PROJECT SUBMITTED TO

INSTITUTE OF COMPANY SECRETARIES OF INDIA

NEW DELHI

COMPILED BY: PRATIKSHA RAMLAL BAID

REGISTRATION NUMBER: 420680168/08/2009

PROJECT ON: CORPORATE LAW INCLUDING COMPANY LAW,

CAPITAL MARKET ECT.

SUBMITTED ON: 04 APRIL 2019

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INDEX TABLE

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S. No Contents Page No.
1 Preface 03
2 Acknowledgement 04
3 Administrative machinery and Inspection, Inquiry and 05-06
Investigation of companies
4 Borrowings-debentures and charges 07-08
5 Prevention of oppression and mismanagement 08-09
6 Borrowing, lending, investments & contracts 10
7 Company Secretary-his role, duties and responsibilities 11
8 Filling and Wing of forms under the Companies Act, 2013 12-14
9 Practical & Procedural Aspects of Convening and Conducting 15-16
Board Meetings and General Meetings
10 Acceptance of deposits and payment of interest thereon' 17
11 MAT-Mergers, Amalgamations & Takeovers, its relevance in 18
Corporate restructuring
12 Postal Ballots/e-voting 19-20
13 Corporate Governance 21

14 Compliance certificate 22
15 Directors' responsibility statement 23
16 Secretarial Standards for Board/Committee Meetings 24
17 Mergers, Demergers and Reverse mergers 25-26
18 Managerial Remuneration 27
19 Disclosure of directors' interests 28
20 NCLT and NCLAT 29-30
21 Audit Committee 31
22 Computerised Minutes books 32
23 Prospectus, Allotment and other matters relating to Issue of 33-34
shares and debentures
24 Legal and procedural aspects of Employees Stock Option 35-36
Scheme (ESOS).
25 Listing of Securities & Bonds etc. and procedural formalities 37-38
under various laws and regulations
26 Merchant Bankers in public issues 38-39

27 Public Issues Management-problems and procedures 40

28 Mechanism and Procedure of settlement of transactions in a 41-42

Stock Exchange
29 Buy-back of shares 43-45
30 LODR 45-47

31 Investor Protection 46-48

32 Recent developments / amendments in Companies Act, 2013 48
33 Scope and Area of practice for Company Secretary as per the 49
recent amendments in Companies Act
34 Bibliography 50

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1. PREFACE

This project will cover the details of various laws governing the corporate segment including
company law and capital market.

Corporate law is the body of laws, rules, regulations and practices that govern the formation
and operation of corporations. It’s the body of law that regulates legal entities that exist to
conduct business. The laws touch on the rights and obligations of all of the people involved
with forming, owning, operating and managing a corporation.
Corporate law is a part of a broader company’s law (or law of business associations). It
is often considered to be a branch of civil law and deals with issues of both private law
and public law.

Capital Markets" refers to activities that gather funds from some entities and make them
available to other entities needing funds. The core function of such a market is to improve the
efficiency of transactions so that each individual entity doesn't need to do search and analysis,
create legal agreements, and complete funds transfer.
Capital market is truly regarded as lifeline of any given economy. Development of capital
market is dependent upon certain key factors like availability of savings, proper
organization of intermediary of mutual interests, regulation of investments

For the completion of this project, I have searched various latest edition books related to
Companies Act and Capital market. The blend of learning and knowledge acquired through
the reading of books and articles is presented in this Project Report.
This Project report starts with the basic concept and contains its features, advantages,
disadvantages and ends with conclusion.
The Information presented in this Project Report is obtained from sources like Books,
MCA Circulars and Notifications and Other Websites. This report will describe the
all topics as per the project requirement.

This project will summarize the amendments pertaining to corporate sector that we should
know and learn about for the professional growth of our career. The inspiration behind
taking up this project is to understand the rules, regulations, shareholders, directors,
employees, creditors and other stakeholders like consumer, community and the
environment in which they operate.

While preparing this Project Report I felt obliged as this work has given me a good
knowledge about the Law which will help me to grow in my work field, personally I felt
amazing while doing this Project Report because it increased my inner ability to understand
the law and capital market and also increased my interest in respect of Law.

I preferred to choose this topic over all other available topics, as because being in this field
one should know the changes that are being made in field of law. Personally I felt amazing
while doing this Project Report because it increased my inner ability to understand the law
and capital market and also increased my interest in respect of Laws.

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2. ACKNOWLEDGEMENT

I would like to take the chance of expressing my gratitude to those who helped me to complete
my project on corporate law which would have been a difficult task without their kind help

I am highly indebted to my seniors at my Office for their guidance and their constant
supervision as well as for providing necessary information regarding the project, and also
their support in completing the project.

I would like to express my gratitude towards my parents who have made me competent to
face challenging tasks.
My thanks and appreciations also goes to colleagues in developing the project and people who
have willingly help me out with their ability.

I am really very much grateful to our ICSI for giving me such an opportunity which is not only
empowers our knowledge but also paves the way for our journey to the infinite future.

3. Administrative Machinery and Inspection Inquiry and Investigation of companies

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 Labour is an important subject to discuss because due to the industrialization, the problems of
labour is increasing with a great speed. To tackle such problems an efficient administration is
needed. Without any effective machinery it is very difficult to handle the problems and social
security matters related to the working class. Before discussing the labour administration it is
necessary to understand the meaning of administration. Administration means to care for or to
look after people and manage affairs. Administration has been defined by the Webster New
International Dictionary is “The persons who are collectively managing the institution,
business or the like especially execution of laws and superintendence of public affairs.”
According to John A Vieg, “Administration is to determine action taken in pursuit of
conscious purpose. It is a systematic ordering of affairs and calculated use 54 of resources
aimed at making those things happen which we want to happen and simultaneously preventing
developments that fail to square with our intentions. It is the marshalling of available labour
and materials in order to gain that which is desired it lowest cost in energy time and money.
After independence, the tempo of industrialization and labour welfare and industrial
relations has become an important part of governmental policy. Factory organization needs
as much attention as technical processes of production and the complicated methods of
marketing. All policy and programmes are of a little use until we gear up the administrative
machinery of country which is solely responsible for the successful implementation of any
type of policies and programmes and labour welfare administration is no exception.

Administrative Machinery at the Centre, State and District Levels:

Central Secretariat may be defined as a common name for all the Ministries and
departments of the Central Government. The political head of the ministry is the minister
and administrative head is the Secretary. The department is centre of two or more wings. A
wing consists of two or more divisions and a division consists of two or more branches. At
the lowest level is the office which may consist of a number of secretariats. A ministry may
be composed of one department or more than one department. The main function of the
secretariat is to advise the minister concerned in matters of policy and administration. Each
minister is aided by the secretariat staff. The hierarchical position of the staff members is
given in following chart:

Organisation Chart of the Secretariat

Inquiry and Investigation of Companies

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Sections 206 to 229 of the Companies Act, 2013, deals with the provisions relating to
Inspection, Inquiry and Investigation of the affairs of company. Investigation within the
meaning of the relevant provisions of the Act is a form of probe; a deeper probe; into the
affairs of a company. It is a fact finding exercise. The main object of 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, investments and other property
interests and control of subsidiary companies too.

Power of the Registrar to call for information and inspect documents (Section 206)
Obligation of the company to provide information, explanations and documents as the
Registrar may direct. On the basis of scrutiny of any document filed by a company or any
information received if the Registrar forms the opinion that any further information,
explanation or any further document relating to company is necessary, he may by a written
notice require the company:
- furnish in writing such information or explanation; or
- to produce such documents.

Conduct of Inspection and Inquiry (Section 207)

It shall be duty of every director, officer or other employee of the company (a) to produce
books of account, books and other papers as the Registrar or Inspector may call under Section
206 and (b) to furnish him such statements, information or explanations as the Registrar or
Inspector may require and (c) to render all assistance in connection with such inspection. The
Registrar or Inspector making an inspection or inquiry under section may do the following in
the course of inspection or inquiry:
(a) to make copies of books of account and other books and papers; or
(b) to place marks of identification on the books in token of inspection having been made.

In respect of the following, the Registrar or Inspector conducting inspection or inquiry shall
have the powers of a civil court as provided in the Civil Procedure Code, 1908 whole trying a
suit.

(a) the discovery and production of books of account and other documents at the
specified time and place;
(b) summoning or enforcing attendance of persons and examining them on oath; and
(c) inspecting any books, registers and other documents of the company at any place.

Reporting by Registrar on Inspection or Inquiry (Section 208)

After the inspection of books of account or inquiry under Section 206 and other books and
papers under section 207, the Registrar shall submit a written report to the Central
Government. The report may recommend the need for further investigation along with reasons
in support.

Search and Seizure (Section 209)

On the basis of information in his possession, if the Registrar or Inspector has reasonable
ground to believe that the books and papers of a company, or relating to key managerial
personnel or any director or auditor or company secretary in practice of company has not
appointed a company secretary, are likely to be destroyed, mutilated, altered, falsified or
secreted he may, after obtaining an order from the special court.
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4. Borrowings-Debentures and Charges:
180. (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:—
(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,
apart from temporary loans obtained from the company’s bankers in the ordinary course of
business:
Provided that the acceptance by a banking company, in the ordinary course of its business, of
deposits of money from the public, repayable on demand or otherwise, and withdrawal by
cheque, draft, order or otherwise, shall not be deemed to be a
borrowing of monies by the banking company within the meaning of this clause.

Debentures Section 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.

(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.

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 Charges
The company may borrow monies by providing security of its assets and may create a lien on
the properties of the Company. The Company may also issue Debentures to raise funds which
may carry a right/ interest in the Assets/Properties of the company. A charge is a way of
security to the creditor/lender of his interest/right on the properties of the company for the
amounts due to him by the company.

The Companies Act, 2013 defines a Charge as an interest or lien created on the assets property
of a Company or any of its undertaking as security and includes a mortgage U/s 2(16). In the
earlier Act of 1956, the word “Mortgage” was not mentioned. The Assets stated in the above
definition covers all assets including Goodwill, Patents and All assets whether situated in India
or abroad.

The relevant sections for CHARGES under the Companies Act, 2013 are Section 77,78 and
79. The forms notified for “charges” are CHG-1 to CHG 10.
Once charge is registered with ROC, it is a public notice that the charge holder has interest in
the charged property. So no person can act against the interest of the charge holder.

5. Prevention of Oppression and mismanagement

• Section 245 : This is a new concept

• Class action by member(s), depositor(s) or any class of them.
• If company acts ultra-virus to MOA/AOA ;
• If terms of MOA/AOA are violated ;
• If amendments are sought to MOA/AOA by misleading members;
• If company commits an act contrary to the provisions of law
or contrary to provisions of members’ resolution.
• Against Auditors

Requirements to be satisfied for seeking relief under the section

• That the affairs of the company are being conducted: (a) in a manner prejudicial to public
interest; or (b) oppressive to any members.

• That the fact justified the compulsory winding up order on the ground that it is just and
equitable that the company should be wound up.

What is Oppression?
It is was observed that “it is not enough to show that there is just and equitable cause for
winding up the company though that must be shown as a preliminary to the application. It
must further be shown that the conduct of the majority shareholders was oppressive to the
minority as members.

Mismanagement:
Section 241 provides that where members of a company complain that the affairs of the
company are being conducted in a manner prejudicial to public interest or to the interests of
the company, or that a material change has occurred in the management or control of the
company, whether due to change in the constitution of the board of directors, or in the
ownership of the shares of the company, or in any other manner whatsoever, and that by
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reason of such change it

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is likely that the affairs of the company will be conducted in that manner, they many apply to
the court for an order for bringing to an end the matters complained of or apprehended.

Two facets. The first is the positive acts done by the management which result in prejudice
being caused to the company; secondly, even where no action at all is taken by the
management, such non-action results in prejudice being caused to the company.

Meaning of Mismanagement:
Some of these instances which can be termed as mismanagement are:
• Preventing Directors from Functioning;
• Absence of Company’s Records Causing Prejudice to Company’s Business;
• Sale of Assets at A Low Price and Without Compliance with the Act
• Violation of Statutory Provisions;
• Violation of Provisions of Memorandum and Articles of the Company;
• Erosion of Companies Substratum Due to Irregularities in Conduct of Affairs;
• Misuse of Funds etc.

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6. Borrowing, lending, investments and contracts
Borrowing Powers- Section 180(1)(c) of Companies Act, 2013, the earlier section 293 and
the new section 180 pertained to powers of the Board of Directors which can be exercised
only at a general meeting by way of special resolution to be passed for the purpose. Section
293(1)(d) pertained to borrowing powers of the companies i.e. the amount upto which the
companies could borrow was laid down in the special resolution which was approved by the
members in the general meeting. Companies are allowed to borrow any sums of monies upto
the paid up share capital and free reserves of the company. Any borrowal in excess of the
combination of these two limits i.e. paid up share capital and free reserves required approval
of the members in the general meeting by way of special resolution. Typically companies
passed an omnibus resolution securing approval for Rs.X amount which was way above the
paid up share capital and free reserves of the company but sufficient for the purposes of the
company.

Section 293 of the Companies Act, 1956 was applicable only to public companies i.e. private
limited Companies were exempted from this requirement and therefore they could borrowany
sums of money upto any limit without the need of seeking any approval from the members of
the company. Now Section 180 is applicable to all companies i.e. public as well as private. So
now onwards even private companies have to seek the approval of their members if they are
intending to borrow monies in excess of their paid up share capital and free reserves.

Loan and Investment by Company Section 186 of Companies Act, 2013

In pursuance to the provisions of Section 186(1) of the Act,
A Company shall make investment through not more than two layers of investment
companies. ‘Layer’ according to explanation (d) of Section 2(87) of the Act in relation to a
holding Company means its subsidiary or subsidiaries.

‘Investment Company’ means a Company whose principal business is the acquisition of

shares, debentures or other securities”

The provisions of Section 186 (1) shall not have effect in the following cases: –
a. If a company acquires any company which is incorporated outside India and such
company has investment subsidiaries beyond two layers as per the laws of such
country.
b. A subsidiary company from having any investment subsidiary for the purposes of
meeting the requirement under any law/ rule/ regulation framed under any law for
the time being in force.

Limits for Loans /Guarantee/Security/Investment [Sec-186(2)]

c. No company shall directly or indirectly:
d. (a) give any loan to any person or other body corporate;
e. (b) give any guarantee or provide security in connection with a loan to any other
body corporate or person; and
f. (c) acquire by way of subscription, purchase or otherwise, the securities of any
other body corporate,
g. exceeding 60% of its paid-up share capital, free reserves and securities premium
account or 100% of its free reserves and securities premium account, whichever is
more.

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7. Company Secretary- Role, Duties and Responsibility

Company secretary is a key functionary in the corporate pyramid. With increasing emphasis
on the principles of good governance and on compliances, responsibilities of Company
Secretary have increased manifolds towards safeguarding the interest of all stakeholders.

The Companies Act, 2013has enhanced the role of Company Secretary substantially, both in
employment and in practice.

Role of Company Secretary:

a. Key Managerial
b. Compliance Officer
c. Governance Professional
d. Board Adviser
e. Secretarial Auditor
f. Representational services before various authorities

Function and Duties:

Other than the traditional roles, the Companies Act, 2013

g. Advising on corporate social responsibility
h. Advising on sustainability reporting
i. Advising on brand equity and image building
j. Office management
k. Managing Intellectual property rights of the company

Other Role of Company Secretary:

-Certification Services

- an Expert beyond the Companies Act

Advising in relation to International Trade and WTO Services

ce and Certification Services

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8. Filing and Wing of forms under the Companies Act, 2013

S. No. e-Form (Companies Corresponding e Purpose of Form as per

Act, 2013) Form (Companies Companies Act, 2013
Act, 1956)
1 INC-1 1A Application for reservation of name
2 INC-2 New form Form for Incorporation and
nomination (One Person Company)
3 INC-3 New form Form for consent of nominee of One
Person Company
4 INC-4 New form Form for change in
member/nominee of One Person
Company
5 INC-5 New form Form for intimation of exceeding
threshold of One Person Company
6 INC-6 New form Application for Conversion
7 INC-7 1 Application for Incorporation of
Company (Other than One Person
Company)
8 INC-18 New form Application to Regional Director for
conversion of section 8 company
into any other kind of company
9 INC-20 New form Intimation to Registrar of revocation
or surrender of license issued under
section 8
10 INC-21 19 Declaration prior to the
commencement of business
11 INC-22 18 Notice of situation or change of
situation of registered office and
verification
12 INC-23 1AD, 24AAA Application to Regional director for
approval to shift the registered
office from one state to another state
or from jurisdiction of one registrar
to another within the state
13 INC-24 1B Application for approval of Central
Government for change of name
14 INC-27 1B, 62 Conversion of public company into
private company or private company
into public company
15 INC-28 21 Notice of order of the Court or other
authority
16 PAS-3 2 Return of allotment
17 SH-7 5 Notice to Registrar for alteration of
share capital
18 SH-8 New form letter of offer

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19 SH-11 4C Return in respect of buy back of
securities
20 CHG-1 8 Application for registration of
creation, modification of charge
(other than those related to
debentures) including particulars of
modification of charge by Asset
Reconstruction Company in terms
of Securitization and
Reconstruction of Financial Assets
and Enforcement of Securities
Interest
Act, 2002 (SARFAESI)
21 CHG-4 17 Particulars for satisfaction of charge
22 CHG-6 15 Notice of appointment or cessation
of receiver or manager
23 CHG-9 10 Application for registration of
creation or modification of charge
for debentures or rectification of
particulars filed in respect of
creation or modification of charge
for debentures
24 MGT-6 22B Form of return to be filed with the
Registrar
25 MGT-14 23 Filing of Resolutions and
agreements to the Registrar under
section 117
26 DIR-3 DIN1 Application for allotment of
Director Identification Number
27 DIR-6 DIN4 Intimation of change in particulars
of Director to be given to the Central
Government

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9. Practical & Procedural aspects of convening and Conducting Board Meetings and
General Meeting

Meetings of the Board: Section 173

Section 173 of the Act deals with Meetings of the Board and Section 174 deals with quorum.

• The Act provides that the first Board meeting should be held within thirty days of the
date of incorporation.

• 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.
• In case of One Person Company (OPC), small company and dormant 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.

Notice of Board Meetings:

s 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.

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.

Requirements and Procedures for Convening and Conducting Board’s Meetings:

Directors may participate in the meeting either in person or through video conferencing or other
audio visual means.
Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014 (hereinafter in this
Chapter mentioned as Rule) provides for the requirements and procedures, in addition to the
procedures required for Board meetings in person, for convening and conducting Board
meetings through video conferencing or other audio visual.

Matters not to be dealt with in a Meeting through Video Conferencing or other Audio Visual
Means:

Rule 4 prescribe restriction on following matters which shall not be dealt with in any
meeting held through video conferencing or other audio visual means:

elating to amalgamation, merger, demerger, acquisition

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and takeover.

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Annual General Meeting: Section 96
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:

Provided that 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 in any
other case, within a period of six months, from the date of closing of the financial year:

Provided further that 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:

Provided also that the 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.

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 and 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 situate:

Provided that the Central Government may exempt any company from the provisions of
this sub- section subject to such conditions as it may impose.
Explanation.—For the purposes of this sub-section, “National Holiday” means and includes a
day declared as National Holiday by the Central Government

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.

Extra Ordinary General Meeting: Section 100

(i) The Board may, whenever required it deems fit, call an extraordinary general meeting of
the company.
(ii) The Board shall, at the requisition made by,-

(a) in the case of a company having a share capital, such number of members who hold, on
the date of the receipt of the requisition, not less than one-tenth of such of the paid-up share
capital of the company as on that date carries the right of voting;

(b) in the case of a company not having a share capital, such number of members who have,
on the date of receipt of the requisition, not less than one-tenth of the total voting power of all
the members having on the said date a right to vote, call an extraordinary general meeting of
the company within the period specified in subsection (4).

(iii) The requisition made under sub-section (2) shall set out the matters for the consideration
of which the meeting is to be called and shall be signed by the requisitionists and sent to the
registered office of the company.

(iv) If the Board does not, within twenty-one days from the date of receipt of a valid
requisition in regard to any matter, proceed to call a meeting for the consideration of that
matter on a day not later than forty-five days from the date of receipt of such requisition, the
meeting may be called and held by the requisitionists themselves within a period of three
months from the date of the requisition.

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10. Acceptance of Deposits and payment of interest thereon

Section 73 to 76 of the Companies Act, 2013 (herein after called the Act) read with
Companies (Acceptance of Deposits) Rules, 2014 made under Chapter V of the Act (herein
after called ‘the Rules’) regulate the invitation and acceptance of deposits. It prohibits
acceptance of deposits except from the members through ordinary resolution or acceptance
deposits by ‘’eligible company’’ being a public company, subject to conditions specified in
the rules. (Eligible company is defined under the rules based on net worth and turnover).

Proviso to Section 73(1) read with rule 1(3) of Companies (Acceptance of Deposits) Rules
2014 excludes banking Companies, non-banking financial companies as defined in the
Reserve Bank of India Act, 1934 and registered with Reserve Bank of India, a housing
finance company registered with National Housing Bank established under the National
Housing Bank Act 1987 and any other company as may be specified by the government in
this regard.

What does not constitute a Deposit –

 Amount received from Central Government or State Government or where guarantee is
provided by Central Government or State Government on any loan obtained by the
Company.
 Amount received from Foreign Govt., Banks, FI, IFC, ADB, etc., subject to FEMA.
 Any amount received from Banking Company or from SBI or its subsidiaries.
 Any amount received as loan from Public Financial Institutions, Insurance Co, Banks etc.,
 Any amount raised through issue of Commercial Paper in consonance with RBI guidelines.
 Amount received by a company from any other company
 Amount received for subscription of securities, Share application money or calls in
advance.
 Any amount received from director (provided that the amount is not being given out of
funds acquired by him by borrowing or accepting loans or deposits from others).
 Any amount raised by the issue of secured bonds or debentures
 Any amount received from an employee of the company not exceeding his annual salary
as a security under contract of employment.
 Any non-interest bearing amount received or held in trust;
 Advance received for supply of goods
 Advance consideration for transfer of property in an agreement.
 Security deposit for performance of contract.
 Loan bought in by promoters on stipulation laid by the lending Banks or FI
 Amount accepted by Nidhi Company.

Who can accept deposits and from whom?

1. A Public Company can accept deposits from any person (eligible company), if it has
o Net worth of Rs. 100 Crore or more [or]
o Turnover of Rs. 500 Crore or more
2. Other than the eligible Companies, all other companies can accept deposits from its
members, subject to the fulfilment of the terms and conditions as specified in sub-section
2 of Section 73

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11. MAT- Mergers, Amalgamation & Takeovers, its relevance in
Corporate Restructuring

In today’s world of growing economies and fast paced globalization , major companies across
the globe, both domestic and international, struggle to achieve the optimum market share
possible and the most popular way to achieve growth and dominance on the global front is
through mergers and acquisitions.

Mergers, acquisitions and takeovers have been a part of the business world for centuries. In
today’s dynamic world of commerce, companies are often faced with decisions concerning
options to maximize shareholder value. To develop a competitive advantage and thus
ultimately increase shareholder value, mergers and acquisitions are the best avenue. Mergers,
Acquisitions and Takeovers are that aspect of corporate strategy, corporate finance and
management dealing with buying, selling, and combining of different companies that can aid,
finance, or help a growing company in a particular industry to grow rapidly without having to
create another business entity.

Mergers & Acquisitions (M&A) are part of corporate restructuring exercise. Corporate
restructuring aims at the reallocation of corporate resources to optimize its value either by
adding the related or divesting the unrelated businesses. Capital restructuring has two
dimensions. Firstly, restructuring of assets side of the business which commonly known as
business restructuring or asset restructuring. Secondly, restructuring of liability side which is
known as financial restructuring. The latter aims at optimizing on capital structure of the
company without disturbing the businesses the company is in. The ultimate aim of all these
exercises is to optimize corporate value given the assets and liabilities of the company.

Corporate restructuring is a necessity when the company has grown to the point that the
original structure can no longer efficiently manage the output and general interests of the
company. The general idea of corporate restructuring is to allow the company to continue
functioning in some manner or the other. Corporate restructuring is thus the act of
reorganizing the legal, ownership, operational, or other structures of a company for the
purpose of making it more profitable or better organized for its present needs.

Advantages of M&A’s in Corporate Restructuring

The general advantage behind mergers and acquisition is that it provides a productive
platform for the companies to grow, though much of it depends on the way the deal is
implemented. It is a way to increase market penetration in a particular area with the help of an
established base. Mergers and Acquisitions are advantageous to the process of restructuring
of a corporate entity in the following ways:

· Accessing new markets

· Maintaining Growth momentum
· Acquiring international brands and clientele
· Buying cutting edge technology instead of importing it
· Taking on global competition
· Improving operating margins and efficiency
· Developing new product mixes to suit the new markets.

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12. Postal Ballots / E-Voting

Section 110 of the Companies Act, 2013 and Rule 22 of the Companies (Management and
Administration) Rules, 2014 deals with Postal Ballot.

Postal Ballot – Business:

A company shall transact the following business only by means of Postal Ballot;

Section Description

existence immediately before the commencement of the Act, alteration of the main objects
of the memorandum

in relation to insertion or removal of provisions

which are required to be included in the articles of a company in order to constitute it a
private company

village.

prospectus and still has any unutilized amount out of the money so raised

48 Variation in the rights attached to a class of shares or debentures or other securities

-back of shares by a company

company

186(3) Giving loans or extending guarantee or providing security in excess of the limit

A company may transact any other business by postal ballot instead of transacting at a general
meeting except:
- ordinary business and
- any business in respect of which directors or auditors have a right to be heard at any
meeting. 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.

Procedure to be followed for conducting Postal

Ballot: Notice to Shareholders:
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 there
for and requesting them to send their assent or dissent in writing on a postal ballot because
postal ballot means voting by post or through electronic means within a period of 30 days
from the date of dispatch of the notice.
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Mode of dispatch:

The notice shall be sent either:

-mail id or
munication of the assent or dissent of the
shareholder to the resolution within the said period of thirty days.

Voting through electronic means

(1) Every listed company or a company having not less than one thousand shareholders, shall
provide to its members facility to exercise their right to vote at general meetings by electronic
means.
(2) A member may exercise his right to vote at any general meeting by electronic means and
company may pass any resolution by electronic voting system in accordance with the
provisions of this rule.
“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’;
‘‘secured system’’ means computer hardware, software, and procedure that –
(a) are reasonably secure from unauthorized access and misuse;
(b) provide a reasonable level of reliability and correct operation;
(c) are reasonably suited to performing the intended functions; and
(d) adhere to generally accepted security procedures.
“Cyber security” means protecting information, equipment, devices, computer, computer
resource, communication device and information stored therein from unauthorised access,
use, disclosures, disruption, modification or destruction.

Features:
For providing e-voting service platform, a certificate is required to be obtained by any
agency from Standardization Testing and Quality Certification (STQC) Directorate,
Department of Information Technology, Ministry of Communication and IT, Government
of India, New Delhi. At Present NSDL and CDSL are providing e-voting platform, after
obtaining necessary certifications.
Data of all the Shareholders will be provided to the agency providing e-voting platform
company
Agencies providing such e-voting platform shall ensure that the process for e-voting is
explained in the e-voting platform along with necessary “FAQs” and shall also ensure that
the draft resolutions, explanatory statement and other annexures, if any, sent to the
shareholders are displayed prominently in the concerned page of the e- voting platform.
User ID and Password will be provided to the shareholders by the agency providing e-
voting platform.
In case of Joint Shareholding e-voting option will be available only to the First
Shareholder. Time limit available for e-voting and postal ballot method will be the same.
Voting on selective resolution will be permitted.
E-Voting facility will be available to shareholders holding shares in physical form as well
as in Demat Form.
Presently there is no charge for e-voting.
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13. Corporate Governance

Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled. Corporate governance essentially involves balancing the interests of a
company's many stakeholders, such as shareholders, management, customers, suppliers,
financiers, government and the community. Since corporate governance also provides the
framework for attaining a company's objectives, it encompasses practically every sphere of
management, from action plans and internal controls to performance measurement and
corporate disclosure.

Good and Bad Governance

Bad corporate governance can cast doubt on a company's reliability, integrity or obligation to
shareholders. Tolerance or support of illegal activities can create scandals like the one that
rocked Volkswagen AG in 2015. Companies that do not cooperate sufficiently with auditors
or do not select auditors with the appropriate scale can publish spurious or noncompliant
financial results. Bad executive compensation packages fail to create optimal incentive for
corporate officers. Poorly structured boards make it too difficult for shareholders to oust
ineffective incumbents. Corporate governance became a pressing issue following the 2002
introduction of the Sarbanes-Oxley Act in the United States, which was ushered in to restore
public confidence in companies and markets after accounting fraud bankrupted high-profile
companies such as Enron and World Com.

Good corporate governance creates a transparent set of rules and controls in which
shareholders, directors and officers have aligned incentives. Most companies strive to have a
high level of corporate governance. For many shareholders, it is not enough for a company to
merely be profitable; it also needs to demonstrate good corporate citizenship through
environmental awareness, ethical behaviour and sound corporate governance practices.

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14. Compliance Certificate

The earlier Companies Act, 1956 provides for a compliance certificate to be issued by a
Company Secretary in practice and annexed to Board Report by certain class of Companies.
As per Section 383A of the Companies Act, 1956, every Company having a paid-up capital of
not less than Rs. 10 lakhs or more but less than Rs. 5 Crore shall be required to file a
compliance certificate given by a practicing Company Secretary with the Registrar of
Companies within 30 days from the date on which its annual general meeting was held with
the requisite fees and a copy of such certificate was attached with Board’s report.

Provisions in Companies Act, 2013

The Companies Act, 2013 has now introduced the Secretarial Audit as a new class of audit in
addition to Statutory Audit, Internal Audit and Cost Audit prescribed in the act. Section 204
of the Act read with The Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014 notified w.e.f. 01st April, 2014 deals with provisions relating to
Secretarial Audit.
The requirements of Secretarial Audit are not applicable on all companies. According to Sub-
Section 1 of Section 204 of the Act, every listed company and a company belonging to other
class of companies as may be prescribed shall annex with its Board’s report made in terms of
sub-section (3) of section 134, a secretarial audit report, given by a company secretary in
practice, in such form as may be prescribed.
Rule 9 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 prescribes the other class of companies as under:
every public company having a paid-up share capital of 50 crore rupees or more; or
every public company having a turnover of 250 crore rupees or more.
Regulation 7 (3) – Compliance Certificate certifying maintaining physical & electronic
transfer facility:

The listed entity shall submit a compliance certificate to the exchange, duly signed by both
that is by the compliance officer of the listed entity and the authorized representative of the
share transfer agent, wherever applicable, within one month of end of each half of the
financial year, certifying maintaining physical & electronic transfer facility either in house or
RTA as applicable.

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15. Director’s responsibility statement

The Directors are responsible for preparing the Annual Report and the financial statements in
accordance with applicable law and regulations. Company law requires the Directors to
prepare financial statements for each financial year.

134. Financial statement, Board’s report, etc.

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 at least
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 and the Chief Executive Officer, if
he is a director in the company, the Chief Financial Officer and the company secretary of
the company, wherever they are appointed, or in the case of a One Person Company, only
by one director, for submission to the auditor for his report thereon.

The auditors’ report shall be attached to every financial statement.

There shall be attached to statements laid before a company in general meeting, a report by
its Board of Directors

The report of the Board of Directors to be attached to the financial statement under this
section shall, in case of a One Person Company, mean a report containing explanations or
comments by the Board on every qualification, reservation or adverse remark or
disclaimer made by the auditor in his report.

The Board’s report and any annexures thereto under sub-section (3) shall be signed by its
chairperson of the company if he is authorised by the Board and where he is not so
authorised, shall be signed by at least two directors, one of whom shall be a managing
director, or by the director where there is one director.

A signed copy of every financial statement, including consolidated financial statement, if

any, shall be issued, circulated or published along with a copy each of—
(a) any notes annexed to or forming part of such financial statement;
(b) the auditor’s report; and
(c) the Board’s report referred to in sub-section (3).

If a company contravenes the provisions of this section, the company shall be punishable
with fine which shall not be less than fifty thousand 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.

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16. Secretarial Standards for Board / Committee Meetings

Secretarial Standard-1(SS-1)-relating to Board and Committee Meetings

Section 205 of the companies Act, 2013, (herein after referred to as “The Act’) inter alia,
enjoins upon the Company Secretary to ensure that the company complies with the applicable
Secretarial Standards. The Explanation under the above Section defines ”Secretarial
Standards” as standards issued by the Institute of Company Secretaries of India(ICSI) and
approved by the Central Government. Pursuant to the above, the ICSI has rolled out two
standards, one relating to conduct of Meetings of the Board (SS-1) and the other on holding
General Meetings (SS-2) both of which have been notified by the Government on April 23,
2015. Both the above Standards will become applicable mandatorily effective from July 1,
2015 in respect of Meetings held or after July1, 2015.

Scope
The standard applies to all types of companies except one person companies (OPCs). Given
the fact that the adherence to the principles enunciated in the standard, as we will discover is
an arduous exercise, one is not sure whether marginal companies which are 12/17/2017
Secretarial Standard-1(SS-1)-relating to Board and Committee Meetings: A critical Analysis
merely legal extensions of the partnership form of business should be subjected to the rigours
of the standard. Such companies may not have the resources to measure up to the exacting
levels of the expected compliances. Our submission is that the applicability of the standard
should have been restricted to only those companies which have a reasonable paid up capital
threshold of say Rupees five crores or above which would be suggestive of their ability to
garner resources to meet the lofty expectations of SS-1.

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17. Mergers, Demergers and Reverse Merger

i) Merger is a restructuring tool available to Indian conglomerates aiming to expand and

diversify their businesses for various reasons whether it is to gain competitive advantage,
reduce costs or unlock values. In commercial parlance, merger essentially means an
arrangement whereby one or more existing companies merge their identity into another
existing company or form a distinct new entity. Company law in India is undergoing a
complete overhaul and a new law was finally passed in 2013. However, only 98 sections of
the new Companies Act, 2013 ("2013 Act") have been brought into force and the provisions
relating to mergers covered in Sections 230 to 240 are yet to be notified. Until then, this court
driven process will continue to be governed by Section 391-396A of the Companies Act, 1956
and the Companies (Court) Rules, 1959 (collectively referred to as "1956 Act").

Mergers and acquisitions are used as instruments of momentous growth and are increasingly
getting accepted by Indian businesses as critical tool of business strategy. They are widely
used in a wide array of fields such as information technology, telecommunications, and
business process outsourcing as well as in traditional business to gain strength, expand the
customer base, cut competition or enter into a new market or product segment. Mergers and
acquisitions may be undertaken to access the market through an established brand, to get a
market share, to eliminate competition, to reduce tax liabilities or to acquire competence or to
set off accumulated losses of one entity against the profits of other entity.

ii) Demerger’ in relation to companies means transfer, pursuant to scheme of arrangement by

a ‘Demerged
Company’ of its one or more undertakings to any ‘resulting company’ in such a manner as
provided in section 2(19AA) of the Income Tax Act, 1961, subject to fulfilling the conditions
stipulated in section
2(19AA) of the Income Tax Act and shares have been allotted by the ‘resulting company’ to
the shareholders of the demerged company’ against the transfer of assets and liabilities.

For the purpose of the compromise in the nature of ‘demerger’ till the Accounting Standards
is prescribed for the purpose of ‘demerger’, the Accounting Treatment shall be in accordance
with the conditions stipulated in section 2(19AA) of the Income Tax Act, 1961 and

(i) in the books of the ‘demerged company’:-

(a) Assets and liabilities shall be transferred at the same value appearing in the books, without
considering any revaluation or writing off of assets carried out during the preceding two
financial years; and
(b) The difference between the value of assets and liabilities shall be credited to capital
reserve or debited to good will.

(ii) In the books of ‘resulting company’:-

(a) Assets and liabilities of ‘demerged company’ transferred shall be recorded at the same
value appearing in the books of the ‘demerged company’ without considering any revaluation
or writing off of assets carried out during the preceding two financial years;

(b) Shares issued shall be credited to the share capital account;

And

Page 28 of 50
(c) The excess or deficit, if any, remaining after recording the aforesaid entries shall be
credited to capital reserve or debited to good will as the case may be.

iii) 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, 1961.
Section 72A 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 other company. The healthy units lose its name and surviving sick company
retains its name.

Salient features of Reverse mergers under Section 72A of the Income Tax Act

 Amalgamation should be between the companies and none of them should be a firm of
partners or sole- proprietor.
 The tax relief under Section 72A would not be made available to companies engaged in
trading activities or services.
 The company should make an application to the “specified authority” for requisite
recommendation of the case to the Central Government for granting or allowing the relief.
 Specified Authority has to be satisfied of the eligibility of the company for the relief
under Section 72 of the Income Tax Act.
 Carry forward of unabsorbed depreciation the conditions of Section 32 should not have
been violated.
 Accumulated loss should arise from “Profits and Gains from business or Profession” and
not be loss under the head” Capital Gains” or “ Speculation’
 After amalgamation the “sick” company shall survive and the other income generating
company shall extinct.
 One of the merger partner should be financially unviable and have accumulated losses to
qualify for the merger and the other merger partner should be profit earning so that tax
relief to the maximum extent could be had.
 Amalgamation should be in the public interest and should not defeat basic tenets of law
and must safeguard the interest of employees, consumers, creditors, and shareholders
apart from promoters of the company through revival of company.

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18. Managerial Remuneration

Section 197- Overall maximum managerial remuneration and managerial remuneration in case
of absence or inadequacy of profits:
(1) The total managerial remuneration payable by a public company, to its directors, 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 percent 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,—
(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 percent of the net profits of the company, if there is a managing or whole-time
director or manager;
(B) three percent of the net profits in any other case.
(2) The percentages aforesaid shall be exclusive of any fees payable to directors under sub-
section (5).
(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, 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.
(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
(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.
(8) The net profits for the purposes of this section shall be computed in the manner referred to
in section 198.
(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 the prior sanction of the
Central Government, where it is required, he shall refund such sums to the company and until
such sum is refunded, hold it in trust for the company.

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19. Disclosure of directors' interests

Section 184 of the Companies Act, 2013 deals with the disclosure of interest by a director. It
provides that 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 of interest in any company or companies or bodies
corporate, firms, or other association of individuals which shall include the shareholding, in
such manner as may be prescribed.

For this purpose Rule 9 of (Meetings of the Board and its Powers) Rules 2014 provides that
such disclosure shall be made in form MBP1.

Objective of Section 184:

If a director makes a contract with the company and does not disclose his interest, he will be
committing breach of trust. [Yashovardhan Saboo v Groz-Beckert Saboo Ltd. (Company Law
Board)]
Specific disclosure of interest or concern:
According to section 184(2) of the new Act, every director of a company must disclose the
nature of his concern or interest if he 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 2%. 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.
An in-depth reading of the above sections, leads to 2 different sets of conclusions–
(a) That a director is required to make a disclosure in accordance with section 184(1) of the
Act read with Rule 9 of the aforesaid Rules. In case the director is interested in any contract
or arrangement by virtue of the requirement laid down in section 184(2), he will not
participate in such a meeting and also will not form part of the quorum for the purposes of
such a meeting, OR
(b) It signifies that Interested Director shall not have any right to vote.
In my opinion, clause (b) may have been the intention of the lawmakers.
For the purpose of defining concern or interest, it is pertinent to note following points-
(a) Interest means personal interest and not official interest,
(b) Director being simply an employee of other body corporate etc. is not deemed as
interested director,
(c) Mere relationship is not enough to establish ‘interest’ of a director, some pecuniary
interest has to be proved. [Batts Combe Quarry v Ford]
(d) If any of the relatives has any personal interest in any contract or agreement the concerned
directors would be deemed to be “indirectly” interested.

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 20. NCLT and NCLAT

The Companies (Second Amendment) Act, 2002 provides for the setting up of a National
Company Law Tribunal and Appellate Tribunal to replace the existing Company Law Board
and Board for Industrial and Financial Reconstruction. The setting up of NCLT as a
specialized institution for corporate justice is based on the recommendations of the Justice
Eradi Committee on Law Relating to Insolvency and Winding up of Companies.
MEGA TRIBUNAL:-
NCLT can be called as Mega Tribunal. Because NCLT will CONSOLIDATE the corporate
jurisdiction of the followings:
Company Law Board.
The Board for Industrial and Financial Reconstruction
The Appellate authority for Industrial and Financial Reconstruction
Jurisdiction and powers relating to winding up restructuring and other such provisions, vested
in the High courts

Dissolution of CLB:
According to this notification Company Law Board (CLB) stand dissolved w.e.f. 1st June,
2016. Notification of this section 466 makes last Chairman of CLB as Provisional and first
Chairman of NCLT.

Benches of NCLT: Initially NCLT will have eleven Benches, as per list given below.

Two New Delhi Ahmedabad Allahabad Bengluru

Chandigarh Chennai Guwhati Hyderabad

Kolkata Mumbai

POWERS OF NCLT:
The proposed NCLT will have judicial and technical experts who will handle all matters
presently being handled by CLB, Company Court and BIFR with much wider jurisdiction in
terms of scope of the subjects.
Other powers:
 Most of the powers of the Company Law Board under the Companies Act, 1956.
 All the powers of BIFR for revival and rehabilitation of sick industrial companies;
 Power of High Court in the matters of mergers, demergers, amalgamations, winding up, etc.;
 Power to order repayment of deposits accepted by Non-Banking Financial Companies as
provided in section 45QA of the Reserve Bank of India Act, 1934;
 Power to wind up companies;
 Power to Review its own orders.

 .

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 The Tribunal shall be headed by the President while the Appellate Tribunal by Chairperson.
 NCLAT not exceeding eleven members for hearing appeals against the orders of the Tribunal

Advantages of NCLT & NCLAT:

 It shall avoid multiplicity of litigation before various Forums (High Courts, CLB, BIFR,
AAIFT). Thus there will be a consolidation of Corporate Jurisdiction.
 There shall be at least 11 benches of the NCLT, thereby providing justice almost at one’s
doorstep.
 This tribunal shall comprise of technical experts who will provide more concrete and precise
decision.
 There will be mixture of judicial and equitable jurisdiction while deciding matters.
 There shall be reduction in period of winding up from 20-25 years to 2 years.
 Reduction in pendency of cases, expeditious disposal of cases.

Conclusion:
In view of vast opportunities emerging with the establishment of National Company Law
Tribunal, the Practicing Company Secretaries should standardize their competencies with the
global benchmarks to provide value added services in assisting the Tribunal in dispensation of
justice and speedier disposal of matters like merger, amalgamation, restructuring, revival and
rehabilitation of sick companies and winding up of companies.
[1] in law, industrial finance, industrial management or administration, industrial
reconstruction, investment, accountancy, labour matters, or such other disciplines related to
management, conduct of affairs, revival, rehabilitation and winding up of companies.

[2] in law, industrial finance, industrial management or administration, industrial

reconstruction, investment, accountancy, labour matters, or such other disciplines related to
management, conduct of affairs, revival, rehabilitation and winding up of companies.

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21. Audit Committee (Section 177)

(1) The Board of Directors of every listed company and such other class or classes of
companies, as may be prescribed, shall constitute an Audit Committee.
(2) The Audit Committee shall consist of a minimum of three directors with independent
directors forming a majority:
Provided that majority of members of Audit Committee including its Chairperson shall be
persons with ability to read and understand, the financial statement.
(3) Every Audit Committee of a company existing immediately before the commencement of
this Act shall, within one year of such commencement, be reconstituted in accordance with
sub-section (2).
(4) Every Audit Committee shall act in accordance with the terms of reference specified in
writing by the Board which shall, inter alia, include,—
(i) the recommendation for appointment, remuneration and terms of appointment of auditors
of the company;
(ii) review and monitor the auditor’s independence and performance, and effectiveness of
audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv) approval or any subsequent modification of transactions of the company with related
parties;
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it is necessary;
(vii) evaluation of internal financial controls and risk management systems;
(viii) monitoring the end use of funds raised through public offers and related matters.

(5) The Audit Committee may call for the comments of the auditors about internal control
systems, the scope of audit, including the observations of the auditors and review of financial
statement before their submission to the Board and may also discuss any related issues with
the internal and statutory auditors and the management of the company.
(6) The Audit Committee shall have authority to investigate into any matter in relation to the
items specified in sub-section (4) or referred to it by the Board and for this purpose shall have
power to obtain professional advice from external sources and have full access to information
contained in the records of the company.
(7) The auditors of a company and the key managerial personnel shall have a right to be heard
in the meetings of the Audit Committee when it considers the auditor’s report but shall not
have the right to vote.
(8) The Board’s report under sub-section (3) of section 134 shall disclose the composition of
an Audit Committee and where the Board had not accepted any recommendation of the Audit
Committee, the same shall be disclosed in such report along with the reasons therefor.
(9) Every listed company or such class or classes of companies, as may be prescribed, shall
establish a vigil mechanism for directors and employees to report genuine concerns in such
manner as may be prescribed.
(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards against
victimisation of persons who use such mechanism and make provision for direct access to the
chairperson of the Audit Committee in appropriate or exceptional cases:
Provided that the details of establishment of such mechanism shall be disclosed by the
company on its website, if any, and in the Board’s report.

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22. Computerised Minutes Books

Every Company is required to maintain statutory records in the form of registers, minutes etc.
throughout its life. Companies under the old Act were maintaining the same in physical form,
however Companies Act, 2013 has changed the picture totally for listed companies and a
company having not less than 1000 shareholders, debenture holders and other security
holders. Such companies now have to compulsorily convert all their records from physical
mode to electronic mode till 30 September 2014.

Other companies can choose either to maintain records in physical or electronic form and if
they choose to maintain it in electronic form, then they need to follow the prescribed
guidelines in Rules. We have summarised the same in this Article. (Chapter 7).
Registers in Electronic form:
As per Section 120 of the new Act, read with the new rules displayed, Minutes book is one of
those registers/documents which are required to be kept by the company in electronic form at
the registered office to facilitate inspection as per provisions of Act.

Rules provide that every listed company or a company having not less than 1000
shareholders, debenture holders, and security holders shall maintain records) specified u/s
120 in electronic form.

Once the minutes of members meeting are either digitally signed/physically signed and
converted into electronic format changes cannot be made. In the case of minutes of
proceedings of General meetings, any member shall be entitled to inspect and ask for copies.

If a request is made by any member for copies of minutes in electronic form in respect of 3
preceding general meetings, he shall be entitled to the same free of cost.

Managing director, Secretary or any director or any officer of the company as the board may
decide shall be responsible for maintenance and security of the electronics records to
maintained as per Section 120. This will facilitate meeting the requirement of providing
copies
/extracts on request from members or such other persons who inspect the records and demand
for copies/extracts. The rules provide that Board of directors can decide the manner in which
these books are to be maintained for ensuring security and irretrievability, reproduction in
print form.

Conclusion: In this age of electronics, maintenance of minutes and other registers in

electronic form is made mandatory in the case of listed companies for facilitating inspection
by members. It is imperative that Secretaries should gear up to this new requirement and at
the same time keep in view that the increased penalty upto one lakh and imprisonment upto 2
years for tampering of minutes under the new Act.

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23. Prospectus, Allotment and other matters relating to issue of shares and debentures

Primarily, issues can be classified as a Public, Rights or preferential issues (also known as
private placements). While public and rights issues involve a detailed procedure, private
placements or preferential issues are relatively simpler.

Chapter III of the Act deals with “Prospectus and allotment of securities”, the chapter is
divided into two parts, Part I deals with Public Offer and Part II deals with Private Placement.

Section 23 of the Act provides that a company whether public or private may issue securities.
A public company may issue securities:

(a) to public through prospectus ("public offer") by complying with the provisions of Part I of
Chapter III of the Act; or (b) through private placement by complying with the provisions of
Part II of Chapter III of the Act; or (c) through a rights issue or a bonus issue in accordance
with the provisions of this Act and in case of a listed company or a company which intends to
get its securities listed also with the provisions of the SEBI Act, 1992 and the rules and
regulations made thereunder.

For a private company the section provides that a private company may issue securities (a) by
way of rights issue or bonus issue in accordance with the provisions of this Act; or (b)
through private placement by complying with the provisions of Part II Chapter III of the Act.

The section deals with issue of securities, which is a wider term not restricted to equity,
preference or debentures. Securities has been defined under section 2(81) to mean the
securities as defined in clause
(h) of section 2 of the Securities Contracts (Regulation) Act, 1956. The relevant section says
that securities include:- (i) shares, scrips, stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any incorporated company or other body
corporate;
(ia) derivative; (ib) units or any other investments issued by any collective investment scheme
to the investors in such schemes; (ii) Government securities; (iia) such other instruments as
may be declared by the Central Government to be securities; and (iii) rights or interest in
securities.

A public company may issue any of the aforesaid securities by way of a public offer or rights/
bonus issue or private placement. Public Offer here includes initial public offer (IPO) or
further public offer (FPO) of securities to the public by a company, or an offer for sale (OFS)
of securities to the public by an existing shareholder, through issue of a prospectus.

PROSPECTUS In general parlance prospectus refers to an information booklet or offer

document on the basis of which an investor invests in the securities of an issuer company. It
has been defined under section 2(70) so as to mean any document described or issued as a
prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus
referred to in section 31 or any notice, circular, advertisement or other document inviting
offers from the public for the subscription or purchase of any securities of a body corporate.
Red herring Prospectus under Explanation to section 32 has been referred to mean a
prospectus which does not include complete particulars of the quantum or price of the
securities included therein.The definition clarifies that any notice, circular, advertisement or
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any other document

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inviting offers from public for the subscription or purchase of securities shall be included in
the definition of Prospectus.

Dating & Signing and Registration of Prospectus

According to Section 26(1) of the Act, every prospectus issued by or on behalf of a public
company either with reference to its formation or subsequently, or by or on behalf of any
person who is or has been engaged or interested in the formation of a public company, shall
be dated and signed. The date indicated in the prospectus shall be deemed to be the date of its
publication. The prospectus shall be signed by every person who is named therein as a
director or proposed director of the Company or by his duly authorised attorney.
Prospectus shall be issued by or on behalf of a company or in relation to an intended company
only when it has been delivered to the Registrar for Registration a copy of signed prospectus
on or before the date of its publication. The Registrar shall not register a prospectus unless the
requirements with respect to its registration are complied with and the prospectus is
accompanied by the consent in writing of all the persons named in the prospectus.
Prospectus is to be issued within ninety days from the date of delivery of prospectus to the
Registrar. No prospectus shall be valid if it is issued more than ninety days after the date on
which a copy thereof.

Allotment of Securities
Section 39 of the Act prohibits allotment of securities where the minimum amount as stated in
the prospectus has not been subscribed. The section further provides that for refund within a
given time frame. It provides that all of the minimum amount must be 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, if minimum subscription remains
unsubscribed it shall be returned within such time and manner as may be prescribed.

The rules provide that where the stated minimum amount has not been subscribed and the
sum payable on application is not received within the period specified therein, then the
application money shall be repaid within a period of fifteen days from the closure of the issue
and 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
the rate of fifteen percent per annum. The application money to be refunded shall be credited
only to the bank account from which the subscription was remitted.

The section provides that the minimum amount of every security shall not be less than five
per cent of the nominal amount of the security or such other percentage or amount, as may be
specified by the Securities and Exchange Board by making regulations in this behalf.

A company having a share capital makes any allotment of securities shall file with the
Registrar a return of allotment in such prescribed manner. The rules provide that whenever a
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.

The rules further provide for the attachments to Form PAS-3 i.e. return of allotment.

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24. Legal and procedural aspects of Employees Stock Option Scheme (ESOS)

Till date around 282 Sections of the Companies Act, 2013 (Act) have come into force and
allied rules including the Rules governing the ESOPs [i.e. the Companies (Share Capital and
Debentures) Rules, 2014 (Rules)] have been notified by the Ministry of Corporate Affairs
(MCA). It would be contextual to mention that the draft Companies Rules were published
seeking public comments by October 2013. We had communicated our observations on the
draft Rules to you and also submitted our feedback to MCA urging for simplification of the
Rules.

Now, in view of coming into force of the sections and impending effect of the Rules, it is
desirable to have an overview of the new provisions and consequent course of action, if anyin
respect of the existing ESOP Schemes and ESOP Trust of the Company.

The respective provisions of the Act and the Rules can be read in two perspectives i.e.
provisions governing – (i) issue of ESOPs and (ii) Trust set-up, funding and operation for
administration of ESOPs. The provisions relating to issue of ESOPs are common for all the
unlisted Companies irrespective of their status being Private or Public; whereas the provisions
on Trust set-up, funding, etc. are relevant for an unlisted Public Company which is dealt with
in the later part.

2.2 The provisions relating to issue of ESOPs applicable for all unlisted Companies are:

i. Employee under an ESOP Scheme - Rule 12(1) read with Section 2(37), 197(7) of the Act
defines the term to mean any permanent employee or Director whether a whole-time or not
and whether working in India or not. The employees and Directors of the Holding, Subsidiary
and Associate Company are also covered. The specific exclusions are:
a) An Independent Director;
b) An employee who is a Promoter or belongs to the Promoter Group; and
c) A Director who directly or indirectly holds more than 10% of outstanding equity shares
of the Company.

ii. Procedural requirements - Rules 12(1), 12(2) and 12(4) read with section 62(1)(b) of the
Act require:
a) Approval of the ESOP Scheme by the members of the Company by way of a special
resolution;
b) There shall be separate resolutions in case of grant of ESOPs to employees of the
Subsidiary or Holding Company or in case of grant of ESOPs to identified employees equal
to or exceeding 1% of the issued capital; and
c) The explanatory statemen
t shall disclose prescribed details namely total number of ESOPs to be granted, appraisal
process, requirements of vesting, exercise price or pricing formula, exercise period, lock-in
period, method of accounting, etc.

iii. Other requirements - Rest of the Sub-rules of Rule 12 besides giving the flexibility to the
Company to determine the exercise price and lock-in of shares, require:
a) Variation of terms of the ESOPs to be carried out by way of members’ approval by way of
a special resolution provided it is not prejudicial to the interests of the employees;
b) Minimum vesting period of 1 year;
c) Non-transferability of the ESOPs;
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d) Unvested ESOPs to vest in case of death or permanent incapacity of an employee;
e) Disclosure of prescribed details in the Directors’ Report; and
f) Maintenance of an ESOP Register.

Variation of terms of ESOS

The company may by special resolution, vary the terms of Employees Stock Option Scheme
not yet exercised by the employees provided such variation is not prejudicial to the interests
of the option holders. The notice for passing special resolution for variation of terms of
Employees Stock Option Scheme shall disclose full details of the variation, the rationale
therefore, and the details of the employees who are beneficiaries of such variation.

Conclusion
In our understanding, any inconsistency whether in an ESOP Scheme or in any existing Trust
mechanism as observed above may lead to invalidity of the same under the new regulatory
regime. Such inconsistency must be cured within a reasonable time unless any specific time
period is notified by the Central Government affording an effective transition. “Reasonable
time” may be construed accordingly.

In a nutshell, it can be said that the Companies should take steps to make the terms of the
outstanding ESOPs/ ESOP Scheme and the Trust constitution, funding approval and related
transactions consistent with the relevant provisions of the Act and Rules 12 and 16.

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25. Listing of Securities & Bonds etc. and procedural formalities under various laws
and regulations

A company, desirous of listing its securities on the Exchange, shall be required to file an
application, in the prescribed form, with the Exchange before issue of Prospectus by the
company, where the securities are issued by way of a prospectus or before issue of 'Offer for
Sale', where the securities are issued by way of an offer for sale. The company shall be
responsible to follow all the requirements specified in the Companies Act, the listing norms
issued by SEBI from time to time and such other conditions, requirements and norms that
may be in force from time to time and included hereafter in these Bye- laws and Regulations
to make the security eligible to be listed and for continuous listing on the Exchange.

Applications in Respect of New Issues or Offers for Sale or Book-Building

Except when otherwise allowed by the Governing Board or Managing Director or Relevant
Authority in any particular case and subject to compliance with such conditions as it or he
may impose, tenders or applications for subscription or purchase or book-building in respect
of any new issue or offer for sale of any security shall not be submitted unless the issuer or
offerer offers to all a fair and equal opportunity for subscription or purchase and on the same
terms as to brokerage to all the trading members and unless it is provided that all tenders and
applications for subscription or purchase or book- building shall rank alike for allotment or
sale.

The issuer or the offerer, prior to issuing further securities or offering securities for sale, shall
obtain an in principle approval from the Exchange for listing these securities on the Exchange.

Application for Admission to Dealings

Units and Exchange Traded Funds
Options or Futures in Securities
Notice of Application for Admission to Dealings
Underwriting, Placing and Preliminary Arrangements
Listing Conditions and Requirements
Securities Issued on Preferential Allotment Basis or Under ESOP

Applicability of Listing Conditions and Requirements

In the case of a body corporate, fund or other entity registered or formed outside India, the
Governing Board or Managing Director or Relevant Authority may, for reasons to be
recorded in writing, waive or dispense with the strict enforcement of any or all of the listing
conditions and requirements prescribed in these Byelaws and Regulations, except those
prescribed in Bye Law provided that the securities of such body corporate, fund or other
entity are admitted to dealings on any stock exchange outside India and the Governing Board
or Managing Director
or Relevant Authority is satisfied that it is in the interest of trade or in the public interest, so to do.

Trading in Government Securities

Trading shall be allowed in Government Securities, which term for the purposes of these Bye-
laws and Regulations, denote securities issued by the Government of India, State
Governments, Port Trusts, Municipal Corporations and other similar bodies.
Government Securities shall be deemed to have been admitted to dealings on the Exchange
from the date on which they are issued.
Transactions in Government Securities shall be carried out and settled in accordance with the
directions issued by the Reserve Bank of India from time to time.
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Central Listing Authority

Page 42 of 50
As and when the Central Listing Authority is constituted by SEBI or any authority under the
relevant law in relation to listing / delisting and trading / suspension of trading in securities of
companies on a stock exchange, the provisions, guidelines, norms and procedures governing
the listing / delisting and trading / suspension of trading in securities that may be stipulated by
such Central Listing Authority shall then be incorporated in the Bye-laws of the Exchange
and shall be made applicable mutatis mutandis by the Exchange.

26. Merchant Bankers in public issues

Merchant bankers play an important role in public issue process. While acting as a banker to
an issue, a merchant banker has to disclose full details to the Securities Exchange Board of
India (SEBI). The details submitted by merchant banker about the public issue should contain
the following.

Merchant Bankers role in Public Issue

Furnishing Information:
a. Number of issues for which the merchant banker is engaged as banker to issue.
b. Number of applications received and details of application money received
c. Dates on which applications from investors were forwarded to issuing
company.
d. Details of amount as refund to investors.

Books to be Maintained:
e. Books of accounts for a minimum period of 3 years
f. Records regarding the company
g. Documents such as company applications,
names of investors, etc. Agreement with issuing
company
Agreement with the issuing company by the merchant banker should contain
h. Number of collection centres
i. Application money received
j. Daily statement by each branch which is a collecting centre.

Action by RBI:
Any action by RBI on merchant banker should be informed to SEBI by the merchant banker
concerned.

Code of Conduct
k. Having high integration in dealing with clients.
l. Disclosure of all details to the authorities concerned. Avoiding making exaggerated
statements.
m. Disclosing all the facts to its customers.
n. Not disclosing any confidential matter of the clients to third parties.

A rights issue is the offer of shares of a company to the existing shareholders. A merchant
banker has the following responsibilities in Rights issue.

Responsibilities of merchant bankers in Rights Issue

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The merchant banker will ensure that when Rights issues are taken up by a company, the
merchant banker who is responsible for the Rights issue, shall see that an advertisement
regarding the same is published in an English national daily, in an Hindi national daily
and in a regional daily.
These newspapers should be in circulation in the city / town where the registered office of
the company is located.

It is the duty of the merchant banker to ensure that the application forms for Rights issue
should be made available to the shareholders and if they are not available, a duplicate
composite application form is made available to them within a reasonable time.

If the shareholders are not able to obtain neither the original nor the duplicate application
for Rights shares, they can apply on a plain paper through the merchant banker.

The details that should be furnished in the plain paper, while applying for Rights shares
should be provided by the merchant hanker.
The merchant banker should mention in the advertisement, the company official to whom
the shareholders should apply for Rights shares.

The merchant banker should also inform that no individual can apply twice, in standard
form as well as in plain paper.

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27. Public Issue Management- problems and procedures

Issue management, now days, is one of the very important fee based services provided by the
financial institutions. In recent past various companies have entered into issue management
activities. Still there are very few large scale and specialized issue management agencies in
the country. With the growth of stock market and opening up of economy, the scope for issue
management activity is widening day by day. To protect the investors’ interest and for orderly
growth and development of market, SEBI has put in place guidelines as ground rules relating
to new issue management activities. These guidelines are in addition to the company law
requirements in relation to issues of capital / securities.

Financial instruments can be classified into two main groups – share capital and debt capital.
There are various other classifications in each of the two categories. Also, there are various
types of company’s i.e. listed, unlisted, public, private etc. For each of them SEBI has issued
comprehensive guidelines, related to issue of financial instruments.

To make an issue, the company must fulfill the eligibility norms specified by SEBI and
Companies Act. The companies issuing securities through an offer document, that is (a)
prospectus in case of public issue or offer for sale and (b) letter of offer in case of right issue,
should satisfy the eligibility norms as specified by SEBI, below:

Filing of Offer Document

Public issue / Offer for sale by Unlisted Companies
Outstanding Warrants / Financial Instruments
Partly Paid-up Shares.

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28. Mechanism and Procedure of settlement of transaction in a Stock Exchange

“Systems for clearing and settlement of securities transaction should be subject to regulatory
oversight and designed to ensure that they are fair, effective and efficient and that they reduce
systemic risk” is one of the 30 principles of securities regulation enunciated by IOSCO.

Safe and stable securities settlement systems (SSSs) are important to preserve the health of
the domestic and global financial markets. This is because they help in reducing the systemic
risks. It is for this reason that the Committee on Payment and Settlement Systems (CPSS) and
the Technical Committee of IOSCO (International Organization of Securities Commissions)
established the Task Force on Securities Settlement Systems in December 1999 to
recommend measure aimed at improving safety and efficiency of SSSs.

SEBI has prescribed elaborate margining and capital adequacy norms to contain and manage
risk in the market. It continuously reviews the working of clearing and settlement systems as
well as the risk management practices being followed by stock exchanges and their clearing
corporations. The year 2003-04 witnessed major improvements in the market practices e.g.
introduction of Straight Through Processing (STP), reduction of settlement cycle to T+2 etc.
The major policy developments during the period April 2003 to June 2004 is presented below:

settlement in Equity Market

f Holidays

Clearing and Settlement Processes

The transactions in secondary market pass through three distinct phases, viz., trading, clearing
and settlement. While the stock exchanges provide the platform for trading, the clearing
corporation determines the funds and securities obligations of the trading members and
ensures that the trade is settled through exchange of obligations. The clearing banks and the
depositories provide the necessary interface between the custodians/clearing members for
settlement of funds and securities obligations of trading members. The clearing process
involves determination of what counter-parties owe, and which counter-parties are due to
receive on the settlement date, thereafter the obligations are discharged by settlement. The
clearing and settlement process for transaction in securities on NSE is presented in Chart 5-1.
Several entities, like the clearing corporation, clearing members, custodians, clearing banks,
depositories are involved in the process of clearing. The role of each of these entities is
explained below:
Clearing Corporation: The clearing corporation is responsible for post-trade activities
such as the risk management and the clearing and settlement of trades executed on a stock
exchange.
Clearing Members: Clearing Members are responsible for settling their obligations as
determined by the NSCCL. They do so by making available funds and/or securities in the
designated accounts with clearing bank/depositories on the date of settlement.

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 Custodians: Custodians are clearing members but not trading members. They settle trades
on behalf of trading members, when a particular trade is assigned to them for settlement.

Clearing Banks: Clearing banks are a key link between the clearing members and
Clearing Corporation to effect settlement of funds. Every clearing member is required to
open a dedicated clearing account with one of the designated clearing banks. Based on the
clearing member’s obligation as determined through clearing, the clearing member makes
funds available in the clearing account for the pay-in and receives funds in case of a

Depositories: Depository holds securities in dematerialized form for the investors in their
beneficiary accounts. Each clearing member is required to maintain a clearing pool
account with the depositories. He is required to make available the required securities in
the designated account on settlement day. The depository runs an electronic file to transfer
the securities from accounts of the custodians/clearing member to that of NSCCL and
visa- versa as per the schedule of allocation of securities.

Professional Clearing Member: NSCCL admits special category of members known as

professional clearing members (PCMs). PCMs may clear and settle trades executed for
their clients (individuals, institutions etc.). In such cases, the functions and responsibilities
of the PCM are similar to that of the custodians. PCMs also undertake clearing and
settlement responsibilities of the trading members. The PCM in this case has no trading
rights, but has clearing rights i.e. he clears the trades of his associate trading members and
institutional clients.

Settlement Process
The settlement process begins as soon as members’ obligations are determined through the
clearing process. The settlement process is carried out by the Clearing Corporation with the
help of clearing banks and depositories. The Clearing Corporation provides a major link
between the clearing banks and the depositories. This link ensures actual movement of funds
as well as securities on the prescribed pay-in and pay-out day. This requires members to bring
in their funds/securities to the Clearing Corporation. The CMs make the securities available in
designated accounts with the two depositories (CM pool account in the case of NSDL and
designated settlement accounts in the case of CSDL). The depositories move the securities
available in the pool accounts to the pool account of the Clearing Corporation. Likewise CMs
with funds obligations make funds available in the designated accounts with clearing banks.
The Clearing Corporation sends electronic instructions to the clearing banks to debit
designated CMs’ accounts to the extent of payment obligations. The banks process these
instructions, debit accounts of CMs and credit accounts of the Clearing Corporation. This
constitutes pay-in of funds and of securities.
After processing for shortages of funds/securities and arranging for movement of funds from
surplus banks to deficit banks through RBI clearing, the Clearing Corporation sends
electronic instructions to the depositories/clearing banks to release pay-out of
securities/funds. The depositories and clearing banks debit accounts of the Clearing
Corporation and credit accounts of CMs. This constitutes pay-out of funds and securities.
Settlement is deemed to be complete upon declaration and release of pay-out of funds and
securities. The settlement cycle for the CM segment are presented in Table 5-1.

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29. Buy – Back of shares

68. Power of company to purchase its own securities

(1) Notwithstanding anything contained in this Act, but subject to the provisions of sub-
section (2), a company may purchase its own shares or other specified securities (hereinafter
referred to as buy-back) out of—
(a) its free reserves;
(b) the securities premium account; or
(c) the proceeds of the issue of any shares or other specified securities:
Provided that no buy-back of any kind of shares or other specified securities shall be made
out of the proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities.

(2) No company shall purchase its own shares or other specified securities under sub-section
(1), unless—
(a) the buy-back is authorised by its articles;
(b) a special resolution has been passed at a general meeting of the company authorising the
buy-back:
Provided that nothing contained in this clause shall apply to a case where—
(i) the buy-back is, ten percent or less of the total paid-up equity capital and free reserves of
the company; and
(ii) such buy-back has been authorised by the Board by means of a resolution passed at its
meeting;
(c) the buy-back is twenty-five per cent. or less of the aggregate of paid-up capital and free
reserves of the company:
Provided that in respect of the buy-back of equity shares in any financial year, the reference to
twenty-five per cent. in this clause shall be construed with respect to its total paid-up equity
capital in that financial year;
(d) the ratio of the aggregate of secured and unsecured debts owed by the company after buy-
back is not more than twice the paid-up capital and its free reserves:
Provided that 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;
(e) all the shares or other specified securities for buy-back are fully paid-up;
(f) the buy-back of the shares or other specified securities listed on any recognised stock
exchange is in accordance with the regulations made by the Securities and Exchange Board in
this behalf; and
(g) the buy-back in respect of shares or other specified securities other than those specified in
clause (f) is in accordance with such rules as may be prescribed:
Provided that 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.

(4) Every buy-back shall be completed within a period of one year from the date of passing of
the special resolution, or as the case may be, the resolution passed by the Board under clause
(b) of sub-section (2).
(5) The buy-back under sub-section (1) may be—
(a) from the existing shareholders or security holders on a proportionate basis;
(b) from the open market;
(c) by purchasing the securities issued to employees of the company pursuant to a scheme of
stock option or sweat equity.

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(6) Where a company proposes to buy-back its own shares or other specified securities under
this section in pursuance of a special resolution under clause (b) of sub-section (2) or a
resolution under item (ii) of the proviso thereto, it shall, before making such buy-back, file
with the Registrar and the Securities and Exchange Board, a declaration of solvency signed
by at least two directors of the company, one of whom shall be the managing director, if any,
in such form as may be prescribed and verified by an affidavit to the effect that the Board of
Directors of the company has made a full inquiry into the affairs of the company as a result of
which they have formed an opinion that it is capable of meeting its liabilities and will not be
rendered insolvent within a period of one year from the date of declaration adopted by the
Board: Provided that no declaration of solvency shall be filed with the Securities and
Exchange Board by a company whose shares are not listed on any recognised stock exchange.

(7) Where a company buys back its own shares or other specified securities, it shall
extinguish and physically destroy the shares or securities so bought back within seven days of
the last date of completion of buy-back.

(8) Where a company completes a buy-back of its shares or other specified securities under
this section, it shall not make a further issue of the same kind of shares or other securities
including allotment of new shares under clause (a) of sub-section (1) of section 62 or other
specified securities within a period of six months except by way of a bonus issue or in the
discharge of subsisting obligations such as conversion of warrants, stock option schemes,
sweat equity or conversion of preference shares or debentures into equity shares.

(9) Where a company buys back its shares or other specified securities under this section, it
shall maintain a register of the shares or securities so bought, the consideration paid for the
shares or securities bought back, the date of cancellation of shares or securities, the date of
extinguishing and physically destroying the shares or securities and such other particulars as
may be prescribed.

(10) A company shall, after the completion of the buy-back under this section, file with the
Registrar and the Securities and Exchange Board a return containing such particulars relating
to the buy-back within thirty days of such completion, as may be prescribed:
Provided that no return shall be filed with the Securities and Exchange Board by a company
whose shares are not listed on any recognised stock exchange.

(11) 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, or with both.

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30. LODR

These regulations may be called the Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) Regulations, 2015.

Applicability of the regulations.

3. Unless otherwise provided, these regulations shall apply to the listed entity who has listed
any of the following designated securities on recognised stock exchange(s):
(a) specified securities listed on main board or SME Exchange or institutional trading platform;
(b) non-convertible debt securities, non-convertible redeemable preference shares, perpetual
debt instrument, perpetual non-cumulative preference shares;
(c) Indian depository receipts;
(d) securitised debt instruments;
(e) units issued by mutual funds;
(f) any other securities as may be specified by the Board.

Principles governing disclosures and obligations.

4. (1) The listed entity which has listed securities shall make disclosures and abide by its
obligations under these regulations, in accordance with the following principles:
(a) Information shall be prepared and disclosed in accordance with applicable standards of
accounting and financial disclosure.
(b) The listed entity shall implement the prescribed accounting standards in letter and spirit in
the preparation of financial statements taking into consideration the interest of all
stakeholders and shall also ensure that the annual audit is conducted by an independent,
competent and qualified auditor.
(c) The listed entity shall refrain from misrepresentation and ensure that the information
provided to recognised stock exchange(s) and investors is not misleading.
(d) The listed entity shall provide adequate and timely information to recognised stock
exchange(s) and investors.

(e) The listed entity shall ensure that disseminations made under provisions of these
regulations and circulars made thereunder, are adequate, accurate, explicit, timely and
presented in a simple language.
(f) Channels for disseminating information shall provide for equal, timely and cost efficient
access to relevant information by investors.
(g) The listed entity shall abide by all the provisions of the applicable laws including the
securities laws and also such other guidelines as may be issued from time to time by the
Board and the recognised stock exchange(s) in this regard and as may be applicable.
(h) The listed entity shall make the specified disclosures and follow its obligations in letter
and spirit taking into consideration the interest of all stakeholders.
(i) Filings, reports, statements, documents and information which are event based or are filed
periodically shall contain relevant information.
(j) Periodic filings, reports, statements, documents and information reports shall contain
information that shall enable investors to track the performance of a listed entity over regular
intervals of time and shall provide sufficient information to enable investors to assess the
current status of a listed entity.

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(2) The listed entity which has listed its specified securities shall comply with the corporate
governance provisions as specified in chapter IV which shall be implemented in a manner so
as to achieve the objectives of the principles as mentioned below:

mely information
treatment

Corporate Governance
[Regulation 17(7)]

[Regulation 18(3)]

irements [Regulation 27(1)]

31. Investor Protection

Investor protection means to protect the investors from being cheated, deceived or being
put to loss by the companies.

Legal Framework for Investor Protection in India

In order to afford adequate protection to the investors, provisions have been incorporated in
different legislations such as the Companies Act, Securities Contracts (Regulation) Act,
Consumer Protection Act, Depositories Act, and Listing Agreement of the Stock Exchanges
supplemented by many guidelines, circulars and press notes issued by the Ministry of
Finance, Ministry of Company Affairs and SEBI from time to time. The legislations as well
as the rules and regulations notified there under specify disclosure requirements to be
complied with by the companies and also punishments and remedies for failure of
compliance.

Rights of Shareholders

Since the shareholders furnish the funds and bear the risk, they have been given certain rights,
both in their individual capacity and as a group. It is as a group, when attending general
meetings of the company, that shareholders enjoy the privilege of exercising control over the
policy in relation to the working of the company.

Redressal of Investor Grievances

The following table indicates nature of investors’ grievances and the authorities to be
approached:

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Nature of grievance Can be taken up with
1.In case of any public issue
Non-receipt of:
- Refund order - SEBI
- Interest on delayed refund- - Ministry of Company Affairs
- Allotment advice - Stock Exchange
- Share certificates - - Registrars to the Issue
- Duplicates for all of the above - Registrars to the Issue
- Revalidations - Registrars to the Issue
2.In case of a listed security
Non-receipt of the certificates after:
- transfer - SEBI
- transmission - SEBI
- conversion - SEBI
- endorsement - Ministry of Company Affairs
- consolidation - Stock Exchange
- splitting - Stock Exchange
- duplicates of securities Regarding - Stock Exchange
listed- SEBI
3. Debentures, non-receipt of
- interest due - SEBI
- redemption proceeds - Ministry of Company Affairs
- interest on delayed payment - The Debenture Trustees/ Stock
Exchange

4.Other cases
- Regarding bad delivery of shares - Bad delivery cell of the stock
- Regarding shares or debentures in exchange
unlisted companies - Ministry of Company Affairs
- Deposits in collective investment - SEBI
schemes like plantations, etc. - SEBI
- Units of Mutual Funds - Reserve Bank of India
- Fixed Deposits in Banks and Finance - Ministry of Company Affairs
Companies.
- Fixed Deposits in manufacturing
companies.

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SEBI (Investor Protection and Education Fund) Regulations, 2009

SEBI in exercise of the powers conferred by section 30 of SEBI Act, 1992, SEBI made the
SEBI (Investor Protection and Education Fund) Regulations, 2009.

Regulation 3 of the Act lays down the establishment of the fund which shall be called the
Investor Protection and Education Fund.

Regulation 4 provides for the amounts to be credited to the Fund. The following amounts shall
be credited to the Fund:
(a) Contribution as may be made by SEBI to the Fund;
(b) Grants and donations given to the Fund by the Central Government, State Government or
any other entity approved by SEBI for this purpose;
(c) Security deposits in respect of public issues and rights issues, in the event of derecognition
of such stock exchanges;
(d) Amounts in the Investor Protection Fund and Investor Services Fund of a stock exchange,
in the event of de-recognition of such stock exchange;
(e) Interest or other income received out of any investments made from the Fund;
(f) Such other amount as SEBI may specify in the interest of investors.

32. Recent developments / amendments in Companies Act, 2013

The major amendments proposed include simplification of the private placement process,
rationalization of provisions related to loan to directors, omission of provisions relating to
forward dealing and insider trading, doing away with the requirement of approval of the
Central Government for managerial remuneration above prescribed limits, aligning disclosure
requirements in the prospectus with the regulations to be made by SEBI, providing for
maintenance of register of significant beneficial owners and filing of returns in this regard to
the ROC and removal of requirement for annual ratification of appointment or continuance of
auditor.

The major official amendments subsequently introduced include continuing with the
provisions relating to layers of subsidiaries, continuing with the earlier provisions with
respect of memorandum, making offence for contravention of provisions relating to deposits
as non- compoundable, requiring attaching of financial statement of associate companies,
stringent additional fees of Rs 100 per day in case of delay in filing of annual return and
financial statement etc.

The Lok Sabha passed the Companies Act (Amendment) Bill, 2017. The Bill seeks to amend
the existing Companies Act, 2013 as below:

Placement Issuances: Rights of Renunciation in Jeopardy

- Good news for employees
- Breath for Interested parties
- Pecuniary Interest Provision Relaxed.

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 33. Scope and Area of practice for Company Secretary as per the recent
amendments in Companies Act

The Companies Act, 2013 has considerably enhanced the role and responsibilities of
company secretaries both in employment and in practice. Company secretary is a key
managerial person in a company, responsible to ensure the effective and efficient
administration of the company and certifying the company’s compliance with the
provision of the Act.

This is very clear this time that there are remarkable scope for professionals,
practicing professionals particularly Company Secretaries in practice. We will know
real position when all rules and regulations notified after passing and notification of
present bill as an Act.
Company Secretaries has scope of practice as Company Secretaries in practice as
such as well as Expert under the Bill.

Sub – section (38) of Section 2 of the Bill define an expert, as an engineer, a valuer, a
chartered accountant, a company secretary, a cost accountant and any other person
who has the power or authority to issue a certificate in pursuance of any law for the
time being in force.

The present Companies Act has strengthened the role of company secretaries. Some
of the key areas that have directly impact the role of company secretaries in practice
due to this Act are as follows:

Introduction of secretarial audit

According to Section 204 of the Companies Act 2013, it is the duty of the Company
Secretary in practice to perform secretarial audit of every listed company and any
such other class of prescribed companies

Report of Board of Directors

Clause (f) to Sub – section (3) of Section 134 makes it clear that report by Board of
Directors shall include an explanations or comments by the Board on every
qualification, reservation or adverse remark or disclaimer made by the company
secretary in practice in his secretarial audit report. This clearly specifies importance
of secretarial audit report in eye of legislature. Now, this is on Company Secretary
Community to meet these expectations of legislature and corporate community.
Hope, Secretarial Audit report by Company Secretaries will win confidence among
stakeholders including investors.

Search and Seizure

According to Section 209(1), where, upon information in his possession or otherwise,
the Registrar or inspector 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 are likely to be destroyed, mutilated, altered,
falsified or secreted, he may, after obtaining an order from the Special Court for the
seizure of such books and papers,— (a) enter, with such assistance as may be
required, and search, the place or places where such books or papers are kept; and (b)
seize such books and papers as he considers necessary after allowing the company to
take copies of, or extracts from, such books or papers at its cost.

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 34. BIBLIOGRAPHY

To make this Project Report I have taken source of a Book “Companies Act, 2013”
from Taxmann’s written by Vinod Kothari and taken help from Notification and
Circulars of Ministry of Corporate Affair

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