Corporate Law

1) Companies Act
(1) This Act may be called the Companies Act, 2013.
(2) It extends to the whole of India.
(3) This section shall come into force at once and the remaining provisions of this Act shall come into
force on such date1as the Central Government may, by notification in the Official Gazette, appoint
and different dates may be appointed for different provisions of this Act and any reference in any
provision to the commencement of this Act shall be construed as a reference to the coming into force
of that provision.
(4) The provisions of this Act shall apply to—
(a) companies incorporated under this Act or under any previous company law;
(b) insurance companies, except in so far as the said provisions are inconsistent with the provisions of
the Insurance Act, 1938(4 of 1938) or the Insurance Regulatory and Development Authority Act,
1999(41 of 1999);
(c) banking companies, except in so far as the said provisions are inconsistent with the provisions of
the Banking Regulation Act, 1949(10 of 1949);
(d) companies engaged in the generation or supply of electricity, except in so far as the said
provisions are inconsistent with the provisions of the Electricity Act, 2003(36 of 2003)
e) any other company governed by any special Act for the time being in force, except in so far as the
said provisions are inconsistent with the provisions of such special Act; and(f) such body corporate,
incorporated by any Act for the time being in force, as the Central Government may, by notification,
specify in this behalf, subject to such exceptions, modifications or adaptation, as may be specified in
the notification
Formation of company. —
(1) A company may be formed for any lawful purpose by—
(a) seven or more persons, where the company to be formed is to be a public company;
(b) two or more persons, where the company to be formed is to be a private company; or
(c) one person, where the company to be formed is to be One Person Company that is to say, a private
company, by subscribing their names or his name to a memorandum and complying with the
requirements of this Act
(2) A company formed under sub-section
(1) may be either—
(a) a company limited by shares; or
(b) a company limited by guarantee; or
(c) an unlimited company
Power of Securities and Exchange Board to regulate issue and transfer of securities, etc.—
(1) The provisions contained in this Chapter, Chapter IV and in section 127 shall, —
(a) in so far as they relate to —
(i) issue and transfer of securities; and
(ii) non-payment of dividend,
by listed companies or those companies which intend to get their securities listed on any
recognised stock exchange in India, except as provided under this Act, be administered by the
Securities and Exchange Board by making regulations in this behalf;
(b) in any other case, be administered by the Central Government.
Explanation.—For the removal of doubts, it is hereby declared that all powers relating to all other
matters relating to prospectus, return of allotment, redemption of preference shares and any other
matter specifically provided in this Act, shall be exercised by the Central Government, the Tribunal or
the Registrar, as the case may be.
Red herring prospectus. —
(1) A company proposing to make an offer of securities may issue a red herring prospectus prior to
the issue of a prospectus.
(2) A company proposing to issue a red herring prospectus under sub-section (1) shall file it with
the Registrar at least three days prior to the opening of the subscription list and the offer.
(3) A red herring prospectus shall carry the same obligations as are applicable to a prospectus and
any variation between the red herring prospectus and a prospectus shall be highlighted as variations
in the prospectus.
(4) Upon the closing of the offer of securities under this section, the prospectus stating therein the
total capital raised, whether by way of debt or share capital, and the closing price of the securities
and any other details as are not included in the red herring prospectus shall be filed with the Registrar
and the Securities and Exchange Board.
Explanation. —For the purposes of this section, the expression "red herring prospectus" means a
prospectus which does not include complete particulars of the quantum or price of the securities
included therein.

2) SEBI ACT
(1) This Act may be called the Securities and Exchange Board of India Act, 1992.
(2) It extends to the whole of India.
(3) It shall be deemed to have come into force on the 30th day of January, 1992.
Definitions.
(1) In this Act, unless the context otherwise requires, -
(a)―Board‖ means the Securities and Exchange Board of India established under section 3;
(b)―Chairman‖ means the Chairman of the Board;
(c)―existing Securities and Exchange Board‖ means the Securities and Exchange Board of India
constituted under the Resolution of the Government of India in the Department of Economic Affairs
No. 1(44) SE/86, dated the 12th day of April, 1988;
(d)―Fund‖ means the Fund constituted under section 14;
(e)―member‖ means a member of the Board and includes the Chairman;
(f)―notification‖ means a notification published in the Official Gazette;
(g)―prescribed‖ means prescribed by rules made under this Act;
(h)―regulations‖ means the regulations made by the Board under this Act;
(i)―securities‖ has the meaning assigned to it in section 2 of the Securities Contracts (Regulation)
Act, 1956
Management of the Board.
(1) The Board shall consist of the following members, namely: —
(a) a Chairman;
(b) two members from amongst the officials of the [Ministry] of the Central Government
dealing with Finance and administration of the Companies Act, 1956;
(c)one member from amongst the officials of [the Reserve Bank];
(d)five other members of whom at least three shall be the whole-time members,] to be
appointed by the Central Government.
(2) The general superintendence, direction and management of the affairs of the Board shall vest in a
Board of members, which may exercise all powers and do all acts and things which may be exercised
or done by the Board.
(3) Save as otherwise determined by regulations, the Chairman shall also have powers of general
superintendence and direction of the affairs of the Board and may also exercise all powers and do all
acts and things which may be exercised or done by that Board.
(4) The Chairman and members referred to in clauses (a) and (d) of sub-section (1) shall be appointed
by the Central Government and the members referred to in clauses (b) and (c) of that sub-section shall
be nominated by the Central Government and the Reserve Bank respectively.
(5) The Chairman and the other members referred to in clauses (a) and (d) of sub-section (1) shall be
persons of ability, integrity and standing who have shown capacity in dealing with problems relating
to securities market or have special knowledge or experience of law, finance, economics,
accountancy, administration or in any other discipline which, in the opinion of the Central
Government, shall be useful to the Board.
Functions of the Board (SEBI ACT)
(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of
investors in securities and to promote the development of, and to regulate the securities market, by
such measures as it thinks fit.
(2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein
may provide for -
(a) regulating the business in stock exchanges and any other securities markets;
(b) registering and regulating the working of stock brokers, sub-brokers, share transfer agents,
bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,
portfolio managers, investment advisers and such other intermediaries who may be associated with
securities markets in any manner;
- [(ba) registering and regulating the working of the depositories, [participants,] custodians of
securities, foreign institutional investors, credit rating agencies and such other intermediaries as the
Board may, by notify
(c) registering and regulating the working of venture capital funds and collective investment
scheme], including mutual funds;
 (d) promoting and regulating self-regulatory organisations;
(e) prohibiting fraudulent and unfair trade practices relating to securities markets;
(f) promoting investors' education and training of intermediaries of securities markets;
(g) prohibiting insider trading in securities;
(h) regulating substantial acquisition of shares and take-over of companies;
(i) calling for information from, undertaking inspection, conducting inquiries and audits of the
stock exchanges, mutual funds, other persons associated with the securities market intermediaries and
self- regulatory organizations in the securities market;

3) NBFC’s and Its Types

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956
engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but
does not include any institution whose principal business is that of agriculture activity, industrial
activity, purchase or sale of any goods (other than securities) or providing any services and
sale/purchase/construction of immovable property. A non-banking institution which is a company and
has principal business of receiving deposits under any scheme or arrangement in one lump sum or in
instalments by way of contributions or in any other manner, is also a non-banking financial company
(Residuary non-banking company).
Financial activity as principal business is when a company’s financial assets constitute more than 50
per cent of the total assets and income from financial assets constitute more than 50 per cent of the
gross income. A company which fulfils both these criteria will be registered as NBFC by RBI.

The different types of NBFCs are as follows:

I. Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on
as its principal business the financing of physical assets supporting productive/economic activity, such
as automobiles, tractors, lathe machines, generator sets, earth moving and material handling
equipment’s, moving on own power and general purpose industrial machines. Principal business for
this purpose is defined as aggregate of financing real/physical assets supporting economic activity and
income arising therefrom is not less than 60% of its total assets and total income respectively.

II. Investment Company (IC): IC means any company which is a financial institution carrying on as
its principal business the acquisition of securities,

III. Loan Company (LC): LC means any company which is a financial institution carrying on as its
principal business the providing of finance whether by making loans or advances or otherwise for any
activity other than its own but does not include an Asset Finance Company.

IV. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys
at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of ₹
300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.
V. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying
on the business of acquisition of shares and securities which satisfies the following conditions: -

(a) it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference
shares, debt or loans in group companies;

(b) its investments in the equity shares (including instruments compulsorily convertible into equity
shares within a period not exceeding 10 years from the date of issue) in group companies constitutes
not less than 60% of its Total Assets;

(c) it does not trade in its investments in shares, debt or loans in group companies except through
block sale for the purpose of dilution or disinvestment;

(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI
act, 1934 except investment in bank deposits, money market instruments, government securities, loans
to and investments in debt issuances of group companies or guarantees issued on behalf of group
companies.

(e) Its asset size is ₹ 100 crore or above and

(f) It accepts public funds

VI. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC): IDF-NBFC is a
company registered as NBFC to facilitate the flow of long-term debt into infrastructure projects. IDF-
NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5-year
maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.

VII. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a

non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets
which satisfy the following criteria:

a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding
₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000;

b. loan amount does not exceed ₹ 50,000 in the first cycle and ₹ 1,00,000 in subsequent cycles;

c. total indebtedness of the borrower does not exceed ₹ 1,00,000;

d. tenure of the loan not to be less than 24 months for loan amount in excess of ₹ 15,000 with
prepayment without penalty;

e. loan to be extended without collateral;

f. aggregate amount of loans, given for income generation, is not less than 50 per cent of the total
loans given by the MFIs;

g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower

VIII. Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-deposit

taking NBFC engaged in the principal business of factoring. The financial assets in the factoring
business should constitute at least 50 percent of its total assets and its income derived from factoring
business should not be less than 50 percent of its gross income.
IX. Mortgage Guarantee Companies (MGC) - MGC are financial institutions for which at least 90%
of the business turnover is mortgage guarantee business or at least 90% of the gross income is from
mortgage guarantee business and net owned fund is ₹ 100 crore.

X. NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution through

which promoter / promoter groups will be permitted to set up a new bank .It’s a wholly-owned Non-
Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other
financial services companies regulated by RBI or other financial sector regulators, to the extent
permissible under the applicable regulatory prescriptions.

4) CCI and Its Powers

Competition is the best means of ensuring that the ‘Common Man’ or ‘Aam Aadmi’ has access to the
broadest range of goods and services at the most competitive prices. With increased competition,
producers will have maximum incentive to innovate and specialize. This would result in reduced costs
and wider choice to consumers. A fair competition in market is essential to achieve this objective.
CCI’s goal is to create and sustain fair competition in the economy that will provide a ‘level playing
field’ to the producers and make the markets work for the welfare of the consumers.
The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the
philosophy of modern competition laws. The Act prohibits anti-competitive agreements, abuse of
dominant position by enterprises and regulates combinations (acquisition, acquiring of control and
M&A), which causes or likely to cause an appreciable adverse effect on competition within India.

CCI consists of a Chairperson and 6 Members appointed by the Central Government.

It is the duty of the Commission to eliminate practices having adverse effect on competition, promote
and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets
of India.

The Commission is also required to give opinion on competition issues on a reference received from a
statutory authority established under any law and to undertake competition advocacy, create public
awareness and impart training on competition issues.

Powers and Functions of the Commission:

1. To eliminate practices having an adverse effect on competition, promote and sustain
competition, protect interests of consumers and ensure freedom of trade by other participants.
2. Inquire into certain agreements and dominant position of enterprise– It provides that the
Commission may either suo moto or on receipt of any information of alleged contravention of
Section 3 (prohibits anti-competitive agreements) may inquire into the same.
3. Inquiry into the acquisition, control, and combinations– Section 20 of the Act entrusts the
Commission with the power to inquire into any information relating to acquisition and determine
whether such combination or acquisition may have an appreciable adverse effect on competition
(AAEC).
4. Power to regulate its own procedure – Section 36.
5. Power to impose a monetary penalty – Section 39.
6. Power to issue an interim order– Section 33 of the Act empowers the Commission to issue
interim orders in cases of anti-competitive agreements and abuse of dominant position, thereby
temporarily restraining any party from carrying on such an act.

Competition Advocacy– Section 49 of the Act provides for competition advocacy and enumerates that
the Central or the State Government may while formulating any policy on Competition or any other
matter may make reference to the Commission for its opinion on the possible effect of such policy on
Competition. However, the opinion given by the Commission is not binding on the Central
Government

CCI Example: Reliance Jio vs rivals: govt confirms cases in CCI

Competition Commission of India (CCI) has registered four cases against telecom companies,
including one by Reliance Jio against other operators and two against the Mukesh Ambani-led group
firm itself, for alleged violation of competition laws.

Among others, the complaints about unfair competitive practices and abuse of dominance have also
been filed against regulator Telecom Regulatory Authority of India (Trai), Department of
Telecommunications (DoT), Cellular Operators Association of India (COAI), as also against operators
Bharti Airtel, Idea, Vodafone India, Aircel, Videocon Telecommunications, Telenor and BSNL.

Giving details of these complaints, minister of state for corporate affairs Arjun Ram Mehgwal
informed Parliament, “The Competition Commission of India has registered four cases against
cellular service providers alleging Section 3 and 4 of the Competition Act."

While Section 3 of the Competition Act pertains to anti-competitive practices, Section 4 relates to
abuse of dominant position. The minister was replying to a query on whether CCI has received
complaints of unfair competition and monopoly practised by the cellular service providers against
certain private cellular service providers.

“Under the provisions of the Competition Act, 2002, the CCI is mandated, inter-alia, to impose
penalties and/ or issue cease and desist orders in cases of unethical practices such as anti-competitive
agreements and abuse of dominance," he said

5) Enforcement Directorate, Under FEMA Act

The Enforcement Directorate was established in the year 1956. Its Headquarters is situated at New
Delhi.

ED is responsible for enforcement of the Foreign Exchange Management Act, 1999 (FEMA) and
certain provisions under the Prevention of Money Laundering Act (PMLA).

The Directorate is under the administrative control of Department of Revenue (under the Ministry of
Finance) for operational purposes.

The Directorate enforced regulations under the Foreign Exchange Regulation Act, 1973 but later on
FERA is being replaced by the FEMA.

Enforcement Directorate has 10 Zonal offices each of which is headed by a Deputy Director and 11
sub Zonal Offices each of which is headed by an Assistant Directors

Under the FEMA Act:

Directorate of Enforcement:
•The Central Government shall establish a Directorate of Enforcement with a Director and such other
officers or class of officers as it thinks fit, who shall be called officers of Enforcement, for the
purposes of this Act.
•Without prejudice to the provisions of sub-section (1), the Central Government may authorise the
Director of Enforcement or an Additional Director of Enforcement or a Special Director of
Enforcement or a Deputy Director of Enforcement to appoint officers of Enforcement below the rank
of an Assistant Director of Enforcement.

•Subject to such conditions and limitations as the Central Government may impose, an officer of
Enforcement may exercise the powers and discharge the duties conferred or imposed on him under
this Act.

Power of search, seizure, etc:

•The Director of Enforcement and other officers of Enforcement, not below the rank of an Assistant
Director, shall take up for investigation the contravention referred to in section 13.

•Without prejudice to the provisions of sub-section (1), the Central Government may also, by
notification, authorise any officer or class of officers in the Central Government, State Government or
the Reserve Bank, not below the rank of an Under Secretary to the Government of India to investigate
any contravention referred to in section 13.

•The officers referred to in sub-section (1) shall exercise the like powers which are conferred on
income-tax authorities under the Income-tax Act, 1961 (43 of 1961) and shall exercise such powers,
subject to such limitations laid down under that Act.

Empowering other officers:

•The Central Government may, by order and subject to such conditions and limitations as it thinks fit
to impose, authorise any officer of customs or any central excise officer or any police officer or any
other officer of the Central Government or a State Government to exercise such of the powers and
discharge such of the duties of the Director of Enforcement or any other officer of Enforcement under
this Act as may be stated in the order.

•The officers referred to in sub-section (1) shall exercise the like powers which are conferred on the
income-tax authorities under the Income-tax Act, 1961 (43 of 1961), subject to such conditions and
limitations as the Central Government may impose.

6) IBC
The Insolvency and Bankruptcy Code, 2016 (Code) was enacted with a view to consolidate and
amend the laws relating to reorganisation and insolvency resolution in a time-bound manner for
maximisation of value of assets, to promote entrepreneurship, availability of credit and balancing the
interests of various stakeholders. The Code and its corresponding rules and regulations have been
amended from time to time to address deficiencies and fine tune the Code for effectiveness and
achieving its objectives.
Corporate Debtor Under IBC: Corporate debtor under Insolvency and Bankruptcy Code, 2016 (IBC)
is the Corporate Person who owes a debt to any person. Corporate person is defined u/s 3(7) of IBC
which include
 Companies defined Companies Act
 LLP defined under LLP Act
 Any other person incorporated with limited liability
But does not include financial services provider i.e. banks or NBFCs.
As per section 7 and 9 of IBC, it is not compulsory to give the opportunity of being heard to the
corporate debtor, before the admission of IBC application. And as per section 14, once IBC
application is admitted, the management of the company goes in the hands of IRP proposed by such
applicant. Hence, there become high chances that even a small default may trigger the situation where
the company goes out to hands.
Due to the above mechanism, at one hand where creditors are recovering debts from the distressed
company, whereas some creditors, are using IBC provision to threaten and harass the corporate
debtor. It is a misuse of new law to create a pressure upon the corporate debtor to recover the
fraudulent/bogus claims.
Creditor Under IBC:
A creditor is any person to whom a debt is owed. A debt is a liability or obligation in respect of a
claim, due from any person. An essential part of the term claim is a right to payment, or a right to
remedy for breach of contract, which gives rise to a right to payment. To be considered a creditor of
the corporate debtor, therefore, a right to payment is essential. Someone seeking a remedy of specific
performance, injunction, or any other remedy, which does not give rise to a payment, would not be
considered a creditor. In other words, a creditor is any person who has a claim over another person
(debtor) in terms of a right to receive payment.
The IBC has introduced new and distinct concepts of ‘Financial Creditor’ and ‘Operational Creditor’
as opposed to the Companies Act, 2013 which merely introduced the term ‘creditor’, without any
classification thereof.
According to Section 5(7) of the IBC, a financial creditor means:
"a person to whom a financial debt is owed and includes a person to whom such debt has been legally
assigned or transferred".
In order to ascertain whether a person is a financial creditor, the debt owed to such a person must fall
within the ambit a 'Financial Debt' as under Section 5(8) of the IBC.
A financial debt as defined under Section 5(8) of the IBC is:
"a debt along with interest, if any, which is disbursed against the consideration for time value of
money and includes-
a. Money borrowed against payment of interest;
b. Any amount raised by acceptance under any acceptance credit facility or its de-materialized
equivalent;
c. Any amount raised pursuant to any note purchase facility or the issue of bonds, notes,
debentures, loan stock or any similar instrument;
d. The amount of any liability in respect of any lease or hire purchase contract which is deemed
as a finance or capital lease under the Indian Accounting Standards or such other accounting
standards as may be prescribed;
e. Receivable sold or discounted other than any receivable sold on non-recourse basis;
f. Any amount raised under any other transaction, including, any forward sale or purchase
agreement, having the commercial effect of borrowing;
g. Any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary
letter of credit or any other instrument issued by a bank or financial institution;
 h. The amount of any liability in respect of any of the guarantee or indemnity for any of the
items referred to in sub-clauses (a) to (h) of this clause"

7) Debt Funding
Definition: When a company borrows money to be paid back at a future date with interest it is known
as debt financing. It could be in the form of a secured as well as an unsecured loan. A firm takes up a
loan to either finance a working capital or an acquisition.

Description: Debt means the amount of money which needs to be repaid back and financing means
providing funds to be used in business activities. An important feature in debt financing is the fact that
you are not losing ownership in the company.
Debt financing is a time-bound activity where the borrower needs to repay the loan along with interest
at the end of the agreed period. The payments could be made monthly, half yearly, or towards the end
of the loan tenure.
Another important feature in debt financing is that the loan is secured or collateralized with the assets
of the company taking the loan. This is usually part of the secured loan. If the loan is unsecured, the
line of credit is usually less.
If a company needs a big loan then debt financing is used, where the owner of the company attaches
some of the firm’s asset and based on the valuation of those assets, loan is given.
Let’s understand debt financing with the help of an example. If a company requires a loan of Rs 10
crore, it can raise the capital by selling bonds or notes to institutional investors.
Debt financing is an expensive way of raising funds, because the company has to involve an
investment banker who will structure big loans in a systematic way. It is a viable option when interest
costs are low and the returns are better.
A company undergoes debt financing because they don’t have to put their own capital. But too much
debt is also risky and thus, companies have to decide a level (debt to equity ratio) which they are
comfortable with.
8) Process of IPO
An initial public offering (IPO), a route for raising funds from the market, is the first sale of shares by
a company to the public, institutional investors and HNIs.
After the initial share sale, the company is no longer privately held. It becomes a public listed
company with shares that are traded on a stock exchange.
There are several advantages of a company choosing to change its status from a privately-held to a
public-listed company:

 To raise funds from a wider pool of investors

 Facilitate mergers & acquisitions
 Gain visibility
 Provide an exit for early investors

There are also a few cons of a company becoming a listed company.

 The company will have to make their financial statements and accounts open to the public,
and comply with market regulations.
 The company will also have to bear more costs for accounting, marketing, and legal issues &
services.
What is the process of filing for an IPO?

 Appoint a merchant banker

A merchant banker, or Book Running Lead Manager (BRLM) underwrites the company’s shares,
buying all or some of the IPO shares and selling them to the public.

A merchant banker helps the company with the IPO process, assisting with the due diligence,
DRHP and IPO roadshow.

The underwriters bear the risk of the transaction.

 File for the IPO and get SEBI nod

In India, companies have to file for an IPO with SEBI. The application needs to include the
documents listed for the IPO Vetting Process, which includes the DRHP, details of the promoters
and the company's annual reports.

The initial listing fees is Rs 50,000 and the subsequent annual listing fees will depend on the paid-
up share capital of the company.

 Prepare the DRHP

 Market the IPO: This is typically done through advertisements to raise awareness about the
company's offering. The process is also called the IPO roadshow.
 Fixing the price band and book building: Once the price band has been decided, the merchant
banker or underwriter of the share offer decides the IPO price.

For three days, the company's shares are open to the public for subscription.

 Listing Day: The company begins trading on the stock exchange at a listed price, which is
based on market demand for the issue.

9) Types of Directors under Companies Act

1. Residential Director: – According to Section 149(3) of Companies Act,2013, Every

company should appoint a director who has stayed in India for a total Period of not less than
182 days in the previous calendar year.
2. Independent Director: – According to Section 149(6) an independent director is an alternate
director other than a Managing Director which is known as Whole Time Director or Nominee
Director. According to Rule 4 of Companies (Appointment and Qualification of Directors)
Rules,2013 these are the following type of companies which have to appoint minimum 2
independent directors:-
I} Public Companies which have Paid-up Share Capital-Rs.10 Crores or More; –
II} Public Companies which have Turnover- Rs.100 Crores or More:-
III} Public Companies which have total outstanding loans, debenture, and deposits of Rs. 50
Crores or More.
3. Small Shareholders Directors: – Small shareholders can appoint a single director in a listed
company. But this action needs a proper procedure like handing over a notice to at least 1000
Shareholders or 1/10th of the total shareholders.
4. Women Director: – As per Section 149 (1) (a), there are certain categories according to
which there should be at least one woman as a director on the Board. Such companies are any
listed company or any public company having. There are types of directors in women director
also:
 Additional Directors: -
Any Individual can be appointed as Additional Directors by a company under section 161(1)
of the New Act.
 Alternate Directors: -
As per Section 161(2), a company may appoint, if the articles confer such power on the
company or a resolution is passed (if a Director is absent from India for at least three months).
 Shadow Director: –
A person who is not the member of Board but has some power to run it can be appointed as
the director but according to his/her wish.

10) Types of Board Committees Under Companies Act

 Audit Committee: Under Section 292A of the Companies Act, 1956 (‘1956 Act’) an audit
committee was required for every public company whose paid up capital was INR 5 crores or
more. The 2013 Act read with the rules, requires every listed company and other public
companies with a paid-up capital of more than Rs. 10 Crores or a turnover of INR 100 crores
or outstanding loans or borrowing exceeding INR 50 crores (as per the latest audited
accounts) to form an audit committee comprising at least 3 directors, the majority of whom
have to be independent as well as a Nomination and Remuneration Committee, in which at
least half the members have to be independent.
 Nomination & Remuneration Committee: Sections 178(2), (3) and (4) of the 2013 Act specify
the responsibilities of the NRC whereby it shall make recommendations on the appointment
and removal of directors, evaluate their performance, recommend levels of remuneration, etc.
A provision for penalty for non-compliance with such requirements has also been
incorporated. Whereas the Listing Agreement specifies that the Remuneration
Committee has to recommend the remuneration for executive directors only, the 2013 Act
extends this to all key managerial personnel as well. In addition, the Listing Agreement
mandates that all the members of the Remuneration Committee must attend all its meetings
and that its Chairperson must attend the Annual General Meeting of the company.
The Institute of Company Secretaries recommended the constitution of nomination
committees to identify suitable independent directors and recommend them to the board for
their appointment
 Stakeholder Relationship Committee: Under Section 178 of the 2013 Act, every company
which has more than 1000 shareholders, deposit holders or other security holders, shall
constitute a Stakeholders Relationship Committee (‘SRC’), with a non-executive director as
Chairperson with the objective of grievance redressal of various stakeholders. The
Chairperson of the SRC is also mandated to attend the general meetings of the company. A
penalty for non-compliance has been stipulated.
 Corporate Social Responsibility Committee: Section 135 of the 2013 Act envisages a
Corporate Social Responsibility Committee (‘CSR Committee’) of the Board in every
company whose net worth is more than Rs. 500 Crores, or turnover over Rs. 1000 Crores, or
having a net profit of more than Rs. 5 Crores. The Committee must consist of at least 3
directors of whom at least one should be independent. However, unlisted public companies
and private companies are exempted from the requirement of an independent director on the
CSR Committee and a minimum of two members is adequate for such companies.
 The functions of a CSR Committee are to formulate a CSR policy including activities as have
been listed under Schedule VII of the 2013 Act, monitor the said policy periodically and
prepare a transparent monitoring mechanism. The 2013 Act also mandates that the CSR
Committee must ensure that at least 2% of the company’s net profits are directed towards
CSR activities. The CSR Rules also provide further guidelines and enumerate various
methods in which a company can conduct CSR activities such as setting up of not-for-profit
organizations and collaboration with other companies to further CSR activities.

11) ADR vs GDR

Comparison Chart
Basis for
ADR GDR
Comparison

Acronym American Depository Receipt Global Depository Receipt

ADR is a negotiable instrument issued GDR is a negotiable instrument issued by

by a US bank, representing non-US the international depository bank,
Meaning
company stock, trading in the US stock representing foreign company's stock
exchange. trading globally.

Foreign companies can trade in any

Foreign companies can trade in US
Relevance country's stock market other than the US
stock market.
stock market.

Issued in United States domestic capital market. European capital market.

Non-US Stock Exchange such as London

American Stock Exchange such as
Listed in Stock Exchange or Luxembourg Stock
NYSE or NASDAQ
Exchange.

Negotiation In America only. All over the world.

Disclosure
Onerous Less onerous
Requirement

Market Retail investor market Institutional market.

12) PIT Regulations

13) Fund Raising Categories i, ii, iii

14) Alternative Investment Fund (AIF)

15) SEBI Fund Raising

16) ICDR
17) Debt Recovery Tribunals (DRT):
Debt Recovery Tribunals were established to facilitate the debt recovery involving banks and
other financial institutions with their customers. DRTs were set up after the passing of
Recovery of Debts due to Banks and Financial Institutions Act (RDBBFI), 1993. Appeals
against orders passed by DRTs lie before Debts Recovery Appellate Tribunal (DRAT). DRTs
can take cases from banks for disputed loans above Rs 10 Lakhs. At present, there are 33
DRTs and 5 DRATs functioning at various parts of the country. In 2014, the government has
created six new DRTs to speed up loan related dispute settlement.

Compared to the ordinary court procedures, DRTs were able to handle large number of cases
with low delay during the initial phases. Though the DRTs have made impact on recovery
front, several issues related to their performance in the background of rising volume of NPAs
have appeared in later period. Inadequate infrastructure coupled with insufficient number of
DRTs has made them incompetent to handle the rising volume of disputes.

Applicability of the Act:

- The Debt Recovery Tribunals Act is allocable to all over India except for State of
Jammu and Kashmir.
- It is also applicable where the due amount is not below Rs. 10, 00,000
- It is also applicable when the original application for recovery of Debts has been filed
only by Banks and the Financial Institutions.

Importance of DRT:
The primary goal and function of DRT is the recovery of loaned money from borrowers
which is owed to banks and financial institutions from customers. The power of the tribunal is
restricted to settling down the cases concerning the recovery of the due amount from non-
performing assets as affirmed by the banks as per the RBI guidelines.
The Tribunal has the powers bestowed with the District Court. The Tribunal shall have a
Recovery officer who would be guiding towards executing the recovery Certificates as passed
through the Presiding Officers. DRT is required to follow the legal process by stressing on
prompt disposal of the matters and fast execution of the final order.