CA INTER

Law
CA Aakash Pednekar
 PRELIMINARY AND
INCORPORATION OF COMPANIES
Compiled by Prof. Aakash Pednekar (CA)
+ 91 9920497907
 FOREIGN CO.
COMPANIES - BASICS GOVERNMENT CO.

TYPES OF
COMPANIES
LIABILITY SIZE

PRIVATE
UNLIMITED PUBLIC COMPANY
LIMITED COMPANY
COMPANY COMPANY

OPC SMALL COMPANY OTHERS

LIMITED BY LIMITED BY
GUARANTEE SHARES

LISTED

UNLISTED

CONTROL

HOLDING SUBSIDIARY ASSOCIATE

 DEFINITION OF PRIVATE COMPANY –SEC 2(68)
MINIMUM PUSC AS MAX MEMBERS 200
MAY BE PRESCRIBED
MINIMUM MEMBERS 2
(not prescribed yet)
MINIMUM DIRECTORS 2
AOA OF PVT CO. TO
CONTAIN

RESTRICT RIGHT TO
TRANSFER SHARES
(Complete ban PUBLIC ISSUE OF
not allowed) SECURITIES NOT ALLOWED
MAX. MEMBERS = 200*
(EXCEPT OPC TO HAVE MAX 1 MEMBER)

WHILE COUNTING
200 MEMBERS

NOT TO BE
TO BE COUNTED COUNTED

JOINT MEMBERS TO
BE COUNTED AS 1 CURRENT EX-EMPLOYEES WHO WERE
EMPLOYEES WHO MEMBERS THEN
ARE MEMBERS +
WHO CONTINUED TO REMAIN
MEMBERS AFTER LEAVING
EMPLOYMENT
 DEFINITION OF PUBLIC COMPANY –SEC 2(71)
MINIMUM PUSC AS MAY BE
PRESCRIBED A COMPANY WHICH IS NOT
(not prescribed yet) A PVT. CO.

ABC LTD
(PUBLIC Co)

≥ 51% VP

PQR PVT LTD

(Even though private company but
deemed to be PUBLIC Co.

MAX MEMBERS NO LIMIT

MINIMUM MEMBERS 7
MINIMUM DIRECTORS 3
 DEFINITION OF SMALL COMPANY: SEC 2(85)
CONDITIONS

BOTH PUSC
PUSC = TURNOVER OF PFY =
MAX 50 LACS + MAX 2 CRORES
TURNOVER
HIGHER AMT CAN BE CONDITION HIGHER AMT CAN BE
PRESCRIBED BY CG PRESCRIBED BY CG
TO BE BUT
BUT
MAX 10 CRORES SATISFIED MAX 100 CRORES

FOLL. Cos WILL NEVER BE SMALL

COMPANIES EVEN IF PUSC &
TURNOVER CRITERIA SATISIFED

PUBLIC Co. HOLDING Co. SUBSIDIARY Co. SPECIAL ACT Co. SECTION 8 Co.
 INCORPORATION OF COMPANY – FIRST STEPS

COMPANY MINIMUM
MEMBERS
PRIVATE 2
COMPANY
PUBLIC 7
COMPANY
OPC 1 (MAX )
Simplified Proforma
for Incorporating
Company
Electronically
(SPICe) FORM TO BE USED
FOR COMPANY
INCORPORATION
Words like Board;
Commission; Authority;
PROCESS FOR NAME RESERVATION
Undertaking; National;
Union; Central; Federal; Application to ROC for new name / name change
Republic; President etc
= previous approval of CG
Identical name/ names that constitute offence / undesirable
names (as per CG) not be applied for

ROC WILL CHECK ALL DOCUMENTS AND IF FOUND IN ORDER GIVE APPROVAL AND RESERVE THE NAME FOR

20 DAYS IN CASE OF NEW 60 DAYS IN CASE OF CHANGE IN NAME BY EXISTING

COMPANY COMPANY

AFTER RESERVATION it is found that name was applied by furnishing wrong or incorrect information, then

BEFORE INCORPORATION AFTER INCORPORATION (AFTER GIVING OBH)

CANCELL THE RESERVED NAME AND PERSON
WHO MADE APPLICATION TO BE FINED 1 LAC
RUPEES
- Either direct the company to change its name within a period of 3 months, after
passing an ordinary resolution;
- Take action for striking off the name of the company from the register of companies;
or
- Make a petition for winding up of the company
 NAME RECTIFICATION – SECTION 16
If, through inadvertence (by mistake) or otherwise, a company on its first registration or on its registration by a
new name, is registered by a name which

As per CG name is identical with other As per Reg. proprietor of TM,

company company name resembles his TM

CG will direct the company to change name Reg. TM owner to apply to CG within 3 years
of incorporation/ name change by company
Company has only 3 months to comply with
CG direction + pass OR
If application within time to CG
Company to send
notice of change to
CG is of the opinion, name matches TM CG is of the opinion,
ROC + CG order
name does not
within 15 days
CG will direct the company to change name matches TM
ROC will issue new
Certificate of Company has only 6 months to comply with No action
incorporation CG direction + pass OR
 DOCUMENTS TO BE FILED
WITH ROC DURING
INCORPORATION
TO BE MAINTAINED TILL
DISSOLUTION
ADDRESS FOR
MOA & AOA CORRESPONDENCE

DECLARATION THAT
- NOT CONVICTED OF
ANY OFFENCE
DECLARATION THAT ALL
- NOT FOUND GUILTY OF
REQUIREMENTS OF CA
FRAUD in PRECEDING 5
2013 ARE COMPLIED
YRS
- ALL INFO IS TRUE
PERSONS ENGAGED IN PERSONS NAMED IN THE FIRST
FORMATION OF CO. AOA DIRECTORS
(PRACTICING ADVOCATE, (DIRECTOR, MNGR, MENTIONED IN
ALL SUBSCRIBERS
CA, CS, CWA) SECRETARY) AOA

PARTICULARS OF

EVERY SUBSCRIBER TO MOA FIRST DIRECTORS

- DIN, NAME, ADDRESS, NATIONALITY, etc
(ie NAME, ADDRESS, NATIONALITY, - THEIR INTEREST IN OTHER FIRMS/BCs
etc) - THEIR CONSENT TO ACT AS DIRECTOR
 CONSEQUENCE OF FALSE INFO FURNISHED AT
THE TIME OF INCORPORATION

BEFORE INCORPORATION AFTER INCORPORATION

EVERY PERSON WHO FURNISHED SUCH

FALSE INFORMATION IS LIABLE FOR PENALTY
u/s 447
PUNISHMENT PROVIDED BY CA PUNISHMENT BY NCLT ON AN
2013 ie PENALTY u/s 447 ON APPLICATION MADE TO IT
(AFTER PROVIDING OBH +
- PROMOTERS TAKING INTO CONSIDERATION
- FIRST DIRECTORS ALL TRANSACTIONS)
- PERSONS WHO GAVE
DECLARATION - PASS SUCH ORDER AS IT
DEEM FIT
- UNLIMITED LIABILITY OF
MEMBERS
- REMOVAL OF NAME
- WIND UP
 OPC
INCORPORATION OF OPC

SOLE MEMBER TO
OBTAIN WRITTEN
CONSENT OF NOMINEE

WRITTEN CONSENT TO
BE FILED WITH ROC
DURING
INCORPORATION

MOA OF OPC TO
INDICATE NAME OF
NOMIEE

CHANGE IN NAME OF NOMINEE

SOLE MEMBER TO GIVE NOTICE OF

OPC TO FILE DOCS WITH ROC
CHANGE TO OPC
 OPC
RESTRICTIONS ON MEMBERSHIP IN OPC

Only a natural person who is an CAN BE SOLE MEMBER IN MAX 1 OPC

Indian citizen and resident in India
(182 DAYS IN PFY) AT THE SAME TIME

CAN BE NOMINEE IN MAX 1 OPC

shall be shall be a
eligible to nominee for the MINOR CANNOT BECOME MEMBER / NOMINEE IN OPC NOR CAN
incorporate a sole member of a THE MINOR HOLD SHARES IN BENEFICIAL INTEREST
OPC OPC

Where a natural person being member in OPC becomes member in another such company by
virtue of his being a nominee in that OPC, such person shall meet eligibility criteria (as given in
point above) within a period of 180 days. (TYPO ERROR IN MODULE)
 OPC
RESTRICTIONS ON OPC

CANNOT CONVERT ITSELF TO SECTION 8

CANNOT VOLUNTARILY CONVERT ITSELF TO
COMPANY
PVT/PUBLIC CO UNLESS 2 YEARS HAVE EXPIRED FROM
DATE OF INCORPORATION
CANNOT CARRY OUT NBFC FUNCTIONS

CANNOT INVEST IN SECURITIES OF ANY

BODY CORPORATE

MANDATORY CONVERSION
OPC HAS TO MANDATORILY CONVERT ITSELF
TO PUBLIC/PVT COMPANY WITHIN 6
MONTHS FROM THE DATE ON WHICH

PUSC INCREASED > OR AVG. ANNUAL TURNOVER

50 LACS DURING 3 PFY > 2 CRORES
 SECTION 8 COMPANIES – CHARITABLE OBJECTS
BASIC CONDITIONS TO BE SATISFIED TO OBTAIN
LICENSE FROM CG

INTENDS TO APPLY
PROHIBITS PAYMENT OF
PROFITS FOR
DIVIDEND
PROMOTION OF
OBJECTS
OBJECT CLAUSE CONTAINS PROMOTION
OF FOLLOWING

CS used ERASERS to erase Object Clause

- Commerce - Education - Others
- Science - Research - Charity
- Arts
- Sports
- Environment Protection
- Religion
- Social Welfare

POST RECEIPT OF LICENSE – USE OF WORD LTD / PVT LTD NOT REQUIRED

FIRM MAY BECOME MEMBER IN SEC 8 CO.

Can call its general meeting by giving a clear 14 days notice instead of 21 days

Requirement of minimum no. of directors, independent directors does not apply

Need not constitute Nomination and Remuneration Committee and Shareholders Relationship Committee
SECTION 8 COMPANIES – REVOCATION OF LICENSE

Fraudulent conduct Objects violated

Requirement/
Prejudicial to
Condition not public
met

CG
Will issue written
notice of intention to Will give OBH
revoke
 EFFECTS OF REGISTRATION – SECTION 9

WHAT HAPPENS POST

INCOPORATION ??

Perpetual existence
until it is dissolved by
liquidation or struck
out of the register

CAN FILE SUIT

SEPARATE LEGAL CAN HOLD PROPERTY AGAINST OTHERS
EXISTENCE IN OWN NAME AND CAN BE SUED IN
OWN NAME

MEMBER CANNOT
CLAIM TO BE OWNER
OF CO. PROPERTY
 MOA & ITS ALTERATION
Clause Purpose Alteration
Name clause Name with which SR CG approval New certificate of CG approval Not
company is registered (subject to section 16) incorporation will be issued applicable where only
word “Private” is added
or deleted on company
class conversion
Domicile Specifies the state / SR Approval of Central The Central Government shall dispose of the application
Clause / UT where registered Government required only within a period of sixty days and before passing its order may
Registered office is situated when registered office is satisfy itself that the consent of the creditors, debenture-
office clause (address of the changed from one state to holders and other persons concerned or that the sufficient
company will not be another provision has been made for the due discharge or that
mentioned here) adequate security has been provided for Discharge of
obligations.

File SR and CG order with both ROCs

New ROC will issue fresh certificate of incorporation

Subscription States that members SR
clause agree to take the
number of shares in
the capital of the
company + signatures
 MOA & ITS ALTERATION

Clause Purpose Alteration

Object clause - Objects for which Money raised through public and remains unutilised
(Any Act the company is
beyond what proposed to be SR Publish in Give exit opportunity to Sent altered MOA to ROC
is specified in incorporated through newspaper dissenting shareholders
Object clause - Enables SH, postal
is Ultra Virus, creditors and ballot
hence void) others dealing
with the company Other mode
to know the scope
of work co. can SR Alter MOA Sent altered MOA to ROC
undertake
Liability This clause covers Alteration to be dealt with in Share Capital Chapter
clause / details on the liability
Capital clause of members of the - In the case of a company having a share capital, amount of share capital with which the
company, whether company is reg. and no. of shares each subscribed intends to take
limited or unlimited - In case of OPC, covers the name of the person (nominee) who, in the event of death of the
subscriber, shall become the member of the company
MOA & ITS ALTERATION
 EFFECT OF MOA & AOA – SECTION 10

Company is liable to members

Members are liable to company

But normally members are not liable to each other

All monies payable by any member to the company under the memorandum or articles shall be a
debt due from him to the company
 PROCESS OF CONVERSION OF PRIVATE CO TO PUBLIC AND VICE VERSA
PRIVATE TO PUBLIC
SR TO BE PASSED TO AMEND AOA TO
REMOVE STATUTORY RESTRICTIONS
APPROVAL OF CG NOT REQUIRED
ALL REQUIREMENTS OF CA 2013 T0 BE
COMPLIED WITH
- MIN MEMBERS = 7
- MIN DIRECTORS = 3
FILE ALTERED AOA WITH ROC WITHIN 15
DAYS
ROC WILL REGISTER NEW AOA
SR FOR NAME CHANGE NOT REQUIRED
PUBLIC TO PRIVATE
SR TO BE PASSED TO AMEND AOA TO
INCLUDE STATUTORY RESTRICTIONS
APPROVAL OF CG REQUIRED
ALL REQUIREMENTS OF CA 2013 T0 BE
COMPLIED WITH
- MAX MEMBERS = 200
FILE ALTERED AOA WITH ROC WITHIN 15
DAYS
ROC WILL REGISTER NEW AOA
SR FOR NAME CHANGE NOT REQUIRED
 COMMENCEMENT OF BUSINESS – SEC 10A

IF DECLARATION NOT FILED

within a period OF 180 DAYS
Shall be in prescribed form
FROM date of incorporation
with prescribed fees & the
contents of the said form of the company
shall be verified by +
PCA/PCS/ PCWA Registrar has reasonable
cause to believe that the
company is not carrying on
any business or operations,

he may, without prejudice to

the provisions of sub-section
(2), initiate action for the
PENALTY ON COMPANY removal of the name of the
= 50,000/- company from the register of
& companies
IF DEFAULT IS MADE THEN
EVERY OID
1000/-DAY BUT MAX 1 lac /-
 ARTICLES OF ASSOCIATION (‘AOA’)
Contain the regulations for management of the company. The articles of a company shall be in respective forms
specified in Tables, F, G, H, I and J in Schedule I as may be applicable to such company.

AMENDMENT IN AOA

USUAL MANNER DIFFICULT MANNER

= =
PASS SR
ENTRENCHMENT

The articles may contain provisions for entrenchment to the effect that specified provisions of the
articles may be altered only if conditions or procedures as that are more restrictive than those
applicable in the case of a special resolution, are met or complied with.
 Mr. X and his family hold all
shares of the company

AOA of the company state Mr.

X will remain director for
lifetime

Mr. X is worried that tomorrow if 75% or more shares in the company are held by
non family members then by passing a SR AOA may be changed and he may be
removed from the post of director

Therefore, it was also written in the article that he can be removed from the post of director only
if 95% votes are cast in favour of the resolution. This is entrenchment
 WHO CAN SIGN ON BEHALF OF THE COMPANY – SECTION 21

CEO/MD/
MANAGER

SUCH OTHER
PRESCRIBED CS
OFFICER
an officer or
employee of the
OR company duly
KMP authorized by the
Board in this behalf
SUCH
OFFICER NOT
MORE THAN WTD
1 LEVEL
BELOW WTD

CFO
 SUBSIDIARY COMPANY NOT TO HOLD SHARES IN ITS HOLDING COMPANY - SEC 19

HOLDING COMPANY
VOTING
RIGHTS
NOT EXCEPTIONS AVAILABLE TO
ALLOWED SUBSIDIARY
ALLOWED
CO.
where the subsidiary company holds such shares as YES
SUBSIDIARY COMPANY the legal representative of a deceased member of
the holding compan
where the subsidiary company holds such shares as YES
a trustee
where the subsidiary company is a shareholder NO
even before it became a subsidiary company of
the holding company
 SERVICE OF DOCUMENTS – SEC 20

SERVICE OF DOCUMENTS TO COMPANY SERVICE OF DOCUMENTS TO

ROC/MEMBER
sending it to the company or the officer Post
at the registered office of the company
by
registered post registered post
speed post speed post
courier service courier service
leaving it at its registered office leaving it at its registered office
means of such electronic or other mode means of such electronic or other mode
as may be prescribed as may be prescribed

However, a member may request for delivery of any document through a particular
mode, for which he shall pay such fees as may be determined by the company in its
annual general meeting.
EXECUTION OF BILLS OF EXCHANGE – SECTION 22

A deed signed by such an

attorney on behalf of the
company and under his
seal shall bind the
company
CA INTER – LAW
PROSPECTUS
By Prof. Aakash Pednekar (CA)
 SOURCE OF FUNDS FOR COMPANY
FUND SOURCES

DEPOSITS LOANS
(SEC 73 TO 76A) (SECTION 180 & 186) – CA
ISSUE OF SHARES/
DEBENTURES FINAL

PRIVATE PLACEMENT PUBLIC ISSUE

(SECTION 42) (SECTION 39 & 40)

BY BOTH PUBLIC AND PVT ONLY BY PUBLIC

COMPANIES) COMPANIES

GLOBAL DEPOSITORY
RECEIPTS

(SEC 41)

NOT IN SYLLABUS
PROSPECTUES CHP – TABLE OF CONTENTS
 PROSPECTUS

PUBLIC OFFER PRIVATE

PLACEMENT
Meaning of CONTENT OF TYPES OF EFFECT OF MIS- (SECTION 42)
PROSPECTUS PROSPECTUS PROSPECTUS REPRESENTATION
- Concept - SEBI specified - OFS of - Criminal liability
- Registration - Declarations securities/shares - Civil liability
- Variation - Shelf PROSPECTUS - Fraudulently
- Demat - Red Herring inducing investors
- Advertisement PROSPECTUS - Action by affected
- Allotment of - Abridged parties
securities PROSPECTUS
 PUBLIC OFFER AND PRIVATE PLACEMENT – SECTION 23
OFFER PUBLIC COMPANY PRIVATE COMPANY

- PUBLIC OFFER (Incl - YES - NO

IPO/FPO/OFS)

- PRIVATE PLACEMENT - YES - YES

- RIGHTS/BONUS ISSUE - YES - YES

- COMPLIANCE WITH SEBI - YES FOR LISTED COMPANIES/ - NO

RULES COMPANIES PROPOSED TO
BE LISTED
 PUBLIC ISSUE OF SECURITIES (SEC 39 & 40)

CONDITIONS FOR ALLOTMENT

OFFER APPLICATION
(BY COMPANY TO (BY PUBLIC TO
CO. HAS OBTAINED APPROVAL FROM ALLOTMENT OF SECURITIES
PUBLIC) COMPANY)
ALL STOCK EXCHANGE TO WHICH (BY COMPANY TO APPLICANT)
APPLICATION WAS MADE BY CO. u/s
COMPANY SHALL MAKE MINIMUM APP.
40 (even if one stock exchange rejects POST ALLOTMENT
AN APPLICATION TO MONEY = 5% OF FV
then allotment cannot be made)
STOCK EXCHANGE
COMPANY SHALL FILE RETURN
(SEC 40) APP. MONEY TO BE
MINIMUM SUBSCRIPTION AS STATED OF ALLOTMENT – PAS- 3
DEPOSITED IN
IN PROSPECTUS HAS BEEN RECEIVED WITHIN 30 DAYS
AGREEMENTS WITH SEPARATE BANK
WITHIN 30 DAYS OF ISSUE OF
MERCHANT BANKER ACCOUNT
PROSPECTUS CONTENT = NAME AND
AND UNDERWRITERS
ADDRESS OF ALLOTTEES AND
(MAX UNDERWRITER APP. MONEY TO BE
IF NOT RECEIVED – THEN REFUND NO. OF SHARES ALLOTTED
COMMISSION) EITHER ADJUSTED/
WITHIN 15 DAYS FROM CLOSURE OF
REFUNDED
ISSUE
• SHARES – 5% OF FV
• DEBENTURES –
2.5% OF FV IF FAILED TO REFUND

DIRECTORS COMPANY & EVERY

(IF AOA PRESCRIBE A OFFICER
LOWER RATE – FOLLOW Rs. 1000/day of
THAT RATE) JOINTLY AND
SEVERALLY LIABLE TO default
PAY 15% PA INTEREST Or Rs. 1 lakh
(AOA CANNOT whichever is lower
INCREASE THE RATE) TO APPLICANT
SECTION 26
VALIDITY PERIOD OF
PROSPECTUS
=
90 DAYS FROM DATE
OF DELIVERY TO ROC

CONTRAVENTION OF SECTION 26
STEPS FOR PRIVATE PLACEMENT (SEC 42) DO NOT COUNT QIB AND ESOP
CO. TO IDENTIFY PERSONS TO WHOM PVT. PLACEMENT OFFER
TO BE MADE (ANY KIND OF ADVERTISEMENT NOT ALLOWED) MAX 200 p.a. per security

PASS BR

RECORD NAMES IN PAS 5 + SH TO PASS SR IN EGM

(REFER NEXT SLIDE)

CO. TO FILE SR WITH ROC

SEND PAS – 4 FORM TO IDENTIFIED PERSONS WITHIN 30 DAYS OF

RECORDING NAMES IN PAS 5

ONLY THE IDENTIFIED PERSONS TO APPLY AND MAKE PAYMENT

BY CHEQUE/DD/ECS BUT NOT CASH
IF FAILED TO ALLOT, REFUND WITHIN 15 DAYS OF END OF 60 DAYS
CO. TO MAINTAIN RECORDS OF BANK A/C FROM WHICH
PAYMENT RECEIVED IF FAILED TO REPAY WITHIN 15 DAYS PAY INT @ 12% p.a. FROM
EXPIRY OF 60TH DAY
MONEY TO BE KEPT IN SEPARATE BANK A/C IN SCHEDULED BANK
AFTER ALLOTMENT AND FILING OF PAS 3 WITH ROC, CO. CAN
ALLOT SECURITIES WITHIN 60 DAYS UTILISE MONEY

FILE PAS 3 – RETURN OF ALLOTMENT WITHIN 15 DAYS FROM

DATE OF ALLOTMENT IF FAILED TO FILE PAS -3 WITHIN 15 DAYS THEN DIRECTORS AND
PROMOTERS TO BE FINED 1000/DAY OF DELAY BUT MAX 25 LAKHS
 PRIVATE PLACEMENT – SR REQUIREMENTS
PRIVATE PLACE ISSUE IS FOR

SHARES AND CONVERTIBLE DEBENTURES

NON –CONVERTIBLE DEBENTURES

SR ALWAYS REQUIRED FOR EACH ISSUE ISSUE AMT IS WITHIN EXCEEDS THE LIMITS
PROVISIONS OF SEC OF SEC 180
180

SR NOT REQUIRED SR REQUIRED

(VALIDITY OF SR IS 1
YEAR)

CONTRAVENTION OF SECTION 42 (EXCEPT FAILURE TO FAIL PAS 3)

COMPANY SHALL COMPANY, DIRECTOR OFFER SHALL BE

REFUND ALL MONEY AND PROMOTERS DEEMED TO BE
PUBLIC OFFER

ALONG WITH PENALTY = AMT COMPANY TO

INTEREST WITHIN 30 RAISED THROUGH COMPLY WITH CA
DAYS FROM ORDER PVT PLACEMENT OR 2013, SEBI, SCRA
IMPOSING PENALTY 2 CRORES
whichever is lower
 TYPES OF
PROSPECTUS –
SECTION 32 +
SECTION 28
TYPES OF PROSPECTUS – SECTION 32

RED HERRING PROSPECTUS

PRICE AND NO. OF SHARES NOT MENTIONED

CO. TO FILE RHP WITH ROC MINIMUM 3

DAYS BEFORE OPENING OFFER

PUBLIC WILL PLACE BIDS

AFTER BIDING PROCESS IS OVER –

COMPANY TO DECIDE ISSUE PRICE

ALLOT SECURITIES AT ISSUE PRICE + FILE

FINAL PROSPECTUS WITH ROC & SEBI

CHANGES BETWEEN RHP AND FINAL

PROSPECTUS TO BE HIGHLIGHTED
 TYPES OF PROSPECTUS – SECTION 31
SHELF PROSPECTUS - SHORTCUT

APPLICABLE ONLY TO SEBI SPECIFIED COMPANIES

VALIDITY PERIOD = 1 YEAR TO BE

COUNTED FROM DATE OF OPENING OF
FIRST OFFER OF SECURITIES
NOT MANDATORY IF A COMPANY HAS
i.e. SHELF PROSPECTUS RECEIVED PAYMENT IN
FOR SUBSEQUENT ISSUE – NEW
PROVISIONS ARE OPTIONAL PROSPECTUS NOT REQUIRED ADVANCE PRIOR TO ISSUE
OF INFO. MEMORANDUM,
ONLY INFO. MEMORANDUM (PAS -2)
REQUIRED (TO HIGHLIGHT CHANGES THEN THE CO. SHOULD
FROM PREV. ISSUE) INTIMATE CHANGES TO
HIM AND GIVE AN EXIT OPP

SHELF PROSPECTUS + INFO.

MEMORANDUM = PROSECTUS
 DEEMED PROSPECTUS – SECTION 25

ISSUE HOUSE
(USUALLY
COMPANY MERCHANT
BANKER
LLP/COMPANT
 SECTION 29 – DEMAT FORM

Every company making

Mandatory
dematerialization
Optional dematerialization
public offer and
Such company as may be
prescribed
(not yet prescribed)
Any other company may,
Shall issue securities only
in demat form
Convert its securities in
demat
Issue securities in physical
form
Issue securities in demat
form

THE PROMOTERS OF PUBLIC CO. MAKING PUBLIC OFFER OF CONVERTIBLE SECURITIES. SHOULD HOLD
THESE SECURITIES ONLY IN DEMAT FORM

ALSO, IF CONVERTIBLE SECURITIES HELD BEFORE IPO, THEN FIRST CONVERT THEM IN DEMAT
VARIATION IN TERMS OF CONTRACT / OBJECTS IN PROSPECTUS – SECTION 27
VARIATION – NOT ALLOWED i.e. funds raised
have to be used strictly in acc. with prospectus
EXCEPT

NOTICE OF SUCH RESOLUTION IS PUBLISHED IN

NEWSPAPER (ENG + VERNAC) and

SR is passed in the GM

DISSENTING SH – TO BE
GIVEN AN
EXIT OPP & EXIT PRICE TO
BE DETERMINED AS PER
SEBI REGULATIONS

IN ANY CASE – THE FUNDS

CANNOT BE DIVERTED TO
BUY EQUITY SHARES OF
OTHER LISTED Cos
 PENALTY

SECTION 34 SECTION 35 SECTION 36 SECTION 38

(CRIMINAL LIAB) (CIVIL LIAB) (FALE DISCLOSURE) (APP. IN
FICTITUOS
PERSON WHO AUTHORISED THE PERSON WHO AUTHORISED THE ISSUE i.e. NAME)
ISSUE i.e. PROMOTER + DIRECTOR + EXPERT IN CASE OF FALSE
PROMOTER + DIRECTOR + DISCLOSURE TO INDUCE A PERSON WHO
EXPERT SHALL BE LIABLE TO COMPENSATE THE LOSS TO ANOTHER PERSON TO HAS APPLIED IN
AGGREIVED PARTY WHO HAVE PURCHASED SECURITIES ENTER INTO : FICTITUOUS
SHALL BE LIABLE FOR FRAUD ON THE BASIS OF PROSPECTUS i.e. through stock broker / NAME
u/s 447 open market not allowed A) AGREEMENT FOR
(SALE/PURCHASE/UND SHALL BE LIABLE
ERWRITING) FOR FRAUD u/s
B) AGREEMENT FOR 447
SECURING A PROFIT
C) AGREEMENT FOR MONEY SHALL
OBTAINING LOAN BE FORFEITED
FROM BANK BY THE
COMPANY AND
SHOULD BE
THE PERSON MAKING THE DEPOSITED IN
FALSE DISCLOSURE SHALL IEPF
BE LIABLE FOR FRAUD u/s
447
PENALTY FOR FRAUD – SECTION 447
SHARE CAPITAL &
DEBENTURES
By Prof. Aakash Pednekar (CA)
CHP - SHARE CAPITAL & DEBENTURES
 Section 43 - Kinds of Share Capital

Holders of the equity shares with differential

rights shall enjoy all other rights such as bonus
shares, rights shares etc., which the holders of
equity shares are entitled to, subject to the Company shall not convert its existing
differential rights with which such shares have
been issued. equity share capital with voting rights
into equity share capital carrying
differential voting rights and vice–versa

Refer next slide for

Conditions for the issue
of equity shares with
differential rights
 Conditions for the issue of equity shares with differential rights
❖ AOA authorised issue of DVR

❖ Ordinary resolution is passed in GM (if listed company then Ordinary resolution by postal ballot)

❖ the voting power in respect of shares with differential rights of the company shall not exceed 74% of total voting power including voting power
in respect of equity shares with differential rights issued at any point of time];

- The company is having consistent track record of distributable profits for last 3 years (Amendment)

❖ The company has not defaulted in filing FS and annual returns for 3 FYs immediately preceding the FY in which it is decided to issue such shares

❖ the company has no subsisting default in the payment of a

• declared dividend to its shareholders or
• repayment of its matured deposits and/or interest or
• redemption of its preference shares or debentures and/ or interest

❖ the company has not defaulted in

• payment of the dividend on preference shares or
• repayment of any term loan and/or interest from a PFI or State level financial institution or scheduled Bank or
• dues with respect to statutory payments relating to its employees to any authority or
• default in crediting the amount in IEPF to the CG

("Provided that a company may issue equity shares with differential rights upon expiry of five years from the end of the financial Year in which
such default was made good.“)

❖ the company has not been penalized by Court or Tribunal during the last 3 years of any offence under the RBI Act, SEBI Act, SCRA, FEMA, or any
other special Act, under which such companies being regulated by sectoral regulators
 Section 44 - Nature of Shares or Debentures

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

Section 45 – Numbering of shares

Every share in a company having a share capital shall be distinguished by its distinctive number
(not applicable to shares held in demat form)

Section 46 – SHARE CERTIFICATE

SHARES HELD IN DEMAT FORM

the record of the depository is the prima facie evidence of the interest of the beneficial owner

SHARES HELD IN PHYSICAL FORM
✓ Certificate issued under
✓ Common seal (if any) or
✓ Signed by 2 directors or
✓ 1 director and 1 CS
Shall be prima facie evidence of title
PROCEDURE FOR ISSUE OF DUPLICATE PHYSICAL SHARE
CERTIFICATE
IF certificate is lost/destroyed or
defaced, mutilated or torn and is surrendered to the company
Company will investigate and issue new share certificate
Section 47– Voting rights

Section 48– Variation of rights

Allowed if:

Provided by the MOA/AOA or

Not prohibited by the terms of issue
+
Company has obtained consent in writing of the holders of
minimum 3/4th of the issued shares of that class
or
Company has passed special resolution passed at a separate
meeting of the holders of the issued shares of that class

(if variation by one class of shareholders affects the rights of

any other class of shareholders, the consent of 3/4th of such
other class of shareholders shall also be obtained)

Eg: Repayment
or reduction of
its equity share
capital
 RIGHTS OF DISSENTING SH
Dissenting SH =
holding minimum
Decision of NCLT
Consent received 10%
NCLT will be binding ROC
/ SR passed may apply to the on the SH The Company shall,
NCLT to have the within 30 days of
variation cancelled the date of the
within 21 days order of NCLT file a
copy thereof with
the ROC
PENALTY FOR CONTRAVENTION

COMPANY - FINE EVERY OID

25000 – 5 lacs Rs JAIL = MAX 6 MONTHS

OR

FINE - 25000 – 5 lacs Rs OR BOTH

 Section 49 - Calls on Shares of Same Class to be Made on Uniform Basis

Any calls for further share capital are made on the shares of a class, such calls shall be made
on a uniform basis on all shares falling under that class

Section 50 - Calls in advance

A company may, if so authorised by its AOA, accept from any member, CIA

No voting rights / dividend in respect of CIA

Section 51 - Payment of Dividend in Proportion to Amount Paid-Up

A company may, if so authorised by its AOA, pay dividends in proportion to the amount paid- up on each share.
 Section 52 - ISSUE OF SHARES AT PREMIUM
Application of securities premium account
▪ towards the issue of unissued shares of the
company to the members of the company as fully
paid bonus shares;
▪ in writing off the preliminary expenses of the company;
▪ in writing off the expenses of, or the commission
paid or discount allowed on, any issue of shares or
debentures of the company;
▪ in providing for the premium payable on the
redemption of any redeemable preference shares
or of any debentures of the company; or
▪ for the purchase of its own shares or other
securities under section 68
Prescribed class of companies and whose
financial statement comply with the accounting
standards prescribed for such class of
companies under section 133
▪ in paying up unissued equity shares of the company
to be issued to members of the company as fully
paid bonus shares; or
▪ in writing off the expenses of or the commission
paid or discount allowed on any issue of equity
shares of the company; or
▪ for the purchase of its own shares or other securities under
section 68
 Section 53 - ISSUE OF SHARES AT DISCOUNT IS NOT ALLOWED
EXCEPTIONS

in the case of an issue of sweat In the case of issue of shares at a discount to its creditors when its
equity shares given under debt is converted into shares in pursuance of any statutory resolution
section 54 plan or debt restructuring scheme in accordance with RBI guidelines

PENALTY FOR CONTRAVENTION

COMPANY - FINE Refund all monies recd

AMOUNT RAISED With interest @ 12 % pa

THOUGH ISSUE OF
SHARES @ DISCOUNT From date of issue to date of refund

OR

5 lac Rs

Whichever is less
 SWEAT EQUITY SHARES – SECTION 54
MEANING Sweat equity shares means such equity shares as are
issued by a company to its directors or employees at a
discount or for consideration, other than cash, for
providing their know-how or making available rights in
the nature of intellectual property rights or value
additions, by whatever name called;
GOVERNED BY Section 54 of the CA 2013 r.w. Rule 8 of the Companies
(Share and Debentures) Rules, 2014
ISSUED TO a permanent employee / director of the company/its
subsidiary/its holding co. who has been working in India
or outside India
CANNOT BE No such restriction
ISSUED TO
CONSIDERATION Can be paid partly in cash and partly through services
rendered or fully non-cash consideration.
LOCK –IN It has a compulsory lock-in period of 3 years.
PERIOD
EMPLOYEE STOCK OPTION PLAN – SECTION 62
Employees’ stock option means the option given to the directors,
officers or employees of a company or of its holding company or
subsidiary company or companies, if any, which gives such directors,
officers or employees, the benefit or right to purchase, or to subscribe
for, the shares of the company at a future date at a pre-determined
price
Section 62 of the CA 2013 r.w. Rule 12 of the Companies (Share and
Debentures) Rules, 2014,
- a permanent employee / director of the company/its subsidiary/its
holding co. who has been working in India or outside India
- Independent directors or
- an employee who is a promoter or a person belonging to the
promoter group or
- a director who either himself or through his relative or through any
body corporate, directly or indirectly, holds > 10 % ESC
Consideration has to be paid through cash only
Lock in period depends on the company issuing it.
 SWEAT EQUITY SHARES
PROCEDURE A company may issue sweat equity shares of a class of
shares already issued, if the following conditions are
fulfilled
✓ Pass SR
✓ the resolution specifies the number of shares, the
current market price, share valuation, consideration, if
any, and the class or classes of directors or employees
to whom such equity shares are to be issued
✓ In case of listed companies – follow SEBI guidelines
✓ In case of unlisted companies – follow (Share and
Debentures) Rules, 2014
LIMITS Sweat Equity Shares cannot be issued for more than 15%
of the paid-up equity share capital in a year or shares of
the value of 5 crores; whichever is higher.
(Issuance of sweat equity shares in the Company shall not
exceed twenty five percent, of the paid up equity capital
of the Company at any time.)
Register FORM SH – 3
EMPLOYEE STOCK OPTION PLAN
A company may issue ESOP, if the following conditions are fulfilled
✓ Pass SR
✓ the resolution specifies the total number of options granted,
identification of classes of employees entitled, vesting period,
exercise price, exercise period, lock-in period (if any), valuation
method, etc
✓ In case of listed companies – follow SEBI guidelines
✓ In case of unlisted companies – follow (Share and Debentures)
Rules, 2014
No such restriction
FORM SH - 6
 Section 55 – PREFERENCE SHARES

ISSUING IRREDEEMABLE PREF

SHARES IS NOT ALLOWED

MAX REDEMPTION = 20 YEARS

EXCEPTION:
A company engaged in
infrastructural projects may issue
preference shares for MAX 30
YEARS, subject to the redemption
of a minimum of 10 % of shares
beginning 21st year at the option of
such preferential shareholders;

Redeemed shares to be fully paid Transfer

The utilization of CRR is
nominal value
restricted to issuance of
of shares to
fully paid bonus shares
be redeemed
only
to CRR
 equal to the
amount due,
including the
dividend
thereon,
 Section 56 – Transfer and transmission of securities
BASIS FOR
TRANSFER OF SHARES TRANSMISSION OF SHARES
COMPARISON
Meaning Transfer of shares refers to the Transmission of shares means the transfer of
transfer of title to shares, title to shares by the operation of law.
voluntarily, by one party to
another.
Affected by Deliberate act of parties. Insolvency, death, inheritance or lunacy of the
member.

Initiated by Transferor and transferee Legal heir or receiver

Consideration Adequate consideration must No consideration is paid.
be there.
Execution of Yes – FORM SH 4 No
valid transfer
deed
Liability Liabilities of transferor cease Original liability of shares continues to exist.
on the completion of transfer.

Stamp duty Payable on the market value of No need to pay.

shares.
 Section 56 – Transfer and transmission of securities
A company shall not register a transfer of partly paid
shares, unless the company has given a notice in Form
No. SH.5 to the transferee and the transferee has given
no objection to the transfer within two weeks from the date
of receipt of notice.
Transfer of security of the deceased:
The transfer of any security or other
interest of a deceased person in a
company made by his legal
representative shall, even if the legal
representative is not a holder thereof, be
valid as if he had been the holder at the
time of the execution of the instrument of
transfer
 Section 57 – Punishment for personation of SH

CONDITION

If any person deceitfully personates as—

PENALTY
➢ an owner of any security or interest in a
company, or JAIL – MIN 1 YEAR TO MAX 3 YEARS
➢ of any share warrant or coupon issued in
pursuance of this AND

FINE – MIN 1 lac Rs to MAX 5 lac Rs

thereby obtains or attempts to obtain any
such security or interest or any such share
warrant or coupon, or receives or attempts to
receive any money due to any such owner
 Section 58 – Refusal to register

Within 30 days
Within 30 days from date on
from date on which instrument
which instrument of transfer /
of transfer / intimation of
intimation of transmission was
transmission was delivered to the
delivered to the company
company

PENALTY

JAIL – MIN 1 YEAR TO MAX 3

YEARS

AND

FINE – MIN 1 lac Rs to MAX 5

lac Rs
 Section 88 – Register of members

Every company shall keep and maintain a register of members in MGT -1 The company has to maintain
foreign register if members are outside India

Section 59 – Rectification of register of members

PERSON
AGGRIEVED /
NCLT
MEMBER /
COMPANY
FILE APPEAL
DISMISS THE APPEAL
If name entered / omitted without
sufficient cause OR

Default in entering name in register DIRECT

TRANSFER/TRANSMISSION TO BE
REGISTERED
Unnecessary delay in entering name
in register COMPETENT
FOREIGN COURT OUTSIDE
MEMBERS INDIA SPECIFIED
BY CG
 Section 60 –Publication of Authorised, Subscribed and Paid-Up Capital

Along with authorized capital, subscribed and paid up capital also to be mentioned
ABC Ltd was registered with registrar with a registered capital of Rs. 20,000,000 where each share is of Rs. 10.

In response to the advertisements made by the company to buy shares in the company applications have been received for 1,000,000 shares
but company actually issued 700,000 shares where company has called for Rs. 8 per share.

All the calls have been met in full except three shareholders who still owe for their 6000 shares in total.

Solution:

Authorized capital = Rs. 20,000,000

Subscribed capital = 1,000,000 x Rs. 10 = Rs. 10,000,000

(for which company has received applications from the general public who are interested in buying share)

Issued capital = 700,000 x Rs.10 = Rs. 7,000,000

(The amount of capital (out of subscribed capital) which has been issued by the company to the subscribers and thus are now shareholders.)

Called-up capital = 700,000 x Rs. 8 = Rs. 5,600,000

(the amount asked for by the company)

Paid-up capital = 5,600,000 – (6000 x Rs. 8 ) = Rs. 5,552,000

(The amount of capital (out of called-up capital) against which the company has received the payments from the shareholders so far.)
 Section 61 –Alteration in capital clause of MOA
SITUATIONS EXAMPLE
1 Increase in authorised share capital 1,00,000 shares of Rs. 10 each. To issue further shares
company has to increase authorised SC first.
2 Consolidate and divide share capital into shares of OLD PUSC = 1,00,000 shares of Rs. 10 each
larger amount NEW PUSC = 10,000 shares of Rs. 100 each
3 Convert fully paid up shares into stock and/or reconvert OLD PUSC = 1,00,000 shares of Rs. 10 each
stock into fully paid up shares NEW stock = 10,00,000 Rs
4 Stock split OLD PUSC = 1,00,000 shares of Rs. 10 each
NEW PUSC = 10,00,000 shares of Rs. 1 each
5 Cancell shares which have not been subscribed by OLD authorised capital = 1,00,000 shares of Rs. 10 each
public OLD PUSC = 96,000 shares of Rs. 10 each
(shall not be deemed to be a reduction of share NEW authorised capital = 96,000 shares of Rs. 10 each
capital) (i.e. cancel 4,000 shares which have not been subscribed
by public)
PROCEDURE FOR ALTERATION
✓ AOA should authorize
✓ OR should be passed in GM
✓ Notice of alteration to be given to ROC within 30 days in prescribed form along with copy of altered MOA (sec 64)

NOTE: ALTERATION of capital does not require court/ NCLT/ CG confirmation

 Section 66 –Reduction of share capital
SITUATIONS EXAMPLE
1 Reduction in unpaid capital OLD PUSC = 10,000 shares of Rs. 10 each, 6 paid up

- Extinguish liability NEW PUSC = 10,000 shares of Rs. 6 each, 6 paid up

Or
- Reduce liability NEW PUSC = 10,000 shares of Rs. 7 each, 6 paid up

2 Cancellation of lost paid up capital OLD PUSC = 10,000 shares of Rs. 10 each, 10 paid up
Accumulated losses = Rs. 80,000 (write off loss against cap)

- Extinguish liability NEW PUSC = 10,000 shares of Rs. 2 each, 2 paid up

Or
- Reduce liability NEW PUSC = 10,000 shares of Rs. 10 each, 2 paid up

3 Paying off excess paid up capital OLD PUSC = 10,000 shares of Rs. 10 each, 10 paid up
If available funds are in excess, company may return back a
portion of PUSC eg: Rs 4 per share

- Extinguish liability NEW PUSC = 10,000 shares of Rs. 6 each, 6 paid up

Or
- Reduce liability NEW PUSC = 10,000 shares of Rs. 10 each, 6 paid up
 Procedure
1 Pass SR
2 No default in repayment of deposits / payment of int
3 Co. to make application to NCLT
4 NCLT to send notice to CG / SEBI / ROC / creditors
5 NCLT to take into consideration representations recd within 3m (if no rep recd
within 3m then presumed that CG / SEBI / ROC / creditors have no obj)
6 NCLT to make an order confirming reduction if it is satisfied that every creditor
- Has given his consent / has been discharged / has been given security
7 NCLT shall not confirm reduction of share capital unless:
- Accounting treatment proposed by the Co. for reduction of share cap is in
accordance with accounting standards and
- certificate to that effect is recd from company’s auditor is filed with NCLT
8 Company to publish the NCLT order as directed by NCLT
9 Company to deliver to ROC certified copy of NCLT order & certified copy of
minute (refer next page) within thirty days of the receipt of the copy of the
order, who shall register the same and issue a certificate to that effect
 CANCELLATION/DIMINUTION OF CAPITAL – Section 61 REDUCTION OF CAPITAL – Section 66
MEANING Cancellation does not affect the issued capital. It It means reduction of issued capital
results in diminution of authorized capital

METHOD Cancellation of shares which have not been taken Reduction in unpaid capital
or agreed to be taken by any person Cancellation of PUSC which is lost or is unrepresented by assets
Return of capital which is in excess of company needs

CREDITORS Creditors interest is not affected Creditors interest is affected

INTEREST

CREDITORS No need to obtain creditors consent Consent of creditors must be obtained or they should be
CONSENT discharged or offered security

NCLT NCLT approval not req NCLT approval required

APPROVAL

RESOLUTION OR SR

EFFECT ON Always results in alteration of MOA May result in alteration of MOA

MOA
 Section 62 – Further issue of shares

FURTHER ISSUE
OF SHARES

Others CONVERTIBLE
RIGHT SHARES ESOP
(non-members) LOANS / DEB

Refer next slide ALREADY DISCUSSED

• Price determined Section 62 N/A if Conversion on

• Conversion terms order of the
by registered
are included in government
valuer terms of issue and
• Compliance of • such issue was
Section 23 – 42 approved by SR (Refer next slide)
• SR required
 RIGHT SHARES
PROCEDURE
1 Shares shall be offered to existing ESH in proportion to the PUSC held by them
2 Every existing ESH shall have the right to:
✓ Accept the offer / decline the offer / renounce the shares offered
3 Company to send letter of offer by reg. post / speed post / courier / electronic
mode / any other mode having proof of delivery (refer next slide) atleast 3
days before opening of the issue
4 Letter of offer to specify:
✓ No. of shares offered
✓ Time to accept (min 15 – max 30 days) [ in case of pvt co. if 90% members
give their consent in writing / electronic mode then lesser period may apply
✓ A statement that offer if not accepted, shall be deemed to be declined
✓ A statement that every SH has right to renounce (unless AOA restrict)
5 No SR required
6 After expiry of time / after if SHs decline the offer, the BOD may dispose of the
shares in such manner which is not dis- advantageous to the shareholders and
the company
ALLOTMENT OF SHARES - CONVERTIBLE LOANS / DEBENTURES UPON GOVT. ORDER
PROCEDURE
1 Govt may make an order in public interest that:
- Debentures issued to / loans obtained from govt shall be converted into
shares
2 Such order shall be made even if the terms of issue do not contain any
provision of conversion
3 In determining the terms of conversion, govt. shall have due regard to
- Financial position of the company
- Terms of issue (if any)
- Rate of interest payable on such deb / loans
4 If terms of conversion is not acceptable to company, then company may prefer
an appeal to NCLT. NCLT to pass such order as it deems fit.
ALTERATION OF MOA – If Govt. order has effect of increasing the authorised
share capital of the company
Then MOA shall stand altered and authorised capital shall stand increased by
amount of conversion (also refer section 64 – notice to ROC)
 Section 63 - Bonus shares

PROCEDURE
1 AOA should authorise
2 BOD to recommend issue of bonus shares (once announced the Board, shall not subsequently withdraw the same)
3 Pass OR in GM
4 No default in payment of principal / interest on deposits / debt securities issued by it / payment of statutory dues of ee (PF, gratuity fund,
bonus, etc)
5 Bonus shares must be fully paid up (if partly paid –up then convert to fully paid up first)
6 Bonus shares can be issued only to existing members of the company
7 Bonus shares shall not be issued in lieu of dividend
 Section 64 – Notice to be given to ROC for …

Notice to be given to
ROC within 30 days in
FORM SH – 7 along
with copy of alt. MOA

Increase in authorised
Company alters its Redemption of PSC
share capital on govt
share capital u/s 61 u/s 55
order u/s 62

PENALTY FOR CONTRAVENTION

COMPANY AND EVERY OID – FINE 1000 Rs/day

of default or 5 lac Rs whichever is less
Section 67 - Restriction on purchase by company or giving of loans by it for purchase of its
shares

Section 67 lays down a

fundamental principle of
Company Law that a
Company cannot buy its own
shares except u/s 68

Public co. cannot give any

Public co. cannot purchase
financial assistance by way of
its own shares / shares of
loan, guarantee, security, etc
Holding company
(i.e. cannot purchase
(i.e. cannot purchase itself)
through 3rd party)
 EXCEPTIONS

Assistance given Loan to employee

under ESOP for fully (other than KMP) for
Banking company
paid up shares fully paid up shares
(SR was passed) max amt 6m salary

Section 67 shall not apply to PRIVATE COMPANIES, if (however compliance of section 68 is mandatory)

✓ It is a company in whose share capital no other body corporate has invested any money;
✓ if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice
its paid up share capital or fifty crore rupees, whichever is lower; and
✓ such a company is not in default in repayment of such borrowings subsisting at the time of making transactions
under this section

PENALTY FOR CONTRAVENTION

COMPANY - FINE EVERY OID – JAIL MAX 3 YEARS &

Min 1 lac – max 25 lac FINE - Min 1 lac – max 25 lac

 Section 68 - Buy back of securities

Sources of buy
back

Securities Proceeds of fresh Proceeds of earlier

Free reserves
premium A/c issue issue not allowed

If equity shares are to be

bought back then preference
Resolution for buy back and share may be used
limits

SR (with exp. Notice)

- 25% of (PUSC + FR) BOARD RESOLUTION
- Max Buy back of equity -10% of (PUESC + FR)
shares in any FY = 25% of
PUESC
 Procedure
1 Debt equity ratio = 2:1
2 All securities for buy back should be fully paid
3 Time limit for offer: min 15 – max 30 days (if all members agree then less days)
4 Validity of BR / SR = 1 year
5 Buy back from whom ?
- Existing ESH / open market / ESOP shares / sweat equity shares
6 Co. to file declaration of solvency (1 year) with ROC & if listed co. then SEBI also
7 Co. to physically destroy shares bought back within 7 days
8 Further offer of buy back not to be given within 1 year of closure of preceding offer
9 No further issue of securities allowed within 6months except by way
- Bonus shares
- Issue of shares in discharge of subsisting obligations (eg conversion)
10 Company to maintain register
11 Company to file return of buy back with ROC & if listed co. then SEBI also
12 Where a company purchases its own shares out of free reserves or securities premium account, Transfer nominal
value of shares bought back to CRR (section 69)
 PROHIBITION ON BUY BACK

Buy back not allowed if co. has not

Default in:
complied with
Repayment of deposits Buy back not allowed through its Section 92
Redemption of deb / pref shares subsidiary company /
Section 123
Payment of dividend any investment company
Section 127
Repayment of term loan to bank / PFI
Section 129
 Deb will not carry any voting rights Section 71 - Debentures

Company to appoint debenture trustee Allowed only if approved by SR in GM

if invitation to members / public > 500
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

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 minimum 3/4th in value of the total debentures

The debenture trustee may file petition before the NCLT if assets are insufficient to discharge principal amount
as and when due then NCLT may impose restrictions on the incurring of any further liabilities by the company

On failure to redeem the debentures/ to pay interest on the debentures the NCLT on the application of any or all
of the debenture-holders, or debenture trustee and, after hearing the parties concerned, direct, by order, the company
to redeem the debentures forthwith

EVERY OID – JAIL MAX 3 YEARS or

NON – COMPLIANCE OF NCLT ORDER
FINE - Min 2 lac – max 5 lac or both
CA INTER – COPRATE LAW
CHP - DEPOSITS

Compiled by – Prof. Aakash Pednekar (CA)

+ 91 9920497907
aakashpednekar1994@gmail.com
What are deposits ?
• Accordingly to section 2(31) of the Companies Act, 2013, the term
deposits includes:

✓any money received by way of deposit or loan or any other form by a

company

✓BUT DOES NOT INCLUDE PRESCRIBED CATEGORIES OF AMOUNTS

(refer last slide)
DEPOSIT PROVISIONS ARE NOT APPLICABLE TO FOLL. COMPANIES

THUS DEPOSIT PROVISIONS AS CONTAINED IN CA 2013 ARE MEANT TO REGULATE ACCEPTANCE OF DEPOSITS BY
NON-BANKING NON-FINANCIAL Cos (i.e. Mfg, Trading, etc) ONLY
 DEPOSITS – SECTION INDEX – 73,74,75,76,76A

SECTION 73 & 76 SECTION 74

(CONDITIONS FOR (REPAYMENT OF EARLIER
ACCEPTANCE OF DEPOSITS DEPOSITS i.e. accepted under
under CA 2013) CA 1956)

PENALTY FOR DEFAULT PENALTY FOR DEFAULT

= SECTION 76A = SECTION 74
&
SECTION 75
 REPAYMENT OF EARLIER DEPOSITS– SECTION 74 & SECTION 75
FILE A STATEMENT WITH ROC

WITHIN 3 MONTHS
From such commencement or from the date on which such payments, are
DEPOSITS ACCEPTED due APPLICATION CAN BE
PRIOR TO CA 2013 MADE TO THE NCLT
STATING FOR EXTENSION OF
+
Details of all amounts due TIME TO REPAY
REPAYMENT
(PRINCIPLE + INT) FALLS NCLT WILL DECIDE
DUE ON/ AFTER 1 APRIL REPAY DEPENDING UPON
2014 THE FINANCIAL
WITHIN 3 YEARS POSITION OF THE
COMPANY HAS TO from such commencement COMPANY
UNDERTAKE THE FOLL. or
on or before expiry of the period for which the deposits were
accepted, whichever is earlier

PENALTY FOR FAILURE TO REPAY

ON OID
ON COMPANY
Jail: Max 7 years
MIN: 1 cr & Max : 10 cr SEC 75: IF INTENT TO DEFRAUD PROVED THEN Fine: Min: 25 lac & Max: 2cr
PENALTY u/s 447 will apply
 DEPOSITS UNDER Companies Act, 2013

FROM MEMBERS FROM PUBLIC

CAN BE TAKEN BY ANY CAN BE TAKEN BY ONLY

COMPANY ELIGIBLE PUBLIC COMPANY
(PUBLIC / PRIVATE)

u/s 73 u/s 76

ALSO REFER ALSO REFER

ACCEPTANCE OF DEPOSITS ACCEPTANCE OF DEPOSITS
FROM MEMBERS RULES FROM PUBLIC RULES
 SECTION 73 – ACCEPTANCE OF DEPOSITS FROM MEMBERS
COMPANY TO PASS “OR”
IN GM
IF THERE WAS A DEFAULT,
COMPANY SHOULD HAVE
RECTIFIED IT AND 5 YEARS
SHOULD HAVE ELAPSED
SINCE RECTIFICATION
AMT CREDITED FROM PROFITS
TRANFER 20% OF DEPOSITS MATURING
IN NEXT FY BY 30 APRIL OF CY
• NAME, ADD, PAN OF DEPOSITER
• PARTICULARS OF NOMINEE
• DATE, AMT, DURATION OF DEPOSIT
• RATE OF INT
• DUE DATE OF REPAYMENT
REGISTER TO BE MAINTAINED FOR 8
YEARS FROM FY IN WHICH LATEST
ENTRY IS MADE
CIRCULAR TO CONTAIN THE FOLL:
CIRCULAR SHALL BE ISSUED IN FORM DPT -1 TO MEMBERS
• FINANCIAL POSITION OF CO
(BY POST/REG. POST/EMAIL)
• CREDIT RATING OBT
• TOTAL NO. OF DEPOSITORS
▪ SHALL BE PUBLISHED IN NEWSPAPER (ENG + VERNAC)
• PREV. PENDING DEPOSITS
• DIRECTORS TO CERTIFY NO DEFAULT IN REPAY OF
DEPOSIT + IF DEFAULT OCCURRED THEN CO. HAS
AUDITOR CERTIFICATE TO BE ATTACHED RECTIFIED + 5 YRS ELAPSED SINCE RECTIFICATION
TO FORM DPT 1 SPECIFYING ITS
ELIGIBILITY
CIRCULAR TO BE FILED WITH ROC 30 DAYS BEFORE
ISSUE
DEPOSIT REPAYMENT RESERVE A/C
TO BE OPENED IN SCH BANK UTILISED FOR REPAYMENT OF DEP
OR UTILISED FOR PAYMENT OF
DEPOSITS SHALL BE SECURED AGAINST INTEREST
TANGIBLE ASSETS
IF UNSECURED THEN CO. TO STATE THIS
COMPANY TO MAINTAIN REGISTER FACT IN CIRCULAR, ADVERTISEMENT, etc
COMPANY TO APPOINT DEPOSIT
TRUSTREE
CO. TO GIVE RECEIPT TO DEPOSITOR
WITHIN 21 DAYS CONTAINING INFO UPTO 31 MARCH
CO. TO FILE AUDITED RETURN – DPT 3 WITH ROC BEFORE 30 JUNE EVERY YEAR
SECTION 73 – VALIDITY OF CIRCULAR – DPT 1 ISSUED
VALIDITY OF FORM
DPT - 1 ISSUED ON
31 JULY 2019

EARLIEST OF

6 MONTHS FROM CLOSE

OF FY IN WHICH
CIRCULAR ISSUES
(30 SEPT 2020 BEING 6
MONTH FROM 31
MARCH 2020)

OR

DATE OF AGM (IF AGM

NOT HELD, LAST DATE
TO HOLD AGM)
 TENURE OF DEPOSITS
SEC/UNSEC
LONG TERM REQUIREMENT SHORT TERM REQUIREMENT
OF FUNDS OF FUNDS

DEMAND DEPOSITS
MINIMUM 6 MONTHS NOT ALLOWED CONDITION = DEPOSIT AMT
TO NOT TO EXCEED
MAXIMUM 36 MONTHS 10% OF (PUSC + FR + SP)

MINIMUM 3 MONTHS
TO
MAXIMUM 6 MONTHS
 MAXIMUM INTEREST RATE ON DEPOSITS & BROKERAGE AS PER RBI
(SPECIFIED FOR NBFCs)

BROKERAGE TO BE PAID ONLY IF AGREEMENT IN WRITING + DEPOSITS ACTUALLY PROCURED

THROUGH HIM

DEPOSITS CAN BE ACCEPTED IN JOINT NAMES (MAX 3)

COMPANY CANNOT ALTER ANY TERMS OF CONTRACT

PREMATURE REPAYMENT OF DEPOSIT – POSSIBLE BUT AFTER 6 MONTHS & BEFORE MATURITY
DATE

INT RATE = AGREED RATE – 1 %

REDUCED RATE NOT POSSIBLE IF – PRE-MATURE REPAYMENT MADE TO COMPLY WITH MAX LIMIT
RULE & IN CASE OF EMERGENCY
 PROVISIONS RELATED TO TRUSTEE FOR DEPOSITORS

APPOINTED FOR CREATING SECURITY FOR DEPOSITS AFTER OBTAINING HIS WRITTEN CONSENT

EXECUTE DEPOSIT TRUST DEED – FORM DPT 2

 DEPOSIT LIMITS
TYPES OF COMPANIES

ELIGIBLE COMPANIES INELIGIBLE COMPANIES GOVT COMPANIES

PUBLIC COMPANY WITH ALL COMPANIES NOT

SATISFYING CRITERIA
NET WORTH = MINIMUM Rs. PRESCRIBED FOR ELIGIBLE Cos
100 crore

Or EXEMPTION TO COMPANIES ONLY FILE DETAILS OF MONEY

MARKED IN RED ON NEXT SLIDE ACCEPTED TO ROC IN DPT - 3
TURNOVER = MINIMUM Rs.
500 crore
• NO NEED TO ISSUE CIRCULAR i.e. DPT 1
DOES DEPOSIT AMT EXCEED • NO NEED TO FILE CIRCULAR WITH ROC
Sec 180 limit ? • NO NEED TO CREATE DEP REPAYMENT RESERVE A/C
• NO NEED TO CERTIFY THAT NO DEFAULT MADE IN
REPAYMENT OF DEP
YES THEN NO THEN
PASS “SR” PASS “OR”
 DEPOSIT LIMITS
TYPES OF COMPANIES
ELIGIBLE COMPANIES ELIGIBLE GOVT
INELIGIBLE COMPANIES COMPANY ACCPETING
FROM MEMBERS FROM PUBLIC FROM
MEMBERS/PUBLIC
10 % (PUSC + FR + SP) 25 % (PUSC + FR + SP)
CAN ONLY ACCEPT FROM 35% (PUSC + FR + SP)
MEMBERS

IFSC PUBLIC COMPANY START UP PRIVATE CO. FOR FIRST 5 YEARS OTHER INELIGIBLE
OR PUBLIC COMPANIES
PRIVATE COMPANY OR

OTHER PRIVATE COs WHICH FULFILL ALL

100% (PUSC + FR + SP) FOLL. CONDITIONS 35 % (PUSC + FR + SP)

• NOT ASSOCIATE/SUBSIDIARY OF ANY Co.

• BORROWINGS ARE LESS THAN TWICE OF
(PUSC) OR 50 crores whichever is less
• NO DEFAULT IN REPAYMENT OF
BORROWINGS

NO LIMIT
 PENALTY FOR FAILURE : SECTION 76A

PENALTY FOR FAILURE TO ACCEPT /

REPAY AS PER section 73/76
ON COMPANY
ON OID
MIN: 1 cr / twice the
amount of deposit Jail: Max 7 years
whichever is lower Fine: Min: 25 lac & Max: 2cr
But Max : 10 cr

IF INTENT TO DEFRAUD PROVED THEN

PENALTY u/s 447 will apply

PENAL INTEREST @ 18% p.a. for overdue period

to be paid to depositors (both
secured/unsecured)
 AMOUNTS NOT CONSIDERED AS DEPOSITS - HTR
PROMOTER

APPLICATION TRUST CHIT FUND

MONEY
NOT TO INVEST IN

WANTED NOBODY GAVE

COMPANY CO. SCAN DOCS GOVT ISSUED LOANS CONDITION
FUNDS ADVANCE

S START UP Indian + Secured From banks

COMPANY foreign Debentures / Public
EMPLOYEE C COLLECTIVE financial
DIRECTOR
INVESTMENT Or institutions
A SCHEME compulsory
ALT. INV FUND convertible
N NIDHI CO. debenture
(10 years)

Or
Unsecured
Non-
convertible
listed
debentures
REGISTRATION OF CHARGES
Compiled by Prof. Aakash Pednekar (CA)
+ 91 9920497907
 DEBENTURES/DEPOSITS
COMPANY ISSUED TO PUBLIC

OR

LOAN SANCTIONED FROM BANK

ASSET CHARGED
COMPANY WILL
HAVE TO
REGISTER
CHARGE WITH

ONCE CHARGE IS REGISTERED WITH ROC, IT BECOMES INFORMATION

AVAILABLE IN PUBLIC DOMAIN IN ORDER TO PRECLUDE THE COMPANY
FROM OFFERING THE SAME ASSET AS SECURITY AGAIN TO BORROW FUNDS
FRAUDULENTLY FROM A DIFFERENT LENDER
ROC
TYPES OF CHARGES
FIXED CHARGE FLOATING CHARGE

CREATED ON SPECIFIC ASSET LIKE LAND/BLDG/OFFICE FLUCTUATING NATURE LIKE RAW

PREMISES/MACHINERY,etc
RESTRICTIONS BORROWER IS NOT ALLOWED TO SELL
ON THESE ASSETS except WITH THE
BORROWER? PERMISSION OF THE LENDER
(though borrower may use the asset)
CREATED BY WAY OF MORTGAGE/DEPOSIT OF TITLE
DEEDS
MATERIAL/STOCK IN TRADE/DEBTORS,etc
BORROWER IS ALLOWED TO SELL THESE
ASSETS WITHOUT THE PERMISSION OF THE
LENDER
HYPOTHECATION/LIEN
 SECTION 77 – DUTY TO REGISTER CHARGES
Charge creator i.e. Company to file
with ROC
- prescribed form (CHG 1 or
CHG 9 – for debentures) +
- Copy of instrument/deed +
- Pay fees
SECTION 77 – DUTY TO REGISTER CHARGES
 VERIFICATION OF INSTRUMENT OF CHARGE

PROPERTY SOLELY SITUATED OUTSIDE INDIA PROPERTY SITUATED WITHIN INDIA (wholly /
partly)
- Under company seal
- Under the hand of director/CS of the - Under the hand of director/CS of the
company company
- Under the hand of authorised officer of
- Under the hand of authorised officer of
charge holder
charge holder
- Under hand of other interested person

WHAT HAPPENS AFTER REGISTRATION ?

ROC will issue a certificate of registration (FORM CHG – 2)
 WHAT HAPPENS IF CHARGE
NOT REGISTERED?
CHARGE SHALL NOT BE TAKEN INTO HOWEVER, THE COMPANY WILL NOT
ACCOUNT BY THE LIQUIDATOR IMPACT/NEGATE ANY
APPOINTED UNDER CA 2013 / IBC 2016 CONTRACT/OBLIGATION TO REPAY THE
/ any other creditor FUNDS BORROWED
SECTION 79 – APPLICATION BY CHARGE
HOLDER (Eg: Bank/Debenture Trustee)
CHARGE HOLDER -
COMPANY
BANK
LOAN SANCTIONED FROM BANK

ASSET CHARGED
COMPANY
FAILED TO
REGISTER
CHARGE WITHIN ROC WILL SENT NOTICE TO
30 DAYS OF COMPANY +
NO OBJECTION RECEIVED FROM
CREATION COMPANY WITHIN 14 DAYS

THEN ALLOW SUCH REGISTRATION

AFTER GIVING NOTICE ON PAYMENT OF
FEES BY CHARGE HOLDER
(such fees can be recovered by the
charge holder from the company) ROC
 SECTION 80 – DEEMED NOTICE OF CHARGE
A LTD CHARGE HOLDER -
BANK
HAS REGISTERED LOAN SANCTIONED FROM BANK
CHARGE WITH
ROC ON ITS
BLDG - ASSET
BLDG - ASSET CHARGED

B LTD
BLDG IS SOLD TO B LTD
THEN B LTD IS DEEMED TO HAVE NOTICE OF THE
CHARGE ALREADY CREATED ON THE ASSET BY A
LTD
SECTION 82 – COMPANY TO REPORT SATISFACTION OF CHARGE

If no cause is shown, Registrar shall order entering of

a memorandum of satisfaction of charge in full, in
the register and issue “Certificate of registration of
satisfaction of charge in Form CHG - 5
SECTION 83 – POWER OF REGISTRAR TO MAKE ENTERIES OF
SATISFACTION AND RELEASE IN THE ABSENCE OF INTIMATION FROM
COMPANY
ROC MAY
HIMSELF
REGISTER
SATISFACTION
OF CHARGE
COMPANY ROC TO INFORM THE
REPAID THE ROC RECEIVED AFFECTED PARTIES
BUT FAILED TO
DEBT EVIDENCE WITHIN 30 DAYS OF
INFORM ROC
ABOUT MAKING ENTRY OF
SATISFACTION SATISFACTION + ISSUE
OF CHARGE CHG 5
SECTION 84 – INTIMATION OF APPOINTMENT OF MANAGER/
RECEIVER
ROC SHALL REGISTER THE
NAME OF THE PERSON
SO APPOINTED

COMPANY
VIOLATED THE THE CHARGE HOLDER i.e.
BANK
BANK WANTS BANK HAS TO INFORM
TERMS OF LOAN APPOINTED
TO SELL OFF ROC AND COMPANY
AGREEMENT MANAGER/
THE CHARGED WITHIN 30 DAYS OF
RECEIVER TO
ASSET SUCH APPOINTMENT
SELL THE ASSET
IN FORM CHG 6

ON CEASING TO HOLD APPOINTEMENT, THE PERSON APPOINTED SHALL GIVE NOTICE TO THAT
EFFECT TO THE COMPANY AND ROC
 SEC 86 – PUNISHMENT FOR CONTRAVENTION

COMPANY EVERY OID

1 LAC – 10 LAC

6 M JAIL AND/OR 25,000 - 1 LAC

IF FRAUD PROVED, THEN SEC

447 MAY ALSO APPLY
MANAGEMENT &
ADMINISTRATION
By Prof. Aakash Pednekar (CA)
Shareholder meetings are called General Meetings (‘GMs’)
Why are they held ?
• Share holders have invested in the shares of the company, hence
many decisions require shareholder approval. These decisions are
taken in the GMs

SHAREHOLDERS COMPANY

DECISION MAKING
 Types of General Meetings ?

General Meeting
(Types)

EXTRA – ORDINARY GM
ANNUAL GM (‘AGM)
(‘EGM’)
Section 96
Section 100
(held once a year)
(no limit)
 What kind of business is transacted at a GM?

AGM EGM

Ordinary Special Special

business business business

Appointment Any business Any business

Adoption of
Declaration and Appointment other then other then
financial
of dividend remuneration of Director
statements ordinary ordinary
of Auditor
business business
Eg: Share Eg: Share
buyback, etc buyback, etc
 Section 96 – AGM (N/A to OPC)

AGM TIME LIMIT EXTENSION BY ROC

1ST AGM 9m from end of 1st FY N/A
Subsequent AGM 6m from end of FY 3m

Gap between 2 AGMs – Max 15 months

OTHER POINTS
Time Business hours: 9am – 6pm
Day any day that is not a National Holiday
Place 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

(AGM of an unlisted company may be held at any place in India if consent

is given in writing or by electronic mode by all the members in advance)
 Section 97 - Power of Tribunal to Call AGM Section 98 - Power of Tribunal to Call EGM
TRIGGER default is made in holding the AGM of a company u/s 96 If it is impracticable to call/hold EGM
APPLICATION BY Member to NCLT Member / director / to NCLT
NCLT may suo moto
ORDER OF NCLT Call, or direct the calling of, an AGM of the company and order EGM to be called, held and conducted in such manner
give such ancillary or consequential directions as the as the Tribunal thinks fit and
Tribunal thinks expedient: give such ancillary or consequential directions
SPECIAL POINTS Directions may include a direction that one member of the company present in person or by proxy shall be deemed to
constitute a meeting.

Section 99 - PENALTY FOR CONTRAVENTION of section 96, 97 , 98

COMPANY AND EVERY OID – FINE 1 lac Rs and in case of continuing default max 5000 Rs/day in which default continues

Section 121 – Report on AGM

1 Every listed public company shall prepare in the prescribed manner a report on each annual general meeting
(including the confirmation to the effect that the meeting was convened, held and conducted as per the provisions of this Act and the rules)
2 Co. to file this report with ROC within 30 days with fees
3 Penalty for contravention:
a) Company – 1 lac Rs and in case of continuing failure Rs 500/day but max 5 lac
b) Every OID – 25,000 Rs and in case of continuing failure Rs 500/day but max 1 lac
 Section 100 – EGM

BY BOD BY MEMBERS

May call EGM whenever it deems fit CO. WITH SHARE CAP CO. WITHOUT SHARE CAP

[EGM of a company (other than WOS of co.

incorporated outside India) shall be held in Members holding > 1/10th of Members holding > 1/10th of
India PUESC VP

THE REQUISITION
Requisitionists
✓ Requisition shall specify matters to be dealt at EGM (giving reasons not necessary)
ON RECEIPT OF
✓ Requisition shall be signed by all requisitionists / 1 requisitionist duly authorised by others VALID
REQUISITION
✓ Requisition shall be deposited at reg. office of the company in writing / email (by attaching
scanned copy of signed requisition) at least 21 clear days before the date of proposed EGM

BOD AGREES TO CALL THE EGM BOD FAILS TO CALL THE EGM

BOD shall within 21 days proceed to call the EGM to be held within 45 days
REFER NEXT SLIDE
from date of deposit of requisition

Notice of EGM to be sent to those members whose names appears in the

register of member within 3 days of receipt of valid requisition
 EGM called by Requisitionists
1 EGM shall be held within 3m from the date of deposit of requisition in same manner as BOD would call
2 Co. to provide the list of members as on 21 st day (with changes upto 45th day)
3 EGM to be held on any day except national holiday at registered office / same city / town in which RO is situated
4 Notice of EGM to be sent by speed post / reg post / email. Accidental omission to be ignored.
5 Content of the notice:
✓ Place, date, day and hour of the meeting
✓ Business to be transacted (Agenda)
✓ If SR to be passed, disclose such fact
6 Company to reimburse the requisitionists for reasonable exp incurred to call EGM. Company to deduct such
amount from remuneration of defaulting directors
 Section 121 – Applicability of this chapter to OPC

Section 98 and 100 to 111 (both inclusive) shall not apply to OPC
MANNER OF PASSING RESOLUTION IN

GM BOARD MEETING (where there is only 1

It shall be sufficient if the resolution is
✓ communicated by the member to the
company and
✓ entered in the minutes-book required to
be maintained under section 118 and
✓ signed and dated by the member and
✓ such date shall be deemed to be the
date of the meeting for all the purposes
under this Act
Director)
It shall be sufficient if the resolution is
✓ entered in the minutes book required to
be maintained under section 118 and
✓ signed and dated by such director and
✓ such date shall be deemed to be the
date of the meeting of the Board of
Directors for all the purposes under this
Act.
PRE –REQUISITIES OF VALID MEETING
 Section 101 – NOTICE OF GM
ACCIDENTAL OMISSION NOT FOR SECTION 8 CO –
TO INVALIDATE GM SHALL BE SENT 21 CLEAR DAYS BEFORE READ 14 DAYS

TO EVERY

✓ auditor or auditors of the company ✓ every member of the Co, ✓ every director of the company
✓ legal representative of any
deceased member or
✓ the assignee of an insolvent NOTICE TO BE SENT IN
COMPANY TO ALSO PLACE member WRITING / ELECTRONIC
NOTICE ON WEBSITE MODE : text / attachment /
SHORT NOTICE ALLOWED IF notification / URL

IN CASE OF AGM IN CASE OF EGM

MIN 95% OF MEMBERS COMPANY HAVING SHARE COMPANY NOT HAVING SHARE
ENTITILED TO VOTE THEREAT CAPITAL: CAPITAL:

MAJORITY IN NUMBER MEMBERS HOLDING MINIMUM

Content of the notice: HOLDING 95% PUSC 95% VOTING POWER
✓ Place, date, day and hour of the meeting
✓ Business to be transacted (Agenda)
✓ If SR to be passed, disclose such fact
 Section 102 – EXPLANATORY STATEMENT TO BE ANNEXED TO NOTICE
(FOR SPECIAL BUSINESS ONLY)

CONTENT OF EXPLANATORY STATEMENT

1 the nature of concern or interest, financial or otherwise, if any, in respect of each items by:
(i) every director and the manager, if any;
(ii) every other key managerial personnel; and
(iii) relatives of the persons mentioned in sub-clauses (i) and (ii);
2 any other information and facts that may enable members to understand the meaning, scope and implications of
the items of business and to take decision thereon.
3 where any item of special business relates to any other company, the extent of shareholding interest in that
other company of every promoter, director, manager, also be set out in the statement
(if the extent of such shareholding is 2% of more of the PUSC of that company)
4 Where any item of business refers to any document, which is to be considered at the meeting, the time and place
where such document can be inspected

If any promoter, director or manager fails to PENALTY ON PROMOTER / DIRECTOR / MANAGER /

disclose and earns profit on that transaction KMP:
– he is liable to compensate the company to
the extent of the benefit received by him. 50,000 or 5 times the benefit – whichever is higher
 Section 103 - QUORUM

IF QUORUM NOT PRESENT

IN FIRST HALF HOUR OF
MEETING

IN CASE OF AGM / EGM by REQUISITIONISTS

EGM BY BOD
SHALL STAND CANCELLED
Meeting will be adj to same
day, same time and place in
NOTICE OF ADJ MEETING next week
IF QUORUM NOT PRESENT IN ADJ
MIN 3 DAYS NOTICE TO MEMBERS INDIVIDUALLY OR Or
MEETING IN HALF HOUR
ADVERTISMENT IN NEWSPAPER (ENG + VERNAC)
Such other date as BOD may
MEMBERS PRESENT = QUORUM
decide
 Section 104 - CHAIRMAN
UNLESS THE AOA PROVIDE OTHERWISE, MEMBERS PERSONALLY PRESENT SHALL
ELECT CHAIRMAN AMONGST THEMSELVES BY SHOW OF HANDS

IF POLL DEMANDED – THE CHAIRMAN ELECTED BY SHOW OF HANDS SHALL

CONTINUE UNTIL SOME OTHER PERSON IS ELECTED AS CHAIRMAN AS RESULT OF
POLL

POWER OF CHAIRMAN – TO DECIDE ALL QUESTIONS THAT ARISE AT THE MEETING

AND

TO CAST CASTING VOTE (IF AOA PERMIT)

If there is no provision in the AOA, then the OR on which there is equality of votes
is deemed to be dropped
 Section 105 – PROXIES (a person appointed by member to attend and vote at a meeting

IMP POINTS
1 Proxy need not be a member (except in case of Section 8 Co.)
2 A person can act a proxy on behalf of max 50 members holding max 10% voting power – Hence, a member holding >
10% VP may appoint a single person as proxy and such person shall not act as proxy for any other person
3 “Person entitled to attend and vote shall be entitled to appoint a proxy (to attend and vote instead of himself) and
that proxy need not be a member “ – such sentence shall appear in every notice calling meeting – in case of default –
every OID penalty Rs 5,000.
4 Deposit of proxy form (MGT- 11) – 48 hrs before the meeting
(even if AOA state 60 hrs – shall have effect as if 48 hrs is specified)
5 Rights of proxy: Disabilities of proxy:
✓ Right to attend meeting ✓ No right to speak at meeting
✓ Right to vote on poll ✓ Cannot vote on show of hands
✓ If eligible u/s 109 – right to demand poll ✓ Not counted for purpose of quorum
6 Inspection of proxies (allowed only during business hours):
✓ At least 3 days’ notice in writing is required to be given to the company for conducting the inspection
✓ Inspection can be made during the period beginning 24 hrs before GM and ending with conclusion of such GM
7 Unless the AOA provide otherwise, member of co. having no share cap shall not be entitled to appoint proxy. CG may
also prescribe companies whose members shall not be entitled to appoint another person as a proxy.
 Section 112 & 113 – REPRESENTATIVE

Sec Member in the company May appoint

112 President of India or the Governor of a State such person as he thinks fit to act as his
representative at any meeting
113 Body corporate by resolution of its Board of Directors or other
governing body, authorise such person as it thinks fit
to act as its representative at any meeting
A person authorised as above, shall be entitled to exercise the same rights and powers, including the right to vote by
proxy and by postal ballot as a member of the company

Section 106 – Restriction on voting rights

On a poll taken at a meeting of a ONLY IF PROVIDED IN AOA

company, a member entitled to
more than one vote, or his proxy,
where allowed, or other person VALID GROUNDS INVALID GROUNDS
entitled to vote for him,
need not ✓ Calls on shares / any other sum presently ✓ Any other ground
payable by member have not been paid
✓ use all his votes or
✓ cast in the same way all the ✓ The company has exercised any right of
votes he uses lien on shares
Section 107 - Voting by show of hands
1 At a GM, a resolution shall be decided on show of hands,
unless
a) A poll is demanded u/s 109 or
b) Voting is carried out electronically u/s 108
2 Declaration by the Chairman of the meeting in the minutes
books shall be the conclusive evidence that the resolution is
passed
 Section 108 – Remote e-voting
APPLICABILITY

ALL LISTED COMPANIES EVERY COMPANY WITH MIN 1000 MEMBERS

Notice to contain:
NON – APPLICABILITY:
✓ Process of e-
voting Nidhi, or an enterprise or institutional investor referred to in Chapter XB or Chapter XC of the
✓ Time Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,
schedule 2009
✓ Log-in details

Notice sent Remote e-

21 days CUT OFF voting Date of AGM
DATE 8 Min 3 days
before on =
July 20 12/7 to 14/7
23 June 15 July 2020
People buying shares in this time period
2020 need to email the company to get log-in id
5pm

✓ Members of the company, holding shares either in physical form or in dematerialized form, as on the cut-off
date, may opt for remote e-voting
Notice shall also be placed on
✓ Once the vote on a resolution is cast by the member, he shall not be allowed to change it subsequently or cast
website + adv (eng + vernac)
the vote again
✓ Member may participate in the GM even after exercising his right to vote through remote e-voting but shall not
be allowed to vote again
 AT THE GENERAL MEETING
1 BOD to appoint scrutinizer
2 Who can be a scrutinizer ?
3 ✓ Chartered Accountant in practice,
✓ Cost Accountant in practice, or
✓ Company Secretary in practice or
✓ an Advocate, or
✓ any other person who is not in employment of the company

and is a person of repute who, in the opinion of the Board can scrutinize the voting and remote e-voting process in a
fair and transparent manner
4 The scrutinizer shall, immediately after the conclusion of voting at the general meeting, first count the votes cast at
the meeting, thereafter unblock the votes cast through remote e-voting in the presence of at least two witnesses not
in the employment of the company and make, within 3 days of conclusion of the meeting, a consolidated
scrutinizer’s report of the total votes cast in favour or against
5 Scrutinizer to maintain and safe keep the register containing all details
6 The results declared along with the report of the scrutiniser shall be placed on the website of the company (Listed
companies to forward results to concerned stock exchange)
7 Resolution shall be deemed to be passed on the date of the relevant general meeting
 Section 109 – Voting by poll
IMP POINTS
1 Who can order Poll ?
✓ Chairman suo moto or Specified number of members
In case of co. having share cap In case of co. NOT having share cap
Any member(s) (present in person / proxy) holding: Any member(s) (present in person / proxy) holding:
➢ 1/10th total VP or 1/10th total VP
➢ Min 5 lac Rs PUSC
2 When to order Poll ?
✓ Before or on declaration of result of the voting on any resolution by a show of hands.
✓ Demand for poll may be withdrawn by the persons who made the demand, at any time.
✓ A poll demanded for adjournment of the meeting or appointment of Chairman of the meeting shall be taken immediately (poll demanded
for any other question – shall be taken as directed by Chairman but within 48hrs)
The Chairman of the meeting shall appoint a scrutinizer for observing the poll process and votes given on poll and to report thereon. The
Chairman shall declare the result of Voting on poll. The result may either be announced by him or a person authorized by him in writing
3 Duties of Scrutinizer ?
✓ To ensure proper conduct of the polling process ✓ Shall lock and seal an empty polling box in the
✓ To maintain proper records of the poll presence of the members and proxies
✓ To submit a report to the Chairman on votes cast in favour and against in FORM ✓ The Scrutinizers shall open the Polling box in the
MGT-13 presence of two persons as witnesses after the
✓ To be provided with the Register of Members, specimen signatures of the members, voting process is over
Attendance Register and Register of Proxies
 Section 110 – Postal ballot
APPLICABILITY

ON ITEMS OF BUSINESS NOTIFIED BY CG Any item of business, other than ordinary

business and any business in respect of
✓ alteration of the objects clause of the memorandum which directors or auditors have a right to
✓ alteration of articles of association pvt to public and vice versa
be heard at any meeting
✓ change in place of registered office outside the local limits
✓ change in objects for which a company has raised money from public through prospectus and still has any
unutilized amount
✓ issue of shares with differential rights
✓ variation in the rights attached to a class of shares or debentures or other securities as specified under
section 48 NON – APPLICABILITY:
✓ buy-back of shares
✓ election of a director under section 151 of the Act
✓ sale of the whole or substantially the whole of an undertaking
OPC and other companies having members
✓ giving loans or extending guarantee or providing security in excess of the limit specified under sub-section upto 200 are not required to transact any
(3) of section 186 business through postal ballot

The notice of the postal ballot shall also be placed on the website of the company immediately after the notice is sent to the
members and such notice shall remain on such website till the last date for receipt of the postal ballots from the members

If a resolution is assented to by the requisite majority of the shareholders by means of postal ballot within 30 days, it shall be
deemed to have been duly passed at a general meeting convened in that behalf

Refer previous slides for appointment of scrutinizer

 Section 111 – Circulation of members resolution (IMP)

RESOLUTION
TO BE NOTICE OF DATE OF
DEPOSITED AGM AGM
BY MEMBERS
as specified 21 DAYS = 3 WEEKS 21 DAYS = 3 WEEKS
u/s 100

STATEMENT
DEPOSIT
LEGAL REQUIREMENT FOR VALID REQUISITION PERIOD 14 DAYS = 2 WEEKS
NOTICE OF
DATE OF
AGM /
✓ Signed by requisitionists AGM / EGM
EGM
✓ Deposited at Reg. office
✓ Amount to be deposited along with requisition to meet company’s exp
✓ Company not bound to circulate any statement, if CG is satisfied that rights 21 DAYS = 3 WEEKS
conferred u/s 111 are being abused to secure needless publicity for
defamatory matter
✓ CG may also order that requisitionist shall reimburse the company cost
incurred to make application to CG
✓ Penalty on company and every OID = 25,000/-
 Section 114 – Ordinary and Special resolution

CHARACTERISITICS OF SPECIAL
RESOLUTION

the votes cast in the favour of the The votes cast in favour is 3 times
resolution, by any mode of voting the votes cast against the
should exceed the votes cast resolution.
against it.
 Section 115 – Resolutions requiring special notice
APPLICABILITY

SPECIAL NOTICE REQUIRED IN FOLL. CASES SPECIAL NOTICE TO BE SENT TO COMPANY

BY
✓ To appoint as auditor a person other than a retiring auditor (Section 140 of the Act);
✓ To stand for directorship by a person other than retiring director 14 days’ notice is required under section ✓ such number of members holding minimum 1 % VP, or
160(1) of the Act; ✓ holding minimum 5 lac Rs PUSC
✓ To remove a director under section 169(2) or to appoint a person to fill the vacancy caused by the (TYPO ERROR IN MODULE & CA 2013 – Correct language
dismissal of a director under section 169 at the same meeting. in Rules)

IMP POINTS
1 Notice shall be sent by members to the company not earlier than 3 months but at least 14 days before the date of meeting
2 The company shall immediately after receipt of the notice, give its members notice of the resolution at least 7 days before the meeting [if
not possible publish notice in newspaper (eng + vernac)]

Section 116 – Resolutions passed at adjourned meeting

if a meeting is adjourned then the date of passing of the resolution shall be the date on which it is actually
passed and not an earlier date
 Section 117 – Resolutions and agreements to be filed with ROC

A copy of every resolution or any agreement, together with the explanatory statement under section 102, if
any, annexed to the notice calling the meeting in which the resolution is proposed, shall be filed with the ROC
in FORM MGT - 14 within 30 days of the passing

PENALTY

ON COMPANY: ON OID:

1 lac Rs 50,000 Rs
& &
500/- day of default but max 25 lac Rs 500/- day of default but max 5 lac Rs
 Section 118 – Minutes

AFTER THE MEETING

1 Every company has to maintain distinct minutes book of every GM / any class meeting / BM / any committee / postal
ballot
2 Pages shall be consecutively numbered
3 Prepared & signed within 30 days of conclusion of meeting / passing of resolution by postal ballot
4 Each page shall be initialled & signed and last pave is dated and signed as foll
✓ BM and committee meeting Chairman of same meeting / next meeting
✓ GM Chairman of same meeting / in case of his death or inability by a director
duly authorized
✓ Postal ballot resolutions Chairman of board / in case of his death or inability by a director duly
authorized
5 Matter not to be included in minutes book if Chairman is of the opinion that it is
Defamatory / irrelevant / immaterial / detrimental to interest of company. (i.e. Chairman has absolute discretion)
6 Punishment for contravention: Company – 25,000 and OID - 5000
7 Person found tampering with minutes – Jail max 2 years and fine 25000- 1 lac Rs
8 Minutes book shall be kept at Reg office and preserved permanently
 Section 119 – Inspection of minutes of GM

AFTER THE MEETING

1 The minutes book shall be kept at Reg office
2 Inspection can be made by any member (without any charges) during business hours
(subject to reasonable restriction in AOA – atleast 2 hrs to be allowed)
3 If member wants copies of minutes of GM – Company to provide within 7 days of request on payment of fees as
provided in AOA (max Rs 10/page) and if soft copy is demanded (of any GM held during 3 PFYs) then free of cost
6 Punishment for refusal to inspect / provide copy: Company – 25,000 and OID - 5000
7 NCLT may direct the company to allow immediate inspection / provide copy immediately

Section 120 – Maintenance and inspection of documents in electronic form

Listed companies or a company having at least 1000 shareholders, debenture-holders and other security
holders, may maintain its records in electronic form and provide such records for inspection in electronic
form.

If hard copy requested then fees max 10 Rs/ page

 Section 92 – Annual Return
Every company shall prepare a return in MGT – 7 containing the particulars as they stood on the close of the FY

SIGNING of AR

OTHER Cos OPC, SMALL co

By Director & CS By CS
(if no CS then PCS) (if no CS then director)

Certifying the AR by PCS in MGT - 8

LISTED Co Other Cos with

PUSC = min 10cr
Preservation of AR = 8 years or
from filing Turnover = min 50 cr

Filing of AR

AGM HELD AGM NOT HELD

Within 60 days of AGM Within 60 days of last date of

AGM +
Extract of AR = MGT -9 to statement specifying reasons
form part of boards report not holding AGM

PENALTY ON CO & EVERY OID

50,000 Rs
&
100/- day of default but max 5 lac Rs
 Section 88 – Register of members, etc

every company shall keep and maintain the register of members, register of debenture-holders and register of
any other security holders.

REGISTER OF MEMBERS – MGT 1

holding of each class of equity and preference shares by each member residing in or outside India will have to be shown
separately
Entries shall be made within 7 days of BOD approval for allotment / transfer
Place of maintenance of reg = Reg office / any other place in India in which more than 1/10th of the total members
entered in the register of members reside
Content: Name , address, email –id, PAN /CIN , Nationality, in case member is a minor – name of his guardian and the
date of birth of the member, name and address of the nominee, date of becoming member / cessation, etc
Maintenance of index is not necessary where the number of members is less than 50
Register index of beneficial owner maintained by depository shall be deemed to be register of the company
Example: Mr. Zoey purchased the shares of Luxy Hairstyles Private Limited, at market price, in the name of his daughter, Mila,
Register of debenture who is 4 years old. Mr. Joe, the Director of the Company, has approached you to advise him on the updation of said change in
the register of members, since Mila, being a minor is incompetent to contract in her capacity
holders / other security
holders = MGT 2 Answer: Since, the minors are not competent to enter into any contract, thus their names cannot be entered in the register of
members. Therefore, Mr. Joe is advised that while filing MGT – 1 and MGT – 2, the names of the minor can only be entered only if
the details of the guardian are present. Thus, Zoey’s name shall appear in the register of members of Luxy Hairstyles Private Limited
since Mila is a minor
 Section 88 – Register of members, etc
FOREIGN REGISTER
Company to maintain a foreign register of members, debenture-holders or other security holders or beneficial owners,
showing the holding of persons residing outside India
Within 30 days of opening/ change of foreign register – company to inform ROC about situation of such reg in MGT – 3
A foreign register shall be deemed to be part of the company’s register (‘principal register’) and maintained in same
format
Company to transmit to its registered office in India, a copy of every entry in any foreign register within 15 days after the
entry is made and Keep at such office a duplicate register
The company may discontinue the keeping of any foreign register, and thereupon all entries in that register shall be
transferred to some other foreign register kept by the company outside India or to the principal register

Example: Mrs. And Mr. Taneja, recently got married and jointly purchased the shares of New Hopes India Private
PENALTY Limited on 14th August 2016. Mr. Taneja intimated the company that only the name of his wife should appear in
the records of the company, for the shares purchased by them. The secretary of the company is not sure whether
Company and every this is possible, given that the shares are held in the names of both the persons
OID = Rs. 50,000 but Answer: Joint holders of shares may request the Co. to enter their names on the register in a certain order, or execute
max 3,00,000 transfers to have their holding split, with the result that part of the holding is entered showing the name of one holder
and and part showing the name of another. However, the condition of Mr. Taneja that only the name of his wife should
appear in the register as a member cannot be catered to, although the names can be entered in the order such that
the name of his wife appears first. The reason for this is that the AOA of most companies provide that, in the case of
in case of continuing exclusion of the other joint holders, and for this purpose, seniority shall be determined by the order in which the
failure Rs. 1000/day names stand in the register of members
 Section 89 – Declaration in respect of beneficial interest in share
IN CASE BENEFICIAL OWNER FAILS TO FILE PENALTY IN CASE OF FAILURE TO FILE
ANY DECLARATION DECLARATION
THEN 50,000 +
ANY RIGHT IN RESPECT OF SUCH SHARES
SHALL NOT BE ENFORCEABLE BY THE BO
1000 Rs / day during which failure
continues
MGT - 5

MGT - 4 MGT – 4 /
MGT – 5
PENALTY IN CASE COMPANY FAILS
TO FILE RETURN – CO & EVERY OID

Fine – 500 – 1000 COMPANY’S DUTY TO PAY DIVIDEND

1000 Rs/day in case of continuing NOT AFFECTED
default
In MGT - 6

Example: Ms. Emma gifted the shares purchased by her of the Company Bio-Optics Limited, to her sister Cathy. Emma had purchased these shares on the occasion of her birthday
in February 2017. However, neither Emma nor Cathy were aware that they had to intimate about the transaction of transfer of such shares as a gift, to the company. Discuss the
same in light of the provisions of section 89 of the Act

Answer: The provisions of the section 89 of the Act, dealing with declaration of beneficial interest in shares by a person to the company does not apply in a civil suit where the title of the
shares is in a dispute. Khajamiya Miransaheb Mujahid v. Peerapasha Miransaheb Mujahid (1987) (Kar.). Where the shares are gifted away, they become the property of the donee.
Hence, the provisions relating to declaration of beneficial interest are not applicable
 Section 90 – Register of Significant Beneficial Owners (SBO) in a Co.
Co. to maintain
register of SBO

MEANING OF SBO =
SBO to make Co. to file
Every individual, who acting alone or together, declaration to return of SBO
or through one or more persons or trust, company with ROC
including a trust and persons resident outside
India,

✓ holds beneficial interests, of minimum 10%

shares of a company or ON FAILURE TO MAKE ON FALSE / INCORRECT ON FAILURE TO FILE RETURN
✓ the right to exercise, or the actual exercising DECLARATION DECLARATION / / MAINTAIN REGISTER
of significant influence or SUPRESS MATERIAL
Fine : 1 lac – 10 lac INFO Fine : 10 lac – 50 lac
✓ control as defined in clause (27) of section 2, Rs 1000 / day where Rs 1000 / day where failure is
over the company failure is continuing one Penalty u/s 447 continuing one

Company shall give notice in

Co. to apply to NCLT NCLT to make order
BEN – 4 to any person whom
within 15 days within 60 days
the company believes to be

Restricting
✓ A SBO Person has 30 If person does rights attached
✓ HAVING KNOWLEDGE OF IDENTITY days to reply not reply / Company / person
to shares after
OF SBO reply is not has 1 year to appeal
OBH to parties
✓ HAVE BEEN SBO @ ANY TIME IN 3 satisfactory against NCLT order
concerned
PFYs & NOT REGISTERED AS SBO
If appeal not filed upto 1
year, trf shares to IEPF
 Section 91 – Power to close register of members / deb holders / security holders

45 days in a Private co – min

year 7 days prior
Max period of notice to all
members
closure Manner of
30 days at any giving notice
Any other Co – Also publish notice
one time Min 7 days prev on Company
notice in Adv website & website
(Eng + vernac) notified by CG

PENALTY FOR KEEPING REGISTER CLOSED IN

CONTRAVENTION OF SECTION 91 ON
CO & EVERY OID

5000 – 1 lac Rs
 Section 94 – Maintenance and inspection of registers and Annual Return
PENALTY FOR REFUSING THE INSPECTION / MAKING ANY
EXTRACT OR COPY AVAILABLE ON CO & EVERY OID

1,000 Rs / day of default but max 1 lac Rs

CG may order inspection / to provide copy immediately

Register Period of maintenance

Register of members and index Permanently
Register of debenture holders / security holders and index 8 years from date of redemption of debentures / securities
Annual return 8 years from date of filing with ROC
Foreign register of members Permanently unless discontinued and all entries transferred to
other foreign reg / principal reg
Foreign register of debenture holders / security holders 8 years from date of redemption of debentures / securities
Kept in custody of the CS or any other person authorised by the BOD

TIME PERIOD FOR INSPECTION FEES FOR INSPECTION FEES FOR COPIES

Max fees = Rs 10 / page +

On every working day during business hours Member / Deb holder / Any other person
Copy to be supplied within 7 days of payment
(min 2 hrs) security holder or
beneficial owner Fees specified in AOA
but max Rs 50 for each Section 95 = registers, indices and copies of annual
Section 93 = omitted return shall be prima facie evidence of any matter
No fees inspection
directed or authorised to be inserted therein by or
under this Act.
DIVIDEND – CA INTER LAW
Compiled by Prof. Aakash Pednekar (CA)
+ 91 9920497907
Chapter 8 – Declaration &
payment of Dividend
 SECTION 123 (6) – PROHIBITION ON DIVIDEND DECLARATION

A COMPANY WILL NOT BE ALLOWED TO

DECLARE ANY DIVIDEND

IF COMPANY IS SECTION 8
IF COMPANY FAILS TO COMPANY AS ITS PROFITS
COMPLY WITH SECTION ARE INTENDED TO BE
73 & 74 i.e. DEPOSIT APPLIED ONLY IN
PROVISIONS PROMOTING ITS OBJECTS
 UNPAID DIVIDEND – Section 124

If amount remains
unpaid upto 30 days

Dividend declared to be If dividend remains

Company to transfer Company to place names +
deposited in unpaid/unclaimed for
unpaid/unclaimed dividend to address on website
separate A/c in 7 years from date of trf
“UNPAID DIVIDEND A/C”
scheduled bank Transfer Dividend amount +
Within 7 days Within 90 days
within 5 days Int earned to IEPF

Shares on which
Unpaid dividend A/c
dividend was
to be opened with
unpaid/unclaimed
Scheduled Bank
FOR 7 CONSECUTIVE
YRS also to be trf. in
Int @ 12% p.a. for name of IEPF
delay in such transfer
 OLD & NEW SARDARGI

OLD = OLD IEPF (CA 1956)

NEW = SECTION 124 – UNPAID DIVIDEND A/C

S = SALE PROCEEDS OF FRACTIONAL SHARES SECTION 125 NEW IEPF

A = AMT. OF MATURED DEPOSITS

R = REDEMPTION AMT. OF PREF SHARES

D = DONATION CG,SG, COMPANY/OTHER INST.

A = AMT. OF MATURED DEBENTURES
R =REFUND OF SHARE APP. MONEY PENDING
ALLOTMENT
G = GRANTS BY CG
I = INCOME FROM INVESTMENT
ALL ABOUT INVESTORS
- THEIR EDUCATION
- THEIR AWARENESS
- TO PROTECT THEIR INTEREST
- TO REFUND THEM MONEY
- TO REIMBURSE LEGAL EXPENSES
- DISTRIBUTE ILLLEGAL MONEY
SECTION 126 – DIVIDEND, RIGHT SHARES, BONUS SHARES TO BE KEPT IN ABEYANCE PENDING REGISTRATION
MR. A SOLD PHYSICAL SHARES TO MR. B FOR CONSIDERATION

INSTRUMENT OF TRF. OF SHARES DELIVERED BY

SH TO COMPANY

BUT THE COMPANY HAS NOT YET

REGISTERED THE SHARES IN THE NAME
OF NEW OWNER (TRANSFEREE)
BONUS SHARES/ RIGHT
DIVIDEND DECLARED SHARES TO BE KEPT
IN THE INTERIM PENDING

CHECK IF THE INSTRUMENT OF TRANSFER

SPECIFICALLY STATES DIVIDEND TO BE GIVEN TO
TRANSFEREE

YES NO

SEND DIVIDEND TO BE SO LATER ON WHENEVER, THE COMPANY HAS REGISTERED

DIVIDEND TO TRANSFERRED TO THE SHARES IN THE NAME OF MR. B, HE WILL GET THE
TRANSFEREE UNPAID DIVIDEND A/C DIVIDEND FROM THE UNPAID DIVIDEND A/C
 FAILURE OF COMPANY (EXCEPTIONS) – Section 127

ZIG ZAG ROAD STRAIGHT ROAD =

DEFAULT CAN HAPPEN NO DEFAULT ROAD

NO DEFAULT - OF THE COMPANY

R = RIGHT TO DIVIDEND DISPUTE

O = OPERATION OF LAW

A = ADJUSTMENT BY COMPANY

D = DIRECTION COULD NOT BE

COMPLIED WITH + COMMUNICATION
TO THE SH OF SUCH NON
COMPLIANCE
 NO PENALTY u/s 127
WHETHER REASON FOR
COMPANY FAILS TO DISTRIBUTE DIVIDEND WITHIN 30 DAYS FAILURE FALLS IN EXCEPTIONS
PROVIDED u/s 127 ? YES – FALLS IN
EXCEPTIONS

AFTER 30 DAYS WHETHER COMPANY HAS TRANSFERRED

DIVIDEND TO UNPAID DIVIDEND ACCOUNT WITHIN 7 DAYS NO – REASON DOES
? NOT FALL IN
EXCEPTIONS

YES NO PENALTY u/s 127 WILL APPLY

COMPANY - 18% p.a.
PENALTY
PENALTY INTEREST PENALTY INTEREST
DIRECTOR – JAIL UPTO 2 YRS +
FINE MINIMUM Rs. 1000/DAY
OF DEFAULT
NO NO INTEREST PENALTY u/s
PENALTY u/s 124 TO BE 124 on FUNDS TAKEN OUT FUNDS LYING IN THE
u/s 124 PAID TO FROM ACCOUNT “A” ACCOUNT “A”
TO BE MEMBERS. COMPANY –
PAID TO WHATEVER Rs. 5 Lacs – 25
GOVT INTEREST lacs
MEMBERS COMPANY TO PAY ANY COMPANY WOULD NOT KEEP FUNDS IDLE IN
EARN WILL BE & INTEREST @ 12 % p.a. ACCOUNT “A” FOR FOLL REASONS:
PAID BY BANK TO MEMBERS
IN ACCOUNT Every A) IF YOU HAD TO KEEP FUNDS IDLE MIGHT AS WEEL
“B” OFFICER – Rs. KEEP THEM IN ACCOUNT “B”
1 lac – 5 lacs
B) COMPANY WILL EARN MAX 7% INT p.a. on FD vis a
vis 12% p.a. INT OUTFLOW
ACCOUNTS OF COMPANIES
By Prof. Aakash Pednekar (CA)
 CHP - ACCOUNTS OF COMPANY
SEC PARTICULARS
128 Books of accounts
129 Financial statements
130 Reopening of accounts on Court’s/ Tribunal order
131 Voluntary revision of Financial statements / Boards report
132 Constitution of National Financial Reporting Authority
133 CG to prescribe accounting standards
134 Financial statements, Boards report
135 Corporate Social responsibility
136 Right of members to copies of audited financial statements
137 Copy of financial statement to be filed with Registrar
138 Internal Audit
 BOOKS OF ACCOUNTS – SEC 128

If CG orders investigation
Persons responsible for maintenance –
- MD The CG may give directions to preserve
- WTD (incharge of finance) for more than 8 years
- CFO
- Any other person charged by board
 BOOKS OF ACCOUNTS – SEC 128

DOUBLE KEPT AT
APPLIES TO TRUE & ACCRUAL
ENTRY REGISTERED
EVERY CO. FAIR VIEW BASIS
SYSTEM OFF

MAY KEEP AT ANY OTHER PLACE – PROCEDURE MAY KEEP IN ELECTRONIC MODE

- PASS BOARD RESOLUTION - SHALL REMAIN ACCESSIBLE IN INDIA

- ONE BR IS PASSED WITHIN 7 DAYS
- FILE NOTICE IN WRITING WITH ROC GIVING FULL ADDRESS
OF THAT PLACE
- SHALL REMAIN COMPLETE & UNALTERED
- SHALL BE CAPABLE OF BEING DISPLAYED IN LEGIBLE
FORM
- BACKUP TO BE KEPT ON SERVERS PHYSICALLY LOCATED
IN INDIA
- INTIMATE TO ROC (at the time of filing FS u/s 137) name,
IP address, location of service provider

Indian/foreign branch office will be deemed to have complied if proper summarized returns
are periodically sent by branch to registered office/ other place
 INSPECTION OF BOOKS OF ACCOUNTS BY DIRECTORS – SEC 128

MAINTAINED IN INDIA MAINTAINED OUTSIDE INDIA

shall be open for inspection at the BOOKS OF ACCOUNTS OTHER FINANCIAL INFORMATION
registered office / at such other place
in India by any director during business
hours Shall be sent to the the director shall furnish a request to the
registered office at company setting out the full details of the
quarterly intervals, which financial information sought, the period for
shall be kept and which such information is sought.
The inspection in respect of any subsidiary
maintained at the
of the company shall be done only by the
person authorised in this behalf by a
registered office of the Company to provide such info within 15 days
resolution of the Board of Directors company and kept open to
directors for inspection. shall be sought for by the director himself and
not by or through his power of attorney holder
or agent or representative
INSPECTION OF BOOKS OF ACCOUNTS BY MEMBER
According to Regulation 89 (ii) of Table F of the CA 2013, member shall have right to inspect the BOA only if conferred by Law /
authorized by BOD / authorized by the company in general meeting
 FINANCIAL STATEMENTS – SECTION 129
PVT/PUBLIC COMPANY SECTION 8 COMPANY OPC/SMALL COMPANY/DORMANT COMPANY/ START
UP PVT COMPANY + NO DEFAULT OF SECTION 137 + NO
DEFAULT OF SECTION 92
- BALANCE SHEET - BALANCE SHEET - BALANCE SHEET

- P/L ACCOUNT - INCOME AND EXPENDITURE - P/L ACCOUNT

ACCOUNT

- CASH FLOW STATEMENT - CASH FLOW STATEMENT

- EXPLANATORY NOTES - EXPLANATORY NOTES - EXPLANATORY NOTES

- STATEMENT OF CHANGES IN - STATEMENT OF CHANGES IN - STATEMENT OF CHANGES IN EQUITY (IF IND AS IS

EQUITY (IF IND AS IS APPLICABLE) EQUITY (IF IND AS IS APPLICABLE) APPLICABLE)

i.e. CASH FLOW STATEMENT NOT REQUIRED

STATEMENT OF CHANGES IN EQUITY = NEW NAME FOR RESERVES AND SURPLUS ACCOUNT UNDER IND - AS

Section 129 shall not apply to the Government Companies engaged in defence
production to the extent of application of relevant Accounting Standard on segment
reporting
 INCLUDING
(a) any notes
The consolidation of annexed to or
financial statements
of the company shall forming part of
be made in such financial
accordance with the statement;
provisions of
Schedule III of the Act (b) the auditor’s
and the applicable report; and
accounting standards
(c) the Board’s
EXEMPTION FROM report
CFS (Refer next slide)
 EXEMPTION FROM CFS – all conditions to be satisfied
Members don’t object to CFS not being
prepared
it is a wholly-owned subsidiary, or is a
partially-owned subsidiary of another
company
and
all its other members, including those not
otherwise entitled to vote, having been
intimated in writing
and
for which the proof of delivery of such
intimation is available with the company,
do not object to the company not
presenting consolidated financial
statements
It is an unlisted company Holding company files CFS with ROC
(its ultimate or any intermediate holding
(it is a company whose securities company files CFS with the Registrar which are
are not listed or are not in the in compliance with the applicable Accounting
process of listing on any stock Standards)
exchange, whether in or outside
India)
The provisions applicable
to the preparation,
adoption and audit of the
financial statements of a
holding company shall,
mutatis mutandis, also
apply to the consolidated
financial statements
The company shall
also attach along
with its financial
statement, a separate
statement containing
the salient features of
the financial
statement of its
subsidiary or
subsidiaries in Form
AOC-1 as per Rule 5
of the Companies
(Accounts) Rules,
2014.
 REOPENING OF ACCOUNTS ON COURT/TRIBUNAL ORDER – SECTION 130

No order shall be made for re- If CG directed the company to

opening of books of account keep BOA for a longer period (i.e.
relating to a period earlier than 8 more than 8 FYs, then BOA may
FYs immediately preceding the be ordered to be re- opened
current financial year within such longer period.
VOLUNTARY REVISION OF FS/BOARDS REPORT ON NCLT APPROVAL – SECTION 131

The company shall make an application NCLT

NCLT shall give notice to CG and the Income tax

authorities and shall take into consideration the
representations, if any, made by them before passing
any order under this section

Revised FS / BR shall not be prepared or filed more

than once in a FY

Detailed reasons for revision of such FS / BR shall also

be disclosed in the BR in the relevant FY in which such
revision is being made.
NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA) – SECTION 132

POWERS & DUTIES

RECOMMENDATIONS TO CG ON REFER NEXT SLIDE FOR PERSONS

INVESTIGATE WHOSE AUDITORS NFRA CAN
“AS” & “SA” INVESTIGATE

✓ make recommendations to the Central
Government on the formulation and laying
down of accounting and auditing policies
and standards
✓ Monitor and enforce the compliance with
accounting standards and auditing
standards
✓ Oversee the quality of service

✓ Have the power to investigate, either suo

moto or on a reference made to it by the
CG

✓ Have the same powers as are vested in a

civil court under the Code of Civil
Procedure, 1908

✓ Can impose penalty

INDIVIDUAL CA IN PRACTICE FIRM / LLP

MIN 1 LAC – MAX 5 TIMES FEES MIN 5 LAC – MAX 10 TIMES FEES
RECD RECD

MAY ALSO DEBAR HIM FOR MIN 6 MAY ALSO DEBAR THE FIRM / LLP
MONTHS TO MAX 10 YEARS FOR MIN 6 MONTHS TO MAX 10
YEARS
 NFRA SHALL HAVE THE POWER TO INVESTIGATE AUDITORS OF THE FOLL. COMPANIES

LISTED UNLISTED PUBLIC COMPANIES SPECIAL ACT COMPANIES OR COMPANIES / BODY

COMPANIES IN BODY CORPORATES CORPORATES AS
INDIA / ▪ PUSC = MIN 500 cr REFERRED BY CG
OUTSIDE INDIA or EXAMPLES:
▪ TURNOVER = MIN 1000 cr ▪ INSURANCE
or ▪ BANKING
▪ Loans, debentures, deposits = ▪ ELECTRICITY
MIN 500 cr ▪ SBI

FOREIGN SUBSIDIARY / ASSOCIATE COMPANIES OF COMPANIES / BODY CORPORATES SPECIFIED ABOVE

IF:

INCOME / NET WORTH OF FOREIGN SUB / ASSOCIATE > 20 % OF CONSOLIDATED

INCOME / NETWORTH OF
COMPANIES / BODY CORPORATES
SPECIFIED ABOVE

A company or a body corporate other than a company governed under NFRA Rules shall continue to be governed by the
NFRA for a period of 3 years after it ceases to be listed or its paid-up capital or turnover or aggregate of loans, debentures
and deposits falls below the limit stated therein
 HOW WILL NFRA IDENTIFY THE AUDITOR ???

IN CASE OF COMPANIES - THEY FILE FORM ADT -1 WITH ROC - NFRA WILL TAKE DATA FROM ROC

IN CASE OF BODY CORPORATES (Eg: LIC, SBI, RBI) – FILE FORM NFRA – 1 within 30 days of the commencement of
NFRA rules

Failure of auditor / company / officer of company to comply with NFRA rules then penalty u/s 450 will apply –

▪ Max– 10,000/- first time

▪ contravention is continuing one, with a further fine which may extend to 1000 /- for every day after the
first during which the contravention continues.

OTHER POINTS

✓ The NFRA shall maintain such books of accounts prescribed by CG in consultation with CAG

✓ The accounts of the NFRA shall be audited by the CAG

✓ NFRA shall forward accounts and audit report annually to the CG and shall cause it to be laid before
each House of Parliament
 CG TO PRESCRIBE AS - 133

CG TO PRESCRIBE AS

Until, NFRA is
CG may prescribe AS as constituted, CG may
recommended by ICAI prescribe AS as
after consultation with recommended by ICAI
NFRA after consultation with
NACAS
 FINANCIAL STATEMENTS & BOARD REPORT - 134

AUTHENTICATION ON BEHALF OF THE

BOD

FINANCIAL STATEMENTS BOARD’S REPORT

▪ Chairperson (authorised by the ▪ Chairperson (authorised by the

Board)/ two directors (1 shall be Board)/ two directors (1 shall
MD,if any be MD,if any

▪ CEO

▪ CFO IN CASE OF OPC – IF THERE IS

ONLY 1 DIRECTOR THEN HE WILL
▪ CS AUTHENTICATE

CONTENT OF DIRECTOR RESPONSBILITY STATEMENT – REFER MODULE

 BOARDS REPORT – SECTION 134
B O A R D
Business Others Amounts Returns/Reports Directors
PAST POLICIES - Amount to be - Annual Return - Director
- Change in nature - Directors appt, transferred to Section 92 responsibility
of business remuneration reserves - Related party statement
- Changes in policy - Amount of disclosure 188 - Independent
subsidiaries, - CSR policy dividend - 186 – Loans director
associate - Risk mngt policy - Amount of gurantee and declaration
companies, JVs - Conservation of deposits investment - Number of board
- Change in energy - Report by meeting held
committments Auditor/CS + fraud - Performance
evaluation
PRESENT - Directors/KMP
- State of company who resigned
affairs
- Financial summary

FUTURE
- Orders passed by
regulators/NCLT
which may impact
going concern
 CORPORATE SOCIAL RESPONSIBILITY– SECTION 135
APPLICABILITY OF CSR PROVISIONS
IF DURING THE PRECEDING FY A
COMPANY FULFILLS ANY OF THE
CRITERIA
▪ NET WORTH = MIN 500 cr
or
▪ TURNOVER = MIN 1000 cr
or
▪ NET PROFIT = MIN 5 cr
In case of specified IFSC public & IFSC private
company, section 135 shall not apply for
period of 5 years from the commencement of
business of a specified IFSC public company
Constitute a Corporate Social
Responsibility Committee
Spend in every FY, atleast 2% of the
average net profits of the company
made during the immediate 3 PFYs
If failed to spend then specify
reasons in boards report
If failed to specify reasons in
boards report – Penalty as provided
u/s 134
EVERY COMPANY (incl. holding,
subsidiary, foreign co. fulfing
the criteria shall comply
individually)
Dos-
▪ GIVE PREFERENCE TO LOCAL
AREA
Don’ts – Foll. Activities not
considered as CSR:
▪ Amount spend outside India
▪ Programs or activities that
benefit only the employees of
the company and their
families
▪ Contribution to political party
Amount spent in excess of 2%
cannot be counted as CSR
spend of next FY
 CORPORATE SOCIAL RESPONSIBILITY– SECTION 135
Not required to constitute a
Corporate Social Responsibility
NON - APPLICABILITY OF CSR PROVISIONS Committee

A COMPANY THAT DOES NOT FULFILL THE CRITERIA

FOR 3 CONSECUTIVE FYs
Not required to spend in every FY,
atleast 2% of the average net
HOW TO CALCULATE NET WORTH RUPEES profits of the company made
Add: during the immediate 3 PFYs
PUSC
all reserves created out of the profits
securities premium account
Less:
accumulated losses
deferred expenditure
miscellaneous expenditure not written off
reserves created out of revaluation of assets, write-back of
depreciation and amalgamation
NET WORTH
 CSR COMMITTEE
The Board’s report shall disclose the composition of the CSR Committee

LISTED UNLISTED PUBLIC COMPANIES and FOREIGN COMPANIES

COMPANIES PRIVATE COMPANIES (if not
2 PERSONS –
3 OR MORE
required to appoint independent
DIRECTORS director) ▪ 1 HAS TO BE RESIDENT IN INDIA
(1 has to be ▪ OTHER PERSON NOMINATED BY
independent 2 OR MORE DIRECTORS FOREIGN COMPANY
director)
(if private company has only 2 directors –
such 2 directors shall constitute CSR
committee

DUTIES OF CSR COMMITTEE

Formulate and recommend to Recommend the amount of Monitor CSR policy from time
the board a CSR policy expenditure to be incurred to time
 MODE HOW TO UNDERTAKE CSR ACTIVITIES ACTIVITIES

A company may also collaborate with other
companies
Section 8 companies / reg trust / reg society
established by company alone / together with another
co.
Section 8 companies / reg trust / reg society
established by govt.
If company wants to undertake CSR activities through
companies other than aforesaid companies, such
companies must have established track record of 3 or
more years in similar projects
Activities specified under Sch VII / related to Sch VII only allowed
▪ eradicating hunger, poverty and malnutrition, promoting health
care
▪ promoting education, gender equality
▪ ensuring environmental sustainability
▪ protection of national heritage, art and culture
▪ benefit of armed forces veterans
▪ training to promote rural sports
▪ contribution to the Prime Minister’s National Relief Fund or any
other – fund , technology incubators
▪ rural development projects
▪ slum area development
▪ disaster relief

AMOUNTS NOT CONSIDERED AS CSR ACTIVITIES

▪ One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV

programmes etc.
▪ Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations
 CIRCULATION OF FS – SECTION 136
In case of listed companies, the
provisions of section 136 shall be
deemed to be compiled if:

LESS THAN 21
DAYS ALLOWED 14 days in case of
(Refer next section 8 company
slide)
 CIRCULATION OF FS – SECTION 136
Listed company shall also place its
FS including CFS on its website
SHORT NOTICE ALLOWED IF
Listed company has subsidiaries

COMPANY HAVING SHARE COMPANY NOT HAVING SHARE

Indian subsidiaries
CAPITAL: CAPITAL:
Holding company to put separate
MAJORITY IN NUMBER HOLDING MEMBERS HOLDING MINIMUM
FS of subsidiaries on website
95% PUSC 95% VOTING POWER

Foreign subsidiaries
NOTE : AS AUDITORS REPORT IS TO BE COMPULSORILY ATTACHED WITH
- If separate FS – put on website THE FS, HENCE CIRCULATING UNAUDITED FS WITH SH IS NOT ALLOWED
- If not then CFS prepared as per laws of
that country to be put on website
- If not audited – put unaudited FS on In case of contravention
website
- IF not in English – pub translated FS on Company – 25,000 Rs
website Every OID – 5,000 Rs
 FILING FS WITH ROC – SECTION 137- SUPER 30
OTHER CO.
OPC – DUE DATE 180 DAYS
FROM END OF FY
AGM NOT HELD AGM HELD

UNADOPTED FS + SOF +
REASONS FOR NOT
HOLDING AGM –
DUE DATE 30 DAYS FROM
DATE FROM WHICH AGM
FS ADOPTED
SHOULD HAVE BEEN
FS NOT ADOPTED
HELD
DUE DATE = 30 DAYS
FROM DATE OF AGM AND IF AGM GETS
ADJOURNED, ON
PROVISIONAL BASIS

FILE UNADOPTED FS AGAIN AGM

WITH ROC HELD
DUE DATE = 30 DAYS FROM
DATE OF AGM PENALTY FOR FAILURE TO
FILE WITH ROC
NOTE : AS AUDITORS REPORT IS TO BE
COMPULSORILY ATTACHED WITH THE BELATED FILING NOT FILED
FS, HENCE FILING OF UNAUDITED FS ONLY SECTION 137(AS SECTION 403 IS FEES
SECTION 137 + SECTION 403
WITH ROC IS NOT ALLOWED TO BE PAID AT THE TIME OF FILING)
 INTERNAL AUDIT – SECTION 138 – INTERNAL DEPOT
LISTED CO. UNLISTED PUBLIC CO. PRIVATE CO.
ALL INTERNAL DEPOT
No criteria to be - DE = - DEPOSITS = - 25 CRORES OR
satisfied, all listed MORE
companies have
to appoint an - P= - PUSC = - 50 CRORES OR
internal auditor MORE (25*2)

- O= - OUTSTANDING - 100 CRORES OR

LOANS = MORE (50*2)
ONLY THESE
TWO CRITERIA
- T= - TURNOVER = - 200 CRORES OR
TO BE CHECKED
MORE (100*2)
Chapter X of Companies Act, 2013 - COMPANY AUDIT

COMPILED BY: Prof. Aakash Pednekar (CA)

+ 91 9920497907
 Chapter X of Companies Act, 2013 - COMPANY AUDIT
139 Appointment of Auditors

140 Removal, Resignation of Auditor and Giving of Special Notice

141 Eligibility, Qualifications and Disqualifications of Auditors

142 Remuneration of Auditors
143 Powers and Duties of Auditors and Auditing Standards
144 Auditor not to Render Certain Services
145 Auditor to Sign Audit Reports, etc.
146 Auditors to Attend General Meeting
147 Punishment for Contravention

148 Central Government to Specify Audit of Items of Cost in Respect of Certain Companies
 Section 141 - Eligibility, Qualifications and Disqualifications
Section 141 (1)
of Auditors Section 141 (3)
Qualification: Dis - qualifications:

a) BC EXCEPT LLP
Individual/Proprietor Firm/LLP b) & c)

Should be PCA in India Majority partners should be Partner

PCA in India
Officer Company Employee
Section 141 (2) r.w.s. 145 : Where a firm/LLP is appointed as
an auditor of a company, only the partners who are CA(s)
Employee
shall sign on behalf of the firm.
d) sing – 4 LETTERS
Section 144: Prohibited services (Pet pe laath MAAR DIIA)
(next slide)
M = Mngt. Services D = Design & implementation of e) except
A = A/c + book keeping financial information systems f) faadu relative
A = Actuarial services I = Investment advisor, banking g) gates closed
R = Rendering of services (IPO, FPO) h) harami (fraud)
outsourced financial I = Internal audit i) I will not do this
services A = Any other prescribed services work (section 144)
 Relative Group Companies
Members of HUF Mother
Father
(+ Step (+ Step Holding
mother) Co.
father)

Sister
Concern
Brother Sister
(+ Step Mr. X (+ Step Client
brother) sister)
Subsidiary Associate
Co. Co.

Mrs. X
Son
Son’s (+ Step Daughter Daughter’s
son) Husband
Wife
 Section 141(3)(d) - SING
(iii) G = Guarantee
(i) S = (ii) IN = Indebt
SECURITIES Group Co 3rd party
in Group Co. Loan Person/Partner/
Group Co Guarantee
Fees in Relative
advance Person/Partner/
Person / Partner Relatives
Relative
CANNOT HOLD CAN HOLD FV (not If Amount > 5 lac Rs If Amount > 1 lac Rs
ANY SECURITIES MV) UPTO 1 LAC
Rs. DISQUALIFICATION IS DISQUALIFICATION IS
If Held then ATTRACTED ATTRACTED
If Held > 1 lac Rs.
DISQUALIFICATION +
IS ATTRACTED Corrective action
not taken by
Auditor within 60
days FROM DATE
OF ACQUSITION
OF SECURITIES

DISQUALIFICATION # You get 151 Rs. when you SING

IS ATTRACTED
 Section 139 – Appointment of Auditor
Govt. Company Other than Govt. Company

1st Auditor Subsequent Auditor 1st Auditor Subsequent Auditor

Section 139(7) Section 139 (5) Section 139(6) Section 139 (1)

CAG within Members shall

CAG within 60 BOD within 30
180 days from appoint at
days of inc. days of inc.
start of FY AGM

Term = Term =
BOD within 30 EGM within
Conclusion of Conclusion of
days 90 days
next AGM 6th AGM ie
5 years
Term =
EGM within Conclusion of
60 days 1st AGM

Before Appt Consent Qualified as Not Pending Independent

Term = Auditor to Co. per CA 1949 disqualified cases
Conclusion of
1st AGM After Appt Form ADT -1
Co. to ROC
# Refer 80 marks audit answer sheet page 8
 Section 139 – Appointment of Auditor –
Non- Govt. Company
Facts:
Date of incorporation = 1 April 2016
Board of Directors appointed 1st Auditor on 25 April 2016

FYs 16-17 17-18 18-19 19-20 20-21 21-22 22-23

Date of Inc
= 1 Apr 16
DUE DATE NO AGM 30 SEPT 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept
OF AGM as As year of 2017 2018 2019 2020 2021 2022
per Sec. 96 inc.
of CA 2013
Term of 1st 25 Apr 2016 to
Auditor 30 SEPT 2017

Term of Subsequent
30 SEPT 2017 to 30 Sept 2022
Auditor
Diagram showing class of companies to constitute Audit Committee
Listed Public Co. Unlisted Public Co.
Compulsory If any of the foll. satisfies

Dr Profit and Loss A/c of X Ltd

Turnover >= 100 crores

Balance Sheet of X Ltd

Paid Up share Cap >= 10 crores

Aggregate loans > 50 crores

 Section 139(11) – Selection of Auditor
Company to form AC Company not required to form AC

BOD shall recommend name # Provisions for

AC shall recommend ratification of
to Members
name to BOD auditor at every
AGM now omitted
Such
recommendation
BOD agrees BOD disagrees sent in AGM notice
If resolution is not
passed i.e. Members
BOD shall BOD to refer Members shall do not appoint the
recommend back to AC + appoint auditor via proposed auditor
name to communicate Ordinary Resolution
Members reasons
Existing auditor
reappointed u/s
Audit Committee Audit Committee 139(10)
agrees disagrees

BOD shall BOD shall BOD shall submit If existing auditor

recommend recommend explanatory statement could not be
name to name to to Members to justify reappointed then CV
Members Members reason u/s 139(8)
 Rotation of Auditor
APPLICABILITY

MANDATORY ON SATISFACTION OF CRITERIA EXCLUDING

ALL CO.
UNLISTED PRIVATE LTD
PUBLIC CO. CO. BORROWINGS
LISTED (incl. Public
PUSC PUSC OPC SMALL CO.
COMPANIES Deposits)
≥ ≥
≥
10 CRORES 50 CRORES
50 CRORES

*Limits to be checked as per last audited FS

 Section 139(11) – Rotation of Auditor
Rotation is applicable # If Auditor leaves in between his Term/ removed
Cooling
during the Term then it will be deemed as fulfilling
Auditor cannot be off period
the req of rotation
appointed for 5 years
after expiry of TERM Period
allowed served Transition Period
Total
before CA period pending
2013
TERM for Firm/LLP =
TERM for individual = Individual
2 terms of 5 years =
1 term of 5 years
10 years 21 3 24 0
1 3 4 1
FIRM/LLP
Rotation is not applicable 33 3 36 0
6 3 9 1
Keep auditing – No problem 3 3 6 4
1 3 4 1
# Transition period = 3 years for companies existing
on/before commencement of CA 2013 and if # If partner signs FS of a Co. and later retires and joins another Firm,
rotation is applicable to them such other Firm shall also be ineligible to be appointed for 5 years –
Refer M17
 Section 139(8) – Casual Vacancy
Govt. Company Other than Govt. Company

CAG shall appoint

another auditor Reason other than
If Auditor resigns
within 30 days resignation

BOD shall BOD shall

If CAG fails to
appoint within appoint within
appoint, then
30 days 30 days
BOD will
appoint within
30 days Subject to
approval of Term =
members Conclusion of
within next AGM
Term = 3months
Conclusion of
next AGM
Term =
Conclusion of
next AGM

# If Auditor resigns – File Form ADT 3 within 30 days – with Co. & ROC (also CAG if Govt. Co)
Failure to file Form ADT 3 - Minimum 50,000 Rs. Or amount of remuneration whichever is lower
Maximum upto max. 5 lac Rs.
 Section 140 – Removal of Auditor
Removal by BOD Removal of existing/retiring auditor and
members want to appoint auditor of Removal by NCLT#
Section 140(1) their choice Section 140(4) Section 140(5)

Members to give CG/Concerned person

BOD to pass BR special notice to to apply to NCLT/
Company (14 days suo moto
before AGM)
File Application in
Co to send special NCLT may conduct
Form ADT 2 + fees
notice to retiring inquiry
with CG within 30
days Auditor
If NCLT satisfied, Auditor was
If CG approves, negligent the removal order
BOD shall conduct Auditor to give will be made
GM within 60 days WR to Company
If CG had made the
Co to send notice + WR to application, NCLT will pass
Pass SR at GM after order within 15 days new
members (7 days before AGM)
giving OBH to Auditor auditor to be appt by CG
SR to be passed at AGM for
removal of auditor + new If application made by any
auditor of members choice person other than CG, new
appointed auditor will be appointed as per
NCLT order
# Barred for 5 years to be auditor of any company + section 447 applies
 Section 143 – Powers & duties of Auditors
Section 143 (1) Section 143 (3)
Duty to inquire into Duty to audit report

a) Advances & loans a) All information

b) Books entries b) Books of account
c) Co. not being an c) Call branch auditor
investment d) Dealt with
Co/banking co. e) FS = AS
d) Deposits f) Financial
e) Expenses of transaction
personal nature g) directorG
f) Fake cash h) Harami auditor
OPC i) Internal financial
Private Co. controls
j) Jail
Exemption on Small Co
reporting on
adequacy of IFC
Co. having T/O of < 50 crores
and borrowings < 25 crores
Section 143(12) – Current/Past Fraud reporting by
Auditor, Cost Auditor & Secretarial Auditor

The report shall be in Form ADT 4 -

sent to the Secretary, Ministry of
Corporate Affairs in a sealed cover
by Registered Post with
Acknowledgement Due or by Speed
post
+
Followed by an email in
confirmation of the same.

This report shall be on the letter-

head of the auditor containing
postal address, e-mail address and
contact number and be signed by
the auditor with his seal and shall
indicate his Membership Number.
 Section 147 – Penalty
Company + Officer Auditor

Unintentional Willful
Company Every Officer
contravention contravention

Only Fine = Jail = Max 1 year or

Min 25,000 Fine = 10,000 to 1 lac Fine = 25,000 Jail = Max 1 year AND
Max 5 lac Or both to 5 lac Fine = 50,000 to 25 lac
OR OR
4X 8X remuneration
remuneration Whichever is less
Liability of Audit firm = Generally Joint
and several but if Jail then only Whichever is
concerned partner will go to jail and not less
all
The Eng partner will first compensate for
the damages and if he is unable to do so
If convicted here then,
then other partners need to compensate
for it Refund remuneration*
and
Pay damages*
* As determined by authority appointed by CG + section 447 applies
 Branch Audit
Person
# Appointment of Branch qualified in
Auditor as per section 139 that country

Foreign Branch
Companies Auditor
Companies
Report Auditor

Indian Branch
Any other
person duly
qualified u/s
141(1) & (2)

AR on CFS AR on SFS
Indian Branch

Members Fraud reporting to CG

 Section 148 – Cost Audit
Maintenance of Cost records Applicability of Cost Audit
by Every Co.
Regulated Sector Non – regulated Sector
Operating in regulated/
non-regulated sectors I
+ If total turnover from If total turnover from
Engaged in prescribed goods & prescribed goods &
services ≥ 50 crores services ≥ 100 crores

Production Providing
But only such product But only such product
needs to be audited needs to be audited

Of Prescribed Prescribed
goods services
or Whose individual Whose individual
turnover ≥ 25 crores turnover ≥ 35 crores

If total turnover from prescribed

products ≥ 35 crores in PFY # Exemption from Cost Audit
a)Export T/O > 75% of total T/O
# Exemption from cost records = Cos registered b)SEZ
under MSME Act c) Generating electricity for captive consumption
 Section 148 – Cost auditor
Appointment of Cost Auditor within Term = Earlier of 180 days from end of FY or till he
180 days from commencement of FY submits CAR
Removal Casual Vacancy
Co to form AC Co not to form AC
If Auditor resigns or
BOD to pass BR he is removed or
any other reason
AC to recommend
name +
remuneration to BOD shall After giving OBH to
BOD appoint Cost the cost auditor +
auditor of BOD shall appoint
record reasons in within 30 days
their choice in writing
BOD to appoint Board
Cost Auditor as per meeting
recommendation in
Co to inform CG in Form CRA – 2
Board meeting
within 30 days of appt of new cost auditor
BOD to file Form CRA-2 with CG informing of
such appt within 30 days of such BM or within # Who can be cost auditor = Cost accountant ie
180 days from commencement of FY, Statutory auditor cannot be appointed as Cost
whichever is earlier Auditor.
Eg: ABC firm (A & B are CA and C is Cost auditor, if
In both cases, remuneration decided by BOD ABC firm is appt as stat auditor of X Ltd, then C
to be ratified by members cannot be appointed as cost auditor
 Section 148 – Cost auditor

# Penalty of 147 also applicable to Cost auditor

Reporting responsibility
# Fraud reporting to CG u/s 143(12) also applies to
Cost auditor

# The Auditor conducting cost audit shall comply with

Cost auditor submits CAR in Form CRA -3 cost accounting standards
to Co. within 180 days from end of FY

Co to forward it to CG in Form CRA – 4

within 30 days along with explanations
on negative comments