be in charge of the proceedings from the
applicant’s side;
(c) Two class action applications for the same cause of action shall not be allowed;
(d) The cost or expenses connected with the application for class action shall be defrayed by the
company or any other person responsible for any oppressive act.

(6) Any order passed by the Tribunal shall be binding on the company and all its members,
depositors and auditor including audit firm or expert or consultant or advisor or any other
person associated with the company.

(7) Any company which fails to comply with an order passed by the Tribunal under this
section shall be punishable with fine which shall not be less than five lakh rupees but which
may extend to twenty-five lakh rupees and every officer of the company who is in default
shall be punishable with imprisonment for a term which may extend to three years and with
fine which shall not be less than twenty-five thousand rupees but which may extend to one
lakh rupees.

(8) Where any application filed before the Tribunal is found to be frivolous or vexatious, it
shall, for reasons to be recorded in writing, reject the application and make an order that the
applicant shall pay to the opposite party such cost, not exceeding one lakh rupees, as may be
specified in the order.

NCLT RULES 2016

RULE 84 Right to apply under section 245
(1) An application under sub-section (1) of section 245, read with sub-section (3) of section
245 of the Act, shall be filled in Form NCLT-9.
(2) A copy of every application under sub-rule (1) shall be served on the company, other
respondents and all such persons as the Tribunal may direct.
RULE 85. Conducting a class action suit
(1) Without prejudice to the generality of the provisions of sub-section (4) of section 245 of
the Act, the Tribunal may, while considering the admissibility of an application under the
said section, in addition to the grounds specified therein, take into account the following:
(a) whether the class has so many members that joining them individually would be
impractical, making a class action desirable;
(b) whether there are questions of law or fact common to the class;
(c) whether the claims or defences of the representative parties are typical of the claims or
defences of the class;
(d) whether the representative parties will fairly and adequately protect the interests of the
class.

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PART-B Company 40 MARKS

Administration and Meetings
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CHAPTER-30 GENERAL MEETING

Total Sections used in General Meeting = SECTION 96 TO 122
Rules used = Companies (Management and Administration) Rules 2014

IN EVERY COMPANY DECISIONS ARE TAKEN BY THE FOLLOWING

SHAREHOLDERS DIRECTORS
THE MEETING IN WHICH SHAREHOLDERS THE MEETING IN WHICH DIRECTORS TAKE
TAKE DECISION IS CALLED GENERAL DECISION IS CALLED BOARD MEETING. (THEY
MEETING. (THEY TAKE DECISION BY TAKE DECISION BY PASSING B/R)
PASSING O/R AND S/R)

GENERAL MEETING MEANS MEETING OF SHAREHOLDERS

TYPES OF SHAREHOLDERS MEETING

ANNUAL GENERAL EXTRA ORDINARY

MEETING GENERAL MEETING
96 100
97 98
99

ALL COMPANIES ALL COMPANIES

SEC. 101 TO 121 ARE APPLICABLE TO ALL TYPES OF COMPANIES

SEC. 122 certain sections not applicable on OPC

COPYRIGHT OF BOOK REGISTERED WITH CS ANOOP JAIN

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REQUISITES OF A VALID GENERAL MEETING

PROPERLY CALLED PROPERLY CONVENED

The meeting must be called by a  Proper quorum must be present in the

proper authority; and Proper notice general meeting(sec. 103)
must be served in the prescribed  Proper chairman must preside the
manner (sec 101, 102) meeting (sec. 104)
 Proper Proxy (Sec. 105)

PROPERLY CONDUCTED
 Restriction on voting rights 106
 Voting by show of hands 107
 E-Voting 108
 Voting by poll 109
 Voting by postal ballot 110

WHO CAN CALL GENERAL MEETING

Board Members
Board has power at common law to call a Members who fulfill the requirement of sec.
GM even if this power is not expressly
conferred upon them by the articles.
100 are eligible to requisition an EGM.
An individual director has no power to call a In case of failure of the board to call the EGM
GM. within the time limits given u/s 100 the
Notice of a GM given by a secretary or a members may themselves call an EGM as per
director is invalid if it given without the the provision of sec.100.
sanction of the board. However, the notice
may be ratified by the board.

NCLT
 An AGM can be called by NCLT u/s 97 of Companies Act 2013
 An EGM can be called by NCLT u/s 98 Companies Act 2013
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SPECIAL NOTE:
The provisions of the following section shall apply in the manner contained in the AoA of the
private Company :

Section No. Section Heading

101 Notice of Meeting
102 Statement to be annexed to notice
103 Quorum for Meetings
104 Chairman of meetings
105 Proxies
106 Restriction on voting rights
107 Voting by show of hands
109 Demand for poll

LENGTH OF NOTICE FOR CALLING GM SECTION (SEC.101)

NOTICE OF MEETING (SECTION 101 AND RULE 18: Companies (Management and
Administration) Rules, 2014

LENGTH OF NOTICE

1. A GENERAL MEETING of a company may be called by giving not less than clear
twenty-one days' notice either in writing or through electronic mode 101(1)
2. A general meeting may be called after giving a shorter notice if consent is given in
writing or by electronic mode by not less than ninety-five per cent of the members
entitled to vote at such meeting. 101 (1)

21 CLEAR DAYS’ NOTICE

 A GM can be called by giving at least 21 clear days’ notice in writing.

 Date of issue of notice and date of meeting have to excluded in calculation of 21 days.
 Where a notice is sent by post, it is deemed to be served after 48 hours of posting.
 Thus, notice to be valid, must be dispatched 24 days before the date of the meeting.

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SEC. 101 SHORTER NOTICE

shorter notice for general meeting is valid if consent is given in writing or
by electronic mode

IN THE CASE OF AN ANNUAL IN THE CASE OF ANY OTHER

GENERAL MEETING, GENERAL MEETING
by not less than ninty-five (a) the company has a share capital,
per cent. of the members entitled to majority in number of members entitled to
vote thereat vote and who represent not less than
ninety-five per cent of such part of the
paid-up share capital of the company as
gives a right to vote at the meeting; or

(b) if the company has no share capital,

not less than ninty-five per cent. of the
total voting power exercisable at that
meeting

Provided further that where any member of a company is entitled to vote only on some
resolution or resolutions to be moved at a meeting and not on the others, those members shall
be taken into account for the purposes of this sub-section in respect of the former resolution
or resolutions and not in respect of the latter.".

CASE LAWS
S.NO. CASE NAME PROVISONS
1 NAGAPPA CHETTIAR Consent of members for holding general meeting on
(N.V.R.) V MADRAS shorter notice is mandatory
RACE CLUB
Sub-section (1) of section 101 is mandatory and consents
means 'consent of members entitled to attend and vote' and
'not of members entitled to vote and present'.
2 PARIKH ENGG. & Consent may be obtained at the meeting, prior consent is
BODY BUILDING CO. not necessary
LTD.
Even though consent of shareholders to shorter notice for
meeting at which a special resolution is passed, is not
obtained prior to meeting, the consent obtained thereafter
would validate the resolution
3 Westfort Hi- Tech Business not specified in notice cannot be transacted: No
Hospitals v. V.S. business cannot be transacted for which notice was not
Krishnan given.

CONTENTS OF NOTICE SECTION 101 (2)

 Place, day, date and hour of the meeting

 Business to be transacted thereat (i.e., agenda)
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AGENDA

a) The notice should contain a statement of business to be transacted at the meeting.

b) If special business is to be transacted, an explanatory statement should also be attached
to the notice.
c) The statement must state all material facts concerning special business, including the
nature of interest of any Director or manager therein.
d) It must also state the time and place where the documents in respect of such items can be
inspected.

RIGHT TO APPOINT PROXY

The notice should also state that a member is entitled to appoint a proxy who need not be a
member. (SECTION 105 (2))
NOTICE TO WHOM SECTION 101 (3)

 Every member
 Legal representative of the deceased member
 Official assignees of the insolvent member
 Auditor.
 Directors

OMISSION TO GIVE NOTICE SECTION 101(4)

 Accidental omission to give notice shall not invalidate the proceedings at the meeting.
 Deliberate omission to give notice to even a single member shall invalidate the
meeting.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Maharaja Exports v. Accidental omission means an omission which is neither
Apparel Exports designed nor deliberate and implies absence of intention.
Promotion Council].
2 Maneckchowk & Accidental omission of notice to auditors will not invalidate
Ahmedabad Mfg. the meeting
Co. Ltd.

RULE 18: Companies (Management and Administration) Rules, 2014

1. Notice through email
A notice may be sent through e-mail as a text or as an attachment to e-mail or as a
notification providing electronic link/ Uniform Resource Locator (URL) for accessing such
notice. [Rule 18(2)]

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2. Addressee of e-mail and its updation

The e-mail shall be addressed to the person entitled to receive such e-mail as per the records
of the company or as provided by the depository. Provided that the company shall provide an
advance opportunity at least once in a financial year, to the member to register his e-mail
address and changes therein and such request may be made by only those members who have
not got their email id recorded or to update a fresh email id and not from the members whose
e-mail ids are already registered. [Rule 18(3) (i)]

3. Contents of e-mail
 The subject line in e-mail shall state the name of the company, notice of the type of
meeting, place and the date on which meeting is scheduled.

 If notice is sent in the form of a non-editable attachment to e-mail, such attachment shall
be in the Portable Document Format (PDF) or in a non –editable format together with a
link or instructions for recipient for downloading relevant version of the software.

4. The Company shall not be in default for non-delivery of notice by email

If a member entitled to receive notice fails to provide or update relevant e-mail address to the
company, or to the depository participant as the case may be, the company shall not be in
default for not delivering notice via e-mail.

5. Notice by email may be sent in-house or through the RTA

The company may send e-mail through in-house facility or its registrar and transfer agent or
authorise any third party agency providing bulk e-mail facility.

6. Placement of notice on website

The notice of the general meeting of the company shall be simultaneously placed on the
website of the company, if any and on the website as may be notified by the Central
Government.

7. Advertisement of notices in the newspaper

It is not obligatory to advertise notice in the newspaper. However, as an abundant precaution,
the company may advertise in the newspapers to avoid objection from such of the
shareholders as reside outside India and who incidentally may not receive the notices served
through the post.

EXPLANATORY STATEMENT TO BE ANNEXED TO NOTICE (Sec.102)

CONTENT OF EXPLANATORY STATEMENT
2. The nature of concern or interest, financial or otherwise, if any, in respect of each items
of
 every director and the manager, if any;
 every other key managerial personnel; and
 relatives of the persons mentioned in sub-clauses (i) and (ii) (SECTION 102 (1))
3. Any other information and facts that may enable members to understand the meaning,
scope and implications of the items of business and to take decision thereon.
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4. where any item of special business to be transacted at a meeting of the company relates to
or affects any other company, the extent of shareholding interest in that other company of
every promoter, director, manager, if any, and of every other key managerial
personnel of the first mentioned company shall, if the extent of such shareholding is not
less than two per cent of the paid-up share capital of that company, also be set out in the
statement. (SECTION 102 (1) proviso)

(Sec.102 (2)) Following business shall be ordinary business at AGM

1. The consideration of financial statements and the reports of the Board of Directors and
auditors
2. Declaration of dividend
3. Retirement of directors and appointment of director in the place of those retiring
4. Retirement of auditors and appointment of auditors in the place of those retiring

AT ANY OTHER GM
No business shall be deemed as ordinary business. All business considered as special
business. Even any business other than 4 business at AGM is considered as special business.

FULL TEXT OF THE RESOLUTION

Full text of the resolution must be given in the notice for transacting every item of special
business.

INDICATION OF NATURE OF BUSINESS

Notice must indicate that the business is special, in case of special business.

EXPLANATORY STATEMENT

Explanatory statement is required for transacting each item of business.

Explanatory statement is not required for transacting any item of ordinary business

Where any item of business refers to any document, which is to be considered at the meeting,
the time and place where such document can be inspected shall be specified in the statement
under sub-section (1). ((102(3))

Where as a result of the non-disclosure or insufficient disclosure in any statement referred to

in sub-section (1), being made by a promoter, director, manager, if any, or other key
managerial personnel, any benefit which accrues to such promoter, director, manager or other
key managerial personnel or their relatives, either directly or indirectly, the promoter,
director, manager or other key managerial personnel, as the case may be, shall hold such
benefit in trust for the company, and shall, without prejudice to any other action being taken
against him under this Act or under any other law for the time being in force, be liable to
compensate the company to the extent of the benefit received by him. ((102(4))

Without prejudice to the provisions of sub-section (4), if any default is made in complying
with the provisions of this section, every promoter, director, manager or other key managerial
personnel of the company who is in default shall be liable to a penalty of fifty thousand
rupees or five times the amount of benefit accruing to the promoter, director, manager or

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other key managerial personnel or any of his relatives, whichever is higher. Section 102(5)
(companies amendment Act 2019)

CASE LAWS

S.NO. CASE NAME PROVISONS

1 S. Vardarajan v. Explanatory statement not required for requisitionists:
Venkateswara The obligation to annex the explanatory statement to the
Solvent notice of the meeting is only on the company when it calls
Extraction P. Ltd. for a meeting to transact special business. When a
requisitionist calls for an extraordinary General Meeting
under section 169 [now section 100] of the Act, there is no
obligation on the requisitionists to annex an explanatory
statement to the notice of the meeting.
2 Life Insurance Requisitionists not required to disclose reasons: Section
Corporaton of Indai 173(2) [now Section 102(1)] does not require the
v. Escorts shareholder requisitioning a meeting to disclose the reasons
for the resolutions which he proposes to move at the
meeting.

QUORUM FOR GM SEC. 103

Meaning of Quorum: Minimum number of member present in meeting. R. 44 of table F
says quorum in general meeting required at commencement and not throughout the meeting.
Bur as per SS-2 quorum in general meeting required throughout the meeting

Unless the articles of the company provide for a larger number Section103(1)

In case of a public company In the case of a private company,

a. Five members personally present if the
number of members as on the date of
Two members personally present, shall be
meeting is not more than one thousand;
the quorum for a meeting of the company.
b. Fifteen members personally present if 103 (1)
the number of members as on the date
of meeting is more than one thousand
but up to five thousand;
c. Thirty members personally present if
the number of members as on the date
of the meeting exceeds five thousand;

103(2) If the quorum is not present within half-an-hour from the time appointed for holding a
meeting of the company—
(a) the meeting shall stand adjourned to the same day in the next week at the same time and
place, or to such other date and such other time and place as the Board may determine; or
(b) the meeting, if called by requisitionists under section 100, shall stand cancelled:
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Provided that in case of an adjourned meeting or of a change of day, time or place of meeting
under clause (a), the company shall give not less than three days notice to the members either
individually or by publishing an advertisement in the newspapers (one in English and one in
vernacular language) which is in circulation at the place where the registered office of the
company is situated.

103(3) If at the adjourned meeting also, a quorum is not present within half-an-hour from the
time appointed for holding meeting, the members present shall be the quorum.

ADJOURNMENT OF MEETING: AS PER SECRATRIAL STANDARD

WHO CAN ADJOURNED THE MEETING

1. A duly convened Meeting shall not be adjourned unless circumstances so warrant. The
Chairman may adjourn a Meeting with the consent of the Members, at which a Quorum is
present, and shall adjourn a Meeting if so directed by the Members.

2. Meetings shall stand adjourned for want of requisite Quorum.

3. The Chairman may also adjourn a Meeting in the event of disorder or other like causes,
when it becomes impossible to conduct the Meeting and complete itsbusiness.

HOLDING OF ADJOURNED MEETING

1. If a Meeting is adjourned sine-die or for a period of thirty days or more, a Notice of the
adjourned Meeting shall be given in accordance with normal provisions of companies act
2013 (21 clear days notice).

2. If a Meeting is adjourned for a period of less than thirty days, the company shall give not
less than three days’ Notice specifying the day, date, time and venue of the Meeting, to
the Members either individually or by publishing an advertisement in a vernacular
newspaper in the principal vernacular language of the district in which the registered
office of the company is situated, and in an English newspaper in English language, both
having a wide circulation in that district.

3. However, if a Meeting is adjourned for a period not exceeding three days and where an
announcement of adjournment has been made at the Meeting itself, giving in the details
of day, date, time, venue and business to be transacted at the adjourned Meeting, the
company may also opt to give Notice of such adjourned Meeting either individually or by
publishing an advertisement, as stated above.

4. If a Meeting is adjourned for want of a Quorum to the same day on the next week, at the
same time and place or with a change of day, time or place, the company shall give not
less than three days’ Notice specifying the day, date, time and venue of the Meeting, to
the Members either individually or by publishing an advertisement in a vernacular
newspaper in the principal vernacular language of the district in which the registered
office of the company is situated, and in an English newspaper in English language, both
having a wide circulation in that district.

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5. If, at an adjourned Meeting, Quorum is not present within half an hour from the time
appointed, the Members present, being not less than two in number, will constitute the
Quorum.

CAN AN ADJOURNED AGM BE HOLD ON NATIONAL HOLIDAY

1. If a Meeting, other than an Annual General Meeting and a requisitioned Meeting,

stands adjourned for want of Quorum, the adjourned Meeting shall be held on the same
day, in the next week at the same time and place or on such other day or at such other
time and place as may be determined by the Board.

2. An adjourned Annual General Meeting, adjourned for want of quorum or otherwise,

shall not be held on a National Holiday, only if any item relating to filling up of vacancy
of a director retiring by rotation is included in the agenda of such adjourned Meeting.

3. At an adjourned Meeting, only the unfinished business of the original Meeting shall be
considered. Any Resolution passed at an adjourned Meeting would be deemed to have
been passed on the date of the adjourned Meeting and not on any earlier date.

ADJOURNMENT POSTPONEMENT CANCELLATION

It is the suspension of a meeting, It refers to putting off or It is a situation where the
to be resumed at a later time or deferring the holding from a meeting no longer exists.
date. scheduled date to a future date
Adjournment can be done only It can be only before the It is the conclusion of a
after commencement of a meeting. commencement of a meeting. meeting, i.e. dissolution is the
end point in any meeting.

RULES REGARDING QUORUM

 Articles may prescribe a larger quorum than provided U/S 103

 Preference shareholders are not counted in quorum except where-
 The proposed business includes any item of business directly affecting their rights.
 Preference shareholders have earned voting rights. (Section 47)
 A person present in proxy is not counted in quorum even if the articles so provide
 The person appointed as representative u/s 112 and 113 is counted as a member present in
person and is therefore counted in quorum.
 Joint holders of shares are counted as one member.

EXCEPTIONS
 Single member quorum is possible in the following cases:

 In a class meeting, where all the preference shares were held by one member ,the
meeting was held to be valid
 Where a direction to this effect is given by NCLT u/s 97
 Where a direction to this effect is given by NCLT u/s 98

 Where all members of the company are present in person, the quorum is present even if
quorum required by articles is more than the number of members.
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Representation of the president and Governors in meetings of companies of which they

are members [Sec.112]

1. The president of India or

2. The Governor of a State

If he is a member of a company May appoint such person as he thinks fit to act his
representative at any meeting of the company A person appointed to act as aforesaid shall for
the purpose of this Act be deemed to be a member of such a company and shall be entitled to
exercise the same rights and powers (including the rights to vote by proxy)

Representation of corporations at meeting of companies (Sec. 113)

A body corporate (whether a company within the meeting of this Act or not) may If it is a
member of a company by resolution of its Board of Directors Authorize such person as it
thinks fit to act as its representative at any meeting of the company A person authorized by
resolution as aforesaid shall be entitled to exercise the same rights and powers (including the
right to vote by proxy) on behalf of the body corporate.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Janki printer’s Shareholders can wait for more than half an hour in its own
private ltd. Case discretion and proceed when quorum is complete
2 James prains and If 1 member of company holds 4 representations from 4
sons ltd. Case companies he will be considered as 5 members
3 Sharp v Dawes There shall be at least two persons to constitute a meeting. A
single member holding proxies or representations of more
than one member or being a member both in his personal
capacity and as a trustee for another does not constitute a
meeting unless somebody else is present
4 Manoj Kumar Under Section 113 a company which is holding shares in
Sonthalia v. another company may appoint only one representative to
Nariman Point attend the meetings of the other company. There is neither
Building Service & any necessity nor any question of appointment of joint-
Trading P. Ltd. representatives.

CHAIRMAN OF MEETING SEC. 104

The Board of directors normally appoints one of the directors as the chairman for the
meetings of the Board of directors and also for the general meetings of the company. The
Articles also provide that the chairman of the Board shall be the chairman for general
meeting of the company.
Appointment of Chairman at the meeting
According to section 104(1) of the Companies Act, 2013, unless the articles of the
company otherwise provide, the members personally present at the meeting shall elect one of
themselves to be the Chairman thereof on a show of hands.
If a poll is demanded on the election of the chairman, it shall be taken forthwith and the
chairman elected on a show of hands shall exercise all the powers of the chairman and

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conduct the poll. [Section 104(2)]

If some other person is elected chairman as a result of the poll, he shall be the chairman for
the rest of the meeting. [Section 104(2)]

TABLE F PROVIDES

R. 45 says chairman of company if any will preside as a chairman at every AGM

R. 46 says if chairman is not present within 15 minutes from appointed time the directors of
company will elect one of themselves to act as chairman at every AGM

R. 47 says if no director is willing to act a chairman or no director is present within 15

minutes from appointed time the members of company will elect one of themselves to act as
chairman at every AGM

R. 68 says Chairman shall have casting vote in case of equality of vote

Detailed agenda and guidance note for the Chairman

At every general meeting, it is a practice to prepare a draft detailed agenda, which will be
given to the chairman and the directors present at the meeting to enable the chairman to
conduct the meeting in a proper manner.

Declaration of result by the Chairman

A declaration by the chairman that on a show of hands, a resolution has or has not been
carried unanimously or by a particular majority and an entry to that effect set in the minutes
book, shall be conclusive evidence of the fact without proof of the number or proportion of
the votes cast in favour of or against the resolution.

Discretion of chairman for recording proceedings of the meeting

The chairman has the power to exclude from the minutes any matter, which, in his opinion is
regarded as defamatory of any person; is irrelevant or immaterial to the proceeding or is
detrimental to the interest of the company.

CASE LAW
S.NO. CASE NAME PROVISONS
1 Chandrakant Khaire v. A chairman cannot by himself postpone a meeting. The proper
Shantaram Kale. course for him is to hold the meeting and then adjourn it to a more
convenient date

PROXIES (Form No. MGT 11) SEC. 105

Who can appoint a proxy Section 105 (1)
 Any member of a company entitled to attend and vote at a meeting of the company.
 Shall be entitled to appoint another person (whether a member or not )
 As his proxy
 To attend and vote instead of himself
 But a proxy so appointed shall not have any right to speak at the meeting
 The Central Government may prescribe a class or classes of companies whose members
shall not be entitled to appoint another person as a proxy
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Provisions applicable in the absence of any provision in articles

 Provided that unless the articles otherwise provide
 This sub section shall not apply in the case of a company not having a share capital.

Disclosures required in notice of GM Section 105 (2)

 In every notice calling a meeting of a company.
 There shall appear with reasonable prominence a statement
 That a member entitled to attend to appoint a proxy, or where that is allowed, one or more
proxies, to attend and vote instead of himself, and that a proxy need not be a member

PENALTY Section 105 (3)

If default is made in complying with sub-section (2), every officer of the company who is in
default shall be liable to penalty of five thousand rupess.

Who can appoint proxy for the general meeting

1. Members of a company having a share capital.
2. Members of a company not having a share capital, if Articles of a company provides so.
3. Representatives of body corporate appointed under section 113 of the Companies Act, 2013.
4. Representatives of the President and the Governors of the State appointed under section 112.

Who cannot appoint proxy for a meeting

1. A proxy cannot appoint a proxy.

2. A member of a company registered under section 8 shall not be entitled to appoint any other
person as his proxy unless such other person is also a member of such company. [Rule 19(1)]
3. Director cannot appoint a proxy for Board Meetings
Deposit of proxy with the company Section 105 (4)
Proxies to be valid, must be deposited with the company or any other person authorised in
this behalf not less than 48 hours before a meeting.
AOA of Company can decrease the time period but cannot increase the time period for
depositing the proxy form with the company

Canvassing for appointment of proxy Section 105 (5)

If for the purpose of any meeting of a company, invitations to appoint as proxy a person or
one of a number of persons specified in the invitations are issued at the company's expense to
any member entitled to have a notice of the meeting sent to him and to vote thereat by proxy,
every officer of the company who issues the invitation as aforesaid or authorises or permits
their issue, shall be liable to a penalty of fifty thousand rupees
Provided that an officer shall not be liable under this sub-section by reason only of the issue
to a member at his request in writing of a form of appointment naming the proxy, or of a list
of persons willing to act as proxies, if the form or list is available on request in writing to
every member entitled to vote at the meeting by proxy. (COMPANIES AMENDMENT ACT
2020)
Legal requirements of proxy form Section 105 (6)
The proxy form shall be in writing signed by the member

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No special requirements in proxy form Section 105 (7)

 An instrument appointing a proxy
 If in any of the forms set out in Form No. MGT.11.
 Shall not be questioned on the ground that it fails to comply with any special
requirements specified for such instrument by the articles.

Inspection of proxies Section 105 (8)

 Any member can inspect the proxies deposited with the company.
 Inspection can be made only if 3 days notice is given to the company.
 The inspection can be made beginning with 24 hours before the commencement of
general meeting and ending with the conclusion of such meeting.
 The inspection can be made only during business hours.

RULE 19(1) of the Companies (Management and Administration) Rules, 2014

A member of a company registered under section 8 shall not be entitled to appoint any other
person as his proxy unless such other person is also a member of such company.
RULE 19(2) of the Companies (Management and Administration) Rules, 2014
As per rule 19(2) no person shall act as proxy on behalf of members exceeding 50 and
holding in the aggregate more than 10% of the total share capital of the company carrying
voting rights.

Provided that a member holding more than ten percent, of the total share capital of the
Company carrying voting rights may appoint a single person as proxy and such person shall
not act as proxy for any other person or shareholder.
Revocation of proxy

 If after appointment of proxy, the member himself attends the meeting, it would amount
to automatic revocation of proxy.
 Once the proxy remains valid notwithstanding death or insanity of the principal or the
revocation of proxy unless such intimation has been received by the company before the
commencement of the meeting

Rule 19 of Companies (Management and Administration Rules, 2014)

1. The appointment of proxy shall be in the Form No. MGT.11
Revocation of proxy by the appointer

1. Every proxy in the absence of any contract to the contrary shall be used only if, the
appointer is unable to attend the meeting.
2. A shareholder appointing a proxy can revoke it, before voting by the proxy.
3. Revocation of proxy is to be communicated to the company and it shall be received by the
company at its registered office before the commencement of the meeting.
4. Proxy shall itself be revoked in case of death or insanity of the shareholder appointing the
proxy.
Right of proxies
1. A proxy, being a representative of a member, cannot participate in the proceedings or
speak unless the Articles otherwise provide.
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2. He cannot vote on a show of hands.

3. He can, however, vote if a poll is demanded.
4. He can also demand a poll.

SOME MORE CASE LAWS

S.NO. CASE NAME PROVISONS
1 Narayana Chettiar v. The Court observed that the relationship between a
Kaleeshwas Mills shareholders and his proxy is that of principal and agent.
2 UNION WESTERN
BANK LTD. CASE Any person whether he is member or not can be appointed
as a proxy. He must be individual capable of attending and
voting, at the meeting. There is no restriction in law about
who can be appointed as proxy.
An artificial or judicial person cannot be appointed as proxy.

Even minor is capable of to be appointed as proxy as such

appointment does not incur or undertake any liability or
burden.

RESTRICTION ON VOTING RIGHTS SECTION 106

1. Notwithstanding anything contained in this Act, the articles of a company may provide
that no member shall exercise any voting right in respect of any shares registered in his
name on which any calls or other sums presently payable by him have not been paid, or in
regard to which the company has exercised any right of lien.
2. The company cannot restrict voting rights of member on any other ground
3. On a poll taken at a meeting of a company, a member entitled to more than one vote, or
his proxy, where allowed, is not bound to give all his vote only in favour or against the
resolution. He can use his vote differently.
VOTING RIGHTS
Voting denotes a method by which a person express his wish or opinion in an authorised formal way
or a mechanism through which the wishes of persons are ascertained in relation to a particular matter.
It reflects the mood of the meeting on a particular matter. If a motion gets support of the required
members in a meeting, it becomes resolution.

Types of voting in a general meeting

1. Voting by show of hands

2. Voting on poll
3. Voting by postal ballot
4. E-voting

Equity shareholders They have a right to vote on every resolution of the Company.
Preference shareholders They have a right to vote only on such resolution which directly
affects their rights.

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VOTING BY SHOW OF HANDS = I SHAREHOLDER = TO 1 VOTE

VOTING BY POLL = I SHARE IS = TO 1 VOTE

Voting to be by show of hands Section 107

(1) At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is
demanded under section 109 or the voting is carried out electronically (SECTION 108), be
decided on a show of hands.
(2) A declaration by the Chairman of the meeting of the passing of a resolution or otherwise
by show of hands under sub-section (1) and an entry to that effect in the books containing the
minutes of the meeting of the company shall be conclusive evidence of the fact of passing of
such resolution or otherwise.
SPECIAL NOTE:
1. In case of private company - Section 107 shall apply, unless otherwise specified in
respective sections or the articles of the company provide otherwise.
2. In case of Specified IFSC Public Company - Section 107 shall apply in case of a
Specified IFSC public company, unless otherwise specified in the articles of the
company. Notification Date 4th January, 2017.
AS PER REVISED SS-2

The result of the poll with details of the number of votes cast for and against the Resolution,
invalid votes and whether the Resolution has been carried or not shall be displayed for at least
three days on the Notice Board of the company at its Registered Office and its Head Office as
well as Corporate Office, if any, if such office is situated elsewhere, and in case of companies
having a website, shall also be placed on the website

VOTING THROUGH ELECTRONIC MEANS Section 108

The Central Government may prescribe the class or classes of companies and manner in
which a member may exercise his right to vote by the electronic means.
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Rule 20 of Companies (Management and Administration) Amendment Rules, 2015)

APPLICABILITY OF E VOTING

Unlisted Public Companies Listed Companies Private Companies

Company having not less MANDATORY E•voting is not mandatory.

than 1000 members

EXCEPT

1. Companies listed on institutional trading platform.

2. Companies listed on SME trading platform.
3. Companies listed on regional stock exchanges.
4. 23rd September,
Companies 2016
having Companies
whose (Management
debenture/preference andwere
shares Administration)
only listed. Rules, 2014

Every company which has listed its equity shares on a recognised stock exchange and every
company having not less than one thousand members shall provide to its members facility to
exercise their right to vote on resolutions proposed to be considered at a general meeting by
electronic means:

WHAT IS E•VOTING
voting by electronic means’’ or‘‘electronic voting system’’ means a ‘secured system’ based
process of display of electronic ballots, recording of votes of the members and the number of
votes polled in favour or against, such that the entire voting exercised by way of electronic
means gets registered and counted in an electronic registry in a centralized server with
adequate ‘cyber security’

Voting by electronic means: – includes “remote e-voting” and voting at the general meeting
through an electronic voting system which may be the same as used for remote e-voting.

Remote e-voting: – means the facility of casting votes by a member using an electronic
voting system from a place other than venue of a general meeting

NOTICE OF MEETING

The notice of the meeting shall be sent to all the members, directors and auditors of the
company. It shall also be put up on the website of the Company and agency either by
registered/speed post, courier or through electronic means, namely registered e-mail id.

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CONTENTS OF NOTICE

 The notice of the meeting shall clearly state that the company is providing facility for
voting by electronic means and the business may be transacted through such voting.
 That the facility for voting, either through voting by electronic means or ballot/polling
paper shall also be made available at the meeting and members attending the meeting who
have not already cast their vote by remote e-voting shall be able to exercise their right at
the meeting.
 That the members who have cast their vote by remote e-voting prior to the meeting may
also attend the meeting but shall not be entitled to cast their vote again. (Views of circular
incorporated in rules now)
 Indicate the process and manner for voting by electronic means.
 Indicate the time schedule including the time period during which the votes may be cast
by remote e-voting.
 Provide the details about the login ID.
 Specify the process and manner for generating or receiving the password and for casting
of vote in a secure manner.

PUBLIC NOTICE BY WAY OF ADVERTISEMENT

When: – On completion of dispatch of notices but min. 21 days before general meeting.

Where: –

 Vernacular newspaper in principal vernacular language of the district in which registered

office is situated having wide circulation in the district.
 English newspaper in English language having country-wide circulation
 It shall also be put on the website of the company and agency.

CONTENTS OF PUBLIC NOTICE BY WAY OF ADVERTISEMENT

The public advertisement shall contain the following matter namely:-

1. Statement that the business may be transacted through voting by electronic means.
2. the date and time of commencement of remote e-voting.
3. the date and time of end of remote e-voting.
4. Cut-off date, defined under amended rule 20 as “a date not earlier than seven days before
the date of general meeting for determining the eligibility to vote by electronic means or
in the general meeting.
5. Manner in which persons who have acquired shares and become members of the
company after the dispatch of notice may obtain the login ID and password.
6. Website of the company, if any, and of the agency where notice of the meeting is
displayed.
7. Name, designation, address, email id and phone number of the person responsible to
address the grievances connected with facility for voting by electronic means.
8. A statement that remote e-voting shall not be allowed beyond the said date and time
9. Manner in which the company shall provide for voting by members present at the
Meeting (electronic/ballot paper).
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10. A member may participate in the general meeting even after exercising his right to vote
through remote e-voting but shall not be allowed to vote again in the meeting.
11. A person whose name is recorded in the register of members or in the register of
beneficial owners maintained by the depositories as on the cut-off date only shall be
entitled to avail the facility of remote e-voting as well as voting in the general meeting.

E-VOTING PERIOD

The remote e-voting period shall be of minimum 3 days and end necessarily 1 day before the
general meeting at 5:00 P.M. Once the vote on a resolution is cast by the member, he shall
not be allowed to change it subsequently or cast the vote again. At the end of the remote e-
voting period, the facility shall forthwith be blocked, provided that if a company opts to
provide the same electronic system as used during remote e-voting during the general
meeting, the said facility shall be in operation till al the resolutions are considered and voted
upon in the meeting and may be used for voting by the member attending the meeting and
who have not exercised their right to vote through remote e-voting.

SCRUTINIZER

1. The Board of Directors shall appoint one or more scrutiniser, who may be Chartered
Accountant in practice, Cost Accountant in practice, or Company Secretary in practice or
an Advocate, or any other person who is not in employment of the company and is a
person of repute who, in the opinion of the Board can scrutinise the voting and remote e-
voting process in a fair and transparent manner. Provided that the scrutiniser so appointed
may take assistance of a person who is not in employment of the company and who is
well-versed with the electronic voting system.
2. The scrutiniser shall, immediately after the conclusion of voting at the general meeting,
first count the votes cast at the meeting, thereafter unblock the votes cast through remote
e-voting in the presence of at least two witnesses not in the employment of the company
and make, not later than three days of conclusion of the meeting, a consolidated
scrutiniser's report of the total votes cast ln favor or against, if any, to the Chairman or a
person authorised by him in writing who shall countersign the same. Provided that the
Chairman or a person authorised by him in writing shall declare the result of the voting
forthwith
3. The register and all other papers relating to voting by electronic means shall remain in the
safe custody of the scruitniser until the Chairman considers, approves and signs the
minutes and there after, the scrutiniser shall hand over the register and other related
papers to the company.
4. The results declared along with the report of the scrutiniser shall be placed on the website
of the company, if any, and on the website of the agency immediately after the result is
declared by the Chairman. Provided that in case of companies whose equity shares are
listed on a recognised stock exchange, the company shall, simultaneously, forward the
results to the concemed stock exchange or exchanges where its equity shares are listed
and such stock exchange or exchanges shall place the results on its or their website.

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DEMAND FOR POLL AND ORDER FOR POLL SEC. 109

WHEN TO DEMAND FOR POLL SEC. 109 (1)

BEFORE OR ON DECLARATION OF RESULT OF SHOW OF HAND SEC. 109 (1)

A poll may be ordered by the chairman of A poll shall ordered by the chairman if a demand
his own motion. is made by Members.

WHO CAN DEMAND POLL SEC. 109 (1)

In case of a company having a share capital In case of any other company

Any member(s) present in person or proxy Any member(s) present in person or proxy
holding having 1/10 of total voting power
 1/10 of the total voting power; or
 Paid up share capital of Rs. 5, 00, 000 or
more
Withdrawal of demand for poll SEC. 109 (2)

The demand for poll may be withdrawn at any time (but before declaration of result of poll)
by the person who has made it.

Time of taking poll (Sec. 109 (3)

ON THE QUESTION OF
 Adjournment
 Election of chairman

The poll shall be taken forthwith

ON ANY OTHER QUESTION (Sec. 109 (4)

The poll shall be taken at such time as directed by the chairman (but within 48 hours of
demand for poll)
Scrutineers at poll (Sec. 109 (5))
Where a poll is to be taken, the Chairman of the meeting shall appoint such number of
persons, as he deems necessary, to scrutinise the poll process and votes given on the poll and
to report thereon to him in the manner as may be prescribed.
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Rule 21 of Companies (Management and Administration Rules, 2014)

STEP PROCEDURE PROVISONS

1 Appointment of Chairman shall appoint such number of persons, as he

Scrutinizer deems necessary, to –
a) Scrutinize the poll process and votes given on the poll.
b) Report thereon to him
2 Documents to be a) Register of Members,
provided to b) Specimen signatures of members,
scrutinizers c) Attendance register,
d) Register of proxies
e) All other documents received by the company pursuant to
sec. 105, 112, and 113
3 Role of The scrutinizers shall –
Scrutinizers a) Arrange for polling papers (in form no. MGT.12)
during polling b) Distribute polling papers to the members and proxies
process present at the meeting. (note: in case of joint shareholders,
the polling paper shall be given to the first named holder
or in his absence to the joint holder attending the meeting
as appearing in the chronological order in the folio.
c) Lock and seal an empty polling box in the presence of the
members and proxies.
d) Keep a record of the polling papers received in response
to poll, by initialing it.
e) Ensure that if a member who has appointed a proxy has
voted in person, the proxy’s vote shall be disregarded.
f) Decide the validity of proxy (in case of ambiguity) in
consultation with the chairman.
g) Open the polling box in the presence of 2 witnesses after
the voting process is over.
h) Count the votes cast on poll, and
i) Prepare a report thereon addressed to the chairman.
4 Report of a) The scrutinizer’s report shall state – (i) total votes cast (ii)
Scrutinizers valid votes, (iii) Votes in favour and against the resolution
and (iv) details of invalid polling papers and votes
comprised therein
b) The scrutinizer(s) shall submit the signed report to the
chairman (in form MGT 13) who shall counter –sign the
same.
c) The report shall be submitted to the chairman with 7 days
from the date the poll is taken.
5 Declaration of The chairman shall declare the result of voting on poll.
Result The result may either be announced by him or a person
authorized by him in writing.
where voting is conducted by electronic means the
company shall provide all the necessary support, technical
and otherwise to the scrutinizers in orderly conduct of the
voting and counting the result thereof.

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WHAT ARE VARIOUS METHODS OF VOTING

S.NO. METHODS WAYS OF VOTING

1 By acclamation By beating bench

2 By division Who are in favour shift to left and those who against shift to right

3 show of hand 1 shareholder = 1 vote

4 By ballot Like show of hand (just gives the vote by writing in paper)

5 By poll 1 share = 1 vote

6 voice vote Those who are in favour say yes those who are against say no

7 postal ballot Only for listed company enable the shareholder to participate in
voting without attending the meeting

SECTION 2 (65) POSTAL BALLOT

Postal Ballot means voting by post or through any electronic mode
POSTAL BALLOT SECTION 110

1. Notwithstanding anything contained in this Act, A COMPANY

 Shall, in respect of such items of business as the Central Government may, by
notification, declare to be transacted only by means of postal ballot; and
 May, in respect of any item of business, other than ordinary business and any business in
respect of which directors or auditors have a right to be heard at any meeting, transact
by means of postal ballot, in such manner as may be prescribed, instead of transacting
such business at a general meeting. 110 (1)
Provided that any item of business required to be transacted by means of postal ballot under
clause (a), may be transacted at a general meeting by a company which is required to provide
the facility to members to vote by electronic means under section 108, in the manner
provided in that section.

2. If a resolution is assented to by the requisite majority of the shareholders by means of

postal ballot, it shall be deemed to have been duly passed at a general meeting convened
in that behalf. 110 (2)

Note: Provisions are applicable for both listed and unlisted company but One Person
Company and other companies having members up to two hundred are not required to
transact any business through postal ballot.
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Following items of business shall be transacted only by means of voting through a postal
ballot
a. alteration of the objects clause of the memorandum and in the case of the company in
existence immediately before the commencement of the Act, alteration of the main
objects of the memorandum
b. alteration of articles of association in relation to insertion or removal of provisions which,
under sub-section (68) of section 2, are required to be included in the articles of a
company in order to constitute it a private company
c. change in place of registered office outside the local limits of any city, town or village as
specified in sub-section (5) of section 12;
d. change in objects for which a company has raised money from public through prospectus
and still has any unutilized amount out of the money so raised under sub-section (8) of
section 13;
e. issue of shares with differential rights as to voting or dividend or otherwise under sub-
clause (ii) of clause (a) of section 43;
f. variation in the rights attached to a class of shares or debentures or other securities as
specified under section 48;
g. buy-back of shares by a company under sub-section (1) of section 68;
h. election of a director under section 151 of the Act;
i. sale of the whole or substantially the whole of an undertaking of a company as specified
under sub-clause (a) of sub-section (1) of section 180;
j. giving loans or extending guarantee or providing security in excess of the limit specified
under sub-section (3) of section 186

Rule 22 of Companies (Management and Administration Rules, 2014)

Procedure to be followed for postal ballot

1. Where a company is required or decides to pass any resolution by way of postal ballot, it
shall send a notice to all the shareholders, along with a draft resolution explaining the
reasons therefor and requesting them to send their assent or dissent in writing within a
period of thirty days from the date of dispatch of the notice.
2. The notice shall be sent either (a) by Registered Post or speed post, or (b) through
electronic means like registered e-mail id or (c) through courier service for facilitating
the communication of the assent or dissent of the shareholder to the resolution within the
said period of thirty days.
3. An advertisement shall be published at least once in a vernacular newspaper in the
principal vernacular language of the district in which the registered office of the company
is situated, and having a wide circulation in that district, and at least once in English
language in an English newspaper having a wide circulation in that district, about having
dispatched the ballot papers
4. The notice of the postal ballot shall also be placed on the website of the company
forthwith after the notice is sent to the members and such notice shall remain on such
website till the last date for receipt of the postal ballots from the members.

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5. The Board of directors shall appoint one scrutinizer, who is not in employment of the
company and who, in the opinion of the Board can conduct the postal ballot voting
process in a fair and transparent manner.
6. The scrutinizer shall submit his report as soon as possible after the last date of receipt of
postal ballots but not later than seven days thereof
7. The postal ballot and all other papers relating to postal ballot including voting by
electronic means, shall be under the safe custody of the scrutinizer till the chairman
considers, approves and signs the minutes and thereafter, the scrutinizer shall return the
ballot papers and other related papers or register to the company who shall preserve such
ballot papers and other related papers or register safely.
8. The assent or dissent received after thirty days from the date of issue of notice shall be
treated as if reply from the member has not been received.
9. The results shall be declared by placing it, along with the scrutinizer’s report, on the
website of the company.
10. AS PER SS-2 The scrutiniser shall submit his report within seven days from the last date
of receipt of postal ballot forms to the Chairman or a person authorised by him, who shall
countersign the same and declare the result of the postal ballot on the date, time and
venue specified in the Notice, with details of the number of votes cast for and against the
Resolution, invalid votes and the final result as to whether the Resolution has been carried
or not.
11. The provisions of rule 20 regarding voting by electronic means shall apply, as far as
applicable, mutatis mutandis to this rule in respect of the voting by electronic means.

Special point:

 AS PER SS-2 Office copies of Notices, scrutiniser’s report, and related papers shall be
preserved in good order in physical or in electronic form for as long as they remain
current or for eight financial years, whichever is later and may be destroyed thereafter
with the approval of the Board.

 Office copies of Notices, scrutiniser’s report, and related papers of the transferor
company, as handed over to the transferee company, shall be preserved in good order in
physical or electronic form for as long as they remain current or for eight financial years,
whichever is later and may be destroyed thereafter with the approval of the Board and
permission of the Central Government, where applicable.

 The result of the voting with details of the number of votes cast for and against the
Resolution, invalid votes and whether the Resolution has been carried or not, along with
the scrutiniser’s report shall be displayed for at least three days on the Notice Board of
the company at its Registered Office and its Head Office as well as Corporate Office, if
any, if such office is situated elsewhere, and also be placed on the website of the
company, in case of companies having a website.
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Circulation of Member’s Resolution and Statement (Sec 111)

Section 111 of the Companies Act, 2013 effective from 12th Sept., 2013, enables members to
avail of the administrative machinery of the Company to put resolutions at their expense, in
the annual general meeting and make other members aware of the purpose behind submission
of such resolutions.
Need
When some members of a Company want:
a. To propose a resolution at the Company’s next AGM; or
b. Desire to circulate to members any statement with respect to the matter referred to in any
proposed resolution or any business to be dealt with at any General meeting

Requisition
The members may serve a requisition in writing on the Company requiring the Company to
give notice of resolution to the members and to circulate the explanation to the members.
Signed
The requisition must be signed either by:

A. The members holding at least 1/10th of the share capital acrry voting right (in case of
company having share capital)or
B. The members holding at least 1/10th of the total voting power (in case of company not
having share capital).

Time limit
The requisition must be deposited at the registered office of the Company at least:
a. In case of requisition requiring notice of a resolution: 6 weeks before the meeting.
b. In case of any other requisition: 2 weeks before the meeting.

Company’s liability
On receiving the requisition from the members, the Company shall be bound at the expense
of the requisitionists to:
a. Give a notice to the members of the resolution intended to be moved at the next AGM.
b. Circulate the statement among the members entitled to notice of any General meeting.

EXCEPTION

A Company is authorized not to circulate a resolution or statement of the requisition if:

Central Government, (R.D) on the application of the Company or any aggrieved party, is
satisfied that the right so conferred is being abused to secure needless publicity for
defamatory matters.

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PENALTY
If any default is made in complying with the provisions of this section, the company and
every officer of the company who is in default shall be liable to a penalty of twenty-five
thousand rupees. 111(5)
RESOLUTIONS
Meaning of Resolution

The term 'resolution' has not been defined in the Companies Act, 2013. Taking the dictionary
meaning, which should therefore hold good, resolution means a formal decision of the
meeting. A motion when decided at a meeting becomes a resolution.

2(63) "ORDINARY OR SPECIAL RESOLUTION"

Ordinary or Special resolution” means an ordinary resolution, or as the case may be, special
resolution referred to in section 114;
Resolution may be defined as the proposal which is voted at the meeting and accepted by the
members. The business of a meeting is conducted in the form of resolutions. The Companies
Act provides for two types of resolutions:
1. Ordinary resolution
2. Special resolution
3. Resolution Required Special Notice

ORDINARY RESOLUTION (SEC 114 (1))

Section 114(1) of the Act, provides that most of the matters, which require the approval of the
members, may be approved by them by an ordinary resolution. A resolution is deemed to
have been passed as an ordinary resolution if it is approved by the members at the general
meeting by a majority. In other words, the votes cast in favour of the resolution should be
more than the votes cast against, if any.

It is not mandatory for inclusion of the text of an ordinary resolution in the notice sent to
members, but the notice required for convening a general meeting, shall be duly complied
with.

A resolution duly passed unanimously cannot be questioned on the ground that meeting was
not adequately represented.

Matters which may be approved by company in a general meeting by way of ordinary

resolution

S. No. Section Matters which may be approved by Ordinary Resolution

Change of name on direction of the Registrar it is found that name was applied
1. 4(5) by
furnishing wrong or incorrect information
Rectification of name of company, which resembles the name of another
2. 16(1) existing
company.
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Alteration of share capital by increasing authorised capital, sub-division of

3. 61(1) indivi-
dual shares and consolidation of individual shares into shares of larger amount.
4. 123 Declaration of dividend.
5. 134 Adoption of financial statements and directors' report.
6. 139 Appointment of retiring auditors.
7. 152 Appointment of first directors in default of provision in the Articles.
8. 152(6) Appointment of directors retiring by rotation at an annual general meeting.
Appointment of a director who is not a retiring director proposed by notice
9. 160 from a
member.
10. 161 Appointment of additional director, alternate director and nominee director.
11. 169(1) Removal of a director by special notice.
12. 169(2) Appointment of a director in place of one removed.
Impose restrictions and conditions on the exercise by the board of directors of
13. 179(4) any of
the powers specified in section 179.
14. 196 Appointment/re-appointment of managing/whole-time director/manager.
15. 304(a) Winding up voluntarily the affairs of the company.

SPECIAL RESOLUTION (SEC 114 (2))

Section 114(2) of the Act provides that certain matters are deemed to have been passed at a
general meeting as a special resolution only, if the votes cast in favour are at least three times
the number of votes cast against the resolution, if any.

Matters which shall be approved by a company in general meeting by passing a special

resolution

Section 114 of the Companies Act stipulates that the notice must specify the resolution as
special resolution and to be passed and where an article of the articles of association of the
company contemplates increase in the number of directors by special resolution in general
meeting, a special resolution should be passed for appointment of directors, and where it is
not complied with, the appointment of director is not valid. [Balasundaram (V.G.) v New
Theatres Carnatic Talkies (P.) Ltd.

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S. Section Matters which may be approved by Special Resolution

No.
To make entrenchment provisions in the articles of association of a
1 5 (4) public company.
Change of the registered office outside the limit of the city/place where
2. 12(5) the registered
office of a company is situated.
3. 13 Alteration of Memorandum of Association
Change in Object for which the company raised the money through
4. 13(8) prospectus.
5. 14(1) Change of name by deletion of "Limited" or "Private Limited"
Alteration to the provisions of Articles including conversion of a public
6. 14(1) company into
private limited which also requires approval of the Tribunal.
7. 27(1) Variation in terms of contract or objects in prospectus..
8. 41 Issue of Global Depository receipt.
9. 48(1) Variation in right of shareholders.
10. 54(1) Issue of sweat equity shares.
11. 62(1)(b) Issue of shares to employees under a employees’ stock option
Issue of further shares to persons other than existing members (including
12. 62(1)(c) issue to
some members).
13. 66(1) Reduction of share capital

Rule 24 of Companies (Management and Administration Rules, 2014)

A copy of every special resolution together with the explanatory statement under section 102
shall be filed with the Registrar in Form No. MGT.14 along with the fee.
SOME IMPORTANT DIFFERNECES
Points Motion Resolution
Meaning Motion is a proposal submitted for a A resolution is the formal expression of the
discussion and a decision adopted by decision of the meeting when a motion has
means of a resolution. A motion been duly voted and passed by the requisite
becomes a resolution only after the majority.
requisite majority of members have
adopted it.
official Every motion is not the official A resolution once adopted and recorded in
decision decision of the company. the minutes becomes the official decision of
the company.
Significanc In case of company meetings, only A resolution relates to only such matters
e in such motions are proposed as are that are covered in notice of the meeting.
meeting covered by the agenda. However, No resolution can be passed in respect of
certain motions may arise out of the matters which are not covered in notice of
discussion and the standing orders of the meeting.
various bodies allow such motions to
be discussed at the meeting without
proper notice in writing.
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Points Special Resolution Resolutions requiring special notice

Meaning A special resolution is one passed at a According to Section 115, where by any
general meeting of a company when: provision of the Act or in the articles, special
- Notice of the meeting specifying the notice is required of any resolution, notice of
intention to propose the resolution as a the intention to move the resolution shall be
special resolution has been duly given given to the company not earlier than 3
and months hut at least 14 days before the date of
- The votes cast in favour are 3 times of the meeting.
the vote cast against it.
Dependen Special resolution does not require- Resolutions requiring special notice may be
ce special notice. passed as ordinary resolution.
Examples  Alteration of the name of the ♦ A resolution at an AGM appointing as
company auditor a person other than a retiring auditor,
 Shifting of registered office from or providing expressly that a retiring auditor
one state to another. shall not be re-appointed.
 Change in object clause ♦ A resolution to remove a director or to
appoint somebody in place of a director so
removed, at the meeting at which he is
removed.

RESOLUTIONS REQUIRING SPECIAL NOTICE 115

Right of members to give special notice for submission of a resolution at a general

meeting

Section 115 of the Companies Act, 2013 gives a right to every member to give special notice
to the company of his intention to move the resolution at a general meeting for certain
purposes. The condition to be met is that the member shall be competent to attend the
meeting and move the resolution. The procedure set out under section 115 and the matters
where the facility of special notice is prescribed are outlined below
Procedure to be complied with for Resolution requiring Special Notice at a general
meeting
Rule 23(1) has prescribed a special procedure for submission of a resolution in respect of
certain proposals which requires the approval of the general meeting including annual general
meeting as under
1. A Special Notice required to be given to the company shall be signed, either individually
or collectively by such number of members holding not less than 1% of total voting
power or holding shares on which an aggregate sum of not less than 5 lakh has been paid
up on the date of the notice.
2. Notice for intention shall be sent by members to the company not earlier than 3 months
but at least 14 days before the date of the meeting at which the resolution is to be moved,
exclusive of the day on which the notice is given and the day of the meeting.
3. The company shall immediately after receipt of the notice, give its members notice of the
resolution AT LEAST 7 DAYS BEFORE THE MEETING exclusive of the day of
dispatch of notice and day of the meeting, in the same manner as it gives notice of any
general meetings.

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4. Where it is not practicable to give the notice in the same manner as it gives notice of any
general meetings, the notice shall be published in English language in English newspaper
and in vernacular language in a vernacular newspaper, both having wide circulation in the
State where the registered office of the company is situated. Such notice shall also be
posted on the website, if any, of the company. Such notice shall be published at least
seven days before the meeting, exclusive of the day of publication of the notice and day
of the meeting.

MATTERS FOR WHICH SPECIAL NOTICE IS PRESCRIBED

The matters for which special notice of resolution is prescribed are as under

AUDITORS Section 140(4)

1. Special notice of resolution at annual general meeting to the effect that the retiring auditor
shall not be reappointed except where he has completed a consecutive period of five years
or ten years, as the case may be, as per Section 139(2

2. Special notice of resolution to the effect to appoint a person as auditor other than a
retiring auditor.

DIRECTOR Section 169(2)

1. Special notice of a resolution to remove a Director before the expiry of his term of office
other than a Director appointed by the Tribunal as per Section 242.

2. Special notice of a resolution to appoint a person as Director in the place of the Director
removed at the meeting he is removed.
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RESOLUTION REQUIRING SPECIAL NOTICE (SEC 115)

ANY MEMBER holding not less than 1% of total What resolutions require special notice
voting power or holding shares on which an
aggregate sum of not less than 5 lakh has paid up 1. Retiring auditor shall not be
reappointed
SPECIAL NOTICE
2. Special notice of resolution to
14 days notice of the intention the effect to appoint a person as
to move the resolution has to be auditor other than a retiring
given to the company auditor.

3. Special notice of a resolution to

COMPANY remove a Director before the
expiry of his term of office
FORWARD THE SPECIAL NOTICE other than a Director appointed
INDIVIDIUALY OR NEWSPAPER by the Tribunal as per Section
ADVERTISMENT 242.
AT LEST 7 DAYS BEFORE GM 4. Special notice of a resolution to
appoint a person as Director in
the place of the Director
removed at the meeting he is
removed.

TO ALL MEMBERS

SECTION 116 RETROSPECTIVE EFFECT OF RESOLUTION

Where a resolution is passed at an adjourned meeting of

a. a company; or
b. the holders of any class of shares in a company; or
c. the Board of Directors of a company,
The resolution shall, for all purposes, be treated as having been passed on the date on which it
was in fact passed, and shall not be deemed to have been passed on any earlier date.
Resolutions required to be filed with ROC for registration SECTION 117
A copy of every resolution or any agreement, in respect of matters specified in sub-section
(3) together with the explanatory statement under section 102, if any, shall be filed with the
Registrar in MGT-14 within thirty days of the passing the resolution. 117(1)
If any company fails to file the resolution or the agreement under sub-section (1) before the
expiry of the period specified therein, such company shall be liable to a penalty of ten
thousand rupees and in case of continuing failure, with a further penalty of one hundred
rupees for each day after the first during which such failure continues, subject to a maximum

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of two lakh rupees and every officer of the company who is in default including liquidator of
the company, if any, shall be liable to a penalty of ten thousand rupees and in case of
continuing failure, with a further penalty of one hundred rupees for each day after the first
during which such failure continues, subject to a maximum of fifty thousand rupees.
SECTION 117(2) (COMPANIES AMENDMENT ACT 2020)
LIST OF RESOLUTION FILED TO ROC SECTION 117(3)

a. All special resolutions

b. Resolutions which have been agreed to by all the members of a company, but which, if
not so agreed to, would not have been effective for their purpose unless they had been
passed as special resolutions
c. Any resolution of the Board of directors of a company or agreement executed by a
company relating to the appointment/re-appointment/renewal of the appointment, or
variation of the terms of appointment of a managing director
d. Resolutions or agreements which have been agreed to by all the members of any class of
shareholders but which, if not so agreed to, would not have been effective for their
purpose unless they had been passed by some particular majority or otherwise in some
particular manner and all resolutions or agreements which effectively bind all the
members of any class of shareholders though not agreed to by all those members;
e. Resolutions passed by a company according its consent to the Board of directors to
exercise powers stipulated under section 180(1)(a) and 180(1)(c)
f. resolutions requiring a company to be wound up voluntarily passed in pursuance OF section 59 of
the Insolvency and Bankruptcy Code, 2016 (VOLUANTARY WINDING UP)
g. Resolutions passed in pursuance of section 179(3). Provided that no person shall be
entitled under section 399 to inspect or obtain copies of such resolutions; "Provided
further that nothing contained in this clause shall apply in respect of a resolution
passed to grant loans, or give guarantee or provide security in respect of loans under
clause (f) of sub-section (3) of section 179 in the ordinary course of its business by,—
(a) a banking company; (b) any class of non-banking financial company registered
under Chapter IIIB of the Reserve Bank of India Act, 1934, as may be prescribed in
consultation with the Reserve Bank of India; (c) any class of housing finance
company registered under the National Housing Bank Act, 1987, as may be
prescribed in consultation with the National Housing Bank;Any other resolution or
agreement as may be prescribed and placed in the public domain. (COMPANIES
AMENDMENT ACT 2020)

Items as covered under section 179 which need to be filed in the Form MGT-14 with the
Registrar of Companies
The requirement of filing e-form MGT 14 for resolutions passed by the Board in exercise of
its powers u/s. 179(3) is no longer applicable to a private company.

As per the provisions of Rule 8 of the Companies (Meetings of Board and its Powers) Rules,
2014 the following resolutions passed by the Board are required to be filed with the Registrar
in Form MGT-14 within 30 days from the date of the Board meeting along with the fee.

1. Make calls on shareholders in respect of money unpaid on their shares;

2. To authorise buy-back of securities under section 68;
3. To issue securities, including debentures, whether in or outside india;
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4. To borrow monies
5. To invest the funds of the company;
6. To grant loans or give guarantee or provide security in respect of loans;
7. To approve financial statement and the board’s report;
8. To diversify the business of the company;
9. To approve amalgamation, merger or reconstruction;
10. To take over a company or acquire a controlling or substantial stake in another company
(shareholders agreement);
11. To make political contributions;
12. To appoint or remove key managerial personnel (kmp)
13. To take note of appointment(s) or removal(s) of one level below the kmp;
14. To appoint internal auditors and secretarial auditor;
15. To take note of the disclosure of director’s interest and shareholding;
16. To buy, sell investments held by the company (other than trade investments), constituting
5% or more of the paid up share capital and free reserves of the investee company;
17. To invite or accept or renew public deposits and related matters;
18. To review or change the terms and conditions of public deposit;
19. To approve quarterly, half yearly and annual financial statements or financial results as
the case may be.

Minutes — Meaning SECTION 118

The term 'minutes' though not defined in the Companies Act, 2013, it may be considered as a
written record of proceedings of a meeting of any Company duly kept in pursuance of the
law. Minutes contain inter alia a description of the type of meeting to which they relate, its
date, time and venue, mention about persons attended the meeting concerned, confirmation of
minutes of previous meeting as a result of practice, decisions taken process at the meeting,
discussions held, voting on resolutions, etc.

Minutes of proceedings of general meeting, meeting of Board of Directors and other

meeting and resolutions passed by postal ballot. 118
Every company shall cause minutes of the proceedings of
 every general meeting of any class of shareholders or
 creditors, and
 every resolution passed by postal ballot
 and every meeting of its Board of Directors or of every committee of the Board,

To be prepared and signed in such manner as may be prescribed and kept within THIRTY
DAYS of the conclusion of every such meeting concerned, or passing of resolution by postal
ballot in books kept for that purpose with their pages consecutively numbered. 118 (1)
Rule 25 of Companies (Management and Administration Rules, 2014)

SIGNING OF MINUTES

A. Each page of every such book shall be initialed or signed and the last page of the record
of proceedings of each meeting or each report in such books shall be dated and signed –
B. in the case of minutes of proceedings of a meeting of the Board or of a committee thereof,
by the chairman of the said meeting or the chairman of the next succeeding meeting
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C. in the case of minutes of proceedings of a general meeting, by the chairman of the same
meeting within the aforesaid period of thirty days or in the event of the death or inability
of that chairman within that period, by a director duly authorised by the Board for the
purpose;
D. In case of every resolution passed by postal ballot, by the chairman of the Board within
the aforesaid period of thirty days or in the event of there being no chairman of the Board
or the death or inability of that chairman within that period, by a director duly authorized
by the Board for the purpose.

MINUTES TO BE KEPT AT REGISTERED OFFICE

A. The minute books of general meetings, shall be kept at the registered office of the
company and shall be preserved permanently and kept in the custody of the company
secretary or any director duly authorised by the board..
B. The minutes books of the Board and committee meetings shall be preserved permanently
and kept in the custody of the company secretary of the company or any director duly
authorized by the Board for the purpose and shall be kept in the registered office.

CONTENTS OF MINUTES
The minutes of each meeting shall contain a fair and correct summary of the proceedings
thereat. 118 (2)
All appointments made at any of the meetings aforesaid shall be included in the minutes of
the meeting. 118 (3)
There shall not be included in the minutes, any matter which, in the opinion of the Chairman
of the meeting,—
1. is or could reasonably be regarded as defamatory of any person; or
2. is irrelevant or immaterial to the proceedings; or
3. is detrimental to the interests of the company. 118 (5)
The minutes kept in accordance with the provisions of this section shall be evidence of the
proceedings recorded therein.118 (7)

PENALTY
1. If any default is made in complying with the provisions of this section in respect of any
meeting, the company shall be liable to a penalty of twenty-five thousand rupees and
every officer of the company who is in default shall be liable to a penalty of five thousand
rupees.118 (11)
2. If a person is found guilty of tampering with the minutes of the proceedings of meeting,
he shall be punishable with imprisonment for a term which may extend to two years and
with fine which shall not be less than twenty-five thousand rupees but which may extend
to one lakh rupees. 118 (12)

Minutes may be kept in the loose leaf binders

The modern practice is to type out or obtain computerised printing of the minutes in loose
leaves and then keep them in a binder. The Department has also confirmed that it has no
objection to minutes being kept in that manner. The only precaution that has to be taken by a
company is that there should not be any chance for interpolation of the leaves in the books
and the minutes book shall have a locking device.
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The company should also arrange for the loose leaf binder to be bound into books at regular
intervals. Section 120 allows maintenance and inspection of documents in electronic form

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Prafulla Kuman Signing of minutes of Board meetings: The Minutes must
Rout v. Orient be signed latest on the date of the next succeeding meeting
Engineering Works of the Board. The signature of the chairman of the meeting
P. Ltd. is sufficient. It is not necessary that the minutes are signed
by all the directors present at the meeting.
2 Karnataka Bank v. Confirmation of minutes not necessary: There is no
A.B. Datar provision in the Companies Act requiring the minutes to be
confirmed before they are acted upon. Implementation of
the decision of the board of directors cannot be deferred till
the minutes are confirmed at a subsequent meeting.
3 Cawlay & Co Correction in the minutes of the board meeting: Minutes
once recorded and signed cannot be changed materially,
subsequently. Minutes once made and signed, ought never
to be altered by striking out or adding anything.

4 Escorts Ltd. v. Sai Minutes to be evidence: The only way to prove that a
Aut) particular resolution was passed at a meeting of the Board
of Directors of a company is that the minutes book in which
the said resolution was recorded as having been passed
should be produced in Court [now Tribunal] as that alone
can form evidence of the fact.

INSPECTION OF MINUTE-BOOKS OF GENERAL MEETING SECTION 119

The books containing the minutes of the proceedings of any GENERAL MEETING of a
company or of a resolution passed by postal ballot, shall
(a) Be kept at the registered office of the company; and
(b) Be open, during business hours, to the inspection by any member without charge,
subject to such reasonable restrictions as the company may, by its articles or in general
meeting, impose, so, however, that not less than two hours in each business day are
allowed for inspection. 119 (1)
Any member shall be entitled to be furnished, within seven working days after he has made a
request in that behalf to the company, and on payment of such fees specified in the articles of
association of the company, but not exceeding a sum of ten rupees for each page or part of
any page: Rule 26 of Companies (Management and Administration Rules, 2014)

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PENALTY
If any inspection under sub-section (1) is refused, or if any copy required under sub-section
(2) is not furnished within the time specified therein, the company shall be liable to a penalty
of twenty-five thousand rupees and every officer of the company who is in default shall be
liable to a penalty of five thousand rupees for each such refusal or default, as the case may
be.119 (3)

119 (4) In the case of any such refusal or default, the Tribunal may, without prejudice to any
action being taken under sub-section (3), by order, direct an immediate inspection of the
minute-books or direct that the copy required shall forthwith be sent to the person requiring
it.

NCLT RULES 2016

RULE 76

Inspection of minute-books of general meeting.—Where any member has requested the

company for inspection of minute-book of general meeting on payment of requisite fee and
the company refused to give such inspection, he may apply to the Tribunal in Form No
NCLT-9 for direction to the company for inspection of minute-book of general meeting.

SECTION 120 (NEW SECTION)

MAINTENANCE AND INSPECTION OF DOCUMENTS IN ELECTRONIC FORM
Without prejudice to any other provisions of this Act, any document, record, register,
minutes, etc.
a. Required to be kept by a company; or
b. Allowed to be inspected or copies to be given to any person by a company under this Act,
may be kept or inspected or copies given, as the case may be, in electronic form in such
form and manner as may be prescribed.

Rule 27 of Companies (Management and Administration Rules, 2014)

Every listed company or a company having not less than one thousand shareholders,
debenture holders and other security holders, may maintain its records, as required to be
maintained under the Act or rules made there under, in electronic form.

Explanation For the purposes of this sub-rule, it is hereby clarified that in case of existing
companies, data shall be converted from physical mode to electronic mode within six months
from the date of notification of provisions of section 120 of the Act. (2) The records in
electronic form shall be maintained in such manner as the Board of directors of the company
may think fit
Provided that -
o The records are maintained in the same formats and in accordance with all other
requirements as provided in the Act or the rules made there under;
o The information as required under the provisions of the Act or the rules made there under
should be adequately recorded for future reference;
o The records must be capable of being readable, retrievable and reproducible in printed
form;
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Explanation: - For the purpose of this rule, the term "records” means any register, index,
agreement, memorandum, minutes or any other document required by the Act or the rules
made there under to be kept by a company.
SECTION 121 (NEW SECTION)
REPORT ON ANNUAL GENERAL MEETING
1. Every listed public company shall prepare in the prescribed manner a report on each
annual general meeting including the confirmation to the effect that the meeting was
convened, held and conducted as per the provisions of this Act and the rules made
thereunder. 121. (1)
2. The company shall file with the Registrar a copy of the report referred to in sub-section
(1) within thirty days of the conclusion of the annual general meeting with such fees as
may be prescribed, or with such additional fees as may be prescribed, within the time as
specified, under section 403. 121(2)
3. If the company fails to file the report under sub-section (2) before the expiry of the period
specified therein, such company shall be liable to a penalty of one lakh rupees and in case
of continuing failure, with further penalty of five hundred rupees for each day after the
first during which such failure continues, subject to a maximum of five lakh rupees and
every officer of the company who is in default shall be liable to a penalty which shall not
be less than twenty-five thousand rupees and in case of continuing failure, with further
penalty of five hundred rupees for each day after the first during which such failure
continues, subject to a maximum of one lakh rupees. (companies amendment Act 2019)

Rule 31 of Companies (Management and Administration Rules, 2014)

SIGNING OF REPORT ON ANNUAL GENERAL MEETING
The report shall be signed and dated by the Chairman of the meeting or in case of his inability
to sign, by any two directors of the company, one of whom shall be the Managing director, if
there is one and company secretary of the company;
CONTENTS OF REPORT ON ANNUAL GENERAL MEETING
The report shall contain the details in respect of the following, namely:-
o the day, date, hour and venue of the annual general meeting;
o confirmation with respect to appointment of Chairman of the meeting;
o number of members attending the meeting;
o confirmation of quorum;
o confirmation with respect to compliance of the Act and the Rules, secretarial standards
made there under with respect to calling, convening and conducting the meeting;
o business transacted at the meeting and result thereof;
o particulars with respect to any adjournment, postponement of meeting, change in venue;
and
o any other points relevant for inclusion in the report.
o the Report shall contain fair and correct summary of the proceedings of the meeting.

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The copy of the report prepared in pursuance of sub-section (1) of section 121 and sub-rule
(1), shall be filed with the Registrar in Form No. MGT.15 within thirty days of the
conclusion of the annual general meeting along with the fee.
ANNUAL GENERAL MEETING SECTION 96
Secretarial standard on General Meetings

The Institute of Company Secretaries of India has issued the 'Secretarial Standard on General
Meetings'. Section 118(10) of the Companies Act, 2013 mandates for every company to
observe secretarial standards with respect to General and Board meetings.

PROVISONS RELATING TO ANNUAL GENERAL MEETING SECTION 96

1. Every company other than a One Person Company shall in each year hold in addition to
any other meetings, a general meeting as its annual general meeting and shall specify the
meeting as such in the notices calling it, and not more than fifteen months shall elapse
between the date of one annual general meeting of a company and that of the next (96(1))
2. In case of the first annual general meeting, it shall be held within a period of nine
months from the date of closing of the first financial year of the company and for
Subsequent, within a period of six months, from the date of closing of the financial year
(96(1))
3. If a company holds its first annual general meeting as aforesaid, it shall not be necessary
for the company to hold any annual general meeting in the year of its incorporation(96(1))
4. Registrar may, for any special reason, extend the time within which any annual general
meeting, other than the first annual general meeting, shall be held, by a period not
exceeding three months.(96(1))

TIME PLACE AND DAY OF AGM 96 (2)

Time of AGM
AGM shall be held during business hours that is, between 9 a.m. and 6 p.m.
AGM shall commence during business hour but may be concluded even after business hours

Day of AGM
AGM shall be held on a day that is not a National holiday.

According to explanation to section 96(2) of the Companies Act, 2013 ‘National Holiday’
means and includes a day declared as National Holiday by the Central Government

Analysis on National holiday

1. Section 96(2) provides for holding of Annual General Meeting on a day which is not a
‘National Holiday’.
2. As per Secretarial Standard-2, “National Holiday” MEANS Republic Day i.e. 26th
January, Independence Day i.e. 15th August, Gandhi Jayanti i.e. 2nd October.
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Venue of AGM
 AGM shall be held at registered office of company

 Annual general meeting of an unlisted company may be held at any place in India if
consent is given in writing or by electronic mode by all the members in advance

DAY, TIME AND VENUE FOR GENERAL MEETING

AS PER REVISED SS-2

o An Annual General Meeting and a Meeting called by the requisitionists shall be

called during business hours, i.e., between 9 a.m. and 6 p.m., on a day that is not a
National Holiday.

o Annual General Meetings shall be held either at the registered office of the company or at
some other place within the city, town or village in which the registered office of the
company is situated, whereas other General Meetings may be held at any place within
India.

o A Meeting called by the requisitionists shall be held either at the registered office of the
company or at some other place within the city, town or village in which the registered
office of the company is situated.

o AS PER REVISED SS-2 In case of a Government company, the Annual General

Meeting shall be held at its registered office or any other place with the approval of the
Central Government, as may be required in this behalf.
o As per companies amendment act 2017 annual general meeting of an unlisted company
may be held at any place in India if consent is given in writing or by electronic mode by
all the members in advance. Provided that an extraordinary general meeting of the
company, other than of the wholly owned subsidiary of a company incorporated outside
India, shall be held at a place within India.

SOME MORE ANALYSIS

Q: 1 whether original AGM/EGM can be held on national holiday?

1. AS PER SECTION 96(2) Every annual general meeting shall be called during business
hours, that is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday. (This
section is silent on EGM)

2. AS PER SS-2: An Annual General Meeting and a Meeting called by the requisitionists
shall be called during business hours, i.e., between 9 a.m. and 6 p.m., on a day that is not
a National Holiday

3. CONCLUSION: original AGM can’t be held on national holiday, EGM called by the
requisitionists can’t be held on national holiday but any other EGM called by directors
can be held national holiday.

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Q: 2 whether Adjourned AGM/EGM can be held on national holiday?

1. AS PER SECTION 103(2) If the quorum is not present within half-an-hour from the
time appointed for holding a MEETING of the company the meeting shall stand
adjourned to the same day in the next week at the same time and place, or to such other
date and such other time and place as the Board may determine. (No prohibition to hold
adjourned AGM/EGM ON national holiday if adjourned due to lack of quorum.)

2. AS PER SECTION 152(7): If the vacancy of the retiring director is not so filled-up and
the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand
adjourned till the same day in the next week, at the same time and place, or if that day is a
national holiday, till the next succeeding day which is not a holiday, at the same time and
place.(if meeting is adjourned due to this reason can’t be held on national holiday)

3. AS PER SS-2: If a Meeting, other than an Annual General Meeting and a

requisitioned EGM, stands adjourned for want of Quorum, the adjourned Meeting shall
be held on the same day, in the next week at the same time and place or on such other day
or at such other time and place as may be determined by the Board.

An adjourned Annual General Meeting, adjourned for want of quorum or otherwise,

shall not be held on a National Holiday, only if any item relating to filling up of vacancy
of a director retiring by rotation is included in the agenda of such adjourned Meeting
(ACTUALLY this provision is in compliance of section 152(7))
1. Quorum present but Adjournment by chairman
4. NORMALLY 3 WAYS OF ADJOURNMENT
with consent of member
2. Due to lack of quorum
3. Due to section 152(7) mentioned above.
5. CONCLUSION: if AGM adjourned
a. Due to lack of quorum: CAN be held on national holiday (as per section 103(2) read with
SS-2) NO if any item relating to filling up of vacancy of a director retiring by rotation is
included in the agenda of such adjourned Meeting.
b. Due to section 152(7) : can’t be held on national holiday (as per section 152(7) read with
SS-2)
c. Restriction on holding of an adjourned AGM on a national holiday shall be applicable
only on a situation where an item relating to filling up of vacancy of a director retiring by
rotation is pending to be decided in such adjourned meeting. Therefore, for discussions of
items other than the above, an AGM may be adjourned to be held on a national holiday.

6. CONCLUSION: if EGM adjourned

a. EGM convened by BOD if adjourned due to lack of quorum can be held on national
holiday because section 103(2) and SS-2 allow the same refer section 103(2) and SS-2
mentioned above.
b. EGM convened by BOD if adjourned by chairman with consent of member can be held
on national holiday because companies Act AND SS-2 are silent on this. (but rule of
logical interpretation if original can be held on national holiday then adjourned also can
be held on national holiday)
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c. If quorum is not present at EGM convened by requisitioned EGM get dissolved refer
section 103(2) (b). So no question of adjournment arises here.
d. EGM convened by requisitioned if adjourned by chairman with consent of member,
companies Act is silent on this and SS-2 also silent on this because SS-2 talks about only
if EGM adjourned due to lack of quorum not about if adjourned by chairman (but rule of
logical interpretation if original can’t be held on national holiday then adjourned also
can’t be held on national holiday.)

POINT TO BE NOTED REGARDING AGM

 Normally if company after sending the notice of general meeting changed the venue of
meeting the meeting is void. But after sending the notice of general meeting the place of
meeting become unsuitable for the meeting due to heavy rain and company changed the
venue and a notice outside the original venue is displayed for changed venue then general
meeting is valid.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 Madan Gopal Dev v The fact that the company did not function is no excuse for
West Bengal not convening an annual general meeting.
2 Bijoy Kumar An annual general meeting shall be commence and
Karnani v Assistant concluded within most stringent time limit. Similar
Registrar of clarification is also given by MCA in 1985
Companies
3 Israel v/s atlas It was decided 2 AGM can be held on same day
engineering ltd.
4 R.O.C. v. Radhika The annual general meeting must be called, whether or not
Prasad Nand the annual accounts are ready for consideration at the
meeting.

Time period within which AGM is to be held (Sec. 96)

IF IT IS THE 1ST AGM IN CASE OF ANY OTHER AGM

1. It shall be held within a period of nine 1. Not more than fifteen months shall elapse between
months from the date of closing of the first the date of one annual general meeting of a
financial year of the company. company and that of the next
2. No extension by Roc.
2. Within a period of six months, from the date of
3. If a company holds its first annual general closing of the financial year.
meeting as aforesaid, it shall not be
necessary for the company to hold any 3. Maximum extension by ROC is 3 months
annual general meeting in the year of its
incorporation:

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EXTENSION BY ROC FOR HOLDING AGM

1. Extension will be given for sufficient cause and given by ROC only. For example:
Natural calamity or confiscation of book of accounts etc.
2. Extension will be given form most stringent time limit
3. Extension will be given for original AGM not adjourned AGM.
Important clarifications issued by the MCA relating to the Annual General Meeting

Delay in completion of audit not a special reason for extension of time for holding annual
general meeting

SECTION 2(41) FINANCIAL YEAR

Financial year

A financial year is a period of 12 months and the accounts of a company for a financial year
shall be placed at every annual general meeting. But in certain circumstances a financial year
may be for less than a year or it may be for more than a year as in the case of the first annual
general meeting but it shall not exceed 15 months.

Section 2(41) of the Companies Act, 2013 defines “financial year”, in relation to any
company or body corporate, to mean the period ending on the 31st day of March every year,
and where it has been incorporated on or after the 1st day of January of a year, financial year
means the period ending on 31st March of the following year, in respect whereof the financial
statement is made up.

Existing companies or bodies corporate not adopting 1 April to 31 March as financial year for
Companies Act purposes to align themselves with 1 April - 31 March within 2 years of
commencement of the Companies Act, 2013.

Exception for different financial year

Exception is given to companies which are holding/subsidiary/associate of a company

incorporated outside India and requiring consolidation outside India, who can have a different
financial year with the approval of CG(RD). If the CG is satisfied, it may allow the company
to follow a different period as its financial year.

RULE 40 OF COMPANIES INCORPORATION AMENDMENT RULES 2018

1. The application for approval of concerned Regional Director under sub-section (41) of
section 2 , shall be filed in e-Form No.RD-1 and shall be accompanied by the following
documents, namely:-

o Grounds and reasons for the application;

o A copy of the minutes of the board meeting at which the resolution authorising such
change was passed, giving details of the number of votes cast in favour and or against the
resolution;
o Power of Attorney or Memorandum of Appearance, as the case may be;
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o Details of any previous application made within last five years for change in financial
year and outcome thereof along with copy of order.

2. Where the Regional Director on examining the application finds it necessary to call for
further information or finds such application to be defective or incomplete in any respect,
he shall give intimation of such information directing the person or the company to
furnish such information, or to rectify defects or incompleteness and to re-submit such
application within a period of fifteen days, in e-Form No. RD-GNL-5. Provided that a
maximum of two re-submissions shall be allowed.

3. In case where such further information called for has not been provided or the defects or
incompleteness has not been rectified to the satisfaction of the Regional Director, the
Regional Director shall reject the application with reasons within thirty days from the
date of filing application or within thirty days from the date of last re-submission made as
the case may be.

In case where the application is found to be in order, Regional Director shall allow and
convey the order within thirty days from the date of application or within thirty days from
the date of last re-submission, as the case may be.

4. The order conveyed by the Regional Director shall be filed by the company with the
Registrar in Form No.lNC-28 within thirty days from the date of receipt of the order.

SECTION 97

(1) If any default is made in holding the annual general meeting of a company under section
96, the Tribunal may, notwithstanding anything contained in this Act or the articles of the
company, on the application of any member of the company, call, or direct the calling of, an
annual general meeting of the company and give such ancillary or consequential directions as
the Tribunal thinks expedient:

Provided that such directions may include a direction that one member of the company
present in person or by proxy shall be deemed to constitute a meeting.

(2) A general meeting held in pursuance of sub-section (1) shall, subject to any directions of
the Tribunal, be deemed to be an annual general meeting of the company under this Act.

NCLT RULES 2016 RULE 74

Application for calling or obtaining a direction to call annual general meeting.

(1) An application under section 97 for calling or obtaining a direction to call the annual general
meeting of the company shall be made by any member of the company in Form No. NCLT. 1 and
shall be accompanied by the documents specified in Annexure B.
(2) A copy of the application shall be served on the Registrar of Companies on or before the date of
hearing.

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SECTION 99

Punishment for default in complying with provisions of sections 96 to 98

If any default is made in holding a meeting of the company in accordance with section 96 or
section 97 or section 98 or in complying with any directions of the Tribunal, the company
and every officer of the company who is in default shall be punishable with fine which may
extend to one lakh rupees and in the case of a continuing default, with a further fine which
may extend to five thousand rupees for every day during which such default continues.

EXTRAORDINARY GENERAL MEETING

Needs for calling extraordinary general meeting

There is generally a gap of around a year or so in between two annual general meetings.
Important businesses arising in between two annual general meetings that require
shareholders approval shall be considered at the extraordinary general meeting.

The EGM may be called in the following circumstances:

1. Calling of the EGM by the Board on its own motion. R. 43 of Table F

2. Calling of EGM by any director, if at any time there are not within India directors capable
of acting who are sufficient in number to form quorum. R. 43 of Table F
3. Calling EGM by the Board on requisition of members as per provision of the Act.
4. Calling of EGM by the requisitionists themselves.
5. Convening of EGM by the Company Law Board/Tribunal.

Convening of extraordinary general meeting on the requisition of members

Section 100 of the Companies Act, 2013, provides that on requisition of members of a
company having share capital or not, the Board is required to call and hold extra-ordinary
general meeting.

Conditions for making requisition

2. Requisition shall be signed by requisitionists

3. Requisition shall contain reason for meeting
4. Requisition shall be deposited at registered office

WHO CAN MAKE REQUISITION

a) in case of a company having a share capital, such number of them as hold at the date of
requisition, not less than 1/10th of such of the paid up capital of the company as at the
date carrying voting right in regard to that matter;
b) in case of a company not having a share capital, such number of them as have at the date
of deposit of requisition, not less than 1/10th of the total voting powers of all members
having at the date a right to vote in regard to that matter.
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Though Section 100 uses the expression ‘such number of members of the company’ in the
plural, yet the requirements of the provisions would be satisfied even if one member holding
the requisite number of shares or voting rights makes the requisition

Shareholders who have not paid a call made on them, are not entitled to requisition an
extraordinary general meeting

Member’s right to call requisition meeting

1. The Board of directors of the company is under an obligation to forthwith proceed to convene an
extraordinary general meeting if requisition by members is made in relation to any matters. The
Board shall within 21 days from the date of deposit of a valid requisition proceed to call a
meeting on a day not later than 45 days from the date of deposit of such requisitions.
2. If the company fails to proceed within 21 days and to call the above said meeting within 45 days
then the members may call and held themselves a meeting within a period of 3 months from the
date of deposit of requisition to the company after expiry of 45 days and the expenses for calling
meeting by them shall be reimbursed by the company by debiting the amount to the directors.
[Section 100(4)]
3. If on a day appointed for meeting on requisition, the adequate quorum is not present then meeting
shall stand dissolved.

Expense reimbursement on members calling extraordinary general meeting

Section 100(6) states that any reasonable expenses incurred by the requisitionists in calling a
meeting under section 100(4) shall be reimbursed to the requisitionists by the company and
the sums so paid shall be deducted from any fee or other remuneration under section 197
payable to such of the directors who were in default in calling the meeting.

POINT TO BE NOTED REGARDING EGM

 Even a preference shareholder can sign requisition if he earned voting right.

 Even a shareholder whose call in arrear can sign requisition if the AOA of company does not
prohibits the voting power in case of call in arrears.
 If shareholder submit the requisition for convening the EGM board of director can add any extra
business to be transacted in EGM but cannot delete any business specify by shareholders in
requisition.
 an extraordinary general meeting of the company, other than of the wholly owned
subsidiary of a company incorporated outside India, shall be held at a place within India.

CASE LAWS
S.NO. CASE NAME PROVISONS
1 LIC v/s ESCORTS It was decided even a single shareholders or institutional
shareholder can file requisition for convening extra ordinary
general meeting.
2 BALKRISHAN GUPTA It was decided even a insolvent shareholder can sign the
v/s SWADESHI requisition if his name appear in register of member
POLYTEX LTD.
3 Ram Prasad Somani It was held that meeting can be held anywhere outside
v. Bank of Rajasthan registered office at the discretion of Board. However, the
Ltd discretion of the Board is expected to be reasonable. If the

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decision take by the Board of Directors is mala fide with

intention to deprive the shareholders from meeting or any
other reason, it can be challenged before the appropriate
forum.

Powers of the Tribunal to call general meeting section 98 of Companies Act 2013

When Where for any reason it is impractical to call a meeting, other than AGM, the Tribunal
may direct the calling of the meeting.
Application
The Tribunal may call the meeting:

 On its own accord

 On an application of any director
 On an application of any member entitled to vote at the meeting.

Directions
The meeting has to be called in accordance with the directions of the Tribunal regarding
place, date and manner of holding the meeting.
Quorum
The Tribunal may provide that one member present in person or proxy shall be deemed to be
the quorum for the meeting.

NCLT RULES 2016 RULE 75

Application for obtaining an order for calling of general meeting (other than Annual
General Meeting).

o An application under section 98 for obtaining an order for calling of a general meeting
(other than Annual General Meeting) shall be made by any director or member of the
company in Form No. NCLT. 1 and shall be accompanied by the documents specified in
Annexure B.
o A copy of the application shall be served on the Registrar of Companies on or before the
date of hearing.

MEANING OF IMPRACTICABILITY

"Impracticability" under section 98 of the Companies Act, 2013 means such facts as would
show that the desired meeting of the company cannot, in a practicable manner, be convened
and held. The word 'impracticable' means impracticable from a reasonable point of view.
The Company Law Board [now Tribunal under the Companies Act, 2013] should take a
common sense view of the matter and act as a prudent person of business.
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CASE LAWS

S.NO. CASE NAME PROVISONS

1 Rathnaveluswamy v If the Managing Director or other officer of a company
Manickvelu locks up the registered office with a view to preventing the
holding of a meeting of shareholders of the company, it can
be said that the holding of a meeting had become
impracticable within the meaning of section 186.
2 Ranjeet Kumar Where impractability for holding extraordinary general
Mishra v meeting arises in a company having just two members, one
Chinnmastika of whom is not available as his whereabouts have become
Estates (P.) Ltd unknown, even one member is competent to call
extraordinary general meeting and the Petitioner is entitled
to a direction of the Company Law Board for calling the
meeting in terms of section 186.

PRACTICAL QUESTIONS ON GENERAL MEETING

Classify the following items into ‘ordinary business’ and ‘special business’ going to be
transacted at the annual General Meeting of a company and also state the type of
resolution throughwhich these businesses can be carried on:

1. Declaration of dividend
2. Amalgamation of company with another company
3. Consideration of annual accounts and auditor’s report
4. Issue of bonus shares
5. Alteration of articles of association
6. Alteration of objects as stated in the memorandum of association
7. Appointment of auditors
8. Appointment of directors and fixation of their remuneration

ANSWER

BUSINESS Types of Type of

Business Resolution

Declaration of dividend Ordinary Ordinary

Resolution
Amalgamation of company with another company Special Special – special
Resolution
Consideration of annual accounts and auditor’s report Ordinary Ordinary
Resolution
Issue of bonus shares Special Special Resolution
Alteration of articles of association Special Special Resolution
Alteration of objects as stated in the memorandum of Special Special Resolution
association
Appointment of auditors Ordinary Ordinary
Resolution
Appointment of directors and fixation of their Ordinary Special Resolution
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remuneration

The minutes of the 6th AGM of Board Band Ltd. are ready; however, the company’s
chairman Brji is no more, he passed away 3 days after the AGM.

Convene a Board Meeting and authorized one of the remaining Directors to sign the AGM
Minutes. Under Section 118 of the Companies Act , 2013, each page of minutes of
proceedings of a General Meeting are required to be initialed or signed and the last page is
required to be dated and signed by the chairman of the same meeting within the 30 days of
meeting.
In the event of the death of the chairman, the minutes are required to be signed by a director
who is duly authorized by the Board in its meeting for such purpose.
So, in this case, convene a Board meeting and authorize one of the remaining directors to sign
the AGM minutes.

At an annual General Meeting of a company held of 28th August, 2007, the following
items of businesses were transacted:

1. Adoption of audited balance sheet as on 31st March, 2007 and profit and loss
account for the year ended on that date along with directors’ and auditors’ reports
thereon.
2. Declaration of dividend on equity shares.
3. Re-appointment of directors retiring by rotation.
4. Increase in authorized share capital of the company.
5. Amendment in articles of association of the company.

Being the Company Secretary of the company, you were advised by the Managing
Director of the company to submit a note on the e-forms required to be filed with the
Registrar of Companies in respect of the above transactions.

Prepare the note desired by the Managing Director indicating the last date for filling of
each e-form.

Dear Sir
Following E-forms shall be required to be filed with the office of Registrar of companies in
respect of each business transacted at the Annual General Meeting of the Company held on
28th August, 2007:

Item No. 1
Balance Sheet is to be filed in FORM AOC - 4 within one month from the date of the AGM

Item No. 2
No E-form is required for this item.

Item No. 3
No E-form is required for this item.
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Item No. 4
E-form No. SH7 is required to be filed for increased in the Authorized Share Capital of the
Company within 30 days of AGM date

Item No. 5
E-form No. MGT – 14 alongwith copy of amended Articles of Association is required to be
filed for amendment in the Articles of Association of the company within 30 days of AGM
date

A person informs you in writing that he is not a member of your company, yet he has
received a notice for the annual General Meeting as a member. COMMENT

According to Section 59 of the Companies Act, 2013, if the name of any person is, without
sufficient cause, entered in the register of members of a company the aggrieved person may
apply to the Company Law Board/Tribunal for rectification of the Register.

Any entry made in the register of members, if required to be altered or removed requires
approval of the Company Law Board/Tribunal, except any apparent clerical mistake. In the
present case, a person has informed the company that he is not a member of the company.
Therefore, first of all, it should be verified whether the mistake was a clerical one that would
be rectified by intimating to the company. If the mistake was not a clerical one, an application
to the Company Law Board/Tribunal is required.

Postal ballot system is an unmixed blessing.” Comment.

Postal Ballot System is indeed a blessing as it enables members spread throughout

geographically dispersed areas to casts their votes on matters of crucial interest to them e.g.
issue of shares with differential voting rights, alteration of object clause of the Memorandum
of Association, buy-back of shares etc. The concept of Postal Ballot is a unique provision
which gives shareholders the right to vote on items of business of a corporate body without
actually attending its general meetings either personally or through their
proxies/representatives.
However, the postal ballot system cannot be said to be an unmixed blessing as the
shareholders have no right to express their views and participate in the discussion. They can
only express their assent or dissent to the proposed resolution.

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CHAPTER- 33 DIRECTORS PART – A

BASICS OF DIRECTOR

Rules to be complied with the companies (appointment and qualification of directors) Rules, 2014

MEANING OF DIRECTORS

Section 2 (34) of the Act prescribed that “director” means a director appointed to the Board
of a company.
Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in
relation to a company, means the collective body of the directors of the company.

NEED FOR DIRECTORS

NEED FOR DIRECTORS

A company cannot Act Separation of ownership Statutory requirement

by itself from management
It is mandatory for every
1. A company has no mind 1. The members do not company to have minimum
or body of its own, it has participate in the management number of directors as per
no eyes to see, n ears to of the company. They cannot Section 149(1). i.e.
hear, no hands to sign interfere in day-to-day
and no brain to think management of the company. 1. One director in the case of
and take decisions. a One Person Company.
2. A large-sized company may
2. Therefore, directors are have numerous shareholders 2. Two directors in the case
appointed to act on who are scattered throughout of a private company.
behalf of the company. the country, making it
impossible for them to take 3. Three directors in the case
decisions relating to day-to- of a public company.
day affairs of the company.

SHADOW DIRECTOR SECTION 2(60)(v)

 A person in accordance with whose directions or instructions, the Board of directors is

accustomed to act is called as ‘deemed director’ or shadow director. The words’
accustomed to act’ imply that the Board does not exercise its own discretion but acts
blindly on the instruction or directions of a person on regular and repetitive basis, i.e. as a
matter of routine.

 However, if the directions are given in professional capacity, such person shall not be
treated as a director. If the Board usually acts on professional advice given by some
chartered accountant or management consultant, such chartered accountant or
management consultant shall not be a shadow director.
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Position of directors

1. Directors are appointed by the shareholder. Shareholders are also empowered to remove
the directors.
2. Overall control and supervision of affairs of the company is entrusted to directors.
3. The Board of directors is entitled to exercise all the powers of the company except those
powers which the Companies act requires a company to exercise in GM only.
4. However, the powers of directors can be restricted by the articles of the company.
5. Shareholders are authorized to take decisions only to the extent specified in Companies
Act. They cannot interfere in day-to-day management of the company the only thing they
can do is to remove directors and appoint ones. Or to alter the articles to restrict the
powers of the Board in respect of future transactions.
6. Directors own a duty to the shareholders to exercise care, skill and diligence in discharge
of their functions.

MEANING OF ‘EXECUTIVE DIRECTORS AND NON-EXECUTIVE DIRECTORS

Executive Directors Non-Executive Directors
They are in the employment of the company. They are not in employment of the company.

They have in-depth knowledge about affairs They are normally professionals. Thus, they
of the company. have knowledge of company regarding their
profession.
They have active part in day to day affairs of They do not work full time with company
the company. under contract or service.
They are personally involved with company, They work in professional capacity and not
as remuneration of them depends on personally. Thus, they have unbiased
performance of company. decision making power.
E.g. Managing Director, Whole time director. E.g.: Independent directors 149(4)-(12).

POSITION OF DIRECTORS

S.NO. PARTICULARS PROVISIONS

1 Directors as Directors are the agent of the company. Consequently, where the
agents directors enter into contracts on behalf of the company, it is the
company and not the directors who are liable there under.

The directors will be personally liable in the following cases.

 Where a director acts in his own name.
 When a director contract on behalf of the company without
using the words ‘limited’ or private limited as a part of the name
company.
2 Directors as The office of a director is an office of trust. The directors stand in a
trustees fiduciary position towards the company. They are the trustees of the
company’s money and property and of the power entrusted to them.
3 Directors as Amongst other persons, a director is also included in the definition
officers of an ‘officer’ of the company

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Whether or not a director is in the employment of the company, he

shall always be treated as an officer of the company.
4 Directors as Directors, as such as not employees or servant of the company. But
employees where any directors, besides being directors, is also in the service or
employment, he shall be treated as an employee of the company

Application for Allotment of Director Identification Number SECTION 153

 Every individual intending to be appointed as director of a company shall make an

application for allotment of Director Identification Number to the Central Government in
form DIR-3
 The Central Government shall provide an electronic system to facilitate submission of
application for the allotment of DIN through the portal on the website of the Ministry of
Corporate Affairs.
 ATTACHMENTS WITH Form DIR-3
 photograph
 proof of identity
 proof of residence
 board resolution proposing his appointment as director in an existing company]
 Form DIR-3 shall be signed and submitted electronically by the applicant using his or her
own Digital signature certificate and shall be verified digitally by a company secretary in
full time employment of the company or by the managing director or director or CEO or
CFO of the company in which the applicant is intended to be appointed as director in an
existing company
 In case the name of a person does not have a last name, then his or her father's or
grandfather's surname shall be mentioned in the last name along with the declaration in
Form No. DIR-3A.

ALLOTMENT OF DIN SECTION 154

1. On the submission of the Form DIR-3 on the portal an application number shall be
generated by the system automatically.
2. After generation of application number, the Central Government shall process the
applications received for allotment of DIN within a period of one month from the receipt
of such application.
3. If the Central Government, on examination, finds such application to be defective or
incomplete in any respect, it shall give intimation of such defect or incompleteness, by
placing it on the website and by email to the applicant who has filed such application,
directing the applicant to rectify such defects or incompleteness by resubmitting the
application within a period of fifteen days of such placing on the website and email
4. The Director Identification Number so allotted under these rules is valid for the life-
time of the applicant and shall not be allotted to any other person.
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PROHIBITION TO OBTAIN MORE THAN 1 DIN SECTION 155

No individual, who has already been allotted a Director Identification Number under section
154, shall apply for, obtain or possess another Director Identification Number

DIRECTOR TO INTIMATE DIN SECTION 156

Every existing director shall, within one month of the receipt of Director Identification
Number from the Central Government, intimate his Director Identification Number to the
company or all companies wherein he is a director.

COMPANY TO INFORM DIN TO ROC SECTION 157

(1) Every company shall, within fifteen days of the receipt of intimation under section 156,
furnish the Director Identification Number of all its directors to the Registrar and every such
intimation shall be furnished in FORM DIR-3C

(2) If any company fails to furnish the Director Identification Number under sub-section (1),
such company shall be liable to a penalty of twenty-five thousand rupees and in case of
continuing failure, with further penalty of one hundred rupees for each day after the first
during which such failure continues, subject to a maximum of one lakh rupees, and every
officer of the company who is in default shall be liable to a penalty of not less than twenty-
five thousand rupees and in case of continuing failure, with further penalty of one hundred
rupees for each day after the first during which such failure continues, subject to a maximum
of one lakh rupees.
DIRECTOR TO INTIMATE DIN SECTION 159
Companies amendment Act 2019
If any individual or director of a company makes any default in complying with any of the
provisions of section 152, section 155 and section 156, such individual or director of the
company shall be liable to a penalty which may extend to fifty thousand rupees and where the
default is a continuing one, with a further penalty which may extend to five hundred rupees
for each day after the first during which such default continues
Companies (Appointment and Qualification of Directors) fourth Amendment Rules, 2018.

RULE 12-A of Companies (Appointment and Qualification of Directors) RULES 2014

Every individual who holds a Director Identification Number (DIN) as on 31st March of a
financial year as per these rules shall, submit e-form DIR-3-KYC for the said financial year
to the Central Government on or before 30th, September of immediate next financial year
Provided that every individual who has already been allotted a Director Identification
Number (DIN) as at 31st March, 2018, shall submit e-form DIR-3 KYC on or before 5th
October, 2018
Provided further that where an individual who has already submitted e-form DIR-3 KYC in
relation to any previous financial year, submits web-form DIR-3 KYC-WEB through the web
service in relation to any subsequent financial year it shall be deemed to be compliance of the
provisions of this rule for the said financial year:

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Provided also that in case an individual desires to update his personal mobile number or the
e-mail address, as the case may be, he shall update the same by submitting e-form DIR-3
KYC only:
Provided also that fee for filing e-form DIR-3 KYC or web-form DIR-3 KYC-WEB through
the web service, as the case may be, shall be payable as provided in Companies (Registration
Offices and Fees) Rules, 2014.
Note: For the financial year ending on 31st March 2019, the individual shall submit e-form
DIR-3 KYC or web form DIR-3 KYC-WEB, as the case may be, on or before the 14th
October, 2019.
Companies (Appointment and Qualification of Directors) fourth Amendment Rules, 2018

RULE 12B

(1) Directors of company required to file e-form ACTIVE.- (1) Where a company governed
by Rule 25A of the Companies (Incorporation) Rules, 2014, fails to file the e-form ACTIVE
within the period specified therein, the Director Identification Number (DIN) allotted to its
existing directors, shall be marked as “Director of ACTIVE non-compliant company

(2) Where the DIN of a director has been marked as “Director of ACTIVE non-compliant
company”, such director shall take all necessary steps to ensure that all companies governed
by rule 25A of the Companies (Incorporation) Rules, 2014, where such director has been so
appointed, file e-form ACTIVE.

(3) After all the companies referred to in sub-rule (2) file the e-form ACTIVE, the DIN of
such director shall be marked as “Director of ACTIVE compliant company.

SECTION 149 (New Provisions)

SECTION 149 INTRODUCES 3 NEW CONCEPTS

SECTION 149 (4) Second Proviso to section 149 SECTION 149 (3)
INDEPENDENT DIRECTORS WOMAN DIRECTORS RESIDENT DIRECTORS

SECTION 149(1)
Minimum/Maximum Number of Directors in a Company
Section 149(1) of the Companies Act, 2013 requires that every company shall have a
minimum number of

 1 director in the case of a One Person Company

 2 directors in the case of a private company
 3 directors in the case of a public company
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Section 149(1)(b) A company can appoint maximum 15 fifteen directors. A government

company can have more than 15 directors. A company may appoint more than fifteen directors
after passing a special resolution in general meeting and approval of Central Government is
not required.

Section 149(1)(b) shall not apply to section 8 companies

A period of one year has been provided to enable the companies existing on or before the
commencement of Companies Act, 2013 to comply with this requirement.
Only natural persons can become Directors of a company. SECTION 149(1)

Section 149(1)

Members Directors
Public Private OPC Public Private OPC
Section No. 2(71) 2(68) 2(62) 149(1) 149(1) 149(1)
Minimum 7 2 1 3 2 1
Maximum No limit 200 1 15 [AOA can provide lower amount]
(above 15 by passing SR at GM)
Who can be Any person Any person Individual Individual

149(2) Every company existing on or before the date of commencement of this Act shall
within one year from such commencement comply with the requirements of the provisions of
sub-section (1).
Residence of a director in India

Section 149 (3) Every company shall have at least one director who stays in India for a total
period of not less than one hundred and eighty-two days during the financial year
Provided that in case of a newly incorporated company the requirement under this sub-
section shall apply proportionately at the end of the financial year in which it is incorporated.

Woman Director
Second Proviso to section 149 provides that such class or classes of companies as may be
prescribed in Companies (Appointment and Qualification of Directors) Rules, 2014, shall
have at least one woman director.

Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014,

prescribes the following class of companies shall appoint at least one woman director-
1. Every listed company
2. Every other public company having :-
a) Paid–up share capital of one hundred crore rupees or more; or
b) Turnover of three hundred crore rupees or more.
A company, which has been incorporated under the Act and is covered under provisions of
second proviso to sub-section (1) of section 149 shall comply with such provisions within a
period of six months from the date of its incorporation
However any intermittent vacancy of a woman director shall be filled-up by the Board at the
earliest but not later than immediate next Board meeting or three months from the date of
such vacancy whichever is later.

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COMPANIES REQUIRED TO APPOINT INDEPENDENT DIRECTOR Section 149 (4)

APPOINTMENT OF INDEPENDENT DIRECTOR

Independent Director Rule 4 of Companies (Appointment and Qualification of Directors)

Section 149 (4) rules 2014, provides that the following class or classes of companies
shall have at least two directors as independent directors
Every listed company
shall have at least one 1. The Public Companies having paid up share capital of ten crore
third of the total number rupees or more; or
of directors as 2. The Public Companies having turnover of one hundred crore
independent directors. rupees or more; or
3. The Public Companies which have, in aggregate, outstanding loans,
debentures and deposits, exceeding fifty crore rupees.

Companies (Appointment and Qualification of Directors) Amendment Rules, 2017

The said amended Rule 4 inter-alin provides that an unlisted public company which is a joint
venture, a wholly owned subsidiary or a dormant company will not be required to appoint
Independent Directors.

MCA CIRCULAR 9/2017

Joint venture would mean a joint arrangement, entered into in writing, whereby the parties
that have joint control of the arrangement, have rights to the net assets of the arrangement.
The usage of the term is similar to that under the Accounting Standards.

MCA NOTIFICATION 5 JULY 2017

AS PER SCHEDULE-IV an independent director who resigns or removed shall be replaced

by new independent director with in a period of not more than 3 monthsfrom the date of such
resignation or removal.

159(5) Every company existing on or before the date of commencement of this Act shall,
within one year from such commencement or from the date of notification of the rules in this
regard as may be applicable, comply with the requirements of the provisions of sub-section
(4).

INDEPENDENT DIRECTORS

Section 149(6) gives the definition of Independent Director, in relation to a company, means
a director other than a MANAGING DIRECTOR OR A WHOLE TIME DIRECTOR OR A NOMINEE
DIRECTOR,-

a) Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise
and experience
b) Who is or was not a promoter of the company or its holding, subsidiary or associate company;
who is not related to promoters or directors in the company, its holding, subsidiary or associate
company
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c) Who has or had no pecuniary relationship, other than remuneration as such director or
having transaction not exceeding ten per cent. of his total income or such amount as may
be prescribed, with the company, its holding, subsidiary or associate company, or their
promoters, or directors, during the two immediately preceding financial years or during
the current financial year.(this clause not applicable on government company)

d) none of whose relatives—

(i) is holding any security of or interest in the company, its holding, subsidiary or
associate company during the two immediately preceding financial years or during the
current financial year: Provided that the relative may hold security or interest in the
company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up
capital of the company, its holding, subsidiary or associate company or such higher sum
as may be prescribed;

(ii) is indebted to the company, its holding, subsidiary or associate company or their
promoters, or directors, in excess of such amount as may be prescribed during the two
immediately preceding financial years or during the current financial year;

(iii) has given a guarantee or provided any security in connection with the indebtedness of
any third person to the company, its holding, subsidiary or associate company or their
promoters, or directors of such holding company, for such amount as may be prescribed
during the two immediately preceding financial years or during the current financial year;
or

(iv) has any other pecuniary transaction or relationship with the company, or its
subsidiary, or its holding or associate company amounting to two per cent. or more of its
gross turnover or total income singly or in combination with the transactions referred to in
sub-clause (i), (ii) or (iii)

e) Who, neither himself nor any of his relatives

i. holds or has held the position of a key managerial personnel or is or has been
employee of the company or its holding, subsidiary or associate company in any of
the three financial years immediately preceding the financial year in which he is
proposed to be appointed;Provided that in case of a relative who is an employee, the
restriction under this clause shall not apply for his employment during preceding
three financial years.

ii. is or has been an employee or proprietor or a partner, in any of the three financial
years immediately preceding the financial year in which he is proposed to be
appointed, of

A. a firm of auditors or company secretaries in practice or cost auditors of the

company or its holding, subsidiary or associate company; or
B. any legal or a consulting firm that has or had any transaction with the company,
its holding, subsidiary or associate company amounting to ten per cent. or more
of the gross turnover of such firm;

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iii. Holds together with his relatives two per cent. or more of the total voting power of
the company; or

iv. is a Chief Executive or director, by whatever name called, of any non-profit

organisation that receives twenty-five per cent. or more of its receipts from the
company, any of its promoters, directors or its holding, subsidiary or associate
company or that holds two per cent. or more of the total voting power of the
company; or

f) Who possesses such other qualifications as may be prescribed.

Explanation.—For the purposes of this section, “nominee director” means a director

nominated by any financial institution in pursuance of the provisions of any law for the time
being in force, or of any agreement, or appointed by any Government, or any other person to
represent its interests.

Qualification of Independent Directors

Rule 5 (1) of Companies( Appointment and Qualification of Directors) Rules,2014 made

under Chapter XII provides that an independent director shall possess appropriate skills,
experience and knowledge in one or more fields of finance, law, management, sales,
marketing, administration, research, corporate governance, technical operations or other
disciplines related to the company’s business.

(2) None of the relatives of an independent director, for the purposes of sub-clauses (ii) and
(iii) of clause (d) of sub-section (6) of section 149
(i) is indebted to the company, its holding, subsidiary or associate company or their
promoters, or directors; or
(ii) has given a guarantee or provided any security in connection with the indebtedness of any
third person to the company, its holding, subsidiary or associate company or their promoters,
or directors of such holding company,
for an amount of fifty lakhs rupees, at any time during the two immediately preceding
financial years or during the current financial year.
SOME IMPORTANT PROVISONS OF INDEPENDENT DIRECTOR

S.NO. SECTION PROVISONS

1 SECTION 149(7) Section 149(7) provides that every independent director shall at
the first meeting of the Board in which he participates as a
Declaration by director and thereafter at the first meeting of the Board in every
independent director financial year or whenever there is any change in the
circumstances which may affect his status as an independent
director, give a declaration that he meets the criteria of
independence as provided in sub-section (6).
2 SECTION 149 (8) Section 149 (8) of the Act prescribes that the company and
independent directors shall abide by the provisions specified
Code for in Schedule IV regarding code for independent directors. It
Independent is a guide to professional conduct for independent directors.
Directors Adherence to these standards by independent directors and
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fulfilment of their responsibilities in a professional and

faithful manner will promote confidence of the investment
community, particularly minority shareholders, regulators
and companies in the institution of independent directors.

Code of Conduct includes

 guidelines of professional conduct,

 role and functions, duties,
 manner of appointment, re-appointment,
 resignation or removal,
 separate meetings,
 Evaluation mechanism.

Re-appointment:

The re-appointment of independent director shall be on the

basis of report of performance evaluation.
3 SECTION 149(9) Section 149(9) provides that notwithstanding anything
contained in any other provision of this Act, but subject to
Remuneration of the provisions of sections 197 and 198, an independent
Independent director shall not be entitled to any stock option and may
Director receive remuneration by way of fee provided under sub-
section (5) of section 197, reimbursement of expenses for
participation in the Board and other meetings and profit
related commission as may be approved by the members.

Provided that if a company has no profits or its profits are

inadequate, an independent director may receive
remuneration, exclusive of any fees payable under sub-
section (5) of section 197, in accordance with the provisions
of Schedule V. (COMPANIES AMENDMENT ACT
2020)
4 Section 149(10)/(11) Section 149(10) provides that subject to the provisions of
section 152(Appointment of Directors), an independent
Tenure of director shall hold office for a term up to five consecutive
Independent Director years on the Board of a company, but shall be eligible for
reappointment on passing of a special resolution by the
company and disclosure of such appointment in the Board's
report.

Section 149(11) states that without contravening the section

149(10), no independent director shall hold office for more
than two consecutive terms, but such independent director
shall be eligible for appointment after the expiration of three
years of ceasing to become an independent director.

Proviso to Section 149(11) that an independent director

shall not, during the said period of three years, be appointed
in or be associated with the company in any other capacity,
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either directly or indirectly.

Explanation to section 149(10) & (11) prescribes that any

tenure of an independent director on the date of
commencement of this Act shall not be counted as a term
under those sub-sections.

Provided that an independent director re-appointed for

second term under sub-section (10) of section 149 shall
be removed by the company only by passing a special
resolution and after giving him a reasonable opportunity
of being heard
5 SECTION 149(12) Section 149(12) provides that, notwithstanding anything
Liability of contained in this Act,—
Independent 1. an independent director;
Director 2. a non-executive director not being promoter or key
managerial personnel, shall be held liable, only in
respect of such acts of omission or commission by a
company which had occurred with his knowledge,
attributable through Board processes, and with his
consent or connivance or where he had not acted
diligently.
6 SECTION 149(13) Section 149(13) states that the provisions of sections 152(6)
Retirement by & (7) in respect of retirement of directors by rotation shall
rotation not be applicable to appointment of independent directors.

MANNER AND SELECTION OF AN INDEPENDENT DIRECTOR

According to section 150 (1) of the Act, independent directors may be selected from a data
bank of eligible and willing persons maintained by the agency (Any body, institute or
association as may be authorised by Central Government). Such agency shall put data bank of
independent directors on the website of Ministry of Corporate Affairs or any other notified
website. Company must exercise due diligence before selecting a person from the data bank
referred to above, as an independent director.

This section further stipulates that the appointment of independent directors has to be
approved by members in a General meeting and the explanatory statement annexed to the
notice must indicate justification for such appointment.

Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019

CREATION AND MAINTENANCE OF DATA BANK RULE-3

(1) The institute shall create and maintain a databank of persons willing and eligible to be appointed
as independent directors, and such databank shall be an online databank which shall be placed on the
website of the institute.

(2) The data bank referred to in sub-rule (1) shall contain the following details in respect of each
person included in the data bank to be eligible and willing to be appointed as independent director—

 DIN (Director Identification Number), if applicable;

 Income Tax PAN;
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 the name and surname in full;

 the father’s name;
 the date of Birth;
 gender;
 the nationality;
 the occupation;
 full Address with PIN Code (present and permanent);
 phone number;
 e-mail id;
 the educational and professional qualifications;
 experience or expertise, if any;
 any pending criminal proceedings as specified in clause (d) of sub-section (1) of section 164;

(3) The information available in the data bank shall be provided only to companies required to appoint
independent director after paying a reasonable fee to the institute.

(4) A person whose name is included in the data bank, may restrict his personal information to the
institute, to be disclosed in the data bank.

(5) Any individual whose name appears in the data bank, shall make changes in his particulars within
thirty days of such change through web-based framework made available by the institute for this
purpose.

(6) A disclaimer shall be conspicuously displayed on the website hosting the data bank that a
company must carry out its own due diligence before appointment of any person as an independent
director.

(7) The institute, shall with the prior approval of the Central Government, fix a reasonable fee to be
charged from: —

(a) individuals for inclusion of their names in the data bank of independent directors; and

(b) companies for providing the information on independent directors available on the data bank.

Explanation: - For the purpose of this rule, the expression “persons willing and eligible to be
appointed as independent director” shall include individuals already serving as independent directors
on the Board of companies.

DUTIES OF THE INDIAN INSTITUTE OF CORPORATE AFFAIRS RULE 4

(1) The institute shall comply with the following, in respect of individuals referred to in sub-rule (1)
of rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014, namely:—

(a) conduct an online proficiency self-assessment test covering companies’ law, securities law, basic
accountancy, and such other areas relevant to the functioning of an individual acting as an
independent director;
(b) prepare a basic study material, online lessons, including audio-visuals for easy reference of
individuals taking the online proficiency self-assessment test;
(c) provide an option for individuals to take advanced tests in the areas specified in clause (a) and
prepare the necessary advanced study material in this respect:

Provided that no separate fees shall be charged by the institute in respect of clauses (a), (b) and
(c).

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Companies (Appointment and Qualification of Directors) Rules, 2014 for rule 6, the following
rule shall be substituted, namely:

COMPLIANCES REQUIRED BY A PERSON ELIGIBLE AND WILLING TO BE

APPOINTED AS AN INDEPENDENT DIRECTOR RULE-6

(1) Every individual–

(a) who has been appointed as an independent director in a company, on the date of commencement
of the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019, shall
within a period of 10 months from such commencement; or

(b) who intends to get appointed as an independent director in a company after such commencement,
shall before such appointment,

apply online to the institute for inclusion of his name in the data bank for a period of one year or five
years or for his life-time, and from time to time take steps as specified in sub-rule (2), till he continues
to hold the office of an independent director in any company:

Provided that any individual, including an individual not having DIN, may voluntarily apply to the
institute for inclusion of his name in the data bank.

(2) Every individual whose name has been so included in the data bank shall file an application for
renewal for a further period of one year or five years or for his life-time, within a period of thirty days
from the date of expiry of the period upto which the name of the individual was applied for inclusion
in the data bank, failing which, the name of such individual shall stand removed from the data bank of
the institute:

Provided that no application for renewal shall be filed by an individual who has paid life-time fees for
inclusion of his name in the data bank.

(3) Every independent director shall submit a declaration of compliance of sub-rule (1) and sub-rule
(2) to the Board, each time he submits the declaration required under sub-section (7) of section 149 of
the Act.

(4) Every individual whose name is so included in the data bank under sub-rule (1) shall pass an
online proficiency self-assessment test conducted by the institute within a period of 2 year from the
date of inclusion of his name in the data bank, failing which, his name shall stand removed from the
databank of the institute:

Provided that an individual shall not be required to pass the online proficiency self-assessment test
when he has served for a total period of not less than three years as on the date of inclusion of his
name in the data bank,-
(A) as a director or key managerial personnel, as on the date of inclusion of his name in the databank,
in one or more of the following, namely:-
(a) listed public company; or
(b) unlisted public company having a paid-up share capital of rupees ten crore or more; or
(c) body corporate listed on any recognized stock exchange or in a country which is a member State
of the Financial Action Task Force on Money Laundering and the regulator of the securities market in
such member State is a member of the International Organization of Securities Commissions; or
(d) bodies corporate incorporated outside India having a paid-up share capital of US$ 2 million or
more; or
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(e) statutory corporations set up under an Act of Parliament or any State Legislature carrying on
commercial activities; or
(B) in the pay scale of Director or above in the Ministry of Corporate Affairs or the Ministry of
Finance or Ministry of Commerce and Industry or the Ministry of Heavy Industries and Public
Enterprises and having experience in handling the matters relating to corporate laws or securities laws
or economic laws; or
(C) in the pay scale of Chief General Manager or above in the Securities and Exchange Board or the
Reserve Bank of India or the Insurance Regulatory and Exchange Board or the Reserve Bank of India
or the Insurance Regulatory and Development Authority of India or the Pension Fund Regulatory
and Development Authority and having experience in handling the matters relating to corporate laws
or securities laws or economic laws :
Provided further that for the purpose of calculation of the period of three years referred to in the first
proviso,any period during which an individual was acting as a director or as a key managerial
personnel in two or more companies or bodies corporate or statutory corporations at the same time
shall be counted only once.]

RULE -6 Companies (Creation and Maintenance of databank of Independent Directors)

Second Amendment Rules, 2021.

Annual report on the capacity building of independent directors

The institute shall within sixty days from the end of every financial year send an annual report
to every individual whose name is included in the data bank and also to every company in
which such individual is appointed as an independent director in format provided in the
Schedule to these Rules.

Disqualifications for appointment of director- Section 164

Disqualification of director

Personal Disqualification Company disqualification

section 164(1) section 164(2)

Individual director will disqualify for All director holding the position of director will be
respective period & also vacation of office u/s disqualified for 5 years and also vacation of office
167. u/s 167.

SECTION 164

1) A person shall not be eligible for appointment as a director of a company, if

a) he is of unsound mind and stands so declared by a competent court
b) he is an undischarged insolvent
c) he has applied to be adjudicated as an insolvent and his application is pending
d) he has been convicted by a court of any offence, whether involving moral turpitude or
otherwise, and sentenced in respect thereof to imprisonment for not less than six

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months and a period of five years has not elapsed from the date of expiry of the
sentence.
If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a
period of seven years or more, he shall not be eligible to be appointed as a director in any company

e) an order disqualifying him for appointment as a director has been passed by a court or
Tribunal and the order is in force
f) he has not paid any calls in respect of any shares of the company held by him, whether
alone or jointly with others, and six months have elapsed from the last day fixed for the
payment of the call
g) he has been convicted of the offence dealing with related party transactions under
section 188 at any time during the last preceding five years; or
h) he has not got the DIN.
i) he has not complied with the provisions of sub-section (1) of section 165.
(companies amendment Act 2019)

2) A director of a company which

n. Has not filed financial statements or annual returns for any continuous period of three
financial years, or
o. Has failed on the due date to
(a) repay deposits accepted by it; or
(b) pay interest thereon; or
(c) redeem debentures on the due date; or
(d) pay interest due on debentures; or
(e) pay dividend which has been declared, and above such failure continues for one year
or more
shall be ineligible to be reappointed as a Director of that company or appointed in other
company for a period of five years from the date on which the said company committed
the default stated above.
Special note Section 164(2) shall not apply on Government Company.

Provided that where a person is appointed as a director of a company which is in default of

clause (a) or clause (b), he shall not incur the disqualification for a period of six months from
the date of his appointment.

Disqualification in a private company—Section 164(3)

A private company may by its Articles provide for any disqualification for appointment as
Director in addition to those specified above. In other words, if its Articles do not contain any
other ground, the grounds as in section 164 above will apply to such a private company.
Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1)
shall continue to apply even if the appeal or petition has been filed against the order of
conviction or disqualification.
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Disqualification in section 164(2)—Application thereof

The disqualification in section 164(2) relates to a public company or private company which
has made defaults as detailed in that sub-section. A Director in that company is disqualified
for reappointment in that company for five years. Further any Director in that company
cannot be appointed Director in any other company for a period of five years from the date on
which the former company committed the default.
Disqualified Director to inform the company Pursuant to
Rule 14(1) of Companies( Appointment and Qualification of Directors) Rules,2014
The Director, who is subject to disqualification as per Section 164(2), shall inform the
company in Form DIR-8 before he is appointed or reappointed.

Company in default shall inform to Registrar

Rule 14(2) of Companies( Appointment and Qualification of Directors) Rules,2014
Whenever a company commits a default as specified in sub-section (2) of Section 164, it shall
immediately file Form DIR-9 to the Registrar furnishing the names and addresses of all the
Directors of the company during the financial years.

ANALYSIS ON MORAL TURPITUDE

CONVICTED BY COURT

 Any offence of moral turpitude under any Meaning of otherwise under any law.
Law As section do not provide for which law
 no legal meaning we have to restrict the limit of the
section upto companies act only.
 As per general meaning Moral turpitude
means unethical act

Imprisonment less than 6 Imprisonment for 6 months Imprisonment of 7 years or

months or more but less than 7 years more

Qualified for being director Disqualified to act as direcor for lifetime

Disqualified to act as direcor for 5 years after completion of imprisonment.

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Duties of directors- Section 166

 Act in accordance with the articles of the company.

 Act in good faith in order to promote the objects of the company for the benefit of its
members as a whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.
 Exercise his duties with due and reasonable care, skill and diligence and shall exercise
independent judgment.
 Not involve in a situation in which he may have a direct or indirect interest that conflicts,
or possibly may conflict, with the interest of the company.
 Not achieve or attempt to achieve any undue gain or advantage either to himself or to his
relatives, partners, or associates and if such director is found guilty of making any undue
gain, he shall be liable to pay an amount equal to that gain to the company.
 Not assign his office and any assignment so made shall be void.

If a director of the company contravenes the provisions of this section such director shall be
punishable with fine which shall not be less than Rs. 1,00,000 but which may extend to Rs.
5,00,000.

VACATION OF OFFICE OF DIRECTORS [SECTION 167]

(1) The office of a director shall become vacant in case-

(a) He incurs any of the disqualifications specified in section 164;

Provided that where he incurs disqualification under sub-section (2) of section 164, the
office of the director shall become vacant in all the companies, other than the company
which is in default under that sub-section.
(b) He absent himself from all the meetings of the Board of Directors held during a
period of twelve months with or without seeking leave of absence of the Board;
(c) He acts in contravention of the provisions of section 184 relating to entering into
contracts or arrangements in which he is directly or indirectly interested;
(d) He fails to disclose his interest in any contract or arrangement in which he is directly
or indirectly interested, in contravention of the provisions of section 184.
(e) He becomes disqualified by an order of a court or the Tribunal;
(f) He is convicted by a court of any offence, whether involving moral turpitude or
otherwise and sentenced in respect thereof to imprisonment for not less than six
months:
Provided that the office shall not be vacated by the director in case of orders referred to in
clauses (e) and (f)

o for thirty days from the date of conviction or order of disqualification;

o where an appeal or petition is preferred within thirty days as aforesaid against the
conviction resulting in sentence or order, until expiry of seven days from the date on
which such appeal or petition is disposed of; or
o where any further appeal or petition is preferred against order or sentence within
seven days, until such further appeal or petition is disposed of.

(g) He is removed in pursuance of the provisions of this Act;

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(h) He having been appointed a director by virtue of his holding any office or other
employment in the holding, subsidiary or associate company, cease to hold such
office or other employment in that company.
Penalty for director who acts as director after knowing that it became vacant
[Sub-section (2)]
If a person, who acts as Director after knowing that it has become vacant on account of any
of the grounds in sub-section (1), he shall be punishable with imprisonment upto one year or
fine of not less than rupees one lakh which may extend to rupees five lakh or with both.
(COMPANIES AMENDMENT ACT 2020)

Remedy where all directors vacate sub-section (3)

Where all the Directors vacate their offices under any of the grounds stated above or resign,
the promoter or in his absence the Central Government shall appoint the required number of
Directors who shall hold office till the Directors are appointed by the company in general
meeting.
Private company may provide Additional grounds for vacation of Directorship
Sub-section (4)
In terms of sub-section (4), a private company may by its Articles provide any other ground
for vacation of director in addition to the grounds stated above. In other words, the grounds
stated in section 167(1) will apply to a private company also.

Important note: The section is silent about the 12 months of absence of financial year or
calendar year. And section is also silent about from which date it shall be calculated. Thus
the 12 months period can start from the date of 1st Board Meeting from which he is absent.
For e.g. director attends the Board Meeting on 25 June 2020, next Board meeting is on 25
August 2020 from where he is absent then 12 months will start from 25 August 2020 and end
on 24th August 2021.
Case laws
The text “absents himself” confirms deliberate or voluntary absence. Thus absence due to
involuntary act such as illness, temporary disability due to accident, or due to cause beyond
the control of director will not be considered for the ground of vacation of office. [London &
Northern Bank, Macks Claims]
NUMBER OF DIRECTORSHIPS [SECTION 165]

Section 165(1): Maximum No. of 20 Directorship

Maximum 10 Remaining Other

Public company Companies

1. Private
Public Holding of Subsidiary of 2. Section 8 companies
company Public company Public company 3. One person company
4. Small companies

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SECTION 165 MAXIMUM NUMBER OF DIRECTORSHIPS

(1) No person, after the commencement of this Act, shall hold office as a director, including any
alternate directorship, in more than twenty companies at the same time:

Provided that the maximum number of public companies in which a person can be appointed as a
director shall not exceed ten.

Explanation-1– For reckoning the limit of public companies in which a person can be appointed as a
director, directorship in private companies that are holding or subsidiary company of a public
company shall be included.

Explanation II.—For reckoning the limit of directorships of twenty companies, the directorship in a
dormant company shall not be included

(2) Subject to the provisions of sub-section (1), the members of a company may, by special
resolution, specify any lesser number of companies in which a director of the company may act as
directors.
(3) Any person holding office as director in companies more than the limits as specified in sub
section (1), immediately before the commencement of this Act, shall, within a period of one year
from such commencement
(a) Choose not more than the specified limit of those companies, as companies in which he wishes to
continue to hold the office of director;
(b) Resign his office as director in the other remaining companies; and
(c) Intimate the choice made by him under clause (a), to each of the companies in which he was
holding the office of director before such commencement and to the registrar having jurisdiction
in respect of each such company
(4) Any resignation made in pursuance of clause (b) of sub- section (3) shall become effective
immediately on the dispatch thereof to the company concerned.
(5) No such person shall act as director in more than the specified number of companies
(a) After dispatching the registration of his office as director or non- executive director thereof, in
pursuance of clause (b) of sub- section (3); or
(b) After the expiry of one year form the commencement of this Act, whichever is earlier.
(6) If a person accepts an appointment as a director in violation of this section, he shall be
liable to a penalty of two thousand rupees for each day after the first during which such
violation continues, subject to a maximum of two lakh rupees. (companies amendment
Act 2020)
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CHAPTER-34 APPOINTMENT OF DIRECTORS

APPOINTMENT, RESIGNATION AND REMOVAL OF DIRECTORS

APPOITMENT OF DIRECTORS BY DIFFERENT INTEREST GROUPS

Appointment of first directors

Sec. 152 (1) and Regulation 60 of table F

Appointment of directors by shareholders

 Retirement of directors and filling of vacancies (Section 152 (6))

 Appointment of a person other than retiring director (Section 152 (6))
 Appointment of directors by proportional representation (Section 163)
 Appointment of directors by small shareholders (Section 151)

Appointment of directors by Board

 Appointment of an additional director (Section 161 (1))

 Appointment of a director by filing a causal vacancy (Section 161(4))
 Appointment of an alternate director (Section 161(2))

Appointment of directors by third parties 161 (3)

The directors appointed by third parties are called as Nominee directors

Section 152 Appointment of Directors (see the bare act language)

FOR SIMPLIFIED INTERPRETATION SEE BELOW:
152. (1) Where no provision is made in the articles of a company for the appointment of the
first director, the subscribers to the memorandum who are individuals shall be deemed to be
the first directors of the company until the directors are duly appointed and in case of a One
Person Company an individual being member shall be deemed to be its first director until the
director or directors are duly appointed by the member in accordance with the provisions of
this section.

(2) Save as otherwise expressly provided in this Act, every director shall be appointed by the
company in general meeting.

(3) No person shall be appointed as a director of a company unless he has been allotted the

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Director Identification Number under section 154 or any other number as may be prescribed
under section 153

(4) Every person proposed to be appointed as a director by the company in general meeting or
otherwise, shall furnish his Director Identification Number or such other number as may be
prescribed under section 153 and a declaration that he is not disqualified to become a director
under this Act.

(5) A person appointed as a director shall not act as a director unless he gives his consent to
hold the office as director and such consent has been filed with the Registrar within thirty
days of his appointment in such manner as may be prescribed:

Provided that in the case of appointment of an independent director in the general meeting,
an explanatory statement for such appointment, annexed to the notice for the general
meeting, shall include a statement that in the opinion of the Board, he fulfils the conditions
specified in this Act for such an appointment.

(6) (a) Unless the articles provide for the retirement of all directors at every annual general
meeting, not less than two-thirds of the total number of directors of a public company shall—

(i) be persons whose period of office is liable to determination by retirement of directors by

rotation; and

(ii) save as otherwise expressly provided in this Act, be appointed by the company in general
meeting.

(b) The remaining directors in the case of any such company shall, in default of, and subject
to any regulations in the articles of the company, also be appointed by the company in
general meeting.

(c) At the first annual general meeting of a public company held next after the date of the
general meeting at which the first directors are appointed in accordance with clauses (a) and
(b) and at every subsequent annual general meeting, one-third of such of the directors for the
time being as are liable to retire by rotation, or if their number is neither three nor a multiple
of three, then, the number nearest to one-third, shall retire from office.

(d) The directors to retire by rotation at every annual general meeting shall be those who
have been longest in office since their last appointment, but as between persons who became
directors on the same day, those who are to retire shall, in default of and subject to any
agreement among themselves, be determined by lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may
fill up the vacancy by appointing the retiring director or some other person thereto.

Explanation.—For the purposes of this sub-section, “total number of directors” shall not
include independent directors, whether appointed under this Act or any other law for the time
being in force, on the Board of a company.

(7) (a) If the vacancy of the retiring director is not so filled-up and the meeting has not
expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day
in the next week, at the same time and place, or if that day is a national holiday, till the next
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succeeding day which is not a holiday, at the same time and place.

(b) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and
that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall
be deemed to have been re-appointed at the adjourned meeting, unless

(i) at that meeting or at the previous meeting a resolution for the re-appointment of such
director has been put to the meeting and lost;

(ii) the retiring director has, by a notice in writing addressed to the company or its Board of
directors, expressed his unwillingness to be so re-appointed;
(iii) he is not qualified or is disqualified for appointment;

(iv) a resolution, whether special or ordinary, is required for his appointment or re-
appointment by virtue of any provisions of this Act; or

(v) section 162 is applicable to the case.

Explanation.—For the purposes of this section and section 160, the expression “retiring
director” means a director retiring by rotation.

SPECIAL NOTE:
As per MCA notification 13 JUNE 2017 Sub Section (6) and (7) shall not apply to
followings:
a) A Government company, which is not a listed company, in which not less than fifty-one
per cent. of paid up share capital is held by the Central Government, or by any State
Government or Governments or by the Central Government and one or more State
Governments;
b) A subsidiary of a Government company, referred to in (a) above.
SIMPLIFIED INTERPRETATION OF SECTION 152
General Provisions relating to Appointment of Directors [Section 152]
Following are the general provisions relating to appointment of directors:

1. Director Identification Number is compulsory for appointment of director of company..

2. Every person proposed to be appointment as a director shall furnish his director
Identification Number and a declaration that he is not disqualified to become a director
under the Act.
3. A person appointed as a director shall on or before the appointment give his consent to
hold the office of director in physical for DIR-2 i.e. Consent to act as director of a
company.
4. The com[any shall, within 30 days of the appointment of a director, file such consent with
the ROC in form DIR-12, along with the fees as provided in companies (Registration
Offices and Fees) rules, 2014.

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DIRECTOR’S SHARE QUALIFICATION NO LONGER NECESSARY

As the Board of Directors in public companies and big private companies is a balanced
mixture of owner directors, outside directors and independent directors, the concept of
directors’ share qualification as contained in section 270 of previous Act has outlived its
usefulness. Thus there is no such provision in the new Act.
Appointment of First Directors [Section 152]
1. The first directors of a company may be named in its articles of association. In case no
directors are so named in the articles, the articles may authorize the subscribers to the
memorandum to appoint the first directors.
2. Regulation 60 of table F of schedule I provides that the number of directors and the
names of first directors shall be determined in writing by the subscribers of the
memorandum or a majority of them.
3. Section 152 (I) of the companies Act, 2013 provides that, in the absence of any such
provision in articles of association, the subscribers to the memorandum, who are
individuals, shall be deemed to be the first directors of the company until the subsequent
directors are duly appointed in accordance with the provisions of section 152.

First Directors in case of OPC [Section 152]

In case of One Person Company (OPC), an individual’s, shall be deemed to be its first
director until the directors or directors are duly appointed by the member in accordance with
the provisions of section 152.

APPOITMENT OF FIRST DIRECTORS (SEC. 152)

IF DIRECTORS ARE NAMED IN IF THE DIRECTORS ARE NOT NAMED

ARTICLES IN THE ARTICLES

Directors named in the Articles empowers If AOA does not prescribe any
articles shall be the first subscribers to method of appointment of first
directors memorandum to director then all the subscribers
appoint the first to the memorandum who are
directors individuals shall be deemed to
be directors, until directors are
duly appointed at a GM u/s 152

Public Company Private Company One Person Company

Out of 7 Subscribers Out of 2 Subscribers & Min 1 subscriber & that
& Min 3 shall be Min 2 shall be 1 subscriber deemed to
individual individuals be director
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HOW FIRST DIRECTORS ARE APPOINTED IN A COMPANY—SECTION 152

In accordance with the provisions in section 152(1), the persons named in the Articles as first
Directors shall act as the first Directors on incorporation of the company. They will continue
to act as Directors till the Directors are appointed by the company in general meeting.
Duration of office of first directors who are subscribers to the Memorandum The same sub-
section also provides that only where there is no provision in the Articles for the appointment
of the first Directors, the subscribers to the Memorandum are deemed to be the first Directors
and they will continue in office until the Directors are duly appointed in accordance with the
provisions in Section 152.
Save as otherwise provided, all Directors to be appointed by the general meeting—Section
152(2) Sub-section (2) prescribes that save as otherwise provided in the Act, every Director
shall be appointed by the company in general meeting.
Phrase “save as otherwise provided in the Act” refers to appointment of Directors by the
Board The phrase “save as otherwise expressly provided in the Act” acts as an exception to
the rule in sub-section (2) that all Directors shall be appointed by general meeting and
enables the Board of Directors to appoint Directors in accordance with the Articles as
under:—
a. Section 161(1) regarding appointment of Additional Directors;
b. Section 161(2) regarding appointment of Alternate Director;
c. Section 161(3) regarding appointment of nominee Directors; and
d. Section 161(4) regarding appointment of Director in a casual vacancy in a public
company
ANALYSIS ON SEC 152(6) OUT OF TOTAL NUMBER OF DIRECTORS

If AOA is Silent Min 2/3 Rotational: Directors who are liable to retire at AGM when he becomes
longest in office.
Max 1/3 Non Rotational: Directors of whom tenure is fixed and retire after completion of tenure

IF AOA PROVIDES
AOA Can provide for all directors (100%) to be rotational Or AOA can also provide that all directors
(100%) shall retire at each AGM

Exception

Directors who shall not be included in total while calculating rotational & Non rotational

1. Independent director (Sec 152(6)(7) itself specifies)

2. Nominee Director [Normally of Financial Institution sec 161(3)]
3. Small shareholder director
4. Director appointed by Proportional Representation
5. Director appointed by CG / NCLT [242]
2. (Non Applicability)
1. Private Company
2. Foreign Company
3. Government Company

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Special note: The provisions relating to retirement of directors by rotation in AGM will not
apply in case of those Government Companies in which the entire paid up share capital is
held by the Central Government, or by the State Government or Governments or by the
Central Government and one or more State Governments;(b) a subsidiary of a Government
Company, referred in on (a) above, in which entire paid up share capital is held by that
Government Company

Directors liable to retire by rotation (i.e. Rotational directors)

Rotational directors’ means those directors whose period of office is liable to determination
by retirement by rotation.

Number of rotational directors Section 152

 Not less than 2/3rd of total number of directors (excluding independent directors) shall
be rotational directors.
 Any fraction contained in that 2/3rd shall be rounded off as one.
 The articles may even provide that-all the directors shall be retire at every AGM.

Appointment
The rotational directors shall be appointed in GM (whether AGM or EGM).
Directors not liable to retire by rotation (i.e. non- rotational directors)
Meaning
The directors other than rotational directors are called as non-rotational directors.

Appointment
 The non –rotational directors shall be appointment the GM.
 However, the articles of a company may provide otherwise.
Term of office
 The non-rotational directors can be appointed for such period as may be determined by
the GM.
 However, the term of office of non –rotational directors may be determined as per the
articles.
ILLUSTRATIONS ON ROTATIONAL AND NON- ROTATIONAL DIRECTORS

Consequences /implications

1. A Ltd. has 6 directors.

Minimum 4 directors must be rotational directors.

2. B Ltd. Has 6 directors, 4 rotational and 2 non-rotational.

The company has not contravened the provisions of Sec. 152

3. C Ltd. Has 6 directors, 5 rotational and 1 non- rotational.

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The company has not contravened the provisions of Sec. 152

4. D ltd has 6 directors. The company has appointed all these directors as rotational directors.
The company has not contravened the provisions of sec. 152

5. E ltd. has 6 directors, 3 rotational and 3 non-rotational.

The company has contravened the provisions of sec. 152

6. F ltd. has 6 directors, 4 rotational and 2 non-rotational. The company intends to appoint a
non-rotational director.
The company cannot appoint a director as a non-rotational director since it would result in
contravention of sec. 152

7. G ltd. has 6 directors, 5 rotational and 1 non-rotational. The company intends to appoint a
non-rotational director.
The company can appoint a director as non-rotational director since it would not result in
contravention of sec. 152

8. H ltd. has 6 directors 4 rotational and 2 non-rotational the company intends to appoint a
rotation director.
The company can appoint a director as a rotational director since it would not result in
contravention of sec.152
ASCERTAINMENT OF DIRECTORS RETIRING BY ROT BY ROTATIONSECTION 152

Number of directors retiring at an AGM

- At the first AGM and every subsequent AGM

- 1/3rd (or nearest to 1/3rd) of rotational directors Shall retire from office.

Who shall retire?

(a) Directors who are longest in office since their appointment shall retire first
(b) If two or more directors were appointed on- same day, then retirement shall be-
 By agreement between them; or
 By lots (in the absence of such agreement).

Vacancy in the place Of retiring director

Filling of vacancy: The vacancy in the office of retiring director may be filled by –
(a) Re-appointing the retiring director; or
(b) Appointing Some other person (provided the requirements of sec. 160 are fulfilled).

Adjournment of AGM
If – the place of retiring director is not filled And The meeting has not resolved not to fill the
vacancy
Then – the AGM shall adjourn to –
(a) Next week, at the same day, time and place; or

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(b) If that day is a public holiday then to next succeeding day which is not a public not a
public holiday.

Automatic Reappointment in Adjourned AGM

If – the place of retiring director is not filled at the adjourned meeting also;And

- The adjourned meeting has not resolved not to fill the vacancy
- Then- the retiring director shall be deemed to be reappointed.

No automatic Reappointment in Certain cases

Automatic reappointment shall not apply to a director if –
(a) A resolution for the reappointment of retiring director was put and lost; or
(b) The retiring director has given a written a written notice to the company of his
unwillingness to be reappointed; or
(c) He is disqualified for appointment; or
(d) A resolution is required for his reappointment; or
(e) If section 162 is applicable to case.

AGM not held-Consequences

Calling of AGM is a duty of directors the directors cannot, by omitting to call, AGM, take
advantage of their own default and by that means extend their tenure of office. Therefore,
directors cannot continue in office after the last day on which AGM should have been held
Right of persons other than retiring directors to stand for directorship- Section 160
 Sec. 160 entitles any person (who is not a retiring director) to become a director in any
GM of a company.
 Sec 160 empowers a company to make fresh appointment of directors.

Person eligible to give notice

(a) A person (other than retiring director) can give a notice of his own candidature
(b) A member can propose a candidature of any other person.

Conditions of sec. 160, i.e. Requirements of a notice (Section 160 shall not apply FOR
PRIVATE COMPANIES)

Section 160 shall not apply to(a) a Government Company in which the entire paid up share capital is
held by the Central Government, or by the State Government or Governments or by the Central
Government and one or more State Governments;(b) a subsidiary of a Government Company,
referred in on (a) above, in which entire paid up share capital is held by that Government Company

Notice to whom?
Notice shall be given to the company.
Time limit
 Notice shall be given at least 14 days before the GM.
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 If notice u/s 160 is received by the company after dispatch of notice of GM IT IS Valid,
provided it is received at least 14 days before the GM.

Place
Notice shall be given at the registered office of the company.
Deposit

 Rs. 1 lack shall be deposited along with the notice.

 The deposit shall be refunded if the candidate gets elected as director or gets more than
25% of total valid votes cast either on show of hands or on poll on such resolution.

Procedure adopted by the company

Notice to members
The company shall inform its members about the candidature of the proposed director.
Mode of sending Notice
 By serving individual notices (through e-mail and where no e-mail address is available
then in writing and by placing notice of such candidature or intention on the website of
the company, if any. or
 By advertising in 2 newspapers. (ENGLISH AND LOCAL LANGUAGE NEWSPAPER)

Time limit
Notice shall be served at least 7 days before gm.

SPECIAL POINT
Provided that requirements of deposit of amount shall not apply in case of appointment of an
independent director or a director recommended by the Nomination and Remuneration Committee, if
any, constituted under sub-section (1) of section 178 “or a director recommended by the Board of
Directors of the Company, in the case of a company not required to constitute Nomination and
Remuneration Committee

CHART ANALYSIS

Any person not Notice for appointment as a director

being a retiring
director MAY give COMPANY
his own/other At least 14 days before the GM
person candidature Deposit Rs. 1 lack (Refundable, if appointed as a director)
to be appointed as a
director Notice of candidature of person proposed as a director

At least 7 days before the GM

By sending individual notices; or

By advertisement in 2 newspapers

All members

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APPOINMENT BY PROPORTIONAL REPRESENTIONAL (Sec. 163)

Section 163 shall not apply to(a) a Government Company in which the entire paid up share
capital is held by the Central Government, or by the State Government or Governments or
by the Central Government and one or more State Governments;(b) a subsidiary of a
Government Company, referred in on (a) above, in which entire paid up share capital is held
by that Government Company

Express power in Articles is required

Appointment of directors by proportional representation is not compulsory, I.e., there is no
requirement in the act to make the appointment of directors by proportional representation.

Sec. 163 applies only if the articles of a company provide that appointment of directors shall
be made by proportional representation.
Number of directors
Where a company adopts proportional representation,
It shall appoint at least 2/3 rd of directors by proportional representation.
Periodicity of Appointment
Such appointments shall be made once in every 3 years.

Casual vacancies
Any casual vacancy created shall be filled as u/s 161(4).
Mode of voting
Single transferable vote: under this system each shareholder has only 1 vote. He has to
indicate his preference in ballot paper. The preference will be equal to no. of candidates. The
candidates who receive maximum no. of votes is declared elected.
Cumulative voting: it is a method of voting wherein no. of vote for each shareholder = No.
of shares held * no. of directors to be elected. The shareholder can either use all votes in
favour of any on candidate or distribute his votes among candidates.

No removal of directors
Directors appointed by way of proportional representation cannot be removed u/s 169.
Effect of Sec. 163
Sec. 163 overrides the entire Companies Act, 2013

APPOINTMENT OF DIRECTORS BY THE BOARD

Appointment of Additional Directors [Sec. 161 (1)]
 The Board of directors may, if authorized by the articles, appointment additional
directors. Such additional shall hold office only up to the date of the annual general
meeting.
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 If the AGM of the company is not held or cannot be held the person appointed as
additional director vacates his office on the last day on which AGM should have been
held. [Krishna Prasad Pilania v. Colaba Land and Mills Co.]
 It may be noted that a person who fails to get appointed as a director in a general meeting
cannot be appointment as the Additional Director.
 If such a person, while he was the additional director of a company, had been appointed
the Managing Director, the latter appointment (i. e that of managing director) also ceases
simultaneously with the termination of his directorship at the commencement of the
annual general meeting. However, if such a person is elected as full- fledged director, by
complying with Sec. 160, at the AGM, he will continue to be a director of the company
and also as its Managing Director for the period for which he is so elected a director and
for the period for which his appointment as managing director has been made. This is
known as regularization of additional director and in this case again Form No. DIR-12 is
required to be filed with ROC.
Section 161(1): Appointment of additional director

Why additional director is required?

1. In case of excess work load in the company which cannot be managed by existing BODs.
2. In case if the company requires the technical expert to solve technical difficulty.
3. In case of the emergency in company.
4. In case the quorum of the BM is not present for substantial period.

Appointment

If Articles of association gives OR If AOA is silent than at General

power to BOD then BR shall be Meeting shall pass OR to give
passed to appoint the AD. power to BOD to appoint AD
through BR

Appointment of Alternate Director [Sec. 161(2)]

Section 161 (2) The Board of Directors of a company may, if so authorised by its articles or
by a resolution passed by the company in general meeting, appoint a person, not being a
person holding any alternate directorship for any other director in the company or holding
directorship in the same company, to act as an alternate director for a director during his
absence for a period of not less than three months from India:
It may be noted that no person shall be appointed as an alternate director for an independent
director unless he is qualified to be appointed as an independent director.

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It may further be noted that an alternate director shall not hold office for a period longer than
that permissible to the director in whose place he has been appointed and shall vacate the
office if and when the director in whose place he has been appointed returns to India.
If the term of office of the original director is determined before he so returns to India, any
provision for the automatic re- appointment of retiring directors in default of another
appointment shall apply to the original, and not to the alternate director.
OTHER POINTS ON ALTERNATE DIRECTOR (ANALYSIS)
1) The right to appoint an alternate director vests in the Board. The original director has no
right to appoint an alternate director.
2) An alternate director is not a representative or proxy or agent of original director.
3) Only 1 alternate director can be appointed for 1 director
4) He has rights, duties and liabilities as of any other director. Therefore, he is a director in
his own right.

SOME IMPORTANT POINTS

Section Applicability & Understanding

149(1) 1. ALD & Original Director shall be counted as one for min statutory limit of Pub –
3, Pvt – 2, OPC – 1.
2. A woman can be appointed as ALD
149(4) – (12) ALD shall be appointed as Independent director as per definition of independent
Director as per sec 149(6)
152(3) – (5) ALD shall hold DIN, give declaration & liable to filing in DIR 2 with ROC as per
sec 152(3), (4) & (5).
152(6) & (7) The ALD and original director shall be counted as one in case of total number of
directors as per sec 152(6) & (7) for counting Rotational & Non Rotational directors
except in case of original director is ID.

Appointment of Director to fill Casual Vacancies [Sec. 161(4)]

Section 161 (4) if the office of any director appointed by the company in general meeting is
vacated before his term of office expires in the normal course, the resulting casual vacancy
may, in default of and subject to any regulations in the articles of the company, be filled by
the Board of Directors at a meeting of the Board which shall be subsequently approved by
members in the immediate next general meeting
Provided that any person so appointed shall hold office only up to the date up to which the
director in whose place he is appointed would have held office if it had not been vacated.
OTHER POINTS ON ‘DIRECTOR FILLING A CASUAL VACANCY (ANALYSIS)

Manner of filling casual vacancy in a public company

1) The casual vacancy shall be filled in accordance with the articles.
2) If the articles are silent, then the casual vacancy shall be filled by the Board.
3) Death of additional director will not considered as casual vacancy.
4) Death of first director will not considered as casual vacancy
5) Vacancy arising out of casual vacancy is not a casual vacancy
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6) Where a person appointed as a director does not assume office, on casual vacancy arises,
since it cannot be said that a casual vacancy arises by efflux of time. There is no question
of someone vacating office if he had never assumed such office.
SOME IMPORTANT POINTS

Section Applicability & Understanding

149(1) CVD shall be counted as one for min statutory limit of Pub – 3, Pvt – 2, OPC – 1.

152(6) & (7) The CVD shall be counted in total number of directors if Original director is also
counted for total as per sec 152(6) & (7) for counting Rotational & Non Rotational
directors.
164, 167, 168, CVD can be disqualified u/s 164 & Need to vacate office u/s 167, can resign at will
169 u/s 168 & can be removed u/s 169.
DIR-12 Company need to File DIR 12 on appointment of CVD u/s 170.

APPOINTMENT OF DIRECTORS BY BOARD

Points of Additional Directors Filling of Casual Alternate Directors

comparison Vacancies (Sec. 161 (Sec.161 (2))
(Sec. 161 (1)) (4))

Applicability All companies All companies All companies

Precondition No precondition Where the office of An alternate director can

for a director comes to be appointed to act in
appointment Board may at anytime, an end otherwise place of an original
in its discretion, than in the normal director during the
appoint additional course, such absence of original
directors. vacancy is called director for a period of 3
vacancy. months or more from the
India
A casual vacancy
arising in office of a
director appointed in
GM may be filled
u/s 161 (4).

Power to Articles must authorize No express power in The Board must be

appoint the Board to appoint articles is required authorized by- Articles;
the additional directors. to fill a casual or Resolution passed at a
vacancy. GM.

Term of office  An additional director A director filling a  An alternate director

holds office up to casual vacancy shall shall not hold office
commencement of hold office up to the beyond the term
next AGM. unexpired term of permissible to the
 If default is made in the director in original director.
holding AGM. The whose place he is  An alternate director
additional director appointed. shall hold office until

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shall vacate his office the original director

on the last day AGM returns to the india
ought to have been
held

APPOINTMENT OF NOMINEE DIRECTORS [SEC. 161 (3)]

NOMINEE DIRECTORS: Subject to the articles of a company, the Board may appoint any person as
a director nominated by any institution in pursuance of the provision of any law for the time being in force
or of any agreement or by the Central Government or the State Government by virtue of its shareholding in
a Government Company.

Nominee Directors of Special Financial Nominee Directors of Other Financial

Institutions: Institutions:

In case of appointment of nominee directors of In case of appointment of nominee directors of other

financial institutions established under Special financial institutions which are incorporated under
Acts of Parliament having non- obstante the companies act, 2013, the provisions of the
provisions over the provisions of Companies Companies Act, 2013 are to be complied with. Such
Act, 2013 and the articles of association of nomination can be made only if there is provisions in
assisted companies, the company has to only the articles of association of the assisted company
take steps to note such appointment at a Board and if the nomination is in conformity with the
Meeting and file the particulars of the directors provisions of section 152 and other related
in Form No. DIR-12. provisions of the companies Act, 2013. It other
words, such nominee director should come within
For instance, nominees of IDBI, UTI, IFCI, the one- third of total numbers of directors, the other
LIC, SFCs, etc. can be appointed directors on two- thirds being liable to retire by rotation.
the Boards of assisted companies, even
without complying with the provision of
articles and / or Companies Act, 2013.

Appointment of directors to be voted on individually [ Section 162]

Section 162 shall not apply TO PRIVATE COMPANIES

Section 162 shall not apply to(a) a Government Company in which the entire paid up share capital is
held by the Central Government, or by the State Government or Governments or by the Central
Government and one or more State Governments;(b) a subsidiary of a Government Company,
referred in on (a) above, in which entire paid up share capital is held by that Government Company

The Directors are usually elected by shareholders at a general meeting by an ordinary

resolution passed by simple majority of votes. Two or more directors should not be elected
“en bloc” or by a single resolution.
Section 162(2) provides that at general meeting of a company, a motion shall not be made for
the appointment of two or more persons as directors of the company by a single resolution,
unless a resolution that it shall be made has first been agreed to by meeting without any vote
being against it.
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Section 162 (2) provides that resolution in contravention of sub section (1) shall be void,
whether or not objection was taken at the time of its being so moved.
APPOINTMENT OF DIRECTORS BY SMALL SHAREHOLDER
Section 151 and Rule 7, Companies (Appointment and Qualifications of Directors) Rules, 2014

SEE THE BARE ACT LANGUAGE (FOR WRITING IN EXAMS SIMPLIFIED LANGUAGE
GIVEN AFTER BARE ACT LANGUAGE)

SECTION 151. A listed company may have one director elected by such small shareholders
in such manner and with such terms and conditions as may be prescribed.

Explanation.—For the purposes of this section “small shareholders” means a shareholder

holding shares of nominal value of not more than twenty thousand rupees or such other sum
as may be prescribed.
Rule 7, Companies (Appointment and Qualifications of Directors) Rules, 2014
(1) A listed company, may upon notice of not less than one thousand small shareholders or
one-tenth of the total number of such shareholders, whichever is lower, have a small
shareholders’ director elected by the small shareholders:
Provided that nothing in this sub-rule shall prevent a listed company to opt to have a director
representing small shareholders suo motu and in such a case the provisions of sub-rule (2)
shall not apply for appointment of such director.
(2) The small shareholders intending to propose a person as a candidate for the post of small
shareholders’ director shall leave a notice of their intention with the company at least
fourteen days before the meeting under their signatures specifying the name, address, shares
held and folio number of the person whose name is being proposed for the post of director
and of the small shareholders who are proposing such person for the office of director:
Provided that if the person being proposed does not hold any shares in the company, the
details of shares held and folio number need not be specified in the notice:
(3) The notice shall be accompanied by a statement signed by the person whose name is
being proposed for the post of small shareholders’ director stating -
(a) his Director Identification Number;
(b) that he is not disqualified to become a director under the Act; and
(c) his consent to act as a director of the company
(4) Such director shall be considered as an independent director subject to , his being eligible
under sub-section (6) of section 149 and his giving a declaration of his independence in
accordance with sub-section (7) of section 149 of the Act.
(5) The appointment of small shareholders’ director shall be subject to the provisions
of section 152 except that-
(a) such director shall not be liable to retire by rotation;
(b) such director’s tenure as small shareholders’ director shall not exceed a period of three
consecutive years; and

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(c) on the expiry of the tenure, such director shall not be eligible for re-appointment.
(6) A person shall not be appointed as small shareholders’ director of a company, if the
person is not eligible for appointment in terms of section 164.
(7) A person appointed as small shareholders’ director shall vacate the office if -
(a) the director incurs any of the disqualifications specified in section 164;
(b) the office of the director becomes vacant in pursuance of section 167;
(c) the director ceases to meet the criteria of independence as provided in sub-section (6)
of section 149.
(8) No person shall hold the position of small shareholders’ director in more than two
companies at the same time:
Provided that the second company in which he has been appointed shall not be in a business
which is competing or is in conflict with the business of the first company.
(9) A small shareholders’ director shall not, for a period of three years from the date on which
he ceases to hold office as a small shareholders’ director in a company, be appointed in or be
associated with such company in any other capacity, either directly or indirectly.
CHART ANALYSIS

Appointment of Small Shareholders director

Application by small shareholders Appointed by company

suo moto

Procedure:
1. 1000 Small shareholders or 1/10 of actual shareholders Company suo moto can appoint
whichever is lower SSD in GM by OR
2. Small shareholders should nominate the small shareholders
directors
3. At registered office of the company

SIMPLIFIED LANGUAGE

1. Who can propose a small shareholder as Director

A listed company may upon the notice of not less than one thousand or one-tenth of the total
number of small shareholders, whichever is lower, elect a small shareholders’ director from
amongst and by the small shareholders. A listed company may, Suo motu, opt to have a
Director representing small shareholders.

2. Notice by the specified number of shareholders giving specified details

Such small shareholders as given in (i) above, intending to propose a person as a candidate
for the post of small shareholders’ director shall leave a notice of their intention with the
company at least fourteen days before the meeting under their signature specifying the name,
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address, shares held and folio number of the person whose name is being proposed for the
post of director and of the small shareholders who are proposing such person for the office of
director.
3. Content of the notice
 His Director Identification Number—[Sections 153-156]
 That he is not disqualified to become a director under Section 152(4); and
 His consent to act as a director of the company—[Section 152(5)].

4. Small shareholders’ Director shall be treated as independent Director

Such director shall be considered as an independent director subject to his giving a
declaration of his independence in accordance with sub-section (7) of section 149.

5. A person can be small shareholders’ Director in two companies

No person shall hold the office of small shareholders’ director in more than two companies at
the same time. It will have to be ensured that the second company in which he is appointed
shall not be in a business which is competing or is in conflict with the business of the first
company.

6. Restriction on small shareholders’ Director

A small shareholders’ Director shall not, for three years after he ceases to be such Director,
be appointed or associated with such company in any other capacity, directly or indirectly.

7. Disqualification for election as such Director

A person shall not be capable of being appointed as small shareholders’ director of a
company, if the person is not eligible for appointment in terms of section 164.

8. Vacation of office by such Director

A person appointed as small shareholders’ director shall vacate the office if
 The director incurs any of the disqualifications specified in section 164,
 The office of the director becomes vacant in pursuance of section 167
 The director ceases to meet the criteria of independence as provided in subsection (6)
of section 149.
9. Some special points
 The director shall not be liable to retire by rotation;
 The tenure as small shareholders’ director shall not exceed a period of three consecutive
years; and
 On the expiry of the tenure, the director shall not be eligible for re-appointment.

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REMOVAL OF DIRECTORS- SECTION 169

CHART ANALYSIS DIRECTOR CONCERNED

member holding lower

2.intimate 3.give defnce
of min 1% of voting
powers or shares having
voting powers of Rs. 5
lacs or more who is 1. At least 14 days before the GM COMPANY
willing to remove (BOD)
director shall, Apply to
registered office of
company at least 14 4. At least 7 days before the GM
days before but not more By sending individual notices; or
than 3 months before the By advertisement in 2newspapers
General Meeting.

COMPANY

If Ordinary resolution is passed for removal of director after reading the representation then
director is removed from office.

Vacancy at office

Appoint new director in place of removed director Pass OR for keeping the vacancy in place of removed
u/s 160 by giving same 14 days special notice for director so that no further appointment is need to be made.
his nomination with the notice of removal of this If none of the above option is opted then vacancy is
continued as it is which may lead to situation of casual
director.
vacancy u/s 161(4) and CVD shall be appointed in such
place by BOD-OR.

REMOVAL OF DIRECTORS- SECTION 169

Applicable to private and public companies The provisions of Section 169 are applicable to
private and public limited companies.
All Directors are subject to removal and Directors not subject to removal All Directors can be
removed under the section whether they are subject to retirement or not in a public company.
The shareholders of a company may, by passing an ordinary resolution at a general meeting,
remove a director the expiry of the period of his office. However, the following directors
cannot be removed by the company unless otherwise stipulated in terms of their
appointment:-
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(a) Where the company has availed itself of the option to appoint not less than 2/3 rd
directors according to the principle of proportional representation u/s 163
(b) A nominee director appointed by a financial institution under the terms of a loan
agreement
(c) A director appointed by NCLT u/s 242
(d) A special director appointed by BIFR under Sec.16 (4) of SICA.

Provision for special notice—Section 115 A special notice shall be required of any
resolution, to remove a director under this section, or to appoint somebody in place of a
director so removed, at the meeting at which he is removed.
On receipt of notice of a resolution to remove a director under this section, the company shall
forthwith send a copy thereof to the director concerned, and the director, whether or not he is
a member of the company, SHALL BE ENTITLED TO BE HEARD on the resolution at the
meeting.

Eligibility to give special notice as stated in Section 115

In terms of this section special notice can be given by such number of members holding at least 1% of
total voting power or holding shares for an aggregate sum of not less than five lakh rupees has been
paid-up as may be prescribed which has been retained as per Rule 23 of the Companies (Management
and Administration) Rules, 2014

Action to be taken by the company—Section 169(3)

When a special notice of resolution is properly served on a company, a copy thereof shall forthwith be
sent by the company to the Director concerned. He will be given reasonable opportunity of being
heard whether or not he is a member of the company.

Representation by the Director—Sub-section (4)

Where the Director concerned makes a representation in writing and requests its circulation to the
members, the company shall, if time permits, state the fact of the representation having been made, in
the notice of resolution sent to the members and also send a copy of the representation to the members
to whom the notice of the meeting is sent.

Representation, if not sent to members be required to be read at the meeting

Where copy of the representation is not sent to members due to lack of time or due to default of the
company, the Director concerned may require that the representation shall be read at the meeting
without prejudice to his right to be heard at the meeting.

Circumstance when representation need not be sent or read at the meeting

Proviso under sub-section (4) The company or any aggrieved person may apply to the Tribunal (IN
FORM NCLT-1) that the rights conferred are misused to give needless publicity to defamatory matter
and if the Tribunal allows the appeal, the representation need not be sent to the members and need not
be read at the meeting.

Absence of notice to Director to be removed vitiates the resolution for removal

It was held in Capt. Manmohan Singh Kohli v. Venture India Properties Pvt. Ltd. that as the
requirement of notice to be given to the Director and grant of opportunity to be heard under Section
284(3) now section 169 of the previous Act had not been complied with, the Director’s removal was
declared bad in law.

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Where the resolution is passed—Section 169(5) Where the resolution for the removal of a Director
is passed at the meeting, the meeting may appoint another person at that meeting in place of the
Director removed if special notice for appointment of that other person has also been served on the
company.

Special notice for appointing a person as Director in the vacancy of the Director removed—
Sub-section (5)

If the Director removed had been appointed in general meeting or the Board, a special notice is
required for appointing another person at that meeting in the vacancy caused by the removal of the
Director.

The same requirement as to eligibility of members to give special notice for removal of a Director
shall also be complied with here also.

Director appointed in place of Director removed—Section 169(6)

It is provided in sub-section (6) that the Director so appointed shall hold office until the date upto
which the Director removed would have held office if he had not been removed.

Where the vacancy is not filled—Sub-section (7) If another person is not appointed at the said
meeting, the Board may fill the vacancy as a casual vacancy as per sub-section (7) of section 169 at a
meeting of the Board. The Director removed shall not be reappointed by the Board as per the proviso
under sub-section (7).

The procedure for filling up casual vacancy is prescribed in Section 161(4).

Provision for Removal of Director also applies to Managing Director—Sub-section (8)

The procedure of special notice applies also to a Managing Director in which case the incumbent shall
not be deprived of any compensation or damages payable to him in respect of termination of his
appointment.

Procedure for Removal of a director

1. Notice of removal of a director is given by a member to company.
 The notice must be a special notice.
 The notice must be given at least 14 days before the GM.
2. A copy of notice is given by company to director.
3. The director has a right to make a representation against his removal
4. Representation given by the director, if any is sent by the company to every member.
 The representation shall be sent to the members at least 7 days before the GM.
 If the representation is not sent to the members the representation shall be read at the
GM.
5. The GM shall be held.
6. The director has a right to be heard at heard at the meeting the right to make an oral
representation is in addition is in addition to written representation.
7. The director shall be removed if OR is passed for his removal.
8. Any other person may by appoint at the place of the director removed only if special
notice of the new appointee was given to the company.
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RESIGNATION OF DIRECTOR [SECTION 168]

Position in the previous Act There was no provision in the previous Act. The provision, if any, in the
Articles applied— T. Murari v. State.

RESIGNATION BY A DIRECTOR—POSITION AS PER THE NEW ACT—SECTION 168

Director shall give notice of his resignation in writing

The resignation will be effective at date later of:

Date of receipt of resignation by company Date of effectiveness mentioned in resignation

WITH IN 30 DAYS Company shall file with ROC form number DIR 12 regarding resignation
by director within 30 days AND Director MAY file with ROC form number DIR 11 with reason
of resignation and copy of resignation within 30 days

A director may resign from his office by giving a notice in writing to the company and the Board shall
on receipt of such notice take note of the same and the company shall intimate the Registrar in such
manner, within such time and in such form as may be prescribed and shall also place the fact of such
resignation in the report of directors laid in the immediately following general meeting by the
company: Provided that a director MAY also forward a copy of his resignation along with detailed
reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be
prescribed.

The resignation of a director shall take effect from the date on which the notice is received by the
company or the date, if any, specified by the director in the notice, whichever is later:

Provided that the director who has resigned shall be liable even after his resignation for the offences
which occurred during his tenure.

Where all the directors of a company resign from their offices, or vacate their offices under section
167, the promoter or, in his absence, the Central Government shall appoint the required number of
directors who shall hold office till the directors are appointed by the company in general meeting.

ACTION BY THE COMPANY

Rule 15 of Companies (Appointment and Qualification of Directors) Rules,

The Board preferably at a meeting shall take note of such notice and the company shall intimate the
Registrar in Form DIR-12 with the fees and post the information on its websiteif any.

The Director Identification Number of the Director shall be mentioned in the intimation to the
Registrar as per Section 158.

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Rule 16 of Companies (Appointment and Qualification of Directors) Rules

The director shall shall with in 30 days from resignation forward to roc a copy og DIR 11

Provided that in case a company has already filed Form DIR-12 with the Registrar under Rule 15, a
foreign director of such company resigning from his office may authorise in writing a practising
chartered accountant or cost accountant in practice or company secretary in practice or any other
resident director of the company to sign Form DIR-11 and file the same on his behalf intimating the
reasons for the resignation.

CASE LAWS
S.NO. CASE NAME PROVISONS
1 L. Srinivasan v. Rasi A Director of respondent-company resigned from office as per
Nidhi Ltd. his letter of resignation dated 11-3-2002, but the company did not
file Form 32 (NOW DIR 12) with the ROC. The CLB observed
that the petitioner ceased to hold office w.e.f. 11-3-2002 without
prejudice to his liabilities and obligations which had occurred
upto that date and the company was directed to file Form 32
within 21 days of receipt of this order.
2 M. Lakshminarayanan The CLB observed that as the appointment of a Director is not of
v. Rasi Nidhi Ltd. bilateral character, the question of acceptance of the request to
relinquish the office would not arise and the resignation by a
Director is of an unilateral character and it comes into effect
when the intention is communicated to the Board and in law the
Board, to whom the act of relinquishment is communicated, is
not required to take any act of accepting the resignation
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CHAPTER-35 BOARD MEETINGS

MEETINGS OF BOARD AND ITS POWERS
BOARD MEETINGS [SECTIONS 173 TO 176]
Introduction
The affairs of a company are managed by the Board of Directors. It is, therefore, necessary
that the directors should often meet to discuss various matters regarding the management and
administration of the affairs of the company in the best interest of the shareholders and the
public interest.
Essentials of a Valid Board Meeting

1. Proper constitution of the Board of Directors;

2. Due notice in accordance with the provisions of Section 173 of the Companies Act, 2013
must have been issued by an authorized person.
3. Presence of a properly elected or chosen person in the chair; and
4. Proper quorum must be present for due transaction of business.

Number of Board Meetings [Sec. 173(1) & (5)]

FIRST BOARD MEETING
The Act provides that the first Board Meeting of a company shall be held within thirty days
of the date of incorporation.
SUBSEQUENT BOARD MEETING
In addition to the first meeting to be held within thirty days of the date of incorporation, there
shall be minimum of four Board meetings every year and not more one hundred and twenty
days shall intervene between two consecutive Board meetings.
It may be noted that the Central Government may, by notification, grant relaxation to any
class or description of companies form the aforesaid provisions.
HOWEVER, IN CASE OF

1. One Person Company (OPC)

2. Small company
3. Dormant company
4. Start up company

At least one Board meeting should be conducted in each half of the calendar year and the gap
between two meetings should not be less than ninety days. It may be noted that in the case of
OPC, no Board Meeting is required to be held, if there is only one director on its Board.

Participation in Board Meetings [Sec. 173(2)

The participation of directors in a meeting of the Board may be either in person or through
video conferencing or other audio visual means, as may be prescribed, which are capable of
recording and recognising the participation of the directors and of recording and storing the
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proceedings of such meetings along with date and time

Provided that the Central Government may, by notification, specify such matters which shall
not be dealt with in a meeting through video conferencing or other audio visual means.

Provided further that where there is quorum in a meeting through physical presence of
directors, any other director may participate through video conferencing or other audio visual
means in such meeting on any matter specified under the first proviso.

Matters not to be dealt with in a Meeting through Video-Conferencing or Other Audio-

Visual Means
Directors may participate in the meeting either in person or through video conferencing or
other audio visual means.
Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014, however,
provides that the following matters shall not be dealt with in any meeting through video
conferencing or other audio visual means :

1. The approval of the annual financial statements;

2. The approval of the Board’s report;
3. The approval of the prospectus;
4. The Audit Committee Meetings for consideration of accounts; and
5. The approval of the matter relating to amalgamation, merger, demerger, acquisition and
takeover.

Provided that where there is quorum presence in a meeting through physical of directors, any
other director may participate conferencing through video or other audio visual rneans
Notice of Board Meetings [Sec. 173(3) & (4)
The Act requires that not less than seven days’ notice in writing shall be given to every
director at the registered address as available with the company. The notice can be given by
hand delivery or by post or by electronic means.
In case the Board meeting is called at shorter notice, at least one independent director shall be
present at the meeting. If he is not present, then decision of the meeting shall be circulated to
all directors and it shall be final only after ratification of decision by at least one Independent
Director.
Every officer of the company, whose duty is to give notice and who fails to do so, shall be
punishable with fine which may extend to Rs. 25,000/-
Quorum of Board Meetings [Section 174]

1) The quorum for a meeting of the Board of Directors of a company shall be one-third
(any fraction contained in that one – third being rounded off as one) of its total strength or
two directors, whichever is higher, and the participation of the directors by video
conferencing or by other audio visual means shall also be counted for the purposes of
quorum under this sub-section.
2) The continuing directors may act notwithstanding any vacancy in the Board; but, if and so
long as their number is reduced below the quorum fixed by the Act for a meeting of the
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Board, the continuing directors or director may act for the purpose of increasing the
number of directors to that fixed for the quorum, or of summoning a general meeting of
the company and for no other purpose.
3) Where at any time the number of interested directors (as per Section 184) exceeds or is
equal to two-thirds of the total strength of the Board of Directors, the number of directors
who are not interested directors and present at the meeting, being not less than two, shall
be the quorum during such time. IN CASE OF PRIVATE LIMITED COMPANIES: INTERESTED
DIRECTOR MAY ALSO BE COUNTED TOWARDS QUORUM IN SUCH MEETING AFTER
DISCLOSURE OF HIS INTEREST PURSUANT TO SECTION 184.
4) Where a meeting of the Board could not be held for want of quorum, then, unless the
articles of the company otherwise provide, the meeting shall automatically stand
adjourned to the same day at the same time and place in the next week or if that day is a
national holiday, till the next succeeding day, which is not a national holiday, at the same
time and place.

“Interested Director” means any director whose presence cannot be counted for the purpose
of forming a quorum at a meeting of the board, at the time of discussion or vote on any
matter, i.e. a contract or arrangement, in which he is in anyway, whether directly or indirectly
concerned or interested. Thus, it follows that quorum at a board meeting must be a
“disinterested quorum”. In other words, it must consist of directors who are entitled to vote
on the particular motion before the Board.
It may be noted that in case of Board Meetings, quorum is required throughout the meeting.

Resolution by Circulation [Section 175]

A resolution shall be deemed to have been duly passed by the Board or by a committee
thereof by circulation, only if the resolution has been circulated in draft, together with the
necessary papers, if any, to all the directors, or members of the committee, as the case may
be, at their addresses registered with the company in India
1. By hand delivery or
2. By post or by courier, or
3. Through such electronic means as may be prescribed
And has been approved by a majority of the directors or members, who are entitled to vote on
the resolution.
However, where not less than one-third of the total number of directors of the company for
the time being require that any resolution under circulation must be decided at a meeting, the
chairperson shall put the resolution to be decided at a meeting of the Board.
It may be noted that a resolution passed by circulation shall be noted at a subsequent meeting
of the Board or the committee thereof, as the case may be, and made part of the minutes of
such meeting.
Validity of Acts of Directors [Section 176]
Acts done by a person, as a director shall be valid, notwithstanding that it may afterwards be
discovered that his appointment was invalid by reason of any defect or disqualification or had
terminated by virtue of any provision contained in this Act or in the articles

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Provided that nothing in this section shall be deemed to give validity to acts done by a
director after his appointment has been noticed by the company to be invalid or to have
terminated.

Appointment of Chairman
Most of the companies name, in their articles of association, the chairman of the meetings of
the Board of directors. Certain other companies incorporate in their articles a provision
corresponding to the provision of Regulation 70 of Table F of Schedule I to the Companies
Act, 2013, which provides the following :-

1. The board may elect a chairperson of its meetings and determine the period for which he
is to hold office.
2. If no such chairperson is elected or if at any meeting, the chairman is not present within 5
minutes after the time appointed for holding the meeting, the directors present may
choose one of their number to be chairperson of the meeting.

Casting Vote of Chairman

Regulation 68 of Table F of Schedule I to the Companies Act, 2013 provides that in the
case of an equality of votes, the Chairman of the Board shall have a second or casting vote.
Compliance with Secretarial Standards relating to Board Meeting
Section 118(10) of the Act reads as under:
Every company shall observe secretarial standards with respect to general and Board
meetings specified by the Institute of Company Secretaries of India constituted under section
3 of the Company Secretaries Act, 1980, and approved as such by the Central Government.
BOARD COMMITTEES [SECTIONS 177 & 178]
Introduction
Committees or ‘Board Committees or Committees of Board of Directors’ are usually formed
as means of improving board effectiveness and efficiency in areas where more focused,
specialized and technical discussions are required.
Committees of the Board. - The Board of directors of every listed company and a company
covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014
shall constitute an ‘Audit Committee’ and a ‘Nomination and Remuneration Committee of the
Board
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MANDATORY COMMITTEES FOR COMPANIES

Audit Committee. Section 177 (1) Nomination and Remuneration Stake-holder Relationship
Committee. Section 178(1) to (4)] Committee. Section 178(5).
Applicability
Applicability Applicability
a. Every listed public
Companies a. Every listed public Companies having more
b. The Public Companies having Companies than one thousand
paid up share capital of ten b. The Public Companies having
crore rupees or more; or members, debenture
paid up share capital of ten holders, deposit holders or
c. The Public Companies having
crore rupees or more; or
turnover of one hundred crore other security holders at
rupees or more; or c. The Public Companies having
turnover of one hundred crore
any time in a financial year
d. The Public Companies which
have, in aggregate, rupees or more; or
outstanding loans, debentures d. The Public Companies which
and deposits, exceeding fifty have, in aggregate,
crore rupees. outstanding loans, debentures
and deposits, exceeding fifty
Rule 4 of Companies (Appointment and
Qualification of Directors) rules 2014 crore rupees.
Rule 4 of Companies (Appointment and
Qualification of Directors) rules 2014

Audit Committee [Section 177

The Board meetings are usually held once in three months. Generally, policy matters are
discussed at the level of the Board. The Board does not have the benefit of in depth study of
the affairs of the company, especially the financial matters. This has been rectified now to
some extent by the constitution of Audit Committee.
Following are the important provisions pertaining to Audit Committee of Directors

The Committee shall comprise of minimum 3 directors with majority of the directors being
Independent Directors. The majority of members of audit committee including its
chairperson shall be person with ability to read and understand the financial statement.
177(2)
The functions of the Audit Committee includes 177(4)

 the recommendation for appointment, remuneration and terms of appointment of auditors

of the company
 review and monitor the auditor’s independence and performance, and effectiveness of
audit process
 examination of the financial statement and the auditors’ report thereon
 approval or any subsequent modification of transactions of the company with related
parties

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Provided that the Audit Committee may make omnibus approval for related party transactions
proposed to be entered into by the company subject to such conditions as prescribed under
rule 6A of MBP Rules 2016.
Provided further that in case of transaction, other than transactions referred to in section 188,
and where Audit Committee does not approve the transaction, it shall make its
recommendations to the Board:
Provided also that in case any transaction involving any amount not exceeding one crore
rupees is entered into by a director or officer of the company without obtaining the approval
of the Audit Committee and it is not ratified by the Audit Committee within three months
from the date of the transaction, such transaction shall be voidable at the option of the Audit
Committee and if the transaction is with the related party to any director or is authorised by
any other director, the director concerned shall indemnify the company against any loss
incurred by it:
Provided also that the provisions of this clause shall not apply to a transaction, other than a
transaction referred to in section 188, between a holding company and its wholly owned
subsidiary company.
 scrutiny of inter-corporate loans and investments;
 valuation of undertakings or assets of the company, wherever it is necessary;
 evaluation of internal financial controls and risk management systems;
 monitoring the end use of funds raised through public offers and related matters.
3. In addition to the auditor, the KMP shall also have a right to be heard in the meetings of
the Audit Committee when it considers the auditor’s report, though they shall not have
voting rights.

4. Every listed company and the companies belonging to the following class or classes shall
establish a vigil mechanism for their directors and employees to report genuine concerns
or grievances (Rule 7)

a) The companies which accept deposits from the public;

b) The companies which have borrowed money from banks and public financial institutions
in excess of fifty crore rupees.

5. The companies which are required to constitute an audit committee shall oversee the vigil
mechanism through the committee
6. In case of other companies, the Board of directors shall nominate a director to play the
role of audit committee for the purpose of vigil mechanism to whom other directors and
employees may report their concerns.

7. The Vigil Mechanism shall operate for directors and employees to enable them to bring to
report genuine concerns. Further the said mechanism shall provide safeguards against
victimization and provide for direct access to the chairperson of the Audit Committee in
appropriate or exceptional cases.

8. The details of establishment of the Vigil Mechanism is required to be disclosed by the

company on its website, if any and in the Board’s report.
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Nomination and Remuneration Committee [Section 178(1) to (4)]

The Nomination and Remuneration Committee helps the Board of Directors in the
preparations relating to the election of members of the Board of Directors, and in handling
matters within its scope of responsibility that relate to the conditions of employment and
remuneration of senior management, and to management’s and personnel’s remuneration and
incentive schemes. The responsibilities of the Remuneration and Nomination Committee are
defined in its policy document.

SPECIAL NOTE:
1. The companies shall consist of three or more non-executive directors out of which not
less than one-half shall be independent directors. The chairperson of the company may
be appointed as member, but shall not chair such committee.
2. The Nomination and Remuneration Committee shall identify persons who are qualified to
become directors and who may be appointed in senior management in accordance with
the criteria laid down, recommend to the Board their appointment and removal and shall
specify the manner for effective evaluation of performance of Board, its committees and
individual directors to be carried out either by the Board, by the Nomination and
Remuneration Committee or by an independent external agency and review its
implementation and compliance
3. The Committee shall formulate the criteria, for determining qualifications, positive
attributes and independence of a director and recommend to the Board the policy relating
to remuneration for directors, KMPs and other employees.

4. The Nomination and Remuneration Committee shall, while formulating the policy under
sub-section (3) ensure that—

 the level and composition of remuneration is reasonable and sufficient to attract, retain
and motivate directors of the quality required to run the company successfully

 relationship of remuneration to performance is clear and meets appropriate performance

benchmarks
 remuneration to directors, key managerial personnel and senior management involves a
balance between fixed and incentive pay reflecting short and long-term performance
objectives appropriate to the working of the company and its goals:
Provided that such policy shall be placed on the website of the company, if any, and the
salient features of the policy and changes therein, if any, along with the web address of the
policy, if any, shall be disclosed in the Board's report.
Stakeholders Relationship Committee [Section 178(5) to (8)]
Section 178(5) of the Companies Act, 2013 provides for constitution of the Stakeholders
Relationship Committee.
The company that has more than

1. One thousand shareholders,

2. Debenture-holders,
3. Deposit-holders

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4. Any other security holders

At any time during a financial year is required to constitute a Stakeholders Relationship

Committee consisting of a chairperson who shall be a non-executive director and such other
members as may be decided by the Board.
The Stakeholders Relationship Committee shall consider and resolve the grievances of
security holders of the company.
The Chairperson of the Committee or, in his absence, any other member of the committee
authorized by him in this behalf shall attend the general meetings of the company.
BOARD’S POWERS AND RESTRICTIONS THEREON [SECTIONS 179 TO 183]

General Powers of Board [Section 179(1) & (2)]

Subject to the provisions of the Companies Act, the Board of directors of a company shall be
entitled to exercise all such powers, and to do all such acts and things, as the company is
authorized to exercise and do. However, the Board shall not exercise any power or do any
act or thing which is directed or required, whether by this or any other Act or by the
memorandum or articles of the company or otherwise, to be exercised or done by the
company in general meeting [Sec. 179(1)].
However, in the following exceptional cases, the general body of shareholders is competent
to act even in matters delegated to the Board, for the inherent residuary and ultimate powers
of a company lie with the general body of shareholders :-
1. Director acting mala fide: The general body of shareholders can intervene when it is
proved that the directors have acted for improper motive or arbitrarily or capriciously.
[Satya Charan Lal v. Romeshwar Prasad Bajoria]

2. Incompetent Board: The general body of shareholders may exercise the powers vested
in the Board when the Board is incompetent to act, for instance, where all the directors
are interested in the transaction or the Board in unwilling to act, or when there are no
validly appointed directors functioning. Here, the shareholders in general meeting
appointed a director in casual vacancy, as there was no validly appointed director.
[Vishwanathan v. Tiffins B.A. and P. Ltd.]

3. Deadlock in the Board: If the directors are unable to act, on account of deadlock, the
shareholders have the inherent power to act.
Here, the shareholders in general meeting appointed additional directors, as the two existing
directors were not on talking terms. [Barron v. Potter]
The Board shall exercise any power subject to the regulations made by the company in
general meeting. However, it may be noted that no regulation made by the company in
general meeting shall invalidate any prior act of the Board which would have been valid if
that regulation had not been made [Sec. 179(2)].
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Certain Powers to be exercise by Board only at a Board Meeting [Sec. 179(3) & (4)]
Section 179(3) of the Companies Act, 2013 provides that the Board of directors of a
company shall exercise the following powers on behalf of the company, and it shall to do so
only by means of resolution passed at the meetings of the Board and not by circulation :-

a) To make calls on shareholders in respect of money unpaid on their shares

b) To authorize buy-back of securities under section 68
c) To issue securities, including debentures, whether in or outside India
d) To borrow monies
e) To invest the funds of the company
f) To grant loans or give guarantee or provide security in respect of loans
g) To approve financial statement and the Board’s report
h) To diversify the business of the company
i) To approve amalgamation, merger or reconstruction
j) To take over a company or acquire a controlling or substantial stake in another company
k) Any other matter which may be prescribed.

The Board may, however, by a resolution passed at a meeting, delegate to any committee of
directors, the managing director, the manager or any other principal officer of the company or
in the case of a branch office of the company, a principal officer of the branch office, the
powers specified in clauses (d), (e) and (f) to such an extent and on such conditions as the
Board may prescribe.
It may be noted provisions of clauses (d), (e) & (f) are not applicable on a Banking
Company.
Section 179(4) empowers the company in general meeting to impose restrictions and
conditions on the exercise by the Board of any of the powers specified in sub-section (3).
Other Powers to be exercised at Board Meetings:
Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014
In addition to the powers specified under sub-section (3) of section 179 of the Act, the
following powers shall also be exercised by the Board of Directors only by means of
resolutions passed at meetings of the Board:

1. To make political contributions

2. To appoint or remove key managerial personnel (KMP);
3. To take note of appointment(s) or removal(s) of one level below the Key Management
Personnel
4. To appoint internal auditors and secretarial auditor
5. To take note of the disclosure of director’s interest and shareholding
6. To buy, sell investments held by the company (other than trade investments), constituting
five percent or more of the paid up share capital and free reserves of the investee
company
7. To invite or accept or renew public deposits and related matters
8. To review or change the terms and conditions of public deposit

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9. To approve quarterly, half yearly and annual financial statements or financial results as
the case may be.

SECTIONS 179 AND 186 ARE NOT CONTRADICTORY

A HARMONIOUS APPLICATION OF THE TWO SECTIONS IS NEEDED
1. Section 179 is a “general” provision and provides, inter alia, that the Board may by
resolution, exercise the power to invest funds or to make loans or give guarantees or
provide security or where necessary, delegate the power to invest funds of the company
and to make loans etc.
2. But this power has to be exercised subject to the specific requirement of Section 186. On
the other hand, Section 186 contains “specific” provision as to how the Board shall carry
out the power to make loan to anybody corporate, give guarantee or provide security or
purchase the securities of anybody corporate and fix some limit for the Board.
3. Accordingly, for matters in respect of giving loan or security/guarantee to anybody
corporate or making investment in securities of any other body corporate, the specific
provisions of Section 186 have to be complied with by the Board and delegating these to
other persons pursuant to Section 179 does not arise.
4. Making investments other than investment in securities of anybody corporate can be
exercised by the Board or delegated under Section 179 which will not violate Section 186.
CASE LAWS ON BORROWING POWERS OF COMPANY

S.NO. CASE NAME PROVISONS

1 Garrard v. If the borrowing by the directors is ultra vires their powers, the
James directors may, in certain circumstances, be personally liable for
damages to the lender, on the ground of the implied warranty
given by them, that they had power to borrow
2 Deonarayan Prasad Sometimes it happens that a power to borrow exists but is
Bhadaniv. Bank of restricted to a stated amount, in such a case if by a single
Baroda, transaction an amount in excess is borrowed, only the excess
would be ultra vires and not the whole transaction
Sri Balasaraswathi The acquiescence of all shareholders in excess loans contracted
Ltd. v. by directors beyond their powers but not ultra vires the powers
ParameswaraAiyar, of the company would be sufficient to validate such excess
debts
Lakshmi Ratan If the borrowing is unauthorized, the company will be liable to
Cotton Mills Co. repay, if it is shown that the money had gone into the
Ltd. v. J.K. Jute company’s coffers
Mills Co. Ltd.
V.K.R.S.T Firm v. under the authority of the company, its managing director
Oriental Investment borrowed large sums of money and misappropriated it. The
Trust Ltd. company was held liable stating that where the borrowing is
within the powers of the company, the lender will not be
prejudiced simply because its officer have applied the loan to
unauthorized activities provided the lender had no knowledge
of the intended misuse.
3 In Equity Insurance it was held that “where the managing agent of a company who
Co. Ltd. v. is not authorised to borrow, has borrowed money which is not
Dinshaw& Co., necessary, neither bona fide, nor for the benefit of the company,
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the company is not liable for the amount borrowed”.

Restrictions on powers of Board [Section 180]

Section 180 shall not apply to private companies
1) The Board of Directors of a company shall exercise the following powers only with the
consent of the company by a special resolution, namely:-

a) To sell, lease or otherwise dispose of the whole or substantially the whole of the
undertaking of the company or where the company owns more than one undertaking, of
the whole or substantially the whole of any of such undertakings.
For the purposes of this clause

A. “Undertaking” shall mean an undertaking in which the investment of the company

exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding
financial year or an undertaking which generates twenty per cent. of the total income of
the company during the previous financial year
B. The expression “substantially the whole of the undertaking” in any financial year shall
mean twenty per cent. or more of the value of the undertaking as per the audited balance
sheet of the preceding financial year

b) To invest otherwise in trust securities the amount of compensation received by it as a

result of any merger or amalgamation

c) To borrow money, where the money to be borrowed, together with the money already
borrowed by the company will exceed aggregate of its paid-up share capital and free
reserves and security premium, apart from temporary loans obtained from the
company’s bankers in the ordinary course of business

Acceptance of deposits by banks not borrowing

The acceptance of deposits by a bank from the public in the ordinary course of business
repayable on demand or otherwise or withdrawable by cheque or otherwise shall not be
deemed to be borrowing by the banking company.
Meaning of temporary loan
The term “temporary loan” means loan repayable on demand or within six months from the
date of the loan such as short-term cash credit arrangement, the discounting of bills, or short-
term seasonal loans but does not include loan for the purpose of financial expenditure of
capital nature.
d) To remit, or give time for the repayment of, any debt due from a director.

2) Every special resolution passed by the company in general meeting in relation to the
exercise of the powers referred to in clause (c) of sub-section (1) shall specify the total
amount up to which monies may be borrowed by the Board of Directors

3) Nothing contained in clause (a) of sub-section (1) shall affect

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a) The title of a buyer or other person who buys or takes on lease any property, investment or
undertaking as is referred to in that clause, in good faith; or
b) The sale or lease of any property of the company where the ordinary business of the company
consists of, or comprises, such selling or leasing.
4) Any special resolution passed by the company consenting to the transaction as is referred
to in clause (a) of sub-section (1) may stipulate such conditions as may be specified in
such resolution, including conditions regarding the use, disposal or investment of the sale
proceeds which may result from the transactions:
Provided that this sub-section shall not be deemed to authorize the company to effect any
reduction in its capital except in accordance with the provisions contained in this Act
5) No debt incurred by the company in excess of the limit imposed by clause (c) of sub-
section (1) shall be valid or effectual, unless the lender proves that he advanced the loan
in good faith and without knowledge that the limit imposed by that clause had been
exceeded.

CASE LAWS

S.NO. CASE NAME PROVISONS

1 International Cotton Meaning of disposal of undertaking as per Section
Corporation (P) Ltd. v. Bank 180(1)(a)
of Maharashtra The Court held the view that the property of a company, which
is not connected with the essential part of the business activity
of the company and parting which will not have the effect of
affecting the business of the company, cannot be construed as
either being the undertaking or a part of the undertaking

VARIOUS CONTRIBUTIONS MADE BY COMPANY

Contributions to Charitable Political Contributions Contributions to National

Funds Defence Fund

[SECTION 181] [SECTION 182] [SECTION 183]

ANALYSIS OF 181 Vs 182 Vs 183

Heads Charitable Political Defence

Section 181 182 183
Applicable All Companies All Companies All
Companies
Not allowed To Government Companies and
to Companies incorporated less than 3
NA yrs NA
Limit of Upto 5% of average net No Limit No Limit
Contribution profit of last 3 years
Approvals Upto 5% = BR BR BR
Above 5% = OR
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CHAPTER-36 VIRTUAL MEETING

VIRTUAL MEETING – DEFINITION

A meeting held totally by means of either Video conferencing or other audio-visual means is
known as Virtual Meeting. A virtual meeting is when people around the world, regardless of
their location, use video, audio, and text to link up online. Virtual meetings allow people to
share information and data in real-time without being physically located together. In virtual
meeting there is no physical presence of participants and there is no designated venue for the
purpose of meetings. Participants located at different places participate in the meeting either
by teleconference or video conference or combination of them at predetermined time.

Virtual Meetings are held at a distance in real time basis with the help of digital technology.

THE MEETINGS ARE MAINLY

o audio- and/or video based, such as audio conferencing, video conferencing, and on-line
meetings or webinars, often they are supported by other forms like chat, white boards,
document sharing, etc.
o Audio conferencing means conference calls with three or more participants, either by
connecting the different participants by using a conference phone, or both.
o Video conferencing, a technology now a day commonly used in board meetings

Brief Requirements for Virtual Meeting

• Meeting rooms
• Software, which can be either purchased or can be provided by vendor for a fee on yearly
rental basis.
• Hardware equipment like Monitor or LED screen, Webcams.
• High quality mike system.
• Projectors.
• Document scanners.
• Leased Lines.
• High speed wireless internet.
• Have trial run before the meeting to ensure all the systems are working properly.
• Ensure that the proper arrangements are made in the Meeting room.

Virtual Board Meetings

Present day Directors’ who are professional have busy schedules which makes it difficult for
them to attend board meetings of the companies in which they are directors especially for
those who are living and working in different cities and countries. Teleconferencing,
videoconferencing, and meeting online benefit boards and directors to enable them to attend
the meetings from any location.

Virtual meetings help the directors to participate in meetings where ever they are despite their
busy schedule and make valuable contributions by their participation. Virtual attendance can
also make board participation more attractive and appealing especially for independent

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directors as they are not be expected attend every meeting in person and it is not practically
possible as they sit on many boards of company which are located in different cities countries
and due to statutory requirements most the board meetings of the companies especially listed
entities are held around the same time making it more difficult for the Independent
professional directors to be physically present and participate in the meetings.

By holding virtual meetings, Boards with members around the country and globe will benefit
from wider participation and it would be very convenient for the directors to attend through
virtual media from their respective location and also it helps from reduced travel and
reimbursement of costs.

The use of technology can present its own challenge, including directors’ reluctance, lack of
technical proficiency, lack of access to data and material. However, modern tools like board
portals and board management software and help in solving some of the concerns.

The Section 173 of Companies Act, 2013 read with Rule 3 & 4 of Companies
(Meetings of Board and its Powers) Rules, 2014 and Secretarial Standards on Board
meetings give a much wanted platform for holding virtual meetings ALREADY
EXPALINED IN CHAPTER OF BOARD MEEETING

Procedures for Convening and Conducting Board’s Meetings through video or Audio
Visual Means (Rule 3 of Companies (Meetings of Board and its powers) rules, 2014

1. Every Company shall make necessary arrangements to avoid failure of video or audio
visual connection.

2. The Chairperson of the meeting and the company secretary, if any, shall take due and
reasonable care, the same has been discussed above.

3. (a) The notices of the meeting shall be sent to all the directors in accordance with the
provisions of sub-section (3) of section 173 of the Act.

(b) The notice of the meeting shall inform the directors regarding the option available to
them to participate through video conferencing mode or other audio visual means, and
shall provide all the necessary information to enable the directors to participate through
video conferencing mode or other audio visual means.

(c) A director intending to participate through video conferencing mode or audio visual
means shall communicate his intention to the Chairman or the company secretary of the
company.

(d) If the director intends to participate through video conferencing or other audio visual
means, he shall give prior intimation to that effect sufficiently in advance so that
company is able to make suitable arrangement in this behalf.

(e) In the absence of any such intimation from the director, it shall be assumed that the
director will attend the meeting in person.
4. At the commencement of the meeting, a roll call shall be taken by the Chairperson when
every director participating through video conferencing or other audio visual means shall
state, for the record, the following namely
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o name
o the location from where he is participating;
o that he can completely and clearly see, hear and communicate with the other
participants;
o that he has received the agenda and all the relevant material for the meeting; and

5. After the roll call, the Chairperson or the Secretary shall inform the Board about the
names of persons other than the directors who are present for the said meeting at the
request or with the permission of the Chairman and confirm that the required quorum is
complete. The roll call shall also be made at the conclusion of the meeting and at the re-
commencement of the meeting after every break to confirm the presence of a quorum
throughout the meeting.

6. With respect to every meeting conducted through video conferencing or other audio
visual means authorised under these rules, the scheduled venue of the meeting as set forth
in the notice convening the meeting, shall be deemed to be the place of the said meeting
and all recordings of the proceedings at the meeting shall be deemed to be made at such
place.

7. The statutory registers which are required to be placed in the Board meeting as per the
provisions of the Act shall be placed at the scheduled venue of the meeting and where
such registers are required to be signed by the directors, the same shall be deemed to have
been signed by the directors participating through electronic mode if they have given their
consent to this effect and it is so recorded in the minutes of the meeting.

8. Every participant shall identify himself for the record before speaking on any item of
business on the agenda. If a statement of a director in the meeting through video
conferencing or other audio visual means is interrupted or garbled, the Chairperson or
company secretary shall request for a repeat or reiteration by the director.

9. If a motion is objected to and there is a need to put it to vote, the Chairperson shall call
the roll and note the vote of each director who shall identify himself while casting his
vote

10. From the commencement of the meeting until the conclusion of such meeting, no person
other than the Chairperson, directors, Secretary and any other person whose presence is
required by the Board shall be allowed access to the place where any director is attending
the meeting either physically or through video conferencing without the permission of the
Board.

11. At the end of discussion on each agenda item, the Chairperson of the meeting shall
announce the summary of the decision taken on such item along with names of the
directors, if any, dissented from the decision taken by majority. The minutes shall
disclose the particulars of the directors who attended the meeting through video
conferencing or other audio visual means

12. The draft minutes of the meeting shall be circulated among all the directors within fifteen
days of the meeting either in writing or in electronic mode as may be decided by the
Board. Every director who attended the meeting, whether personally or through video

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conferencing or other audio visual means, shall confirm or give his comments, about the
accuracy of recording of the proceedings of that particular meeting in the draft minutes,
within seven days or some reasonable time as decided by the Board, after receipt of the
draft minutes failing which his approval shall be presumed. After completion of the
meeting, the minutes shall be entered in the minute book as specified under section 118 of
the Act and signed by the Chairperson.

Virtual AGM/EGMs

Section-108 of the Companies Act, 2013 provides for Voting through electronic means. —
The Central Government may prescribe the class or classes of companies and manner in
which a member may exercise his right to vote by the electronic means General meetings,
particularly when large numbers of shareholders are involved, can be very expensive and are
not considered to be a cost-effective.

companies may find virtual meetings help to achieve wider shareholders participation. Virtual
annual meetings offer benefits to both companies and shareholders. With companies and
investors becoming increasingly global, virtual meetings can save travel time and costs for
shareholders, avoid traffic and other logistical delays and be easier to schedule. It will also
eliminate the costs of an in-person meeting, including travel for shareholders and a
company’s directors and management, thereby allowing shareholders more time to attend
more meetings in which they hold shares, as well as minimizing the amount of time that
directors and management must spend at meetings. This in turn will increase the participation
of shareholders who would otherwise not attend the meetings.

Advantages of Virtual AGM/EGMs

• Increase shareholder participation in meetings,

• Save time on travel and cost because of remote voting.
• Encourages more participation by investors across the world.
• Provides greater accessibility to shareholders who cannot be physically present due to
distance.
• Enables institutional investors to attend more than one meeting in a day and protect
shareholders interest.
• Reduce the cost of holding and conducting shareholder meeting, including the costs of the
venue, stationary, transport and refreshments.
• Saves time of the Company’s personal.
Difficulties in holding Virtual Meetings of Members:

• Security of the systems used.

• Streaming with quality without interruption.
• Providing with secure login and shareholder authentication for attendance, with ease of
access for shareholders, and remote voting.
• Combined registration, voting and reporting software.
• Customized instant results screen and detailed audit reporting.
• Data Security of Logins and Passwords.
• Allowing the shareholders, the choice of device.
• the technology used must give all shareholders a reasonable opportunity to participate
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CHAPTER-37 LOAN TO DIRECTORS AND RPT

Disclosure of Interest, Loan to directors and Related Party Transactions
184. (1) Every director shall at the first meeting of the Board in which he participates as a
director and thereafter at the first meeting of the Board in every financial year or whenever
there is any change in the disclosures already made, then at the first Board meeting held after
such change, disclose his concern or interest in any company or companies or bodies
corporate, firms, or other association of individuals which shall include the shareholding, in
FORM MBP-1
(2) Every director of a company who is in any way, whether directly or indirectly, concerned
or interested in a contract or arrangement or proposed contract or arrangement entered into or
to be entered into

(a) with a body corporate in which such director or such director in association with any other
director, holds more than two per cent. shareholding of that body corporate, or is a promoter,
manager, Chief Executive Officer of that body corporate; or
(b) with a firm or other entity in which, such director is a partner, owner or member, as the
case may be, shall disclose the nature of his concern or interest at the meeting of the Board in
which the contract or arrangement is discussed and shall not participate in such meeting:
Provided that where any director who is not so concerned or interested at the time of entering
into such contract or arrangement, he shall, if he becomes concerned or interested after the
contract or arrangement is entered into, disclose his concern or interest forthwith when he
becomes concerned or interested or at the first meeting of the Board held after he becomes so
concerned or interested.
(3) A contract or arrangement entered into by the company without disclosure under sub-
section (2) or with participation by a director who is concerned or interested in any way,
directly or indirectly, in the contract or arrangement, shall be voidable at the option of the
company.
(4) If a director of the company contravenes the provisions of sub-section (1) or subsection
(2), such director shall be "liable to a penalty of one lakh rupees. (COMPANIES
AMENDMENT ACT 2020)

(5) Nothing in this section

(a) shall be taken to prejudice the operation of any rule of law restricting a director of a
company from having any concern or interest in any contract or arrangement with the
company;
(b) shall apply to any contract or arrangement entered into or to be entered into between two
companies or between one or more companies and one or more bodies corporate where any
of the directors of the one company or body corporate or two or more of them together holds
or hold not more than two per cent. of the paid-up share capital in the other company or the
body corporate.

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ANALYSIS ON SECTION 184

OBJECT OF DISCLOSURE OF INTEREST

The directors are in a position of trustees under common law and they have a fiduciary
relation towards the company and its shareholders, so as to ascertain whether he is acting for
his own benefit or in any way prejudice to the interest of the company.
REQUIREMENT FOR DISCLOSURE OF NATURE OF INTEREST WHETHER DIRECT OR
INDIRECT

A director is said to be directly concerned or interested in a contract or arrangement, when he

himself has personal interest in a particular contract or arrangement, whereas a director is
said to be indirectly concerned or interested when any of his relatives and associates has got
personal interest in the particular contract or arrangement.
REQUIREMENT FOR DISCLOSURE OF INTEREST IS APPLICABLE TO ALL COMPANIES

The section is applicable to all companies. The provisions section 184 of the Companies Act,
2013 are also applicable to directors nominated by the Government on the Board of any
company. Therefore, all directors are required to give the notice of disclosure, in writing.
It is equally applicable to the alternate director including the directors appointed by the
financial institutions and the Central Government.
METHOD OF DISCLOSURE BY A GENERAL NOTICE

Section 184(2) deals with the mode of disclosure.

A general notice given to the Board by a director, to the effect that he is a director or a
member of a specified body corporate or is a member of a specified firm and is to be regarded
as concerned or interested in any contract or arrangement which may, after the date of the
notice, be entered into with that body corporate or firm, shall be deemed to be a sufficient
disclosure of concern or interest in relation to any contract or arrangement so made.
CONTENTS OF NOTICE

1. He is a director of a specified body corporate(s).

2. He is a member of a specified body corporate(s).
3. He is a member of a specified firm. This also includes member of HUF, sole proprietary
or charitable concern.
4. He has indirect interest as he is interested through his relatives in specified body
corporate(s) or firm.
VALIDITY OF GENERAL NOTICE

Any such general notice shall expire at the end of the financial year in which it is given, but
may be renewed for further period of one financial year at a time, by a fresh notice given in
the last month of the financial year in which it would otherwise expire. [Section 184(1)]
GIVING OR READING OF GENERAL NOTICE AT BOARD MEETING.

Section 184 provides that no general notice as described under section 184, and no renewal
thereof, shall be of effect unless either it is given at a meeting of the Board, or the director
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concerned takes reasonable steps to secure that it is brought upon and read at the first meeting
of the Board after it is given.
FORM FOR DISCLOSURE

It should be made in the prescribed Form MBP-1

DUTY OF THE DIRECTOR TO SEE THAT HIS NOTICE OF INTEREST HAS BEEN DISCLOSED AT THE
BOARD MEETING

Rule 9(2) provides that it shall be the duty of the director giving notice of interest to cause it
to be disclosed at the meeting held immediately after the date of the notice.
NOTICE OF DISCLOSURE NEEDS TO BE KEPT AT THE REGISTERED OFFICE AND ITS
PRESERVATION

Section 184(3) read with Rule 9(3) which provides that all notices shall be kept at the
registered office and such notices shall be preserved for a period of 8 years from the end of
the financial year to which it relates and shall be kept in the custody of the secretary of the
company or any other person authorized by the Board for the purpose.
REQUIREMENT OF DISCLOSURE IF A DIRECTOR BECOMES CONCERNED OR INTERESTED
AFTER ENTERING INTO CONTRACT BY THE COMPANY

It has been provided that where any director who is not so concerned or interested at the time
of entering into such contract or arrangement, he shall, if he becomes concerned or interested
after the contract or arrangement is entered into, disclose his concern or interest forthwith
when he becomes concerned or interested or at the first meeting of the Board held after he
becomes so concerned or interested.
CONTRACTS WITHOUT DISCLOSURE OF INTEREST BY A DIRECTOR SHALL BE VOIDABLE
AT THE OPTION OF THE COMPANY

Section 184(3) provides that a contract or arrangement entered into by the company without
disclosure under section 184(2) or with participation by a director who is concerned or
interested in any way, directly or indirectly, in the contract or arrangement, shall be voidable
at the option of the company.

LOAN TO DIRECTORS, ETC. [SECTION 185]

THIS SECTION HAS BEEN SUBSTITUTED BY COMPANIES AMENDMENT ACT 2017

For section 185 of the principal Act, the following section shall be substituted, namely:

185 (1) No company shall, directly or indirectly, advance any loan, including any loan
represented by a book debt to, or give any guarantee or provide any security in connection
with any loan taken by,—

(a) any director of company, or of a company which is its holding company or any partner
or relative of any such director; or

(b) any firm in which any such director or relative is a partner.

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(2) A company may advance any loan including any loan represented by a book debt, or give
any guarantee or provide any security in connection with any loan taken by any person in
whom any of the director of the company is interested, subject to the condition that—

(a) a special resolution is passed by the company in general meeting:

Provided that the explanatory statement to the notice for the relevant general meeting shall
disclose the full particulars of the loans given, or guarantee given or security provided and the
purpose for which the loan or guarantee or
security is proposed to be utilised by the recipient of the loan or guarantee or security and any
other relevant fact; and

(b) the loans are utilised by the borrowing company for its principal business activities.

Explanation.—For the purposes of this sub-section, the expression "any person in whom any
of the director of the company is interested" means—

(a) any private company of which any such director is a director or member;
(b) any body corporate at a general meeting of which not less than twenty-five per cent. of
the total voting power may be exercised or controlled by any such director, or by two
or more such directors, together; or
(c) any body corporate, the Board of directors, managing director or manager, whereof is
accustomed to act in accordance with the directions or instructions of the Board, or of
any director or directors, of the lending company.

(3) Nothing contained in sub-sections (1) and (2) shall apply to—
(a) the giving of any loan to a managing or whole-time director—

(i) as a part of the conditions of service extended by the company to all its employees;
or
(ii) pursuant to any scheme approved by the members by a special resolution; or

(b) a company which in the ordinary course of its business provides loans or gives
guarantees or securities for the due repayment of any loan and in respect of such loans
an interest is charged at a rate not less than the rate of prevailing yield of one year,
three year, five year or ten year Government security closest to the tenor of the loan; or

(c) any loan made by a holding company to its wholly owned subsidiary company or any
guarantee given or security provided by a holding company in respect of any loan made
to its wholly owned subsidiary company; or
(d) any guarantee given or security provided by a holding company in respect of loan made
by any bank or financial institution to its subsidiary company:

Provided that the loans made under clauses (c) and (d) are utilised by the subsidiary company
for its principal business activities.

(4) If any loan is advanced or a guarantee or security is given or provided or utilised in

contravention of the provisions of this section,-
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(i) the company shall be punishable with fine which shall not be less than five lakh
rupees but which may extend to twenty-five lakh rupees,
(ii) every officer of the company who is in default shall be punishable with imprisonment
for a term which may extend to six months or with fine which shall not be less than
five lakh rupees but which may extend to twenty-five lakh rupees; and

the director or the other person to whom any loan is advanced or guarantee or security is
given or provided in connection with any loan taken by him or the other person, shall be
punishable with imprisonment which may extend to six months or with fine which shall not
be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.”

Section 185 applies to the loans, etc. given by a company 'directly or indirectly'
Section 185 applies to the loans, etc. given by a company 'directly or indirectly'. Indirect loan
means that the company shall not give a loan through the agency of one or more
intermediaries, the word 'indirectly' in the section cannot be read as converting what is not a
loan into a loan. As such, a debt, which is not in the nature of loan cannot be said to be the
case of an indirect loan. Fredie Ardeshir Mehta (Dr.) v Union of India.

Restrictions apply only at the time of entering into the transaction

The section is applicable only at the time of granting the loan and any change in
circumstances thereafter will not make the section applicable. Thus, section 185 will not be
attracted in respect of a loan given to an employee, who does not fall within the ambit of
specified persons as listed above, but who subsequently becomes a member of the Board,
because at the time of the loan, no contravention was involved.
Non-applicability of the provisions of section 185 in certain cases
1. Any loan made to an employee of the company, who is not a relative of any director
2. Any loan or advance made to a trust in which directors are trustees
3. Any advance or deposit made in connection with leasing/hire-purchase transaction
4. Any advance payment of salary given to an employee who is a relative of a director as per
the rules of the company; [M.R. Electronic Components Ltd. v Asst. Registrar of
Companies]
5. Any investment made in acquiring residential accommodation for director(s) (whether by
way of purchase or entering into a lease agreement)
6. House building loan given to a director subject to the guidelines issued for that purpose
by the Central Government
7. Any loan made to a Registered Co-operative Society

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RELATED PARTY TRANSACTIONS [SECTION 188]

CHART ANALYSIS ON SECTION 188

COMPANY Related Parties

SECTION 2(76)

7 TYPES OF CONTRACT (SECTION 188(1)

a. Sale, purchase or supply of any goods or materials;
b. Selling or otherwise disposing of, or buying, property of any kind;
c. Leasing of property of any kind;
d. Availing or rendering of any services;
e. Appointment of any agent for purchase or sale of goods, materials, services or property
f. Such related party’s appointment to any office or place of profit in the company, its subsidiary company or
associate company; and
g. Underwriting the subscription of any securities or derivatives thereof, of the company.

Special Contracts Under Rule 15 Other Contracts

GM – OR & BOD RESOLTION BOD

Board of Directors Ordinary Resolution only at BOD- Board of Directors Resolution

Board meeting. (within 3 mths of contract) only at Board meeting. (within 3 mths
 Prior GM-SR: Prior O/R at General Meeting of contract)

SECTION 188
1) Except with the consent of the Board of Directors given by a resolution at a meeting of
the Board and subject to such conditions as may be prescribed, no company shall enter
into any contract or arrangement with a related party with respect to –

a) Sale, purchase or supply of any goods or materials;

b) Selling or otherwise disposing of, or buying, property of any kind;
c) Leasing of property of any kind;
d) Availing or rendering of any services;
e) Appointment of any agent for purchase or sale of goods, materials, services or property;
f) Such related party’s appointment to any office or place of profit in the company, its
subsidiary company or associate company; and
g) Underwriting the subscription of any securities or a derivatives thereof, of the company:
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Provided that no contract or arrangement, in the case of a company having a paid-up share
capital of not less than such amount, or transactions not exceeding such sums, as may be
prescribed, shall be entered into except with the prior approval of the company by a ordinary
resolution:
Provided further that no member of the company shall vote on such ordinary resolution, to
approve any contract or arrangement which may be entered into by the company, if such
member is a related party. (This proviso is not applicable on private company)
Provided also that nothing contained in the second proviso shall apply to a company in which
ninety per cent. or more members, in number, are relatives of promoters or are related parties:

Provided also that nothing in this sub-section shall apply to any transactions entered into by
the company in its ordinary course of business other than transactions which are not on an
arm’s length basis.
Provided also that that the requirement of passing the resolution under the first proviso shall
not be applicable for transactions entered between a holding company and its wholly owned
subsidiary whose accounts are consolidated with such holding company and have been placed
before the shareholders for their approval

SPECIAL NOTE: First and second proviso to subsection (1) of section 188

Shall not apply to - (a) a Government company in respect of contracts or arrangements

entered into by it with any other Government company, or with Central Government or any
State Government or any combination thereof; (b) a Government company, other than a listed
company, in respect of contracts or arrangements other than those referred to in clause (a), in
case such company obtains approval of the Ministry or Department of the Central
Government which is administratively in charge of the company, or, as the case may be, the
State Government before entering into such contract or arrangement.

The expression “office or place of profit” means any office or place

1. Where such office or place is held by a director, if the director holding it receives from
the company anything by way of remuneration over and above the remuneration to which
he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free
accommodation, or otherwise
2. Where such office or place is held by an individual other than a director or by any firm,
private company or other body corporate, if the individual, firm, private company or body
corporate holding it receives from the company anything by way of remuneration, salary,
fee, commission, perquisites, any rent-free accommodation, or otherwise;

The expression “arm’s length transaction” means a transaction between two related parties
that is conducted as if they were unrelated, so that there is no conflict of interest.
2) Every contract or arrangement entered into under sub-section (1) shall be referred to in
the Board’s report to the shareholders along with the justification for entering into such
contract or arrangement.
3) Where any contract or arrangement is entered into by a director or any other employee,
without obtaining the consent of the Board or approval by a ordinay resolution in the

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general meeting under sub-section (1) and if it is not ratified by the Board or, as the case
may be, by the shareholders at a meeting within three months from the date on which
such contract or arrangement was entered into, such contract or arrangement shall be
voidable at the option of the Board or, as the case may be, of shareholders and if the
contract or arrangement is with a related party to any director, or is authorised by any
other director, the directors concerned shall indemnify the company against any loss
incurred by it.
4) Without prejudice to anything contained in sub-section (3), it shall be open to the
company to proceed against a director or any other employee who had entered into such
contract or arrangement in contravention of the provisions of this section for recovery of
any loss sustained by it as a result of such contract or arrangement.
5) Any director or any other employee of a company, who had entered into or authorized the
contract or arrangement in violation of the provisions of this section shall,

A. In case of listed company, liable to a penalty of twenty-five lakh rupees.

B. In case of any other company, "liable to a penalty of five lakh rupee. (COMPANIES
AMENDMENT ACT 2020)

When prior approval of company by ordinary resolution required for related party
transactions [Rule 15 of Companies (Meeting of Board and its Powers) Rules, 2014

S.NO. TRANSACTION WHEN ORDINARY RESOLUTION IS REQUIRED

1 Sale, purchase or supply of any Equal to or more than ten per cent. of the turnover of
goods or materials, directly or the company.
through appointment of agent,
2 Selling or otherwise disposing Equal to or more than ten per cent. of net worth of the
of or buying property of any company.
kind, directly or through
appointment of agent,
3 Leasing of property of any kind Equal to or more than ten per cent. of turnover of the
company

4 Availing or rendering of any Equal to or more than ten per cent. of the turnover of
services, directly or through the company
appointment of agent,
5 Is for appointment to any office At a monthly remuneration exceeding two and half lakh
or place of profit in the rupees
company, its subsidiary
company or associate company
6 Is for remuneration for Exceeding one per cent. of the net worth
underwriting the subscription
of any securities or derivatives
thereof, of the company

Explanation.-

The Turnover or Net Worth referred in the above sub-rules shall be computed on the basis of
the Audited Financial Statement of the preceding Financial year.

The explanatory statement to be annexed to the notice of a general meeting convened

pursuant to section 101 shall contain the following particulars, namely
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(a) name of the related party

(b) name of the director or key managerial personnel who is related, if any
(c) nature of relationship
(d) nature, material terms, monetary value and particulars of the contract or arrangement
(e) any other information relevant or important for the members to take a decision on the
proposed resolution

Meaning of ‘Related Party: Section 2(76) Meaning of ‘Relative:

Section 2(77)
i. A director or his relative; As per this, a person shall be deemed to a
ii. A key managerial personnel or his relative; relative of another if, and only if
iii. A firm, in which a director, manager or his 1. They are the members of a HUF
relative in a partner; 2. They are husband and wife; or
iv. A private company in which a director or 3. The one is related to the other in the
manager or his relative is a member or manner indicated in Rule 4 of
director; Companies (Specification of
v. A public company in which a director or definitions details) Rules, 2014.
manager is a director and holds along with
his relatives, more than two per cent. of its As per aforesaid Rule 4, a person shall
paid-up share capital; be deemed to be the relative of another, if
vi. Anybody corporate whose Board of he or she is related to another in the
Directors, managing director or manager is following manner, namely
accustomed to act in accordance with the
advice, directions or instructions of a director 1. Father (includes step-father);
or manager; 2. Mother (includes step-mother)
vii. Any person on whose advice, directions or 3. Son (includes step-son)
instructions a director or manager is 4. Son’s wife
accustomed to act: Provided that nothing in 5. Daughter
sub-clauses (vi) and (vii) shall apply to the 6. Daughter’s husband
advice, directions or instructions given in a 7. Brother (includes step-brother)
professional capacity 8. Sister (includes step-sister)

viii. any body corporate which is

(A) a holding, subsidiary or an associate company of

such company;

(B) a subsidiary of a holding company to which it is

also a subsidiary; or

(C) an investing company or the venturer of the

company;";

Explanation.—For the purpose of this clause, “the

investing company or the venturer of a company”
means a body corporate whose investment in the
company would result in the company becoming an
associate company of the body corporate

ix. such other person as may be prescribed.

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It may be noted that for the purpose of sub-clause

(ix) of clause (76) of Section 2, a director (other
than an independent director) or key managerial
person of the holding company or his relative with
reference to a company, shall be deemed to be a
related party. [Rule 3]

Does section 188 apply to corporate restructuring decisions?

It is clarified vide General Circular no. 30/2014 dated 17th July, 2014 that transactions
arising out of Compromises, Arrangements and Amalgamations dealt with under specific
provisions of the Companies Act, 2013, will not attract the requirements of section 188 of
the Companies Act, 2013.
New Rule 6A inserted vide Notification No. 14.12.2015

Companies (Meetings of Board and its Powers) Second Amendment Rules, 2015

All related party transactions shall require approval of the Audit Committee and the Audit
Committee may make omnibus approval for related party transactions proposed to be entered
into by the company subject to the following conditions,:-

The Audit Committee shall, after obtaining approval of the Board of Directors, specify the
criteria for making the omnibus approval which shall include the following, namely:-

 Maximum value of the transactions, in aggregate, which can be allowed under

the omnibusroute in a year;
 The maximum value per transaction which can be allowed;
 Extent and manner of disclosures to be made to the Audit the time of
seeking omnibusapproval;
 Review, at such intervals as the Audit Committee may deem fit, related Party Transaction
entered into by the company pursuant to each of the omnibus approval made;
 Transactions which cannot be subject to the omnibus approval by the Audit Committee.

The Audit Committee shall consider the following factors while specifying the criteria for
making omnibus approval, namely:

 Repetitiveness of the transactions (in past or in future);

 Justification for the need of omnibus approval.

The Audit Committee shall satisfies itself on the need for omnibus Approval for transaction
of repetitive nature and that such approval is in the interest of the Company

The omnibus approval shall contain the following:

o Name of the related parties

o Nature and duration of the transaction
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o Maximum amount of transaction that can be entered into

o The indicative base price or current contracted price and the formula for variation in the
price, if any
o Any other information relevant or important for the Audit Committee to take a decision on
the proposed transaction

Provided that where the need for related party transaction cannot be foreseen and aforesaid
details are not available, audit committee may make omnibus approval for such transactions
subject to their value not exceeding rupees one crore per transaction

Omnibus approval shall be valid for a period not exceeding one financial year and shall
require fresh approval after the expiry of such financial year.

Omnibus approval shall not be made for transactions in respect of selling or disposing of
the undertaking of the Company.
Any other conditions as the Audit Committee may deem fit.

Register of Contracts or Arrangements in which Directors are Interested [Section 189]

Every company, whether private or public, shall keep a Register and enter therein particulars
of all contracts or arrangements to which section 189 applies as under
a) The date of the contract/arrangement
b) The name of the parties with whom the contract entered into
c) The principal terms and conditions thereof
d) The date on which the contracts were placed before the Board
e) The names of directors voting in favour or against the contract or arrangement and name
of those remaining neutral
However, particulars of following contracts or arrangements need not be entered in the
Register of contracts in which directors are interested
a. Any contract or arrangement for the sale, purchase or supply of any goods, materials or
services if the value does not exceed 5,00,000 in the aggregate in any year
b. Any contract or arrangement by a banking company for the collection of bills in the
ordinary course of its business or to any transaction referred to therein
c. Any transaction by a banking or insurance company in the ordinary course of business of
such company with any director, relative, firm, partner of the firm referred to in section
188(c) of the Act
SPECIAL NOTE:

1. Every company is required to keep one or more registers in Form MBP 4 giving
separately the particulars of all contracts or arrangements to which Section 184 or Section
188 applies. Rule 16(1) of the Companies (Meetings of Board and its Powers) Rules,
2014
2. Such register is required to be placed before the next meeting of the Board, whenever a
new entry is made in this Register, and shall be signed by all the directors present at the
meeting.

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3. Every director within thirty days of his appointment or relinquishment is required to

disclose his concern or interest in other associations, which are required to be included in
the register.
4. The register be kept at the registered office of the company and also open for inspection
during business hours. The company shall provide extracts from such register to a
member of the company on his request, within seven days from the date on which such
request is made upon the payment of such fee as may be specified in the articles of the
company but not exceeding ten rupees per page.
5. Every director who fails to comply is liable to a penalty of twenty-five thousand rupees.

PROCEDURE FOR ENTERING INTO A RELATED PARTY TRANSACTION

1. A notice of Board meeting as per section 173 with additional requirement of Section
188(1). The notice of the meeting shall disclose the following agenda
 Name of related party and nature of relationship;
 Nature, duration and particular of the contract or arrangement;
 Material terms of the contract or arrangement including value;
 Any advance paid or received, if any;
 Any other relevant information
2. Information that any directors who are interested in the related party transactions shall not
be present at the meeting during the discussion
3. Where any transaction/paid up capital is under the threshold limits, the board shall pass a
board resolution to approve the related party transaction
4. Where any transaction/paid up capital is above the following threshold limits, the board
shall issue a notice for convening a general meeting as per Section 101 and 102 of the Act
5. All related party transaction to be discussed in the general meeting shall be passed as ordinary
resolution
Contract of employment with managing or whole-time directions SECTION 190

(1) Every company shall keep at its registered office

(a) where a contract of service with a managing or whole-time director is in writing, a copy
of the contract; or (b) where such a contract is not in writing, a written memorandum setting
out its terms.

(2) The copies of the contract or the memorandum kept under sub-section (1) shall be open to
inspection by any member of the company without payment of fee.

(3) If any default is made in complying with the provisions of sub-section (1) or sub-section
(2), the company shall be liable to a penalty of twenty-five thousand rupees and every officer
of the company who is in default shall be liable to a penalty of five thousand rupees for each
default.

(4) The provisions of this section shall not apply to a private company.
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CONTRACT OF EMPLOYMENT WITH MD OR WTD (SEC. 190)

Case A Case B

Contract of service with MD / WTD Contract of service with MD / WTD

is in writing is NOT in writing

Contract of service shall be kept at the A memorandum containing the terms of

registered office service shall be kept at registered office

Payment to director for loss of office, etc., in connection with transfer of undertaking,
property or shares SECTION 191

(1) No director of a company shall, in connection with

(a) the transfer of the whole or any part of any undertaking or property of the company; or
(b) the transfer to any person of all or any of the shares in a company being a transfer
resulting from—
(i) an offer made to the general body of shareholders;
(ii) an offer made by or on behalf of some other body corporate with a view to a company
becoming a subsidiary company of such body corporate or a subsidiary company of its
holding company;
(iii) an offer made by or on behalf of an individual with a view to his obtaining the right to
exercise, or control the exercise of, not less than one-third of the total voting power at any
general meeting of the company; or

(iv) any other offer which is conditional on acceptance to a given extent, receive any payment
by way of compensation for loss of office or as consideration for retirement from office, or in
connection with such loss or retirement from such company or from the transferee of such
undertaking or property, or from the transferees of shares or from any other person, not being
such company, unless particulars as may be prescribed with respect to the payment proposed
to be made by such transferee or person, including the amount thereof, have been disclosed to
the members of the company and the proposal has been approved by the company in general
meeting.

(2) Nothing in sub-section (1) shall affect any payment made by a company to a managing
director or whole-time director or manager of the company by way of compensation for loss
of office or as consideration for retirement from office or in connection with such loss or
retirement subject to limits or priorities, as may be prescribed.

(3) If the payment under sub-section (1) or sub-section (2) is not approved for want of
quorum either in a meeting or an adjourned meeting, the proposal shall not be deemed to
have been approved.

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(4) Where a director of a company receives payment of any amount in contravention of sub-
section (1) or the proposed payment is made before it is approved in the meeting, the amount
so received by the director shall be deemed to have been received by him in trust for the
company.

(5) If a director of the company contravenes the provisions of this section, such director shall
be punishable with fine which shall not be less than twenty-five thousand rupees but which
may extend to one lakh rupees.

(6) Nothing in this section shall be taken to prejudice the operation of any law requiring
disclosure to be made with respect to any payment received under this section or such other
like payments made to a director.

Restriction on non-cash transactions involving directors SECTION 192

(1) No company shall enter into an arrangement by which—

(a) a director of the company or its holding, subsidiary or associate company or a person
connected with him acquires or is to acquire assets for consideration other than cash, from the
company; or
(b) the company acquires or is to acquire assets for consideration other than cash, from such
director or person so connected,

unless prior approval for such arrangement is accorded by a resolution of the company in
general meeting and if the director or connected person is a director of its holding company,
approval under this sub-section shall also be required to be obtained by passing a resolution
in general meeting of the holding company.

(2) The notice for approval of the resolution by the company or holding company in general
meeting under sub-section (1) shall include the particulars of the arrangement along with the
value of the assets involved in such arrangement duly calculated by a registered valuer.

(3) Any arrangement entered into by a company or its holding company in contravention of
the provisions of this section shall be voidable at the instance of the company unless—
(a) the restitution of any money or other consideration which is the subject matter of the
arrangement is no longer possible and the company has been indemnified by any other person
for any loss or damage caused to it; or
(b) any rights are acquired bona fide for value and without notice of the contravention of the
provisions of this section by any other person.
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RESTRICTION ON NON-CASH TRANSACTIONS INVOLVING DIRECTORS (SEC. 192)

 Director of company, its

holding company, its
COMPANY subsidiary company or its
Arrangement: associates company
Any party acquires or is to acquire assets  A person connected with
for consideration other than cash such director

PRIOR APPROVAL IN GM OF THE COMPANY IS REQUIRED

Prior approval in GM of the holding company is also required (if the director or connected person is
a director of the holding company)

Contract by One Person Company SECTION 193

(1) Where One Person Company limited by shares or by guarantee enters into a contract with
the sole member of the company who is also the director of the company, the company shall,
unless the contract is in writing, ensure that the terms of the contract or offer are contained in
a memorandum or are recorded in the minutes of the first meeting of the Board of Directors
of the company held next after entering into contract:

Provided that nothing in this sub-section shall apply to contracts entered into by the company
in the ordinary course of its business.

(2) The company shall inform the Registrar about every contract entered into by the company
and recorded in the minutes of the meeting of its Board of Directors under sub-section (1)
within a period of fifteen days of the date of approval by the Board of Directors.

CONTRACTS BY ONE PERSON COMPANY (SEC. 193)

ONE PERSON COMPANY Contract Sole Member (WHO IS

(Otherwise than in ordinary also a director)
course of business)

Recording the terms of the contract

Contract shall If the contract is not in writing: that the terms of the contract are contained in
be in writing or a memorandum or are recorded in the minutes of the first meeting of the
Board of Directors of the company held next after entering into contract:

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CHAPTER-38 KMP appointment and their remuneration

APPOINTMENT & REMUNERATION OF KEY MANAGERIAL PERSONNEL
Introduction
While the Board of Directors are responsible for providing the oversight, it is the key
managerial personnel who are responsible for not just laying down the strategies as well as its
implementation.
THIS CHAPTER DEALS WITH KEY MANAGERIAL PERSONNEL

APPOINTMENT OF KEY MANAGERIAL REMUNERATION OF KEY

PERSONNEL MANAGERIAL PERSONNEL

Section which deals with apointment Section which deals with remuneration

Section 203 Section 197

Section 196 Section 198
Schedule-V (amended) Schedule-V

Definition of Key Managerial Personnel (KMP) SECTION 2(51)

The Companies Act, 2013 has for the first time recognized the concept of Key Managerial
Personnel. As per Section 2(51) “key managerial personnel”, in relation to a company, means

1. The Chief Executive Officer or the managing director or the manager

2. The Company secretary
3. The whole-time director
4. The Chief Financial Officer
5. such other officer, not more than one level below the directors who is in whole-time
employment, designated as key managerial personnel by the Board; and
6. such other officer as may be prescribed

Definition & Meaning of Managing Director SECTION 2(54)

Managing Director’ MEANS A DIRECTOR WHO IS ENTRUSTED WITH SUBSTANTIAL POWER OF
MANAGEMENT.

The substantial powers of management can be entrusted to a managing director of a company

in any of the following four ways (i.e. there are four modes of appointment of managing
director)

1. By way of an agreement with the company;

2. By board resolution;
3. By general meeting resolution; and
4. By articles of association.
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The administrative acts of a routine nature such as affixing common seal (if any), draw and
endorse any cheque or negotiable instrument, signing share certificates, etc. are excluded
from the sphere of substantial powers to be exercised by the managing director.
Further, the expression Managing Director shall also include a director occupying the
position of a managing director, by whatever name called.

1. President,
2. Chief Executive Officer,
3. Chief Operating Officer, etc.

In the case of multinational companies shall be considered as the managing director for the
purpose of Companies Act, although they are not designated as such.
SPECIAL POINTS
1. As per above definition, a person has to be a director before he can be appointed
managing director. Therefore, if a company wants to appoint a person as managing
director who is not a director of the company, he has first to be appointed as an additional
director in accordance with the provisions of Section 161 of the Act.
2. Managing Director is vested with substantial powers of management, but he need not
necessarily have the whole or substantially the whole of the affairs of a company under
his management. A company may, therefore, have more than one managing director.
Definition & Meaning of Whole-time Director SECTION 2(94)

1. whole-time director” includes a director in the whole-time employment of a company.

2. This means that any person, who is a part-time director of the company as well as in the
full-time employment of the company in some other capacity, shall be considered as a
whole-time director.
3. They cannot accept the office of whole – time director in any other company.
4. They may, however, accept ordinary directorships with the limits prescribed by Section
165 of the Companies Act, 2013.
5. They are designated by various names viz., Executive Director, Technical Director,
Financial Director, Whole – time Director, etc.
6. It may further be noted that a person has to be a director before he can be appointed
whole – time director. Therefore, if a Company wants to appoint a person as whole –
time director who is not a director of the company, he has first to be appointed as
additional director u/s 161.

Definition & Meaning of Manager SECTION 2(53)

1. Manager” means an individual who, subject to the superintendence, control and direction
of the Board of directors, has the management of the whole or substantially the whole of
the affairs of a company,
2. It includes a director or any other person occupying the position of a manager, by
whatever name called, and whether under a contract of service or not.
3. It may be noted that the manager of a company need not be a director of that company.
4. He may be a director as well as the manager or simply the manager of a company.

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5. Since a manager has the management of the whole of the affairs of a company, a
company can have only one manager at a time.
6. It may be noted that, as per the provisions of Section 196, a company shall not have both
Managing Director and Manager at the same time.

DISTINGUISH BETWEEN MANAGING DIRECTOR AND WHOLE TIME

DIRECTOR
Managing Director Whole time director
A managing director is entrusted with A whole time director means director in
substantial powers of management which are whole time employment of the company.
not otherwise exercisable by a director
Managing director is not considered as whole Whole time director is considered in whole
time employee of company time employment of the company

DISTINCTION BETWEEN MANAGING DIRECTOR AND MANAGER

Managing director - Section 2(54) Manager - Section 2(53)
Managing director must be director Manager need not be a director
Managing director exercises substantial Manager has the management of the whole or
power of management substantially the whole of the affairs of a
company.
A managing director, on his ceasing to be a A managing director can continue as a
director, shall automatically cease to be the manager even though he crease to be a
managing director as well. director.

Analysis of MD / WTD / Manager

Section Applicability & Understanding

149(1) 1. MD/WTD is counted in min statutory limit of Pub-3, Pvt-2, OPC-1.
2. A woman can be appointed as MD/WTD/Manager
150 MD/WTD can be appointed from the Databank of ID.
151 Small shareholder director cannot be MD/WTD/Manager.
152(2) MD/WTD can be appointed at GM.
152(6) & The MD/WTD be counted in total number of directors as per sec 152(6) & (7)
(7) for counting Rotational & Non Rotational directors.
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SCHEDULE-V OF COMPANIES ACT 2013 DIVIDED INTO FOUR PARTS

SCHEDULE V

Part I Part II Part III Part IV

Conditions for Remuneration Certificate of CG may exempt
appointment Compliance of certain class of
Schedule V companies

Section I:Remuneration payable by co. having profit

Remuneration is Section II: Remuneration payable by co. having no profit or

payable a sper section inadequate profit w/o CG Permission
197
Section III: Remuneration payable by co. having no profit or
inadequate profit in certain circumstances

Section IV: Certain Perquisite not included in managerial

remuneration

Section VI: Remuneration payable to Managerial personal

in two companies

Appointment of Key Managerial Personnel Section 203 (1)

Section 203 of the Companies Act, 2013 read with Rule 8 mandates the appointment of Key
Managerial Personnel and makes it obligatory for a listed company and every other public
company having a paid- up share capital of rupees ten crores or more, to appoint following
whole-time key managerial personnel:
1. Managing Director, or Chief Executive Officer or manager and in their absence, a whole-
time director;
2. Company Secretary; and
3. Chief Financial Officer
Rule 8 and 8A of Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014
RULE 8. APPOINTMENT OF KEY MANAGERIAL PERSONNEL

Every listed company and every other public company having a paid-up share capital of ten
crore rupees or more shall have whole-time key managerial personnel

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RULE 8A APPOINTMENT OF COMPANY SECRETARIES IN COMPANIES NOT COVERED UNDER

RULE 8.

A company other than a company covered under rule 8 which has a paid up share capital of
10 crore rupees or more shall have a whole-time company secretary.
RESTRICTIONS REGARDING APPOINTMENT OF KEY MANAGERIAL PERSONNEL
SECTION 203 PROVISO 1 OF COMPANIES ACT 2103

The same person should not act as both Chairman and Managing Director or Chief Executive
Officer of the Company.
EXCEPTIONS
a. The articles of the company contain provision for appointment of same person, or
b. The company carries only a single business, or
c. The public companies having paid-up share capital of rupees one hundred crore or more
and annual turnover of rupees one thousand crore or more which are engaged in multiple
businesses and has appointed one or more Chief Executive Officers for each such
business
APPOINTMENT OF KMP BY BOARD RESOLUTION SECTION 203 (2)

Every whole-time key managerial personnel of a company shall be appointed by means of a

resolution of the Board containing the terms and conditions of the appointment including the
remuneration.
Whole time KMP not to hold office in more than one company SECTION 203 (3)

It has been provided under the Act that a whole-time key managerial personnel shall not hold
office in more than one company at the same time,

EXCEPT:
1. In the company’s subsidiary company,
2. As a director in any other company with the permission of the Board
3. As a MD, if he is the managing director or manager of one and of not more than one other
company and such appointment or employment is made or approved by a resolution
passed at a meeting of the Board with the consent of all the directors present at the
meeting and of which meeting, and of the resolution to be moved thereat, specific notice
has been given to all the directors then in India.
Further, it has also been provided that a whole-time key managerial personnel holding office
in more than one company at the same time on the date of commencement of this Act, shall,
within a period of 6 months from such commencement, choose one company, in which he
wishes to continue to hold the office of key managerial personnel.
VACANCY IN OFFICE OF KMP SECTION 203 (4)

If the office of any whole-time key managerial personnel is vacated, the resulting vacancy
shall be filled-up by the Board at a meeting of the Board within a period of six months from
the date of such vacancy.
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PENALTY SECTION 203 (5)

If any company makes any default in complying with the provisions of this section, such
company shall be liable to a penalty of five lakh rupees and every director and key
managerial personnel of the company who is in default shall be liable to a penalty of fifty
thousand rupees and where the default is a continuing one, with a further penalty of one
thousand rupees for each day after the first during which such default continues but not
exceeding five lakh rupees. (Companies Amendment Act 2019)

Special note: All the provisions of Section 203, barring the penal provision contained in sub-section
(5), like KMP not to hold office in more than one company at the same time, appointment of KMP to
be made by a Board Resolution etc. will not apply to a managing director or chief Executive Officer
or Manager and in their absence, a whole-time director of the GOVERNMENT COMPANY. These
provisions will continue to apply to CFO and CS of GOVERNMENT COMPANIES, being KMP.

APPOINTMENT OF MANAGING DIRECTOR, WHOLE-TIME DIRECTOR OR MANAGER

The appointment may be made with the approval of CG (If appointment requires
permission of Central Government, application is made in Form No. MR.2, within 90 days of
appointment.

The appointment may be made without CG approval, provided such appointment is

accordance with Schedule V. (If appointment is made in accordance with Schedule V, a
company shall file a return of appointment of a Managing Director, Whole Time Director or
Manager, Chief Executive Officer (CEO), Company Secretary and Chief Financial Officer (CFO)
within 60 days of the appointment, with the Registrar in Form No. MR.1 - Rule 3 of Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014)

Company to Fix Limit with Regard to Remuneration SECTION 200

A company may, while according its approval under section 196, to any appointment or to
any remuneration under section 197 in respect of cases where the company has inadequate or
no profits, fix the remuneration within the limits specified in this Act, at such amount or
percentage of profits of the company, as it may deem fit and while fixing the remuneration,
THE COMPANY SHALL HAVE REGARD TO
a) the financial position of the company;
b) the remuneration or commission drawn by the individual concerned in any other capacity
c) the remuneration or commission drawn by him from any other company;
d) professional qualifications and experience of the individual concerned
e) such other matters as may be prescribed.
Companies (Appointment and Remuneration of Managerial Personnel) Amendment
Rules, 2018.

PARAMETERS FOR CONSIDERATION OF REMUNERATION RULE 6

The company shall have regard to the following matters, namely:-

 The Financial and operating performance of the company during the three preceding
financial years.
 The relationship between remuneration and performance.

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 The principle of proportionality of remuneration within the company, ideally by a rating

methodology which compares the remuneration of directors to that of other directors on
the board who receives remuneration and employees or executives of the company.
 Whether remuneration policy for directors differs from remuneration policy for other
employees and if so, an explanation for the difference.
 The securities held by the director, including options and details of the shares pledged as
at the end of the preceding financial year

STEPS FOR APPOINTMENT OF MD

STEPS FOR APPOINTMENT OF MD

S.No. Appointment of MD by complying Appointment of MD without complying of

Schedule V Schedule V
1. Convene a Board Meeting to appoint to Convene a board Meeting to appoint MD of the
appoint MD of the Company Company

2. File e-form MR-1 (Return of Make Application is made in Form No.

Appointment) within 60 days of the MR.2, within 90 days of appointment FOR
date of appointment in the board CG approval.
meeting with regard to the
appointment of whole-time Director.
2 fix date, time and place of the General fix date, time and place of the General Meeting
Meeting in order to take the approval of in order to take the approval of the shareholders
the of the shareholders
4. Obtain shareholders approval Obtain shareholders approval

Section 196 of Companies Act, 2013

1) No company shall appoint or employ at the same time a managing director and a
manager.
2) No company shall appoint or re-appoint any person as its managing director, whole-time
director or manager for a term exceeding five years at a time:

Provided that no re-appointment shall be made earlier than one year before the expiry of his
term.
Disqualification employment of any person as managing director, whole-time director
or manager Section 196 (3)
No person can be appointed as a as managing director, whole-time director or manager who

a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be made by
passing a special resolution in which case the explanatory statement annexed to the notice for such
motion shall indicate the justification for appointing such person;

Provided further that where no such special resolution is passed but votes cast in favour of the
motion exceed the votes, if any, cast against the motion and the Central Government is
satisfied, on an application made by the Board, that such appointment is most beneficial to
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the company, the appointment of the person who has attained the age of seventy years may be
made

b) is an undischarged insolvent or has at any time been adjudged as an insolvent;

c) has at any time suspended payment to his creditors or makes, or has at any time made, a
composition with them; or
d) has at any time been convicted by a court of an offence and sentenced for a period of
more than six months.

Appointment must be made at a meeting of the Board subject to the provision of the
Articles and further approval of members
Section 196(4) provides that subject to the provisions of section 197 and part-1 of Schedule V
of the Companies Act, 2013, a managing director, whole-time director or manager shall be
appointed and the terms and conditions of such appointment and remuneration payable be
approved by the Board of Directors at a meeting which shall be subject to approval by a
resolution at the next general meeting of the company and by the Central Government in case
such appointment is at variance to the conditions specified in that Schedule.
APPOINTMENT WITH THE APPROVAL OF CENTRAL GOVERNMENT

In case the provisions of Schedule V of the Companies Act, 2013 are not fulfilled by
company, an application seeking approval to the appointment of a managing director (Whole-
time director or manager) shall be made to the Central Government, in e-Form No. MR 2.
Filing of Form MR-1 within 60 days to the Registrar
Rule 3 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 provides that a company shall file a return of appointment of a Managing Director,
Whole Time Director or Manager, Chief Executive Officer (CEO), Company Secretary and
Chief Financial Officer (CFO) within 60 days from the date of appointment, with the
Registrar in Form MR-1 along with such fee as specified in the Companies (Registration
Offices and Fees) Rules, 2014. (NOW FILING OF FORM MR-1 IS NOT REQUIRED FOR
APPOINTMENT OF CS, CEO AND CFO)

Validity of the act done by the appointee Section 196(5)

If the appointment has not been approved by the members Section 196(5) provides that
subject to the provisions of the Companies Act, 2013 where an appointment of a managing
director, whole-time director or manager is not approved by the company at a general
meeting, any act done by him before such approval shall not be deemed to be invalid

Appointment may be made without CG approval, but in accordance with

Schedule V

CONDITIONS TO BE SATISFIED IN SCHEDULE V

PART I OF SCHEDULE V TO THE COMPANIES ACT, 2013
Apart from this, Part I of Schedule V contains certain conditions, which must be satisfied by
a person to be eligible for appointment as managing director/whole-time director/manager
without the approval of the Central Government.

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a. He had not been sentenced to imprisonment for any period, or to a fine exceeding Rs.
1,000, for the conviction of an offence under any of the following Acts, namely, Indian
Stamp Act; Central Excises Act; IDRA; Prevention of Food Adulteration Act; Essential
Commodities Act; Companies Act 2013; SCRA; Wealth-tax Act; Income-tax Act;
Customs Act; Competition Act; FEMA; SICA; SEBI Act; FT (D & R) Act; and
Prevention of Money Laundering Act, 2002, the Insolvency and Bankruptcy Code, 2016,
the Goods and Services Tax Act, 2017, the Fugitive Economic Offenders Act, 2018

Provided that where the Central Government has given its approval to the appointment
of a person convicted, no further approval of the Central Government shall be necessary
for the subsequent appointment of that person, if he had not been so convicted subsequent
to such approval;
b. He had not been detained for any period under the Conservation of Foreign Exchange and
Prevention of Smuggling Activities, 1974 :
Provided that where the Central Government has given its approval to the appointment
of a person detained, no further approval of the Central Government shall be necessary
for the subsequent appointment of that person, if he had not been so detained subsequent
to such approval;
c. He has completed age of 21 years but has not attained the age of 70 years.

However, a person who has attained the age of 70 years can be appointed as a managerial
person without the approval of the Central Government; provided his appointment is
approved by a special resolution passed by the company in general meeting;
d. Where he is a managerial person in more than one company, he draws remuneration from
one or both companies, provided that the total remuneration drawn from the companies
does not exceed the higher maximum limit admissible from any of the companies of
which he is a managerial person;

e. He is resident of India. Here, resident in India includes a person who has been staying in
India for a continuous period of not less than 12 months immediately preceding the date
of his appointment as a managerial person and who has come to stay in India –

 for taking up employment in India; or

 for carrying on a business or vacation in India.

It may be noted that this condition shall not apply to the companies in Special Economic
Zones.
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MANAGERIAL REMUNERATION

Managerial Remuneration

Executive Directors (MD/WTD/MANAGER) Non Executive Directors

Based on Profit
Based on Profit Sitting Fees

In case of Loss or In Case of 1. Max Rs. 1 lac

inadequate profit Adequate profit In case of In Case of per director per
Loss or Adequate board meeting
inadequate profit including its
Remuneration Remuneration profit adjourn
based on schedule shall be based meeting.
v on section 197 In case company 2. It can be paid
No Remu- have ED in case of loss
Maximum neration 1% of NP to all also.
overall
NED 3. No Sitting Fees
remuneration
to Executive
11% of NET In Case director shall
PROFIT company do not be paid.
have ED
In case company
3% of NP to all
have only 1 ED
NED.
5% of NP to
that ED

In Case
company have 2
or more ED
10% of NP to all
ED.

MANAGERIAL REMUNERATION

The remuneration that a public company can pay to its managerial personnel falls under two
categories, as follows, without approval of Central Government

a. When the company makes profits

The provisions in Section 197 and Section I of Part II of Schedule V deal with the
remuneration payable by a company making profits. Section 197 does not apply on
government companies
b. When the company makes no profits or its profits are inadequate
Sections II and III of Part II of Schedule V deal with several models of remuneration
packages in different companies which make no profits or their profits are inadequate.
197. (1) The total managerial remuneration payable by a public company, to its directors,

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including managing director and whole-time director, and its manager in respect of any
financial year shall not exceed eleven per cent. of the net profits of that company for that
financial year computed in the manner laid down in section 198 except that the remuneration
of the directors shall not be deducted from the gross profits:

Provided that the company in general meeting may, with the approval of the Central
Government, authorise the payment of remuneration exceeding eleven per cent. of the net
profits of the company, subject to the provisions of Schedule V:

Provided further that, except with the approval of the company in general meeting, by special
resolution—
(i) the remuneration payable to any one managing director; or whole-time director or
manager shall not exceed five per cent. of the net profits of the company and if there is more
than one such director remuneration shall not exceed ten per cent. of the net profits to all such
directors and manager taken together;
(ii) the remuneration payable to directors who are neither managing directors nor whole-time
directors shall not exceed,—

(A) one per cent. of the net profits of the company, if there is a managing or whole-time
director or manager;

(B) three per cent. of the net profits in any other case.

Provided also that, where the company has defaulted in payment of dues to any bank or
public financial institution or non-convertible debenture holders or any other secured creditor,
the prior approval of the bank or public financial institution concerned or the non-convertible
debenture holders or other secured creditor, as the case may be, shall be obtained by the
company before obtaining the approval in the general meeting.

197(2) The percentages aforesaid shall be exclusive of any fees payable to directors under
sub-section (5).

197(3) Notwithstanding anything contained in sub-sections (1) and (2), but subject to the
provisions of Schedule V, if, in any financial year, a company has no profits or its profits are
inadequate, the company shall not pay to its directors, including any managing or whole-time
director or manager, or any other non-executive director, including an independent
director by way of remuneration any sum exclusive of any fees payable to directors under
sub-section (5) hereunder except in accordance with the provisions of Schedule V and if it is
not able to comply with such provisions, with the previous approval of the Central
Government.

197(4) The remuneration payable to the directors of a company, including any managing or whole-
time director or manager, shall be determined, in accordance with and subject to the provisions of this
section, either by the articles of the company, or by a resolution or, if the articles so require, by a
special resolution, passed by the company in general meeting and the remuneration payable to a
director determined aforesaid shall be inclusive of the remuneration payable to him for the services
rendered by him in any other capacity:

Provided that any remuneration for services rendered by any such director in other capacity shall not
be so included if—
(a) the services rendered are of a professional nature; and
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(b) in the opinion of the Nomination and Remuneration Committee, if the company is covered under
sub-section (1) of section 178, or the Board of Directors in other cases, the director possesses the
requisite qualification for the practice of the profession.

197(5) A director may receive remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be decided by the Board:

Provided that the amount of such fees shall not exceed the amount as may be prescribed:

Provided further that different fees for different classes of companies and fees in respect of
independent director may be such as may be prescribed.

197(6) A director or manager may be paid remuneration either by way of a monthly payment or at a
specified percentage of the net profits of the company or partly by one way and partly by the other.

197(7) Notwithstanding anything contained in any other provision of this Act but subject to the
provisions of this section, an independent director shall not be entitled to any stock option and may
receive remuneration by way of fees provided under sub-section (5), reimbursement of expenses for
participation in the Board and other meetings and profit related commission as may be approved by
the members.

197(8) The net profits for the purposes of this section shall be computed in the manner referred to in
section 198.

197(9) If any director draws or receives, directly or indirectly, by way of remuneration any
such sums in excess of the limit prescribed by this section or without approval required under
this section, he shall refund such sums to the company, within two years or such lesser period
as may be allowed by the company, and until such sum is refunded, hold it in trust for the
company.";
197(10) The company shall not waive the recovery of any sum refundable to it under sub-section (9)
unless approved by the company by special resolution within two years from the date the sum
becomes refundable

Provided that where the company has defaulted in payment of dues to any bank or public
financial institution or non-convertible debenture holders or any other secured creditor, the
prior approval of the bank or public financial institution concerned or the non-convertible
debenture holders or other secured creditor, as the case may be, shall be obtained by the
company before obtaining approval of such waiver.";

197(11) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any
provision relating to the remuneration of any director which purports to increase or has the effect of
increasing the amount thereof, whether the provision be contained in the company’s memorandum or
articles, or in an agreement entered into by it, or in any resolution passed by the company in general
meeting or its Board, shall not have any effect unless such increase is in accordance with the
conditions specified in that Schedule and if such conditions are not being complied, the approval of
the Central Government had been obtained.
197(12) Every listed company shall disclose in the Board’s report, the ratio of the remuneration of
each director to the median employee’s remuneration and such other details as may be prescribed.
197(13) Where any insurance is taken by a company on behalf of its managing director, whole-time
director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for
indemnifying any of them against any liability in respect of any negligence, default, misfeasance,
breach of duty or breach of trust for which they may be guilty in relation to the company, the
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premium paid on such insurance shall not be treated as part of the remuneration payable to
any such personnel:
Provided that if such person is proved to be guilty, the premium paid on such insurance shall
be treated as part of the remuneration

(14) Subject to the provisions of this section, any director who is in receipt of any
commission from the company and who is a managing or whole-time director of the company
shall not be disqualified from receiving any remuneration or commission from any holding
company or subsidiary company of such company subject to its disclosure by the company in
the Board’s report.
(15) If any person makes any default in complying with the provisions of this section, he
shall be liable to a penalty of one lakh rupees and where any default has been made by a
company, the company shall be liable to a penalty of five lakh rupees.(Companies
Amendment Act 2019)
(16) The auditor of the company shall, in his report under section 143, make a statement as to
whether the remuneration paid by the company to its directors is in accordance with the
provisions of this section, whether remuneration paid to any director is in excess of the limit
laid down under this section and give such other details as may be prescribed.

(17) On and from the commencement of the Companies (Amendment) Act, 2017, any
application made to the Central Government under the provisions of this section [as it stood
before such commencement], which is pending with that Government shall abate, and the
company shall, within one year of such commencement, obtain the approval in accordance
with the provisions of this section, as so amended.

SECTION II OF PART II of SCHEDULE V

Remuneration payable by companies having no profits or inadequate profits pursuant to

Section 197(3)
Remuneration payable by companies having no profit or inadequate profit

Where in any financial year during the currency of tenure of a managerial person or other
director, a company has no profits or its profits are inadequate, it may pay remuneration to
the managerial person or other director not exceeding the limits under (A) and (B) given
below:-

TYPE A

Where the effective Limit of yearly remuneration Limit of yearly remuneration

capital (coloumn 1) payable shall not exceed (in payable shall not exceed (in
Rupess) in case of a Rupess) in case of a other
managerial person director
Negative or Less than Rs. 5 Rs. 60 Lakhs Rs. 12 Lakhs
crore
Rs. 5 crores or more but Rs. 84 Lakhs Rs. 17 Lakhs
less than Rs. 100 crores
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Rs. 100 crores or more but Rs. 120 Lakhs Rs. 60 Lakhs
less than Rs. 250 crores

Rs. 250 crores or more but Rs. 120 Lakhs plus 0.01% of the Rs. 120 Lakhs plus 0.01% of
effective capital in excess of Rs. the effective capital in excess
250 crores of Rs. 250 crores

Provided that the remuneration in excess of above Iimits may be paid if the resolution passed
by the shareholders is a special resolution.
Explanation.- It is hereby clarified that for a period less than one year, the limits shall be pro-
rated.

TYPE B
In case of a managerial person or other director who is functioning in a professional capacity,
remuneration as per item (A) may be paid, if such managerial person or other director is not
having any interest in the capital of the company or its holding company or any of its
subsidiaries directly or indirectly or through any other statutory structures and not having
any, direct or indirect interest or related to the directors or promoters of the company or its
holding company or any of its subsidiaries at any time during the last two years before or on
or after the date of appointment and possesses graduate level qualification with expertise and
specialised knowledge in the field in which the company operates:
Provided that any employee of a company holding shares of the company not exceeding 0.5%
of its paid up share capital under any scheme formulated for allotment of shares to such
employees including Employees Stock Option Plan or by way of qualification shall be
deemed to be a person not having any interest in the capital of the company;

NOTE: OTHER DIRECTOR SHALL MEAN A NON-EXECUTIVE DIRECTOR OR

AN INDEPENDENT DIRECTOR

Provided further that the limits specified under items (A) and (B) of this section shall
apply, if-
 Payment of remuneration is approved by a resolution passed by the Board and, in the case
of a company covered under sub-section (1) of suction 178 also by the Nomination and
Remuneration Committee;
 The company has not committed any default in payment of dues to any bank or public
financial institution or non-convertible debenture holders or any other secured creditor,
and in case of default, the prior approval of the bank or public financial institution
concerned or the non-convertible debenture holders or other secured creditor, as the case
may be, shall be obtained by the company before obtaining the approval in the general
meeting
 An ordinary resolution or a special resolution, as the case may be, has been passed for
payment of remuneration as per item (A) or a special resolution has been passed for

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payment of remuneration as per item (B), at the general meeting of the company for a
period not exceeding three years.
Explanation : For the purposes of Section II of this part, “Statutory Structure” means any
entity which is entitled to hold shares in any company formed under any statute. ”
Section IV – Perquisites not included in Managerial Remuneration
Para 1
A managerial person shall also be eligible to the following perquisites, which shall not be
included in the computation of the ceiling on remuneration specified in Section II above :-
a) Contribution to provident fund, superannuation fund or annuity fund to the extent these
either singly or put together are not taxable under the Income – Tax Act, 1961;
b) Gratuity payable at a rate not exceeding half a month’s salary for each completed year of
service; and
c) Encashment of leave at the end of the tenure.
Para 2
In addition to perquisites specified in para 1 above, an expatriate managerial person
(including an NRI) shall be eligible to the following perquisites, which shall not be included
in the computation of the ceiling on remuneration specified in Section II above :-
a) Children education allowance : In the case of children studying in India or outside
India, an allowance limited to a maximum of Rs. 12,000/- per month per child or actual
expenses incurred, whichever is less. Such allowance is admissible up to a maximum of
two children.
b) Holiday passage for children studying outside India/family staying abroad : Return
holiday passage once in a year by economy class or once in two years by first class to
children and to the members of the family from the place of their study or stay abroad to
India, if they are not residing in India with the managerial person.
c) Leave travel concession : Return passage for self and family in accordance with the
rules specified by the company, where it is proposed that the leave be spent in home
country instead of anywhere in India.
Here, ‘family’ means the spouse, dependent children and dependent parents of the
managerial person.
SECTION V OF PART II
Remuneration payable to a managerial person in two companies Subject to the provisions of
sections I to IV, a managerial person shall draw remuneration from one or both companies,
provided that the total remuneration drawn from the companies does not exceed the higher
maximum limit admissible from any one of the companies of which he is a managerial
person.

PART III OF SCHEDULE V

Provisions applicable to Parts I and II of this Schedule 1. The appointment and remuneration
referred to in Part I and Part II of this Schedule shall be subject to approval by a resolution of
the shareholders in general meeting.
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The Auditor or the Secretary of the company or where the company is not required to appoint
a Secretary, a Secretary in whole-time practice shall certify that the requirement of this
Schedule have been complied with and such certificate shall be incorporated in the return
filed with the Registrar under sub-section (4) of section 196—Refer to Form MR-1
PART IV OF SCHEDULE V
The Central Government may, by notification, exempt any class or classes of companies from
any of the requirements contained in this Schedule.
Following points may be noted in regard to Section II of Part II of Schedule V:-
1. ‘Remuneration’ means remuneration as defined in Section 2(78) and includes
reimbursement of any direct taxes to the managerial person.
Section 2(78) provides that ‘remuneration’ means any money or its equivalent given or
passed to any person for services rendered by him and includes perquisites as defined under
the Income-tax Act, 1961.
2. For meaning of and working out the effective capital ----
Firstly, the aggregate of the following amounts should be found out ----
 Paid-up share capital (excluding share application money or advances against shares);
 Share Premium Account;
 Reserves and Surplus (excluding revaluation reserves);
 Long – term loans; and
 Deposits repayable after one year (excluding working capital loan, overdraft, etc.)
Then from the aggregate of the above, the aggregate of the following amounts shall be
deducted:
 Investments (other than investments of an ‘Investment Company’);
 Accumulated losses, if any; and
 Preliminary expenses not written off, if any.
The ‘effective capital’ shall be calculated on the basis of the last audited Balance Sheet
available for the financial year, preceding the financial year in which the appointment is
made. Where, however, the appointment is made in the year of incorporation of the
company, the effective capital shall be calculated as on the date of appointment.
3. ‘Negative Effective Capital’ means the effective capital, which is calculated in the above
manner and is less than zero.
4. ‘Current Relevant Profit’ means the profit as calculated under Section 198 without
deducting the excess of expenditure over income referred to in Section 198(4)(1) thereof
in respect of those years during which the managerial person was not an employee,
director or shareholder of the company or its holding or subsidiary companies.
Rule 4 of Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014

A company may pay a sitting fee to a director for attending meetings of the Board or
committees thereof, such sum as may be decided by the Board of directors thereof which
shall not exceed one lakh rupees per meeting of the Board or committee thereof.

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It may be noted that for Independent Directors and Women Directors, the sitting fee shall not
be less than the sitting fee payable to other directors. It means that sitting fees for these
directors may be higher than the sitting fees of other directors.

Procedural Aspects [Section 201]

The application to the Central Government, under Section 196 and/or 197, shall be made,
within 90 days from the date of appointment of Director/MD/WTD/Manager, in Form No.
MR. 2 along with the fees prescribed under Companies (Registration Offices and Fees)
Rules, 2014.
Before any application is made to the Central Government, a general notice shall be given to
the members, indicating the nature of the application proposed to be made, by way of two
newspaper advertisements, once in an English language newspaper and another in the
principal language newspaper of the district in which the registered office of the company is
situated.

PROCEDURES UNDER COMPANY LAW

Procedure to appoint Key Managerial Personnel

1. Hold the Board meeting in consideration with appointment of key managerial personnel
and pass the Board resolution containing the terms and conditions of the appointment.
2. A whole time Key Managerial Personnel shall not hold office in more than one company
except in its subsidiary at the same time
3. A company may appoint or employ a person as its managing director, if he is the
managing director or manager of one, and of not more than one, other company and such
appointment or employment is made or approved by a resolution passed at a meeting of
the Board with the consent of all the directors present at the meeting and of which
meeting, and of the resolution to be moved thereat, specific notice has been given to all
the directors then in India.
4. On vacation of the office of a whole time Key Managerial Personnel, the resulting
vacancy shall be filled-up by the Board at a meeting of the Board within a period of 6
months.
5. File with the Registrar the Form MGT-14 and a return of appointment of a managing
director, whole time director or manager in Form MR-1.
6. File DIR-12 along with the fee prescribed in Companies (Registration of Offices and
Fees) Rules, 2014.

COMPENSATION FOR LOSS OF OFFICE SEC. 202

HEADING PROVISONS

Compensation for loss Section 202 states that no compensation for loss of office or as
of office consideration for retirement from office, or in connection with such
loss or retirement, shall be paid by a company to any director other
than Managing Director, Whole-time Director and Manager.

Prohibition of Prohibition of compensation in certain cases

compensation in certain 1. Where the director resigns his office on reconstruction or
cases amalgamation of the company and is appointed as the
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managing director, manager or other officer of the

reconstructed company or the body corporate resulting from
the amalgamation
2. Where the director resigns his office other than on
reconstruction of the company or its amalgamation thereof
3. Where the office is vacated under Section 167
4. Where the winding up of the company takes place due to his
negligence or mismanagement
5. Where the director has been guilty of fraud or breach of trust or
gross negligence or mismanagement of the affairs of the
company, or any subsidiary or holding thereof
6. Where the directors has instigated or has taken part in bringing
about the termination of his office.
Amount of PERMISSIBLE PERIOD:
compensation Lower of The unexpired tenure or 3 years.
BASIS:
Average remuneration’ shall be based on remuneration actually
earned during –Immediately preceding 3 years; OR
Such lesser period for which director was in office

Contract of Employment with Managing Director or Whole-time Director [Section 190]

Every company, which is not a private company, is required to keep the copy of contract if in
writing with a managing director or whole-time director for contract of service or a written
memorandum setting its terms, if not in writing. The abovementioned copies required to be
kept open to inspection for any member of the company free of cost. The default in
complying with the provisions of this section, the company is liable to a penalty of twenty
five thousand rupees and every officer of the company who is in default liable to a penalty of
five thousand rupees for each default.
Payment to Director for Loss of Office, etc. in connection with Transfer of Undertaking,
Property or Shares [Section 191]
No director of a company shall receive any payment by way of compensation in case of
transfer of the whole or any part of any undertaking or property of the company or the
transfer to any person of all or any of the shares in a company; unless the certain prescribed
particulars are disclosed to the members of the company and they pass a resolution at a
general meeting approving the payment of such amount.
Any payment made by the company to a managing director or whole-time director or
manager of the company by way of compensation for loss of office or as a consideration for
retirement from office on in connection with such loss or retirement subject to the limit as set
out under section 202.

No payment shall be made to the managing director or whole time director or manager of the
company by way of compensation for the loss of office or as consideration for retirement
from office (other than notice pay and statutory payments in accordance with the terms of
appointment of such director or manager, as applicable) or in connection with such loss or
retirement if

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a) The company is in default in repayment of public deposits or payment of interest thereon;

b) The company is in default in redemption of debentures or payment of interest thereon;
c) The company is in default in repayment of any liability, secured or unsecured, payable to
any bank, public financial institution or any other financial institution;
d) The company is in default in payment of any dues towards income tax, VAT, excise duty,
service tax or any other tax or duty, by whatever name called;
e) There are outstanding statutory dues to the employees or workmen of the company which
have not been paid by the company (other than in cases where the company has disputed
the liability to pay such dues); and
f) The company has not paid dividend on preference shares or not redeemed preference
shares on due date.

191(5) If a director of the company makes any default in complying with the provisions of
this section, such director shall be liable to a penalty of one lakh rupees.
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CHAPTER- 39
COMPANY SECRETARY, SECRETARIAL AUDIT AND STANDARDS
Sections used: 203,204 and 205
rules used: (appointment and remuneration of managerial personnel) rules, 2014)

INTRODUCTION

Despite the name, the role of a Company Secretary is not a clerical or secretarial one in the
usual sense. In fact, a Company Secretary is typically a senior managerial person in the
corporate structure ensuring efficient administration of the company and certifying the
company's compliance with the provisions of the Act. A Company Secretary helps the
company to comply with the Act, avoiding failures to comply which can be very debilitating.

With the introduction of the Companies Act, 2013, the importance of Company Secretary in
corporate operations is significantly increased.

An analysis on company secretary and companies act 2013 is given below

Under section 2 (51) of the Companies Act, 2013, Company Secretary has been defined as
KEY MANAGERIAL PERSON.

COMPANIES ACT 2013 AND COMPANY SECRETARY

APPOINTMENT OF C.S. SECRETARIAL AUDIT FUNCTIONS OF C.S.

SECTION 203 and Rule 8/8A SECTION 204 and Rule 9 of SECTION 205 and Rule 10 of
of Companies (appointment Companies (appointment and Companies (appointment
and remuneration of remuneration of managerial and remuneration of
managerial personnel) rules, personnel) rules, 2014) managerial personnel) rules,
2014) 2014)

MEANING OF COMPANY SECRETARY

COMPANY SECRETARY – DEFINITION SECTION-2(24)

Secretary means a company secretary within the meaning of Section 2(1) (c) of the
Company Secretaries Act, 1980.

Section 2(1) (c) of the Company Secretaries Act, 1980 defines a company secretary as
a person who is a member of the Institute of Company Secretaries of India.
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APPOINTMENT OF COMPANY SECREATRY SECTION 203

Every listed company and every public company Every company which has a paid up share
having paid up share capital 10 crore or more capital of ten crore rupees or more shall have a
shall have whole time kmp (Rule 8) whole-time company secretary
(RULE 8A)

Penalty for contravention Section 203

If any company makes any default in complying with the provisions of this section, such company
shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of
the company who is in default shall be liable to a penalty of fifty thousand rupees and where the
default is a continuing one, with a further penalty of one thousand rupees for each day after the
first during which such default continues but not exceeding five lakh rupees. (Companies
Amendment Act 2019)

IN SHORT: Every Company (Private or Public) having paid up share capital 10 crore or more is
required to appoint a whole time company secretary.

Appointment of KMP by the Board of directors

Section 203(2) provides that every whole-time key managerial personnel of a company shall
be appointed by means of a resolution of the Board containing the terms and conditions of
the appointment including the remuneration.

Filing of Various Forms for appointment company secretary

 DIR-12 within 30 days of their appointment

 MGT-14 within 30 days of their appointment
 MR-1 within 60 days of their appointment (THIS REQUIREMENT EXEMPT FOR APPOINTMENT OF CS, CEO AND CFO)

KMP as an officer in default

Under section 2(59) of the Companies Act, 2013 the KMP has also been included in the
category of the officer of the company and shall be considered to be in default in complying
with any provisions of the Companies Act, 2013 as per provisions of section 2(60) of the Act.

In addition to the Companies Act, other laws like Income-tax Act, Negotiable Instruments
Act, SEBI Act, MRTP Act, FEMA Regulations, Central Excise and Customs Act, etc. have
recognised the secretary as a principal officer of the company and have placed various
responsibilities for compliance by him.

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SUMMONS ON COMPANY
Summons to company in civil matters can be served on a secretary As per rule 2 of order 9 of
Code of Civil Procedure, in case of suit against a corporation, summons can be served on (a)
Company Secretary, Director or other principal officer of the corporation or (b) By leaving it
or by sending by post to registered office of the corporation.
SECRETARIAL AUDIT (A NEW PROVISION)

SECRETARIAL AUDIT REPORT SECTION 204

1. Every listed company Penalty for contravention Section 204

2. Every public company having a paid-up share
capital of fifty crore rupees or more Every officer of the company or the company
3. Every public company having a turnover of two secretary in practice, who is in default, shall be
hundred fifty crore rupees or more liable to a penalty of two lakh rupees.
4. Every company having outstanding loans or borrowings (COMPANIES AMENDMENT ACT 2020)
from banks or public financial institutions of one
hundred crore rupees or more Has to obtain
secretarial audit report in form no. MR 3 from
P.C.S.

Such companies are required to annex a secretarial audit report with its board’s report.

The Board’s report shall give explanation on any qualification or observation or

remarks by the Secretarial Auditors
Section 204(3) provides that the Board of Directors, in their report made in terms of sub-
section (3) of section 134, shall explain in full any qualification or observation or other
remarks made by the company secretary in practice in his report under section 204(1).
Laying of the Secretarial Audit Report at the annual general meeting

There is no specific provision which requires that the Secretarial Audit Report needs to be
laid by the company in its annual general meeting, however as an annexure to the Board
Report it needs to be laid before the meeting.
SCOPE OF SECRETARIAL AUDIT
Matters to be specified in the Secretarial Audit

The scope of Secretarial Audit would comprise of verification and report of compliance of
various requirements under the Companies Act and the Rules there under. The CSP should
give his Security Audit Report only in respect of matters specified in the Form MR-3
prescribed under the Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014. If any matter is not applicable, it should also be specified accordingly.

Flexibility in the form of Compliance Certificate

As mentioned in Rule 9 of the Companies (Appointment and Remuneration of Managerial

Personnel) Rules, 2014 the Secretarial Audit Report shall be given in the Form MR-3 which
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means that if any information required to be given in the Report does not fit into the format,
necessary modifications may be made accordingly in the format of Secretarial Audit Report
by the CSP.
Verification of records and documents

For issuance of the first Secretarial Audit Report, CSP should verify the various statutory
registers, forms and other relevant records and documents maintained by the company from
the first day of the financial year as well as for the previous period for his satisfaction. In case
of any doubt on compliance specially for filing of various forms and returns the CSP should
also check the proof for filing and receipts obtained from the Registrar and other authorities.
Crucial area of the Secretarial Audit Report
There are certain clauses prescribed under the Secretarial Audit, in which probability for
defaults that may be committed by the company and its director is more, due to various
reasons, therefore proper care must be taken specifically in the matter of COMPANIES ACT 2013

 Appointment of the KMP

 Information filed with the ROC for change in the promoters and top 10 shareholders
 Issuance of share certificate for the shares allotted in the earlier years
 Acceptance of deposits from the members and general public
 Unsecured loans obtained from the various sources
 Loan, given or guarantee or security provides to directors and their related concerns
 Approval of contracts in which directors are interested
 Appointment in the office or place of profit
 Registration of creation, modification and satisfaction of charges
 Transfer of amount of dividend in a separate bank account
 Remittance of security deposits collected from the employees
 Payment of dividend
 Payment of managerial remuneration, etc.

UNDER SEBI RULES AND REGULATIONS

 The Depositories Act, 1996

 The SEBI (Substantial Acquisition of Shares and Takeovers) 2011
 The SEBI (Prohibition of Insider Trading) Regulations, 1992
 The SEBI(Issue of Capital and Disclosure Requirements) Regulations, 2018

OTHER LAWS

 Foreign Exchange Management Act, 1999 and the rules and regulations made there under to the
extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial
Borrowings
 Other laws (depending upon the nature of industry in which company deals (Mention the other
laws as may be applicable specifically to the company)
 All the Secretarial Standards issued by The Institute of Company Secretaries of India.

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Period of the Secretarial Audit

The Secretarial Audit Report shall relate to the period pertaining to the financial year of the
company.

Disqualifications for appointment of the Secretarial Auditors

The Companies Act, 2013 does not provide any disqualifications for the appointment of the
Secretarial Auditors. However, it should be considered that the Secretarial Auditor shows
utmost integrity and independence of judgment in the performance of his duties; a person
referred to in section 144 of the Act, should not be appointed or re-appointed for giving
Secretarial Audit Report to a company.

Duty of the company to provide all assistance and facilities for auditing the secretarial
and related records

Section 204(1) provides that it shall be the duty of the company to give all assistance and
facilities to the company secretary in practice, for auditing the secretarial and related records
of the company.

SECRETARIAL AUDIT – THE PROCESS

APPOINTMENT OF SECRETARIAL AUDITOR

COMMUNICATION TO EARLIEST INCUMBENT

ACCEPTANCE OF APPOINTMENT

PRELIMINARY DISCUSSIONS / SURVEYS

PRELIMINARY MEETING

FINALIZATION OF AUDIT PLAN AND BRIEFING THE STAFF

TESTING, INTERVIEWS AND ANALYSIS

WORKING PAPERS

AUDIT SUMMARY FOR DISCUSSIONS

SUBMISSION OF SECRETARIAL AUDIT REPORT

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Reporting with Qualification

Qualifications/reservations or adverse remarks, if any, should be stated by the secretarial

auditor at the relevant places in his report in bold type or in italics.

If the secretarial auditor is unable to express an opinion on any matter, he should mention that
he is unable to express an opinion on that matter and the reasons there for.
PROFESSIONAL RESPONSIBILITY AND PENALTY FOR INCORRECT AUDIT REPORT

PENALTIES UNDER COMPANY SECRETARIES ACT, 1980

Any failure or lapse on the part of secretarial auditor may attract penalty for incorrect report
and disciplinary action for professional or other misconduct under the provisions of the
Company Secretaries Act, 1980.

PENALTIES UNDER COMPANIES ACT, 2013

Further section 448 of Companies Act, 2013 deals with penalty for false statements. The
section provides that if in any return, report, certificate, financial statement, prospectus,
statement or other document required by, or for the purposes of any of the provisions of this
Act or the rules made there under, any person makes a statement,

a) which is false in any material particulars, knowing it to be false or

b) which omits any material fact, knowing it to be material

He shall be liable under section 447 (Fraud).

In view of this, a company secretary in practice will be attracting the penal provisions of
section 448, for any false statement in any material particulars or omission of any material
fact in the Secretarial Audit Report. However, a person will be penalised under section 448 in
case he makes a statement, which is false in any material particulars, knowing it to be false,
or which omits any material fact knowing it to be material.

SECTION 205 - FUNCTIONS OF COMPANY SECRETARY

(1) The functions of the company secretary shall include,--

a. To report to the Board about compliance with the provisions of this Act, the rules
made thereunder and other laws applicable to the company;
b. To ensure that the company complies with the applicable secretarial standards;
c. To discharge such other duties as may be prescribed.

For the purpose of this section, the expression "secretarial standards" means secretarial
standards issued by the Institute of Company Secretaries of India constituted under section 3
of the Company Secretaries Act, 1980 (56 of 1980) and approved by the Central
Government..

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RULE 10 OF COMPANIES (APPOINTMENT AND REMUNERATION OF

MANAGERIAL PERSONNEL) RULES, 2014

The duties of Company Secretary shall also discharge, the following duties, namely:-

1. To provide to the directors of the company, collectively and individually, such guidance
as they may require, with regard to their duties, responsibilities and powers;
2. To facilitate the convening of meetings and attend Board, committee and general
meetings and maintain the minutes of these meetings;
3. To obtain approvals from the Board, general meeting, the government and such other
authorities as required under the provisions of the Act;
4. To represent before various regulators, and other authorities under the Act in connection
with discharge of various duties under the Act;
5. To assist the Board in the conduct of the affairs of the company;
6. To assist and advise the Board in ensuring good corporate governance and in complying
with the corporate governance requirements and best practices; and
7. To discharge such other duties as have been specified under the Act or rules; and
8. Such other duties as may be assigned by the Board from time to time.

Procedure for Appointment of a Company Secretary

1. Convene a Board meeting after giving notice to all the directors of the company as per
section 173 of the Act. At the board meeting, place the proposal of appointing Company
Secretary with the details of the person finalized and pass a resolution appointing the
company secretary and approving the terms and conditions of his appointment.
2. File return of appointment of company secretary with the Registrar in Form DIR 12
within thirty days from the date of appointment (date of joining office) and Form MGT.
14 is also required to be filed along with such fee as specified in Companies (Registration
of offices and Fees) Rules, 2014.
3. A Company Secretary shall not hold office in more than one company except in its
subsidiary company at the same time.
4. Make entries in the Register of directors and key managerial personnel under Section 170
of the Act.
5. Inform the Stock Exchange(s) where the company is listed.
6. Since key managerial personnel are included in ‘related party’ as defined in section 2(76)
of the Act, Please verify whether the company secretary so appointed involved in any
related party transactions within the provisions of Section 188 of the Act. If yes, then
comply with the requirements in this regard.

Procedure for Removal/Resignation of a Company Secretary

1. A Company Secretary can be removed in accordance with the terms of appointment and the
Board can record the same.
2. Convene a Board meeting after giving notice to all the directors of the company as per section
173, place the matter of removal/resignation of the Company Secretary and pass a resolution to
the effect.
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3. File Form DIR-12 in electronic mode within thirty days with the Registrar of Companies together
with requisite filing fees. Evidence of Cessation (for example Resignation Letter) is an optional
attachment.
4. Inform the stock exchange where the company is listed.
5. Make entries in the Register maintained for recording the particulars of Company Secretaries
under section 170.
6. Issue a general public notice, if it is so warranted, according to size and nature of the company.
7. The resulting vacancy shall be filled up by the Board at a meeting of the Board within a period of
six months from the date of such vacancy.

POWERS OF SECRETARY

(a) All acts which he is required to perform under enactments like the Companies Act, the
Income Tax Act, etc.
(b) All acts which the Board of directors specifically direct him to perform.
(c) All acts which are essential to enable him to discharge his duties smoothly as the
administrative head in his Department.

The powers of the secretary above are conferred on him either under the Act or by the Board
or out of his service agreement with the company. At times, the general meetings also
authorise him to perform an act.

DUTIES OF A SECRETARY

S.NO. HEADING DUTIES

1 THE A company secretary if appointed by an agreement of service,
CONTRACTUAL which defines his duties as well as powers, is under a duty to act
within the scope of his authority. He must abstain from disclosing
any confidential or secret information relating to the affairs of the
company which comes to his notice during his employment and
also not to make any secret profits by virtue of his position as a
secretary of the company.

2 UNDER THE The Secretary is required to perform the various duties specified
COMPANIES ACT in various sections of Companies Act. For Eg:-

(a) To sign any document or proceedings requiring

authentication by the company.
(b) To get painted or get affixed the name plate of the Company
outside every office or the place of its business, to get it
printed on documents of the company and to get it engraved
on the seal of the company.
(c) To send notices of general meetings to every member of the
company.
(d) To file resolutions and agreements requiring registration
with the Registrar.
(e) To prepare and record minutes of every general meeting
and of every meeting of Board of directors or of every
committee of the Board within 30 days of the conclusion of
every such meeting.
(f) To send notices of the Meetings of Directors.
3 UNDER THE A company secretary is a `Principal Officer’ of the company

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INCOME-TAX ACT under Section 2(35) of the Income-tax Act, 1961. The Act
imposes certain obligations upon him. For eg.-To ensure that
proper income-tax is deducted at source from the salaries paid to
the employees, or interest paid/payable to debenture holders or
depositors. To ensure that the tax so deducted has been deposited
in Government treasury, etc.
4 UNDER THE INDIAN It is the duty of the secretary to see that documents like letters of
STAMP ACT allotment, share certificates, share warrants, debenture
certificates and transfer forms, etc., are properly stamped as per
the requirements of the Indian Stamp Act.
5 UNDER OTHER In addition to the above, the Secretary is also required to perform
ACTS the various duties specified under various Economic, Labour,
Industrial and Securities laws.

DUTIES OF A COMPANY SECRETARY ON CORPORATE RESTRUCTURING

2. Planning strategies for amalgamation/merger, acquisition, takeover, spin off,
reconstruction, reorganization, restructuring and winding up of companies, forward and
backward integration.
2. Change of name , change of objects and shifting of registered office of the company.
3. Drafting schemes of amalgamation or arrangement.
4. Complying with necessary legal and procedural requirements.
5. Advising the management on post merger, acquisitions or restructuring strategies.
DUTIES OF A COMPANY SECRETARY ON INTELLECTUAL PROPERTY
RIGHTS AND WTO
1. Advising on matters relating to Intellectual Property and TRIPS Agreement of WTO.
2. Advising on Intellectual Property Licensing and drafting of agreement.
3. Acting as registered Trade Mark Agent.
4. Advising on passing off/infringement matters.
5. Aon registration of patents, trade marks and copyrights.
6. Valuation of Intellectual Rights.
7. Advising on anti-dumping matters-Consumption of Normal Value and Sale Price.
8. Advising on subsidies and countervailing duties.
Practical question

A 100% subsidiary of a public company, having a paid-up capital of Rs. 10 crore , is unable to
get a qualified Company Secretary; however , the managing director of the subsidiary is a
qualified Company Secretary and a fellow member of the Institute of Company Secretaries if
India.

The subsidiary company should continue its efforts and recruit a qualified secretary in due course so
as to fulfill the requirements of as per Rule 8 of the Companies Act, 2013. As an intern measure, the
MD of the subsidiary may function as Company Secretary also provided that the number of Member
on the Board of Director is not less than 3. Get a Board resolution passed to this effect and take the
prior permission of roc in this regard.

COMPANY SECRETARY IN PRACTICE

Section 2(25) provides that the “company secretary in practice” means a company secretary who is
deemed to be in practice under section 2(2) of the Company Secretaries Act, 1980.
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A member of the Institute of Company Secretaries of India, who is not in full time employment, can
become a Secretary in Whole-time Practice (hereinafter referred to as the CSP) after obtaining the
Certificate of Practice from the Council of the Institute of Company Secretaries of India, under
section 6 of the Company Secretaries Act, 1980

WHO CAN PRACTICE

According to Section 6 of the Company Secretaries Act, 1980 only a member of the Institute
whether in India or elsewhere shall be entitled to practice provided he has obtained from the Council
of the Institute, a Certificate of Practice (COP).
A member who desires to be entitled to practice should make an application in the prescribed form
and pay such annual fee for his certificate as may be prescribed by the Council of the Institute. Such
fees such fees shall be payable on or before the 1st day of April in each year.
Further, the certificate of practice may be cancelled by the Council under such circumstances as may
be prescribed.

AREAS OF PRACTICE

The Company Secretaries Act, 1980 recognises that a member individually or in partnership
with other members, can engage in practice of the profession of company secretaries and has
specified the areas of practice. Following are some of the areas of practice for a company
secretary in practice:
 to engage himself in the practice of the profession of company secretaries to,
 to offer to perform or perform services in relation to the promotion, formation,
incorporation, amalgamation, reconstruction, reorganisation or winding-up of companies;
 to offer to perform or perform such services as may be performed by:
- an authorised representative of a company with respect to filing, registering, presenting,
attesting or verifying any documents (including forms, applications, and returns) by or on
behalf of the company;
- a share transfer agent;
- an issue house;
- a secretarial auditor or consultant;

 to issue certificates on behalf of, or for the purposes of a company; or

 to render such other services as, in the opinion of the Council are or may be rendered by a
Company Secretary in practice;
Further, the Council has passed a resolution, permitting the members in practice to engage in
the Following other business or occupation under Regulation 168 of the Company Secretaries
Regulations, 1982

Permission granted generally

(a) Private tutorship.
(b) Authorship of books and articles.
(c) Holding of public elective offices such as M.P., M.L.A.,
(d) Honorary office-bearer ship of charitable, educational or other non-commercial
organisations.
(e) Valuation of papers, acting as a paper-setter, head examiner or a moderator, for any
examination.
(f) Editorship of professional journals.

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PROFESSIONAL MISCONDUCT
Every member is required to be conscious so as to behave in such a manner that his conduct is not
attracted by any provisions of the First and Second Schedules to the Act which give instances and
which will be construed as professional and other misconduct defined in Section 22 of the Act.
Section 22 of the Company Secretaries Act provides that professional misconduct shall be deemed to
include any act or omission specified in any of the schedules.

Professional misconduct within the meaning of the Company Secretaries Act are comprised in two
Schedules, the First Schedule being divided into four parts and the Second Schedule into three
parts.

PROCEDURE FOR MAKING INVESTIGATION INTO PROFESSIONAL/OTHER

MISCONDUCT
The Council shall, by notification, establish a Disciplinary Directorate headed by an officer of the
Institute designated as Director (Discipline) and such other employees for making investigations in
respect of any information or complaint received by it.

QUALITY REVIEW BOARD

The Central Government shall, by notification, constitute a Quality Review Board consisting
of a chairperson and four other members, who shall be appointed from amongst the persons
of eminence having experience in the field of law, economics, business, finance or
accountancy. Two members shall be nominated by the Council and the other two by the
Central Government (Section 29A).

Functions to be performed by the Board

(a) To make recommendations to the Council with regard to the quality of services provided by the
members of the Institute.
(b) To review the quality of services provided by the members of the Institute including secretarial
services.
(c) To guide the members of the Institute to improve the quality of services and adherence to the
various statutory and other regulatory requirements.

The expenditure of the Board shall be borne by the Council.

Procedure for Appointment of Company Secretary in Practice for Secretarial Audit

1. Before appointment of Company Secretary in practice ensure that individual to be appointed,

satisfies the definition of company secretary in practice under Section 2(25) of Companies Act,
2013 i.e. he is a member of the Institute of Company Secretaries of India and is not in full-time
employment anywhere.
2. Further ensure that individual proposed to be appointed, holds a certificate of practice from the
Institute of Company Secretaries of India and that certificate is valid.
3. Convene a Board meeting after giving notice to all the directors of the company in accordance
with Section 173 of the Companies Act, 2013.
4. Consider the proposal to appoint company secretary in practice for secretarial audit and pass
Board resolution in the meeting, appointing company secretary in practice for secretarial audit.
5. The resolution should mention the remuneration to be paid to such individual as company
secretary in practice or authorize the Managing Director/any other director to fix the
remuneration.
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6. The appointment shall be made up to the conclusion of the annual general meeting held after such
appointment.

SECRETARIAL STANDARDS - MEANING

1. Secretarial Standards are the policy documents relating to
various aspects of secretarial practices in the corporate
sector.
2. These Standards lay down a set of principles which companies are expected to adopt and
adhere to, in discharging their responsibilities.

Who formulates the Secretarial StandardsThe Institute of Company Secretaries of India

(ICSI) constituted the Secretarial Standards Board (SSB) in the year 2000 for formulating
Secretarial Standards.

Establishment of Secretarial Standards Board

1. The Institute of Company Secretaries of India, (ICSI) has constituted the Secretarial
Standards Board (SSB) with the objective of formulating Secretarial Standards in the year
2000.
2. The Secretarial Standards Board (SSB) formulates Secretarial Standards taking into
consideration the applicable laws, business environment and the best secretarial practices
prevalent.

Composition of Secretarial Standards Board (SSB)

SSB having members from following authorities.
1. ICSI members working in Companies as well as in practice
2. Representatives of Ministry of Corporate Affairs,
3. Representatives of Securities and Exchange Board of India
4. Representatives of Institute of Chartered Accountants of India
5. Representatives of Institute of Cost Accountants of India.

Scope and Functions of the Secretarial Standards Board

The scope of SSB is to identify the areas in which Secretarial Standards need to be issued by
the Council of ICSI and to formulate such Standards, taking into consideration the applicable
laws, business environment and best secretarial practices. SSB will also clarify issues arising
out of such Standards and issue guidance notes for the benefit of members of ICSI,
Corporates and other users.
The main functions of SSB are

1. Formulating Secretarial Standards

2. Clarifying issues arising out of the Secretarial Standards
3. Issuing Guidance Notes
4. Reviewing and updating the Secretarial Standards
Scope of Secretarial Standards
1. The Secretarial Standards do not seek to substitute or supplant any existing laws or the
rules and regulations framed there under but, in fact, seek to supplement such laws, rules
and regulations.

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2. Secretarial Standards that are issued will be in conformity with the provisions of the
applicable laws.
3. However, if, due to subsequent changes in the law, a particular Standard or any part
thereof becomes inconsistent with such law, the provisions of the said law shall prevail.
Procedure for issuing Secretarial Standards

Secretarial standard board (SSB), in consultation with the Council, shall determine the areas in
which Secretarial Standards need to be formulated.

SSB may constitute Working Groups to formulate preliminary drafts of the proposed Standards

The preliminary draft of the Secretarial Standard prepared by the Working Group shall be
circulated amongst the members of SSB for discussion and shall be modified appropriately.

The preliminary draft will then be circulated to the members of the Central Council as well as to Chairmen
of Regional Councils/Chapters of ICSI, various professional bodies, Chambers of Commerce, regulatory
authorities for ascertaining their views.

On the basis of the preliminary draft and the discussion with the bodies/organisations, an
Exposure Draft will be prepared and published in the “Chartered Secretary”, the journal of ICSI,
and also put on the Website of ICSI to elicit comments from members and the public at large.

After taking into consideration the comments received, the draft of the proposed Secretarial
Standard will be finalised by SSB and submitted to the Council of ICSI.

The Council will consider the final draft of the proposed Secretarial Standard and finalise the
SECRETARIAL
same in consultationSTANDARDS
with SSB. The UNDER THEStandard
Secretarial COMPANIES
on the ACT, 2013
relevant subject will then be
issued under the authority of the Council.

Introduction and Need

The term ‘Secretarial Standard’ is defined as an

explanation to section 205 of the Companies Act,
2013 to mean secretarial standards issued by the
Institute of Company Secretaries of India
constituted under section 3 of the Company
Secretaries Act, 1980 and approved by the
Central Government. Thus, for the first time,
Secretarial Standards have been accorded statutory recognition under the Companies Act,
2013.
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SECRETARIAL STANDARDS AND THE COMPANIES ACT, 2013

Is there any other country which has issued Secretarial Standards?

No. The formulation of Secretarial Standards by the SSB and its statutory recognition is a unique and
pioneering step towards standardization of diverse Secretarial practices prevalent in the corporate
sector. No similar Standards are in existence elsewhere in the world.

What will prevail in case of any variations in any provision of the applicable laws and the
Secretarial Standards?

Generally, in addition to the Secretarial Standards, the requirements laid down under any other
applicable laws and rules and regulations, need to be complied with. However, in case of variations in
any provision of the applicable laws and the Secretarial Standards, the stricter provisions need to be
complied with.

What would be the position if a particular Standard becomes inconsistent due to subsequent
changes in the law?

If, due to subsequent changes in the law, a particular Standard or any part thereof becomes
inconsistent with such law, the provisions of the said law shall prevail.

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SECRETARIAL STANDARD-1 BOARD MEETING

SECRETARIAL STANDARD-1

APPLICABLTY NON-APPLICABLTY
Meeting of board and committee meeting OPC in which there is only 1 director and
section 8 company.

SOME IMPORTANT POINTS

 Calendar Year is 1st January and ends on 31st December

 National Holiday” means Republic Day i.e. 26thJanuary, Independence Day i.e. 15th
August, Gandhi Jayanti i.e. 2nd October and such other day as may be declared as
National Holiday by the Central Government
 Committee” means a Committee of Directors mandatorily required to be constituted by
the Board under the Act. the provisions of SS-1 to the committees constituted by the
Board under the Act and not to various other committees constituted under the other
laws/Regulations.
 Secretarial Auditor” means a Company Secretary in Practice or a firm of Company
Secretary(ies) in Practice appointed in pursuance of the Act to conduct the secretarial
audit of the company
 Timestamp” means the current time of an event that is recorded by a Secured Computer
System and is used to describe the time that is printed to a file or other location to help
keep track of when data is added, removed, sent or received.

CONVENING A MEETING

Any Director of a company may, at any time, summon a Meeting of the Board, and the
Company Secretary or where there is no Company Secretary, any person authorised by the
Board in this behalf, on the requisition of a Director, shall convene a Meeting of the Board,
in consultation with the Chairman or in his absence, the Managing Director or in his absence,
the Whole-time Director, where there is any, unless otherwise provided in the Articles.

DAY,TIME, PLACE, MODE AND SERIAL NUMBER OF MEETING:

 Every Meeting shall have a serial number. Companies now required to serially Numbered
there Minutes of Board Meeting
 A original metting Meeting may be convened at any time and place, on ANY DAY.

NOTICE OF BOARD MEETING

Notice, Agenda and Notes of Agenda in writing of every Meeting shall be given to EVERY
DIRECTOR by following ways

 By hand or By Speed Post or by Registered Post or

 By Courier or by fax or By Email or by any other electronic mode.
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 Notice, Agenda and Notes on Agenda shall be sent to all Directors by hand or by speed
post or by registered post or by courier or by e-mail or by any other electronic means
 In case the company sends the notice, agenda and notes on agenda by speed post or by
registered post or by courier, an additional two days shall be added.
 Where a Director specifies a particular means of delivery of Notice, the Notice shall be
given to him by such means. However, in case of a Meeting conducted at a shorter notice,
the Company may choose an expedient mode of sending notice.
 Proof of sending Notice and its delivery shall be maintained by the company for such
period as decided by the Board, which shall not be less than three years from the date of
the Meeting
 Proof of sending Agenda and Notes on Agenda and their delivery shall be maintained by
the company for such period as decided by the Board, which shall not be less than three
years from the date of the Meeting
 Any item not included in the Agenda may be taken up for consideration with the
permission of the Chairman and with the consent of a majority of the Directors
present in the Meeting.
 The decision taken in respect of any other item shall be final only on its ratification by a
majority of the Directors of the company, unless such item was approved at the Meeting
itself by a majority of Directors of the company
 Leave of absence shall be granted to a Director only when a request for such leave
has been communicated to the Company Secretary or to the Chairman or to any
other person authorised by the Board to issue Notice of the Meeting.

ADDRESS FOR SENDING THE NOTICE TO DIRECTORS

Postal address or e-mail address, registered by the Director with the company; or In the
Absence of such details or any change thereto, on the addresses appearing in the Director
Identification Number (DIN) registration of the Director. If director specify the way of
delivery of Notice, Agenda and Notes of Agenda, same shall be given to him by such means.

WHO WILL ISSUE NOTICE OF BOARD MEETING

Company Secretary or where there is no Company Secretary, any Director or any other person
authorized by the Board for the purpose. Proof of sending Notice and its delivery shall be maintained
by the Company. The Notice shall specify the serial number, day, date, time and full address of the
venue of the Meeting. The Notice of a Meeting shall be given even if Meetings are held on pre-
determined dates or at pre-determined intervals.

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TIME PERIOD FOR ISSUE OF NOTICE

NORMAL NOTICE SHORTER NOTICE

Notice, Agenda and Notes of Agenda To transact urgent business, the Notice, Agenda and
convening a Meeting shall be given at Notes on Agenda may be given at shorter period of time
least SEVEN days before the date of the than stated above,
Meeting, unless the Articles prescribe a
longer period. If at least one Independent Director, if any, shall be
present at such Meeting.
In case the company sends the Notice,
Agenda and Notes of Agenda by Speed If no Independent Director is present, decisions taken at
Post or by registered post or by courier, such a Meeting shall be circulated to all the Directors
An Additional Two Days Shall be Added and shall be final only on ratification thereof by at least
for the service of Notice. one Independent Director, if any.

The Notice, Agenda and Notes on Agenda In case the company does not have an Independent
shall be sent to the Original Director also Director, the decisions shall be final only on
at the address registered with the Ratification Thereof By A Majority Of The
company, even if these have been sent to Directors of the company, unless such decisions were
the Alternate Director. approved at the Meeting itself by a majority of
Directors of the company

SPECIAL NOTE:

In case the facility of participation through Electronic Mode is being made available, the
Notice shall inform the Directors about the availability of such facility, and provide them
necessary information to avail such facility.

 If Facility of participation through Electronic Mode provided the Notice shall seek advance
confirmation from the Directors as to whether they will participate through Electronic Mode in
the Meeting.
 In the absence of an advance communication or confirmation from the Director as above, it shall
be assumed that he will attend the Meeting physically.

Participation of Director through Electronic Mode

The Notice shall inform the Directors about the option available to them to participate
through Electronic Mode and provide them all the necessary information.

If a Director intends to participate through Electronic Mode, he shall give sufficient prior
intimation to the Chairman or the Company Secretary to enable them to make suitable
arrangements in this behalf.

The Director may intimate his intention of participation through Electronic Mode at the
beginning of the Calendar Year also, which shall be valid for such Calendar Year.
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Any Director may participate through Electronic Mode in a Meeting, if the company provides
such facility. But certain items can’t be dealt at a meeting held though Video conferencing.

Matter which can’t be dealt at a meeting held though Video conferencing unless expressly
permitted by the Chairman:

 Approval of the annual financial statements;

 Approval of the Board’s report;
 Approval of the prospectus;
 Audit Committee Meetings for consideration of accounts; and
 Approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

CHAIRMAN OF BOARD MEETING

1. The Chairman of the company shall be the Chairman of the Board. If the company does
not have a Chairman, the Directors may elect one of themselves to be the Chairman of the
Board.
2. The Chairman of the Board shall conduct the Meetings of the Board. If no such Chairman
is elected or if the Chairman is unable to attend the Meeting, the Directors present at the
Meeting shall elect one of themselves to chair and conductthe Meeting, unless otherwise
provided in the Articles.
3. It would be the duty of the Chairman to check, with the assistance of Company Secretary,
that the Meeting is duly convened and constituted in accordance with the Act or any other
applicable guidelines, Rules and Regulations beforeproceeding to transact business. The
Chairman shall then conduct the Meeting. The Chairman shall encourage deliberations
and debate and assess the sense of the Meeting.
4. If the Chairman is interested in an item of business, he shall entrust the conduct of the
proceedings in respect of such item to any Non-Interested Director with the consent of the
majority of Directors present and resume the chair after that item of business has been
transacted. However, in case of a private company, the Chairman may continue to chair
and participate in the Meeting afterdisclosure of his interest.
5. If the item of business is a related party transaction, the Chairman shall not be present at
the Meeting, whether physically or through Electronic Mode, during discussions and
voting on such item.
6. The Chairman shall ensure that the required Quorum is present throughout the Meeting
and at the end of discussion on each agenda item the Chairman shall announce the
summary of the decision taken thereon. Unless otherwise provided in the Articles, in case
of an equality of votes, the Chairman shall have a second or casting vote.

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FREQUENCY OF MEETING

FREQUENCY OF MEETING

First board Meeting” should be Meetings of the Board of Directors: (Except Small Company,
held within 30 days of One Person Company and Dormant):
Incorporation of Company.
 The company shall hold.
 At least 4 (four) Board Meetings in a calendar year.
 Maximum interval between two board meetings 120 days

An adjourned Meeting being a continuation of the original Meeting, the interval period in
such a case, shall be counted from the date of the original Meeting.

MEETINGS OF THE INDEPENDENT DIRECTORS:

Where a company is required to appoint Independent Directors under the Act, such
Independent Directors shall meet at least once in a Calendar Year.

QUORUM

 The Quorum for a Meeting of the Board shall be One-third of the total strength of the
Board or Two Directors Whichever is HIGHER. Any fraction contained in the above one-
third shall be rounded off to the next one.
 Where the Quorum requirement provided in the Articles is higher than one-third of the
total strength; the company shall conform to such higher requirement.
 If the number of Interested Directors exceeds or is equal to two-thirds of the total
strength, the remaining Directors present at the Meeting, being not less than two, shall be
the Quorum during such item.
 If there is no Quorum at the adjourned Meeting also, the Meeting shall stand cancelled.
 Quorum shall be present not only at the time of commencement of the Meeting but also
throughout the Meeting.
 Directors participating through Electronic Mode in a Meeting shall be counted for the
purpose of Quorum, unless they are to be excluded for any items of business under the
provisions of the Act or any other law
 If a Director is interested in any resolution he shall neither be reckoned for Quorum nor
shall be entitled to participate in respect of an item of business in which he is interested.
However, in case of a private company, a Director shall be entitled to participate in
respect of such item after disclosure of his interest.
 If the item of business is a related party transaction, then he shall not be present at the
meeting, whether physically or through Electronic Mode, during discussions and voting
on such item.
 Unless otherwise stipulated in the Act or the Articles or under any other law, the Quorum
for Meetings of any Committee constituted by the Board shall be as specified by the
Board. If no such Quorum is specified, the presence of all the members of any such
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Committee constituted by the Board is necessary to form the Quorum for Meetings of
such Committee unless otherwise stipulated in the Act or any other law or the Articles or
by the Board.
 If a Meeting of the Board could not be held for want of Quorum, then, unless otherwise
provided in the Articles, the Meeting shall automatically stand adjourned to the same day
in the next week, at the same time and place or, if that day is a National Holiday, to the
next succeeding day which is not a National Holiday, at the same time and place. If there
is no Quorum at the adjourned Meeting also, the Meeting shall stand cancelled.

ATTENDANCE REGISTERS:

ATTENDANCE REGISTERS:

Every company shall maintain separate attendance registers for the Meetings of the Board.
AND for the Meetings of the Committee. The pages of the respective attendance registers shall
be serially numbered. If an attendance register is maintained in loose-leaf form, it shall be
bound periodically at least once in every three years.

PARTICULARS OF ATTENDANCE REGISTER SIGNING OF ATTENDANCE REGISTER:

OF BOARD MEETING
 Every Director, Company Secretary who
 Serial number and date of the Meeting; is in attendance and
 Place of the Meeting; time of the  Every Invitee who attends a Meeting of
Meeting; the Board or Committee thereof shall
 Names of the Directors and signature of sign the attendance register at that
each Director and their mode of presence, Meeting.
if participating through Electronic Mode  The attendance register shall be deemed to
 Name and signature of the Company have been signed by the Directors
Secretary and Also of persons attending participating through Electronic Mode, if
the Meeting by invitation. their attendance is recorded in the
 In case of Committee Meeting “name of attendance register and authenticated by the
the Committee” also be mentioned.
Company Secretary or where there is no
 The attendance register is open for
Company Secretary, by the Chairman or by
inspection by the Directors. Even after a
person ceases to be a Director, he shall be any other Director present at the Meeting, if
entitled to inspect the attendance register of so authorised by the Chairman and the
the Meetings held during the period of his fact of such participation is also recorded
Directorship in the Minutes
 The attendance register shall be preserved The attendance register shall be kept in the
for a period of atleast eight financial years custody of the Company Secretary.
from the date of last entry made therein and
may be destroyed thereafter with the  Where there is no Company Secretary, the
approval of the Board attendance register shall be kept in the
custody of any other person Director
authorised by the Board for this purpose.

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PASSING OF RESOLUTION BY CIRCULATION

The Act requires certain business to be approved only at Meetings of the Board. However,
other business that requires urgent decisions can be approved by means of Resolutions passed
by circulation. Resolutions passed by circulation are deemed to be passed at a duly convened
Meeting of the Board and have equal authority.

The Chairman of the Board or in his absence, the Managing Director or in his absence, the
Whole-time Director and where there is none, any Director other than an Interested Director,
shall decide, before the draft Resolution is circulated to all the Directors, whether the
approval of the Board for a particular business shall be obtained by means of a Resolution by
circulation

Where not less than one-third of the total number of Directors for the time being require the
Resolution under circulation to be decided at a Meeting, the Chairman shall put the
Resolution for consideration at a Meeting of the Board.

Interested Directors shall not be excluded for the purpose of determining the above one-third
of the total number of Directors.

PROCEDURE

1. A Resolution proposed to be passed by circulation shall be sent in draft, together with the
necessary papers, to all the Directors including Interested Directors on the same day.
2. Proof of sending and delivery of the draft of the Resolution and the necessary papers shall
be maintained by the company for such period as decided by the Board, which shall not
be less than three years from the date of the Meeting.

3. The draft of the Resolution to be passed and the necessary papers shall be circulated
amongst the Directors by hand, or by speed post or by registered post or by courier, or by
e-mail or by any other recognised electronic means.

4. An additional two days shall be added for the service of the draft Resolution, in case the
same has been sent by the company by speed post or by registered post or by courier

5. The Resolution is passed when it is approved by a majority of the Directors entitled to

vote on the Resolution, unless not less than one-third of the total number of Directors for
the time being require the Resolution under circulation to be decided at a Meeting.

6. The Resolution, if passed, shall be deemed to have been passed on the earlier of:

(a) the last date specified for signifying assent or dissent by the Directors or

(b) the date on which assent has been received from the required majority, provided
that on that date the number of directors, who have not yet responded on the
resolution under circulation, along with the Directors who have expressed their
desire that the resolution under circulation be decided at a Meeting of the Board,
shall not be one third or more of the total number of directors
and shall be effective from that date, if no other effective date is specified in such
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 585 of 623

Resolution.

7. Resolutions passed by circulation shall be noted at a subsequent Meeting of the Board and
the text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such
Meeting.

MINUTES

Every company shall keep Minutes of all Board and Committee Meetings in a Minutes Book.
Minutes kept in accordance with the provisions of the Act evidence the proceedings recorded
therein. Minutes help in understanding the deliberations and decisions taken at the Meeting.

1. Minutes shall be recorded in books maintained for that purpose.

2. A distinct Minutes Book shall be maintained for Meetings of the Board and each of its
Committees.
3. The pages of the Minutes Books shall be consecutively numbered.
4. Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any
manner.
5. Minutes book, if maintained in loose-leaf form, shall be bound periodically depending on
the size and volume and coinciding with one or more financial years of the company.
6. Minutes BOOKS shall be kept at the Registered Office of the company or at such other
place as may be approved by the Board.
7. Minutes shall state, at the beginning the serial number and type of the Meeting, name of
the company, day, date, venue and time of commencement and conclusion of the
Meeting.
8. Minutes shall be written in third person and past tense. Resolutions shall however be
written in present tense. Minutes need not be an exact transcript of the proceedings at the
Meeting.
9. Minutes of the preceding Meeting shall be noted at a Meeting of the Board held
immediately following the date of entry of such Minutes in the Minutes Book.
10. Within fifteen days from the date of the conclusion of the Meeting of the Board or the
Committee, the draft Minutes thereof shall be circulated by hand or by speed post or by
registered post or by courier or by e-mail or by any other recognised electronic means to
all the members of the Board or the Committee for their comments as on the date of the
meeting,
11. Proof of sending draft Minutes and its delivery shall be maintained by the company for
such period as decided by the Board, which shall not be less than three years from the
date of the Meeting.
12. The Directors, whether present at the Meeting or not, shall communicate their comments,
if any, in writing on the draft Minutes within seven days from the date of circulation
thereof, so that the Minutes are finalised and entered in the Minutes Book within the
specified time limit of thirty days.
13. If any Director communicates his comments after the expiry of the said period of seven
days , if so authorised by the Board,, the Chairman shall have the discretion to consider
such comments. In the event a Director does not comment on the draft Minutes, the draft
Minutes shall be deemed to have been approved by such Director.

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14. A Director, who ceases to be a Director after a Meeting of the Board is entitled to receive
the draft Minutes of that particular Meeting and to offer comments thereon, irrespective
of whether he attended such Meeting or not.
15. Minutes shall be entered in the Minutes Book within thirty days from the date of
conclusion of the Meeting.
16. Minutes of the previous Meeting may be signed either by the Chairman of such Meeting
at any time before the next Meeting is held or by the Chairman of the next Meeting at the
next Meeting.
17. The Chairman shall initial each page of the Minutes, sign the last page and append to
such signature the date on which and the place where he has signed the Minutes.
18. Within fifteen days of signing of the Minutes, a copy of the said signed Minutes,
certified by the Company Secretary or where there is no Company Secretary by any
Director authorised by the Board, shall be circulated to all the Directors, as on the
date of the meeting and appointed thereafter, except to those directors who have
waived their right to receive the same either in writing or such waiver is recorded in
the Minutes
19. Proof of sending signed Minutes and its delivery shall be maintained by the company for
such period as decided by the Board, which shall not be less than three years from the
date of the Meeting.
20. A Director is entitled to inspect the Minutes of a Meeting held before the period of his
Directorship. A Director is entitled to inspect the Minutes of the Meetings held during the
period of his Directorship, even after he ceases to be a Director.
21. The Company Secretary in Practice appointed by the company, the Secretarial Auditor,
the Statutory Auditor, the Cost Auditor or the Internal Auditor of the company can
inspect the Minutes as he may consider necessary for the performance of his duties.
22. Inspection of Minutes Book may be provided in physical or in electronic form. While
providing inspection of Minutes Book, the Company Secretary or the official of the
company authorised by the Company Secretary to facilitate inspection shall take all
precautions to ensure that the Minutes Book is not mutilated or in any way tampered with
by the person inspecting.
23. A Member of the company is not entitled to inspect the Minutes of Meetings of the
Board.
24. Minutes of all Meetings shall be preserved permanently in physical or in electronic form
with Timestamp.
25. Where, under a scheme of arrangement, a company has been merged or amalgamated
with another company, Minutes of all Meetings of the transferor company, as handed
over to the transferee company, shall be preserved permanently by the transferee
company, notwithstanding that the transferor company might have been dissolved.
26. Minutes Books shall be kept in the custody of the Company Secretary.
27. The Report of the Board of Directors shall include a statement on compliances of
applicable Secretarial Standards.
28. Minutes, once entered in the Minutes Book, shall not be altered. Any alteration in the
Minutes as entered shall be made only by way of express approval of the Board at its
subsequent Meeting at which the minutes are noted by the Board and the fact of such
alteration shall be recorded in the Minutes of such subsequent meeting in which such
Minutes are sought to be altered
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29. In respect of a Meeting adjourned for want of Quorum, a statement to that effect by the
Chairman or in his absence, by any other Director present at the Meeting shall be
recorded in the Minutes.
30. Where the Minutes have been kept in accordance with the Act and all appointments have
been recorded, then until the contrary is proved, all appointments of Directors, First
Auditors, Key Managerial Personnel, Secretarial Auditors, Internal Auditors and Cost
Auditors, shall be deemed to have been duly approved by the Board.

CONTENTS OF MINUTES:
(a) The name(s) of Directors present and their mode of attendance, if through Electronic
Mode.
(c) The name of Company Secretary who is in attendance and Invitees, if any, for specific
items and mode of their attendance if through Electronic Mode.
(d) Record of election, if any, of the Chairman of the Meeting.
(e) Record of presence of Quorum.
(f) The names of Directors who sought and were granted leave of absence.
(g) The fact that an Interested Director did not participate in the discussions and did not vote
on item of business in which he was interested and in case of a related party transaction
such director was not present in the meeting during discussions and voting on such item.
(h) In case of a director participating through Electronic Mode, his particulars, the location
from where he participated.

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SECRETARIAL STANDARD - 2 GENERALMEETINGS

APPLICABLITY

This Standard is applicable to all types of General Meetings of all companies incorporated under
the Act except One Person Company (OPC) and a company licensed under Section 8 of the
Companies Act, 2013 or corresponding provisions of any previous enactment thereof class or
classes of companies which are exempted by the Central Government through notification.

FREQUENCY OF GENERAL MEETING

ANNUAL GENERAL MEETING EXTRA ORDINARY GENERAL

MEETING:
Every Company in each Calendar Year, hold a
General Meeting called the Annual General Meeting. The Board may also, whenever it deems
fit, call an Extra- Ordinary General
FIRST AGM: Meeting of the Company.

First AGM within 9 month from the date of closing The Board shall, on the requisition of
of First Financial year of the Company. In case of Members who hold, as on the date of
First AGM, it is not necessary for the company to the receipt of a valid requisition can call
hold any AGM in the calendar year of its an Extra- Ordinary General Meeting,
Incorporation.
1. In the case of Company having a
Time period of First Annual General Meeting after
Incorporation of Company cannot be extended.
Share Capital, not less than 1/10th of
the paid-up share capital carrying
SUBSEQUENT AGM: Voting Rights; OR
2. In the case of a Company not
Subsequent AGM shall be hold EARLIER of having share capital, not less than
followings: 1/10th of total voting power of the
Company.
 Within SIX month from the end of each Financial
Year or
 Within FIFTEEN month from the last Annual
General Meeting.
 Extension of Subsequent AGM A period not
exceeding 3 (three) Month with the Prior
approval of ROC.

SPECIAL NOTE:

1. If, on receipt of a valid requisition having been made in this behalf, the Board, within
twenty-one days from the date of such receipt, fails to call a Meeting on any day within
forty-five days from the date of receipt of such requisition, the requisitionists may
themselves call and hold the Meeting within three months from the date of requisition, in
the same manner in which the Board should have called and held the Meeting.
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 589 of 623

2. Explanatory statement need not be annexed to the Notice of an Extra-ordinary General

Meeting convened by the requisitionists and the requisitionists may disclose the reasons
for the Resolution(s) which they propose to move at the Meeting.
3. Such requisition shall not pertain to any item of business that is required to be transacted
mandatorily through postal ballot.

NOTICE

1. Notice in writing of every Meeting shall be given to every Member of the company. Such
Notice shall also be given to the Directors and Auditors of the company, to the Secretarial
Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other
specified persons.
2. In case of a Nidhi company, Notice may be served individually only on Members who
hold shares of more than one thousand rupees in face value or more than one percent of
the total paid-up share capital of the company, whichever is less. For other Members,
Notice may be served by a public notice in newspaper circulated in the district where the
Registered Office of the company is situated and by displaying the same on the notice
board of the company.

WHERE THE COMPANY HAS RECEIVED INTIMATION OF DEATH OF A MEMBER

 where securities are held singly, to the Nominee of the single holder;
 where securities are held by more than one person jointly and any joint holder dies, to the
surviving first joint holder;
 where securities are held by more than one person jointly and all the joint holders die, to
the Nominee appointed by all the joint holders;
 In the absence of a Nominee, the Notice shall be sent to the legal representative of the
deceased Member.
 In case of insolvency of a Member, the Notice shall be sent to the assignee of the
insolvent Member.
 In case the Member is a company or body corporate which is being wound up, Notice
shall be sent to the liquidator.

3. Notice shall be sent by hand or by ordinary post or by speed post or by registered post or
by courier or by facsimile or by e-mail or by any other electronic means

4. Notice shall be sent to Members by registered post or speed post or courier or e-mail and
not by ordinary post in the following cases:
 if the company provides the facility of e-voting ;
 if the item of business is being transacted through postal ballot;

5. If a Member requests for delivery of Notice through a particular mode, other than the one
followed by the company, of those listed above, he shall pay such fees as may be determined by
the company in its Annual General Meeting and the Notice shall be sent to him in such mode.
6. In case of companies having a website, the Notice shall simultaneously be hosted on the
website till the conclusion of the Meeting. In case of a private company, the Notice shall be
hosted on the website of the company, if any, unless otherwise provided in the Articles..

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7. Notice shall specify the day, date, time and full address of the venue of the Meeting.
Notice shall contain complete particulars of the venue of the Meeting including route map
and prominent land mark for easy location. In case of companies having a website, the
route map shall be hosted along with the Notice on the website.

8. An Annual General Meetings and a Meeting called by the requisitionists shall be called during
business hours, i.e., between 9 a.m. and 6 p.m., on a day that is not a National Holiday.

9. Annual General Meetings shall be held either at the registered office of the company or at
some other place within the city, town or village in which the registered office of the
company is situated, whereas other General Meetings may be held at any place within
India. A Meeting called by the requisitionists shall be held either at the registered office
of the company or at some other place within the city, town or village in which the
registered office of the company is situated.

10. In case of a Government company, the Annual General Meeting shall be held at its
registered office or any other place with the approval of the Central Government, as
may be required in this behalf.

11. Notice and accompanying documents shall be given at least twenty-one clear days in
advance of the Meeting. For the purpose of reckoning twenty-one days clear Notice, the
day of sending the Notice and the day of Meeting shall not be counted. Further in case the
company sends the Notice by post or courier, an additional two days shall be provided for
the service of Notice.

12. In case a valid special notice under the Act has been received from Member(s), the
company shall give Notice of the Resolution to all its Members at least seven days before
the Meeting, exclusive of the day of dispatch of Notice and day of the Meeting, in the
same manner as a Notice of any General Meeting is to be given.

13. Notice and accompanying documents may be given at a shorter period of time if consent
in writing is given thereto, by physical or electronic means, by not less than ninety-five
per cent of the Members entitled to vote at such Meeting.

14. No business shall be transacted at a Meeting if Notice in accordance with this Standard
has not been given.

15. Notice of Annual General Meeting shall also specify the serial number of the Meeting

16. The request for consenting to shorter Notice and accompanying documents shall be sent
together with the Notice and the Meeting shall be held only if the consent is received prior to
the date time fixed for the Meeting from not less than ninety five per cent of the Members
entitled to vote at such Meeting. The company shall ensure compliance of provisions relating to
appointment of proxy unless all the Members entitled to vote at such Meeting, consent to
holding of the General Meeting at shorter notice.

17. Notice shall be accompanied, by an attendance slip and a Proxy form with clear
instructions for filling, stamping, signing and/or depositing the Proxy form.
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 591 of 623

18. If notice send through email the company shall ensure that it uses a system which
produces confirmation of the total number of recipients e- mailed and a record of each
recipient to whom the Notice has been sent and copy of such record and any Notices of
any failed transmissions and subsequent re-sending shall be retained by or on behalf of
the company as “proof of sending” for such period as decided by the Board, which shall
not be less than three years from the date of the Meeting

19. Notice shall contain complete particulars of the venue of the Meeting including route map
and prominent land mark, if any, for easy location, except in case of :-

(i) a company in which only its directors and their relatives are members,
(ii) a wholly owned subsidiary.

QUORUM OF GENERAL MEETING:

PRIVATE LIMITED:

Two Members Personally Present

PUBLIC LIMITED:

In case of Public Company “Minimum Present of Members required”

 5 (five members) personally present if the number of Members as on the date of Meeting
is up to 1000 (one thousand).
 15 (Fifteen members) personally present if the number of Members as on date of Meeting
is more than 1000 (one thousand) but upto 5000 (five thousand)
 30 (thirty member) personally present if the number of members as on date of the
Meeting exceeds 5000 (five thousand)

IMPORTANT PROVISIONS FOR QUORUM OF GENERAL MEETING

 Quorum shall be present not only at the time of commencement of the Meeting but also
while transacting business.
 Company by provision in its Article can provide for larger number
 Presence of a duly authorized representative body corporate, president and governor
deemed to be a Member personally present and enjoy all the rights of a Member present
in person.
 One person can be an authorized representative of more than one body corporate. Even he
will treat as more than one member for the purpose of Quorum but there should be at least
one more member in personally present.
 A member who is not entitled to vote on any particular item of business being a related
party, if present shall be counted for the purpose of Quorum.
 Stipulation of the presence of Quorum doesn’t apply with respect to items of business
transacted through postal ballot.
 Members who have voted by Remote e-voting have the right to attend the General Meeting and
accordingly their presence shall be, counted for the purpose of Quorum

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ADJOURNMENT OF MEETING:
WHO CAN ADJOURNED THE MEETING

 A duly convened Meeting shall not be adjourned unless circumstances so warrant. The
Chairman may adjourn a Meeting with the consent of the Members, at which a Quorum is
present, and shall adjourn a Meeting if so directed by the Members.

 Meetings shall stand adjourned for want of requisite Quorum.

 The Chairman may also adjourn a Meeting in the event of disorder or other like causes,
when it becomes impossible to conduct the Meeting and complete itsbusiness.

HOLDING OF ADJOURNED MEETING

 If a Meeting is adjourned sine-die or for a period of thirty days or more, a Notice of the
adjourned Meeting shall be given in accordance with normal provisions of companies act
2013 (21 clear days notice).

 If a Meeting is adjourned for a period of less than thirty days, the company shall give not
less than three days’ Notice specifying the day, date, time and venue of the Meeting, to
the Members either individually or by publishing an advertisement in a vernacular
newspaper in the principal vernacular language of the district in which the registered
office of the company is situated, and in an English newspaper in English language, both
having a wide circulation in that district.

 However, if a Meeting is adjourned for a period not exceeding three days and where an
announcement of adjournment has been made at the Meeting itself, giving in the details
of day, date, time, venue and business to be transacted at the adjourned Meeting, the
company may also opt to give Notice of such adjourned Meeting either individually or by
publishing an advertisement, as stated above.

 If a Meeting is adjourned for want of a Quorum to the same day on the next week, at the
same time and place or with a change of day, time or place, the company shall give not
less than three days’ Notice specifying the day, date, time and venue of the Meeting, to
the Members either individually or by publishing an advertisement in a vernacular
newspaper in the principal vernacular language of the district in which the registered
office of the company is situated, and in an English newspaper in English language, both
having a wide circulation in that district.

 If, at an adjourned Meeting, Quorum is not present within half an hour from the time
appointed, the Members present, being not less than two in number, will constitute the
Quorum.

CAN AN ADJOURNED AGM BE HOLD ON NATIONAL HOLIDAY

 If a Meeting, other than an Annual General Meeting and a requisitioned Meeting,

stands adjourned for want of Quorum, the adjourned Meeting shall be held on the same
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 593 of 623

day, in the next week at the same time and place or on such other day or at such other
time and place as may be determined by the Board.

 An adjourned Annual General Meeting, adjourned for want of quorum or otherwise,

shall not be held on a National Holiday, only if any item relating to filling up of vacancy
of a director retiring by rotation is included in the agenda of such adjourned Meeting.

 At an adjourned Meeting, only the unfinished business of the original Meeting shall be
considered. Any Resolution passed at an adjourned Meeting would be deemed to have
been passed on the date of the adjourned Meeting and not on any earlier date.

DISTRIBUTION OF GIFTS:

No gifts, gifts coupons, or cash in lieu of gifts shall be distributed to Member at or in

connection with the Meeting.

Rescinding of Resolutions

A Resolution passed at a Meeting shall not be rescinded otherwise than by a Resolution

passed at a subsequent Meeting.

Modifications to Resolutions

Modifications to any Resolution which do not change the purpose of the Resolution
materially may be proposed, seconded and adopted by the requisite majority at the Meeting
and, thereafter, the modified Resolution shall be duly proposed, seconded and put to vote.

No modification to any proposed text of the Resolution shall be made if it in any way alters
the substance of the Resolution as set out in the Notice. Grammatical, clerical, factual and
typographical errors, if any, may be corrected as deemed fit by the Chairman. No
modification shall be made to any Resolution which has already been put to vote by Remote
e-voting before the Meeting.

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PRESENCE OF DIRECTOR, COMPANY SECRETARY AND AUDITORS AT

GENERAL MEETING

WHO SHALL PRESENT IN GENERAL MEETING ALONG WITH SHAREHOLDERS

DIRECTOR: STATUTORY AUDITOR:

If any Director is unable to attend the It is mandatory for the Auditor to attend General
Meeting, the Chairman shall explain Meeting, Auditor can absent himself If it get
such absence at the Meeting. The exemption from the Company to attend General
Director who attends the General Meeting OR If his authorized representative
Meeting shall seat with Chairman. attend the General Meeting PROVIDED
Authorized representative should also be
COMPANY SECRETARY: qualified to be an Auditor

The Company Secretary shall seat with SECRETARIAL AUDITOR :( Annual General Meeting)
Chairman AND shall assist the
Chairman in conduction the Meeting. It is mandatory for the Auditor to attend General
Meeting, Auditor can absent himself If it get
CHAIRMAN OF COMMITTEE’S exemption from the Company to attend General
Meeting OR If his authorized representative
The Chairman of Committee’s and any attend the General Meeting PROVIDED
other member of such Committee Authorized representative should also be
authorized by the Chairman of the qualified to be an Auditor
Committee to attend on his behalf shall
attend the General Meeting. The Chairman may invite the Secretarial Auditor
to attend “Any Other General Meeting”.
CHAIRMAN:

The Chairman of the Board shall take the Chair and conduct the Meeting. BUT If the
Chairman is not present within 15 minutes after the time appointed for holding of Meeting, or
If he is unwilling to act as Chairman of the Meeting THEN The Director present at the
Meeting shall elect one of them to be the Chairman of the Meeting.

If no Director is present within 15 Minutes after the time appointed for holding of Meeting,
or If no Director is willing to take the Chair. The Members present shall elect, on a show of
hands, one of themselves to be the Chairman of the Meeting, unless otherwise provided in the
Article.

DEMAND OF POLL FOR CHAIRMAN

If poll is demanded for election of Chairman It shall be taken forthwith in accordance with
the provisions of the Act and The Chairman elected on a show of hands shall continue to be
the Chairman as a result of the Poll, and such other person shall be the Chairman for the rest
of the Meeting.
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DUTIES OF CHAIRMAN:

The Chairman shall ensure that the Meeting is duly constituted in accordance with the Act
and the Articles or any other applicable laws, before it proceeds to transact business.

The chairman shall then conduct the Meeting in a fair and impartial manner and ensure that
only such business as has been set out in Notice is transacted.

The Chairman shall regulate the manner in which voting is conducted at the Meeting keeping
in view the provisions of the Act.

The Chairman shall explain the objective and implications of the Resolutions before they are
put to vote at the Meeting.

PROXY:

 A member entitled to attend and vote is entitled to Appoint Proxy.

 A proxy can’t act on behalf of more than 50 members and members holding aggregate
more than 10% of the total share capital of the Company carrying voting rights.

SIGNING OF PROXY FORM

WHO WILL SIGN THE PROXY FORM

MEMBER IS INDIVIDUAL MEMBER IS BODY CORPORATE

BY THE MEMBER, or His attorney If the appointer is a body corporate than the
duly authorized in writing instrument of Proxy should be under its seal and
shall be signed by the: An officer, or An attorney
duly authorized by it.

SOME SPECIAL PROVISONS ON PROXY

 An instrument of proxy is valid only if it is properly stamped as per the applicable law.
 Notice of a company which has a share capital or the Articles of which provide for voting
at a Meeting by Proxy, shall prominently contain a statement that a Member entitled to
attend and vote is entitled to appoint a Proxy, or where that is allowed, one or more
proxies, to attend and vote instead of himself and that a Proxy need not be a Member.
 In case of a private company, the Notice shall specify the entitlement of a member to
appoint proxy in accordance with this para, unless otherwise provided in the Articles
 Unstamped or inadequately stamped Proxies or Proxies upon which the stamps have not
been cancelled are INVALID.
 The proxy-holder shall prove his identity at the time of attending the Meeting.
 If company receive multiple proxies for the same holdings of the Member and they are
not dated or bear the same date without mention of time, all such multiple proxies shall be
treated as invalid.

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 If a company receives multiple proxies form the same holding of a member, the Proxy
which is dated last shall be considered valid.
 It should be deposit with the Company at least 48 hour before the commencement of the
Meeting
 Proxy form can be send either in Person or Through Post
 Unnamed Proxy Form AND Undated Proxy Form will be treated as invalid
 All the proxies shall be recorded chronologically in a register kept for that purpose.
 In case any proxy entered in the register is rejected, the reasons there for shall be entered
in the remarks column.

REVOCATION OF PROXY:

 A proxy later in date can revoke the earlier dated proxies.

 Proxy is valid until written notice of revocation has been received by the Company before
the commencement of the Meeting or adjourned meeting.
 A notice of revocation of proxy shall be signed by the same Member(s) who had signed
the proxy, in the case of joint membership.
 When both the Member and Proxy attend the Meeting, the proxy stand automatically
revoked.

WHEN PROXY FORMS CAN BE INSPECTED

Proxies shall made available for inspection during the period beginning 24 hours before the
commencement of the Meeting and Ending with the conclusion of the Meeting Between 9
a.m. to 6 p.m.

PASSING OF RESOLUTIONS BY POSTAL BALLOT

1. Every company, except a company having less than or equal to two hundred Members,
shall transact items of business as prescribed, only by means of postal ballot instead of
transacting such business at a General Meeting. Ordinary Business shall not be transacted
by means of a postal ballot.

2. Notice of the postal ballot shall be given in writing to every Member of the company.
Such Notice shall be sent either by registered post or speed post, or by courier or by email
or by any other electronic means at the address registered with the company.

3. The Notice shall be accompanied by the postal ballot form with the necessary instructions
for filling, signing and returning the same.
4. Such Notice shall also be given to the Directors and Auditors of the company, to the
Secretarial Auditor, to Debenture Trustees, if any, and, wherever applicable or so
required, to other specified recipients.
5. In case of companies having a website, Notice of the postal ballot shall also be placed on
the website.
6. Notice shall specify the day, date, time and venue where the results of the voting by
postal ballot will be announced and the link of the website where such results will be
displayed.
7. Notice of the postal ballot shall inform the Members about availability of e-voting
facility, if any, and provide necessary information thereof to enable them to access such
facility.
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8. The postal ballot form shall be accompanied by a postage prepaid reply envelope
addressed to the scrutiniser.
9. A single postal ballot Form may provide for multiple items of business to be transacted.

WHEN A POSTAL BALLOT FORM SHALL BE CONSIDERED INVALID

 A form other than one issued by the company has been used
 It has not been signed by or on behalf of the Member
 Signature on the postal ballot form doesn’t match the specimen signatures with the
company
 It is not possible to determine without any doubt the assent or dissent of the Member;
 Neither assent nor dissent is mentioned;
 Any competent authority has given directions in writing to the company to freeze the
Voting Rights of the Member
 The envelope containing the postal ballot form is received after the last date prescribed
 It is received from a Member who is in arrears of payment of calls
 It is defaced or mutilated in such a way that its identity as a genuine form cannot be
established
MINUTES
Every company shall keep Minutes of all Meetings. Minutes kept in accordance with the
provisions of the Act evidence the proceedings recorded therein. Minutes help in
understanding the deliberations and decisions taken at the Meeting.
IMPORTANT PROVISONS

 Minutes shall be recorded in books maintained for that purpose.

 A distinct Minutes Book shall be maintained for Meetings of the Members of the
company, creditors and others as may be required under the Act. The pages of the
Minutes Books shall be consecutively numbered.
 Minutes of Meetings, if maintained in loose-leaf form, shall be bound periodically
depending on the size and volume.
 Minutes Books shall be kept at the Registered Office of the company or at such other
place, as may be approved by the Board.
 Minutes shall state, at the beginning the Meeting, name of the company, day, date, venue
and time of commencement and conclusion of the Meeting.
 Minutes shall record the names of the Directors and the Company Secretary present at the
Meeting.
 The Company Secretary shall record the proceedings of the Meetings. Where there is no
Company Secretary, any other person authorised by the Board or by the Chairman in this
behalf shall record the proceedings.
 Minutes shall be written in third person and past tense. Resolutions shall however be
written in present tense. Minutes need not be an exact transcript of the proceedings at the
Meeting.
 Minutes shall be entered in the Minutes Book within thirty days from the date of
conclusion of the Meeting.
 Minutes of a General Meeting shall be signed and dated by the Chairman of the Meeting
or in the event of death or inability of that Chairman, by any Director who was present in
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the Meeting and duly authorised by the Board for the purpose, within thirty days of the
General Meeting.
 The Chairman shall initial each page of the Minutes, sign the last page and append to
such signature the date on which and the place where he has signed the Minutes.
 If the Minutes are maintained in electronic form, the Chairman shall sign the Minutes
digitally.
 Minutes of all Meetings shall be preserved permanently in physical or in electronic form.
 Minutes Books shall be kept in the custody of the Company Secretary. Where there is no
Company Secretary, Minutes shall be kept in the custody of any Director duly authorised
for the purpose by the Board.

VOTING

1. Every Resolution shall be proposed by a Member and seconded by another Member.

2. Every company having its equity shares listed on a recognized stock exchange other than
companies whose equity shares are listed on SME Exchange or on the Institutional
Trading Platform and other companies as prescribed shall provide e-voting facility to
their Members to exercise their Voting Rights.
3. Every company, which has provided e-voting facility to its Members, shall also put every
Resolution to vote through a ballot process at the Meeting. Ballot process may be carried
out by distributing ballot/poll slips or by making arrangement for voting through
computer or secure electronic systems. Any Member, who has already exercised his votes
through Remote e-voting, may attend the Meeting but is prohibited to vote at the Meeting
and his vote, if any, cast at the Meeting shall be treated as invalid. A Proxy can vote in the
ballot process.
4. A Member who is a related party is not entitled to vote on a Resolution relating to
approval of any contract or arrangement in which such Member is a related party.
5. A Resolution passed at a Meeting shall not be rescinded otherwise than by a Resolution
passed at a subsequent Meeting.
6. Modifications to any Resolution which do not change the purpose of the Resolution
materially may be proposed, seconded and adopted by the requisite majority at the
Meeting and, thereafter, the modified Resolution shall be duly proposed, seconded and
put to vote.
7. The qualifications, observations or comments or other remarks on the financial
transactions or matters which have any adverse effect on the functioning of the company,
if any, mentioned in the Auditor’s Report shall be read at the Annual General Meeting
and attention of the Members present shall be drawn to the explanations / comments
given by the Board of Directors in their report.
8. The qualifications, observations or comments or other remarks if any, mentioned in the
Secretarial Audit Report issued by the Company Secretary in Practice, shall be read at the
Annual General Meeting and attention of Members present shall be drawn to the
explanations/ comments given by the Board of Directors in their report.
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SECRETARIAL STANDARD-3 (SS-3) ON “DIVIDEND

Secretarial Standard-3 (SS-3) on “Dividend”, issued by the Council of the Institute of
Company Secretaries of India for voluntary adoption by companies
EFFECTIVE DATE:
This Standard shall come into effect from 1st January, 2018
INTRODUCTION
Dividend is a return on the investment made in the share capital of a company, as distinct
from the return on borrowed capital, which is in the form of interest.
In commercial usage, the term “Dividend” refers to the share of profits of a company that is
distributed amongst its Members.
The term “Dividend” has been inclusively defined in the Act to the effect that it includes
Interim Dividend. The Act neither specifically defines the term Dividend nor makes any
distinction between Interim and Final Dividend.
For the purposes of this Standard, capitalization of profits in the form of bonus shares is not
Dividend.
Companies licensed under Section 8 of the Companies Act, 2013 or corresponding provisions
of any previous enactment thereof are prohibited by their constitution from paying any
Dividend to its Members.
DEFINITIONS
“Dividend” means a distribution of any sums to Members out of profits and wherever
permitted out of free reserves available for the purpose.
“Final Dividend” means the Dividend recommended by the Board of Directors and declared
by the Members at an Annual General Meeting.
“Interim Dividend” means the Dividend declared by the Board of Directors.
“Free Reserves” means such reserves which, as per the latest audited balance sheet of a
company, are available for distribution as Dividend. However, the following amount shall not
be treated as free reserves:
(i) any amount representing unrealised gains, notional gains or revaluation of assets, whether
shown as reserve or otherwise, or
(ii) any change in carrying amount of an asset or of a liability recognised in equity, including
surplus in profit and loss account on measurement of the asset or the liability at fair value.
PROVISIONS REGARDING SECRETARIAL STANDARDS
1. Dividend shall be paid out of the profits of the financial year for which such
Dividend is sought to be declared and/or out of profits for any previous financial
year(s) which remains undistributed after providing for depreciation in accordance
with the provisions of the Act. Dividend may also be declared out of money provided
by the Central Government or a State Government in pursuance of a guarantee
given by such Government for this purpose.

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2. Dividend shall not be declared unless carried over previous losses and depreciation not
provided in the previous year(s) are set off against the profit of the company for the
current year. The company may, before declaration of Dividend, transfer such percentage
of profits for that financial year, as it may consider appropriate, to its reserves.
3. A company shall not declare Dividend on its equity shares in case of non-compliance
of provisions relating to the acceptance of deposits under the Act, till such time the
deposits accepted have been repaid with interest in accordance with the terms and
conditions of the agreement entered with the depositors.
4. A company shall also not declare any Dividend, if it has defaulted in –
 Redemption of debentures or payment of interest thereon or creation of debenture
redemption reserve,
 Redemption of preference shares or creation of capital redemption reserve,
 Payment of Dividend declared in the current or previous financial year(s), or
 Repayment of any term loan to a bank or financial institution or interest thereon,
 till such time the default is subsisting.
5. Interim Dividend shall be declared and paid out of the surplus in the profit & loss
account and/or out of profits of the financial year in which such Dividend is sought
to be declared.
6. The Board of Directors of a company may declare Interim Dividend during any financial
year or at any time during the period from closure of financial year till holding of the
Annual General Meeting.
7. While declaring the Interim Dividend, the Board shall consider the financial results for
the period for which Interim Dividend is to be declared and should be satisfied that the
financial position of the company justifies and supports the declaration of such Dividend.
The financial results shall take into account –
o depreciation for the full year,
o tax on profits of the company including deferred tax for full year,
o other anticipated losses for the financial year, in this case Interim Dividend shall
not be declared at a rate higher than average Dividend declared during the
immediately preceding three financial years.
o Dividend that would be required to be paid at the fixed rate on preference shares.
o the losses incurred, if any, during the current financial year upto the end of the
quarter, immediately preceding the date of declaration of Interim Dividend.
8. Interim Dividend shall not be declared out of Free Reserves.
9. Dividend shall be declared only on the recommendation of the Board, made at a
meeting of the Board.
10. Unless the Dividend has been recommended by the Board, Members in Annual General
Meeting cannot on their own declare any Dividend.
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11. Where a company has an Audit Committee, this Committee shall consider the annual
financial statements before submission to the Board. Dividend shall be recommended by
the Board after consideration and approval of said financial statements. All requisite
approvals shall be obtained before declaration of Dividend. Dividend shall not be
declared subject to any condition such as the approval of financial institutions/ banks or
foreign collaborators or compliance with any other contractual obligation.
12. Dividend shall relate to a financial year and shall be declared by the Members at the
Annual General Meeting of the company after adoption of the financial statements of the
company. Members may declare a lower rate of Dividend than the rate recommended by
the Board but have no power to increase the amount or rate of Dividend recommended by
the Board.
13. The Members may also decide not to declare the Dividend recommended by the Board.
The Dividend, if declared, should be disclosed on per share basis.
14. No Dividend shall be declared on equity shares for previous years in respect of
which annual financial statements have already been adopted at the respective
Annual General Meetings.
15. Interim Dividend shall be declared at a meeting of the Board.
16. While Final Dividend is recommended by the Board and declared by the Members,
approval of Members is not required for declaration of Interim Dividend. Where a
company has an Audit Committee, this Committee shall consider the financial results
which shall thereafter be submitted to the Board for its consideration and declaration of
Interim Dividend.
17. Distribution of discount coupons to all the Shareholders shall not be treated as
deemed Dividend.
18. A company is prohibited to issue Bonus shares in lieu of Dividend.
19. Dividend to be paid only to the registered holders of shares entitled to Dividend or to
their order or to their bankers.
20. Dividend shall be paid (i) in respect of shares held in electronic form, to those Members
whose names appear as beneficial owners in the statement of beneficial ownership
furnished by the Depository(ies) as on the record date fixed by the company for this
purpose; (ii) in respect of shares held in physical form, to those Members whose names
appear in the company‟s Register of Members after giving effect to all valid share
transfers in physical form lodged with the company before the date of book closure or as
on the record date, as the case may be.
21. The Dividend may also be paid to the order of the Member or to his banker.
22. Preference shares carry a preferential right as to Dividend in accordance with the terms of
issue. However, this right is subject to the availability of distributable profits. Since the
Dividend on preference shares is governed by the terms of issue already approved by the
Shareholders, the Board may declare Dividend on such shares in accordance with the
terms of issue.
23. If there are two or more classes of preference shares, the holders of the class which has
priority are entitled to their preference Dividend before any Dividend is paid in respect of

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the other class, if the terms of issue so provide. However, if the terms of issue are silent,
Dividend shall be distributed on pro-rata basis.
24. In the case of Interim Dividend, while Preference Shareholders need not necessarily be
paid Dividend before Interim Dividend is paid to equity Shareholders, the Board should
take into account such sum as would be necessary to pay Dividend to the Preference
Shareholders before consideration of Interim Dividend.
25. Arrears of Dividend on cumulative preference shares shall be paid before payment
of any Dividend on equity shares.
26. Dividend shall be deposited in a separate bank account within five days from the
date of declaration and shall be paid within thirty days of declaration. The
intervening holidays, if any, falling during such period shall be included.
27. The amount deposited in such bank account shall be utilised only for the payment of
Dividend or for transfer to Unpaid Dividend Account/Investor Education and Protection
Fund and for no other purpose.
28. To curb the practices of fraudulent encashment of Dividend, the company shall endeavour
to pay Dividend directly to the bank accounts of the Members through any one of the
electronic modes specified by the Reserve Bank of India viz. electronic clearing services
(local, regional or national), direct credit, real time gross settlement, national electronic
funds transfer etc. Where Dividend is remitted through electronic mode, the company
shall send to the Member, a statement in writing showing the amount of Dividend paid.
29. Where payment of Dividend is not possible through any electronic mode, such Dividend
shall be paid by way of cheque payable at par or Dividend warrant.
30. The cheque or warrant shall be sent to the registered address of the Member and, in the
case of joint holders, to the registered address of the Member named first in the Register
of Members or to such person or to such address as the Member or the joint holders have
directed, in writing.
31. When payment is made by Dividend warrant, the name of the bank and account number,
if available, shall be mentioned in the warrant after the name. In case these are not
available, address of the Member shall be printed after the name.
32. In case of payment of Dividend through warrant or cheque payable at par, if the amount
of Dividend exceeds one thousand and five hundred rupees, the company shall ensure to
despatch such Dividend warrant or cheque either by speed post or registered post to the
concerned Member at his registered address.
33. In case of a Nidhi company, where the Dividend payable to a Member is one hundred
rupees or less, it shall be sufficient compliance if the declaration of Dividend is
announced in the local language in one local newspaper of wide circulation and
announcement of the said declaration is also displayed on the notice board of the Nidhis
for at least three months.
34. A cheque or warrant for payment of Dividend shall be valid for a period of three months
from the date of issue. Where such cheque or warrant remains unpaid after the initial
period of validity, a fresh instrument shall be issued in lieu thereof, within fifteen days of
the receipt of a valid request in this regard and such instrument shall also have a validity
of three months from the date of its issue.
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35. Particulars of every fresh cheque or warrant issued by the company shall be entered in a
Register of Dividend Warrants kept for the purpose indicating the name of the person to
whom the instrument is issued, the number and amount of such instrument and the date of
issue.
36. A duplicate Dividend cheque or warrant shall be issued only after obtaining
requisite indemnity/ declaration from the concerned Member and after ascertaining
the encashment status of the original Dividend cheque or warrant.
37. In case of defaced, torn or decrepit Dividend cheque or warrant, a duplicate instrument
may be issued on surrender of such defaced, torn or decrepit instrument to the company.
38. In case of non-receipt of Dividend warrant by the Shareholder and if the same is not
returned undelivered to the company, a duplicate warrant may be issued by the company
after verifying the encashment status.
39. Particulars of every duplicate Dividend cheque or warrant issued as aforesaid shall be
entered in a Register of Duplicate Dividend Warrants kept for the purpose, indicating the
name of the person to whom the instrument is issued, the number and amount of the
instrument in lieu of which the duplicate instrument is issued and the number & date of
issue of such duplicate instrument.
40. Dividend shall be paid proportionately on the paid-up value of shares.
41. Unless the Articles provide otherwise, Dividend shall be paid in proportion to the amount
paid-up on the shares and for the portion of the period of the financial year in respect of
which it is paid. If any shares are issued in between the financial year on the terms that
they shall rank for Dividend from a particular date, Dividend on such shares shall be paid
accordingly.
42. The amount of Dividend which remains unpaid or unclaimed after thirty days from
the date of its declaration shall be transferred to a special bank account titled as
‘Unpaid Dividend Account’ to be opened by the company in that behalf with any
scheduled bank. Such transfer shall be made within seven days from the date of
expiry of the thirty days period from the date of declaration of Dividend.
43. The company shall within a period of ninety days of transferring such amount to „Unpaid
Dividend Account‟ prepare a statement containing the names, last known addresses and
the amount of Dividend to be paid to each of the Members. Such statement shall be
uploaded on the website of the company, if any, and also on the website specified by the
Central Government for this purpose. Such statement shall remain on the website(s) till
such time the unpaid or unclaimed Dividend is transferred to the Investor Education and
Protection Fund (the Fund) and be updated by the company at regular intervals.
44. Any person claiming to be entitled to any amount transferred to the Unpaid Dividend
Account may apply to the company for payment of such amount.
45. The account of the Member, if the Dividend is not claimed within 30 days from the date
of declaration of the Dividend.
46. Any amount in the Unpaid Dividend Account of the company which remains unpaid
or unclaimed for a period of seven years from the date of transfer of such amount to
the Unpaid Dividend Account, along with interest accrued, if any, shall be
transferred to the Investor Education and Protection Fund.

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47. Before transferring any unclaimed or unpaid Dividend to the Investor Education
and Protection Fund, the company shall give an individual intimation to the
Members in respect of whom such unclaimed Dividend is being transferred, at least
three months before the due date of such transfer.
48. The company shall intimate the concerned Members individually of the amount of
Dividend remaining unclaimed or unpaid which is liable to be transferred to the Fund and
advise the Members to claim such amount of Dividend from the company before such
transfer.
49. Any interest earned on the Unpaid Dividend Account shall also be transferred to the
Investor Education and Protection Fund.
50. If the Unpaid Dividend Account is kept as a fixed deposit or in any account on which
interest is earned, the interest earned shall also be transferred to the Fund.
51. Dividend cheques or warrants returned by the Bank, after payment thereof, and the
Dividend Registers shall be preserved by the company for a period of eight years.
52. Where the company has given an undertaking to the Bank for preservation or safe
keeping of paid Dividend cheques or warrants for a specified period, the said instruments
shall be preserved for such specified period or eight years from the date of the instrument,
whichever is longer.
53. The Dividend cheques or warrants so preserved shall be destroyed only with the approval
of the Board or in accordance with the policy approved by the Board for this purpose.
54. Notes to Accounts forming part of the financial statements of the Company shall
disclose the aggregate amount of Dividend proposed to be distributed to equity and
Preference Shareholders for the financial year and the related amount of Dividend
per share. Arrears of fixed cumulative Dividend on preference shares shall also be
disclosed separately.
55. The Balance Sheet of the company shall also disclose under the head ‘Current
Liabilities and Provisions’, the amount lying in the Unpaid Dividend Account
together with interest accrued thereon, if any.
56. The amount of Interim Dividend, if any, paid during the financial year and final
Dividend recommended by the Board of directors shall be disclosed in the Board’s
Report.
57. The Annual Report of the company shall disclose the total amount lying in the
Unpaid Dividend Account of the company in respect of the last seven years and
when such unpaid Dividend is due for transfer to the Fund. The amount of
Dividend, if any, transferred by the company to the Investor Education and
Protection Fund during the year shall also be disclosed.
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ADDITIONAL COMPLIANCES APPLICABLE TO LISTED COMPANIES

 The equity shares allotted by the company shall rank pari passu with the existing equity
shares for the purpose of payment of Dividend, if the same are in existence as on the
record date/ book closure.
 The company shall not issue shares in any manner which may confer on any person,
superior rights as to voting or Dividend vis-à-vis the rights on equity shares that are
already listed.
 The company shall give prior intimation to the Stock Exchange(s) about the Board
Meeting in which Dividend is proposed to be recommended / declared, atleast two
working days in advance excluding the date of the meeting and the date of the intimation.
 The company shall intimate the Stock Exchange(s), the record date fixed for the purpose
of payment of Dividend at least seven working days in advance excluding the date of the
intimation and the record date.
 The company shall recommend or declare Dividend at least five working days before the
record date fixed for the purpose. The said period of five working days is excluding the
date of declaration/recommendation of Dividend and the record date fixed for the
purpose.
 The company shall disclose the outcome of the Board Meeting held to consider the
Dividend matters, to the Stock Exchange(s) within 30 minutes of closure of the meeting.
In case of recommendation / declaration of Dividend, the intimation shall also include the
date on which such Dividend shall be paid or Dividend warrant shall be despatched.
 In case of payment of Dividend through warrant or cheque payable at par, if the amount
of Dividend exceeds one thousand and five hundred rupees, the company shall despatch
such Dividend warrant or cheque by speed post to the concerned Member at the registered
address.

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SECRETARIAL STANDARD-4 (SS-4) REPORT OF THE BOARD OF DIRECTORS

EFFECTIVE DATE 1ST OCTOBER, 2018 (OPTIONAL)

The Companies Act, 2013, requires the Board of Directors of every company to attach its
report to the financial statements to be laid before the members at the annual general meeting.

The Board’s Report is an important means of communication by the Board of Directors of a

company with its stakeholders.

The Board’s Report provides the stakeholders with both financial and non-financial
information, including the performance and prospects of the company, relevant changes in
the management and capital structure, recommendations as to the distribution of profits,
future and on-going programmes of expansion, modernisation and diversification,
capitalisation of reserves, further issue of capital and other relevant information.

The Companies Act, 2013, mandates certain disclosures to be made in the Board’s Report. A
listed company is also required to comply with certain additional requirements as stated
under the Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015.

Similarly, a company, whose securities are listed on an overseas stock exchange, is required
to comply with additional requirements as may be specified by such stock exchange. Further,
a company which is regulated under other laws, may also be required to make additional
disclosures in its Board’s Report as stated in the respective applicable laws.

The Board’s Report should be based on the company’s standalone financial statement and
not on the consolidated financial statement and should relate to the financial year for which
such financial statement is prepared.

The Board’s Report should avoid repetition of information. If any information is mentioned
elsewhere in the financial statement, a reference thereof should be given in Board’s Report
instead of repeating the same.

SCOPE

This Standard prescribes a set of principles for making disclosures in the Report of the Board
of Directors of a company and matters related thereto. In case, a particular disclosure which
is required to be made as per this Standard is not applicable to a particular company, the
company
need not disclose the same in the Board’s Report except where the Standard requires specific
disclosure in this respect. The Board’s Report of a One Person Company (OPC) and Small
Company shall be prepared in the abridged form as prescribed by the Central Government.
This Standard is in conformity with the provisions of the Act. However, if due to subsequent
changes in the Act, any part of this Standard becomes inconsistent with the Act, the
provisions of the Act shall prevail.
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 607 of 623

DEFINITIONS

ACT means the Companies Act, 2013 or any previous enactment thereof, or any statutory
modification thereto or re-enactment thereof and includes any Rules and Regulations framed
thereunder.

COMMITTEE means a Committee of Directors mandatorily required to be constituted by

the Board under the Act.

LISTING REGULATIONS means SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015, including any amendment thereto.

REPORT means Board’s Report or the Report of the Board of Directors.

SPECIFIED SECURITIES means the specified securities as defined in the Listing

Regulations.

YEAR means the financial year to which the Board’s Report relates.

SECRETARIAL STANDARD PART I: DISCLOSURES

THE REPORT SHALL, INTER ALIA, INCLUDE THE FOLLOWING:

1. COMPANY SPECIFIC INFORMATION

1.1 Financial summary and highlights/Financial Results

1.2 Amount, if any, which the Board proposes to carry to any reserves

The amount proposed to be transferred to any reserves of the company. If no amount is

proposed to be transferred to reserves, a statement to that effect shall be included.

1.3 Dividend

 The amount of dividend per share and the percentage thereof which the Board
recommends for the year and the dividend distribution tax thereon.
 The total amount of dividend for the year.
 Payment of dividend from reserves
 A statement on compliance with dividend distribution policy

1.4 Major events occurred during the year

 State of the company’s affairs/Business Overview

 Change in the nature of business In case the company has commenced any new business
or discontinued/sold or disposed off any of its existing businesses during the year, the
Report shall disclose the details of the same highlighting the key focus areas.
 Material changes and commitments, if any, affecting the financial position of the
company
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1.5 Details of revision of financial statement or the Report

In case the company has revised its financial statement or the Report in respect of any of the
three preceding financial years either voluntarily or pursuant to the order of a judicial
authority, the detailed reasons for such revision shall be disclosed in the Report of the year.

2. GENERAL INFORMATION

 Overview of the industry and important changes in the industry during the last year;
 External environment and economic outlook;
 Induction of strategic and financial partners during the year; and

3. CAPITAL AND DEBT STRUCTURE

Any changes in the capital structure of the company during the year.

3.1 Issue of shares or other convertible securities

3.2 Issue of equity shares with differential rights

3.3 Issue of Sweat Equity Shares

3.4 Details of Employee Stock Options

3.5 Shares held in trust for the benefit of employees where the voting rights are not exercised
directly by the employees

3.6 Issue of debentures, bonds or any non-convertible securities

3.7 Issue of warrants

4. CREDIT RATING OF SECURITIES

4.1 The disclosure shall be made regarding all basic details of whole process.

5. INVESTOR EDUCATION AND PROTECTION FUND (IEPF)

5.1 The disclosure shall include the following:

 details of the transfer/s to the IEPF made during the year

 details of the resultant benefits arising out of shares already transferred to the IEPF;
 year wise amount of unpaid/unclaimed dividend lying in the unpaid account upto the
Year and the corresponding shares, which are liable to be transferred to the IEPF, and the
due dates for such transfer;
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 609 of 623

6. MANAGEMENT

6.1 Directors and Key Managerial Personnel

The disclosure shall be made regarding names of the persons who have been appointed /
ceased to be Directors and/or Key Managerial Personnel of the company during the year or
after the end of the year and up to the date of the Report and mode of such
appointment/cessation.

6.2 Independent Directors

The disclosure shall include the following: (a) in case of appointment of Independent
Directors, the justification for choosing the proposed appointees for appointment as
Independent Directors; and (b) in case of re-appointment after completion of the first term,
the rationale for such re-appointment.

6.3 Declaration by Independent Directors and statement on compliance of code of

conduct

6.4 Board Meetings

The number and dates of meetings of the Board held during the year shall be disclosed in the
Report.

6.5 Committees

The Report shall disclose: (a) Composition of Committees constituted by the Board under the
Act and the Listing Regulations as well as changes in their composition, if any, during the
year; (b) The number and dates of meetings of such committees held during the year.

6.6 Recommendations of Audit Committee

Where the Board has not accepted any recommendation of the Audit Committee, a statement
to that effect shall be disclosed in the Report along with the reasons for such non-acceptance.

6.7 Company’s Policy on Directors’ appointment and remuneration

The Report of every listed public company and other prescribed class of companies shall
disclose company’s policy on directors’ appointment and remuneration and the criteria for
determining qualifications, positive attributes and independence of a Director.

6.8 Board Evaluation

The Report of every listed company and other prescribed class of public companies shall
include a statement indicating the manner in which formal annual evaluation of the
performance of the Board, its Committees and of individual Directors has been made.

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6.9 Remuneration of Directors and Employees of Listed Companies

The following disclosures shall be made, either in the Report or by way of an annexure
thereto:

 the number of permanent employees on the rolls of the company;

 the ratio of remuneration of each Director to the median remuneration of the employees
of the company for the year;
 the percentage increase in remuneration of each Director, Chief Financial Officer, Chief
Executive Officer, Company Secretary or Manager, if any, in the year;
 average percentile increase already made in the salaries of employees other than
managerial personnel in the last year.
 In addition to the above, the Report shall include a statement indicating: (a) names of top
ten employees of the company in terms of remuneration drawn. Employees who have
resigned / retired during the year shall also be considered for this purpose.
 In case of companies having less than ten employees, such statement shall include details
of all employees (i) whether any such employee is a relative of any Director or Manager
of the company and if so, the name of such Director or Manager.
 Particulars of employees posted and working in a country outside India, not being
Directors or their relatives, drawing more than sixty lakh rupees per year or five lakh
rupees per month, as the case may be, as may be decided by the Board, need not be
circulated to the members in the Report, but such particulars shall be filed with the
Registrar of Companies while filing the financial statement and the Report.

6.10 Remuneration received by Managing/Whole time Director from holding or

subsidiary company

In case the Managing/Whole time Director of the company is in receipt of any commission
from the company, and also receives any remuneration or commission from its holding
company or subsidiary company, details of such remuneration or commission shall be
disclosed in the Report.

6.11 Directors’ Responsibility Statement

The Report shall include brief Directors’ Responsibility

6.12 Internal Financial Controls

Details in respect of adequacy of internal financial controls with reference to the financial
statement.

6.13 Frauds reported by the Auditor

Details in respect of frauds reported by the Auditor (Statutory Auditor, Secretarial Auditor
or Cost Auditor) to the Audit Committee/ Board, as the case may be, and the frauds reported
to the Central Government shall be disclosed in the Report.
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 611 of 623

7. DISCLOSURES RELATING TO SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

7.1 Report on performance and financial position of the subsidiaries, associates and
joint ventures

In case of companies having subsidiaries, associates and joint ventures, the Report shall
include a separate section highlighting the performance of each of the subsidiaries, associates
and joint venture companies and their contribution to the overall performance of the
company.

7.2 Companies which have become or ceased to be subsidiaries, associates and joint
ventures

During the year or at any time after the closure of the year and till the date of the Report, if
the company has acquired or formed any new subsidiary, associate or joint venture, details of
such companies shall be disclosed.

8. DETAILS OF DEPOSITS

8.1 The disclosure shall include the following:

 details of deposits accepted during the year;

 deposits remaining unpaid or unclaimed as at the end of the year;
 whether there has been any default in repayment of deposits or payment of interest
thereon during the year
 details of deposits which are not in compliance with the requirements of the Act;
 any other relevant issues to be noted.

9. PARTICULARS OF LOANS, GUARANTEES AND INVESTMENTS

Particulars of the loans given, investments made, guarantees given or securities provided
during the year and the purpose for which the loans / guarantees / securities are proposed to
be utilised by the recipient of such loan / guarantee / security.

10. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED

PARTIES

The disclosure shall include contracts / arrangements / transactions with related parties which
are not at arm’s length basis; (b) material contracts / arrangements / transactions with related
parties which are at arm’s length basis; (c) contracts / arrangements with related parties which
are not in the ordinary course of business and justification for entering into such contract.
Such disclosure in the prescribed form shall be annexed to the Report.

11. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Report shall disclose about the CSR policy of the company and the CSR initiatives taken
during the year.

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12. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN

EXCHANGE EARNINGS AND OUTGO

The disclosure shall include the following:

 Conservation of energy
 Technology absorption
 Foreign exchange earnings and Outgo.

In cases where such disclosures are not applicable, the Report shall include a statement to
that effect

13. RISK MANAGEMENT

A statement indicating the development and implementation of a risk management policy for
the company.

14. DETAILS OF ESTABLISHMENT OF VIGIL MECHANISM

Every listed company and other prescribed class of companies shall disclose in its Board’s
Report, details of establishment of a vigil mechanism.

15. MATERIAL ORDERS OF JUDICIAL BODIES /REGULATORS

Details of significant and material orders passed by any Regulator, Court, Tribunal, Statutory
and quasi-judicial body, impacting the going concern status of the company and its future
operations shall be disclosed.

16. AUDITORS

Names of the Statutory Auditor, Cost Auditor and Secretarial Auditor and details of any
change in such Auditors, during the year and up to the date of the Report due to resignation /
casual vacancy / removal / completion of term shall be disclosed in the Report.

17. SECRETARIAL AUDIT REPORT

The Secretarial Audit Report shall be annexed to the Report.

18. EXPLANATIONS IN RESPONSE TO AUDITORS’ QUALIFICATIONS

The Report shall include explanations or comments on every qualification, reservation or

adverse remark or disclaimer made in the Auditor’s Report and the Secretarial Auditor’s
Report.

19. COMPLIANCE WITH SECRETARIAL STANDARDS

The Report shall include a statement on compliance of applicable Secretarial Standards and
other Secretarial Standards voluntarily adopted by the company.
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 613 of 623

20. CORPORATE INSOLVENCY RESOLUTION PROCESS INITIATED UNDER

THE INSOLVENCY AND BANKRUPTCY CODE, 2016 (IBC)

The disclosure shall include the details of any application filed for corporate insolvency
resolution process, by a financial or operational creditor or by the company itself under the
IBC before the NCLT

21. FAILURE TO IMPLEMENT ANY CORPORATE ACTION

In case the company has failed to complete or implement any corporate action within the
specified time limit, the Report shall disclose the same and the reasons for such failure.

22. ANNUAL RETURN

A copy of the annual return shall be placed on the website of the company, if any, and the
web-link of such annual return shall be disclosed in the Report.

23. OTHER DISCLOSURES

Other disclosures shall include the following: (a) a statement, wherever applicable, that the
consolidated financial statement is also being presented in addition to the standalone financial
statement of the company. (b) key initiatives with respect to Stakeholder relationship,
Customer relationship, Environment, Sustainability, Health and Safety. (c) reasons for delay,
if any, in holding the annual general meeting; (d) a statement as to whether cost records is
required to be maintained by the company pursuant to an order of the Central Government
and accordingly such records and accounts are maintained.

24. ADDITIONAL DISCLOSURES UNDER LISTING REGULATIONS

24.1 Statement of deviation or variation

Companies which have listed their specified securities shall furnish in the Report an
explanation for any deviation or variation in connection with certain terms of a public issue,
rights issue, preferential issue etc.

24.2 Management Discussion and Analysis Report (MDAR)

In case of companies which have listed their specified securities, the Report shall include an
MDAR, either as a part of the Report or as an annexure to the Report.

24.3 Certificate on Compliance of conditions of Corporate Governance

Companies which have listed their specified securities, shall annex with the Report a
certificate obtained from either the Statutory Auditor or a practicing Company Secretary
regarding compliance of the conditions of corporate governance.

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24.4 Suspension of Trading

In case the securities of the company are suspended from trading, the Report shall explain the
reasons thereof.

25. DISCLOSURES PERTAINING TO THE SEXUAL HARASSMENT OF WOMEN AT THE

WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

25.1 The disclosure shall include the following:

a statement that the company has complied with the provision relating to the constitution of
Internal Complaints Committee under the Sexual Harassment of Women at the Workplace
(Prevention, Prohibition and Redressal) Act, 2013.

PART II: OTHER REQUIREMENTS

26. APPROVAL OF THE REPORT

The Report shall be considered and approved by means of a resolution passed at a duly
convened meeting of the Board.

27. SIGNING OF THE REPORT

The Report shall be signed by the Chairman of the company, if authorised in that behalf by
the Board or by two Directors one of whom shall be the Managing Director or in the case of a
One Person Company, by one Director. The financial statement, including consolidated
financial statement, if any, shall be approved by the Board before they are signed on behalf of
the Board. The statements so approved are required to be signed on behalf of the Board by
the Chairman of the company if authorised in that behalf by the Board or by two Directors
one of whom shall be the Managing Director and the Chief Executive Officer, the Chief
Financial Officer and the Company Secretary of the company, wherever they are appointed or
in the case of a One Person Company, by one Director. The financial statement so approved
and signed on behalf of the Board are required to be submitted to the auditor(s) for their
report thereon. The financial statement is thus signed by the auditor(s) and the audit report
thereon is submitted to the Board after such approval.

The annexures to the Report shall be signed in the similar manner as the Report, except the
Report on CSR activities of the company, which is required to be signed by the Chief
Executive Officer or the Managing Director or any other Director of the company and by the
Chairman of the CSR Committee of the company.

28. DISSEMINATION

28.1 Right of Members to have Copies of the Report

A copy of the Report along with the financial statement and the Auditor’s Report shall be
sent, either physically or in electronic form, to every member at least twentyone clear days in
advance of the annual general meeting. The copies of the above documents can be sent less
than twenty-one clear days in advance of the annual general meeting, if it is so agreed by
PEN DRIVES AVAILABLE AT (www.academy99.in) Page 615 of 623

members: (a) holding, if the company has a share capital, majority in number of members
entitled to vote and who represent not less than ninety-five per cent of such part of the paid-
up share capital of the company as gives a right to vote at the meeting; or (b) having, if the
company has no share capital, not less than ninety-five per cent of the total voting power
exercisable at the meeting. In case of section 8 companies, the said documents shall be sent to
the members not less than fourteen clear days before the date of the annual general meeting.

28.2 Placing of the Report on the Website

The Report shall be placed on the website of the company, if any.

29. FILING AND SUBMISSION OF THE REPORT

29.1 The Report along with the audited financial statement of the company shall be filed with
the Registrar of Companies. The resolution passed by the Board approving such Report shall
also be filed with the Registrar of Companies. However private companies are not required to
file such resolution with the Registrar of Companies.

29.2 Every listed company shall submit to the stock exchanges on which its securities are
listed, its financial statement together with a copy of the Report within twenty-one working
days of it being approved and adopted in the annual general meeting.

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Daily 10 minutes on this website will update you with all corporate law changes. Before
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Our websites:
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AJ GROUP OF COMPANIES
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