Audio file 

corporate Feb 22.m4a 

 
Transcript 
A number of the limitation on the number of members. 
Is 200. 
Next third restriction is articles of association. 
Private limited company. 
Prohibits any invitation to the public to subscribe for any securities of the company. 
So prohibits any invitation to the public to subscribe for any securities of the company, so private limited company cannot issue
prospectus to the members of to the Members means investing. Member investing public cannot issue PROSPECTOR'S but
public limited company can issue. 
Prospector's to the investing public to subscribe before its securities private limited company is prohibited from any invitation to
the public. 
To subscribe for any securities of the company I I told you once the company gets incorporated, companies bound to achieve the
object as enumerated in the objects clause of the Memorandum of Association. 
You must be knowing of. 
It so the for that purpose of capital is required. 
So capital again is divided into. 
Loan capital share capital so loans it can be taken from their parents appearance in institutions, even deposits also sorry. 
These under debentures can be again in the form of deposits under debentures. 
Company can borrow from the investing public so it is loan capital ADR GDR. 
But we will be discussing in the shares chapter, so when it comes to share capital, is the public limited company can invite.  
The investing public. 
Or to subscribe for its securities securities are issued by issuing a prospective buyer. 
Feeling so each manner of issue of securities. 
Also we will be. 
So these are the three restrictions relating 2 private limited company restricts the right to transfer its shares. This is the point we
are we were discussing yesterday limits the number of it's the Members into 200, except in case a one person company prohibits
any invitation to the public to subscribe for any securities of the. 
Convenient, so next to now let us. 
Come let us cover. 
At this point the case which I have sent to you. 
Open career briefly means this case relates to operational mismanagement, oppression. 
Mismanage Mental is an independent topic so that the independent. 
Doctrine we will discuss in details. 
So that is the this case. 
For a fact, so we don't require now because Operation Kelly the essential ingredients of the operation and whether the rights of
the existing members arrested or not. 
We will discuss later on the the relevant chart in the relevant chapter. 
So this case. 
So let us confine to public. 
This case is publicly traded company, so any restriction on the transfer of shares by consensual private remained is considered to
be void. 
Because the public limited company I told you it is the right of the member of a publicly traded company to transfer his or her
shares. 
It freely and voluntarily. 
That is the fundamental principle. 
So why it is void? 
Because there should be. 
There should not be any restriction. 
On the transfer of shares of publicly traded company to restrictions can be there but not restrictions as. 
Can be incorporated in the articles of association of a private limited company. 
The definition of private limited company itself provision is there to restrain the members. 
So for the private limited company as regards transfer of shares. 
So it is or they can also transfer but limitations. 
So can be incorporated in the articles of association, then public limited company it. 
Now it not. 
Restrictions should not be incorporated. 
So this right push form. 
Case so if anybody of para. 
Yeah, Pero #4 or anybody fast fast Paddy point you know this this this is relating to transfer of shares. 
This case relates to tons of chairs and briefly private family agreement was entered into, in this case, four sisters. 
They entered into a family agreement restraining their rights to transfer shares. 
Means if any sister wants to transfer her shares. 
She shall offer these shares to the other sisters in equal proportion. 
So, but this private agreement is not incorporated in the articles of association. 
So in order to get validity for the family remainder private agreement, it should be incorporated in the articles of association
then that can be enforced. 
Otherwise, that cannot be enforceable here in these details that this private agreement was not incorporated in the Articles of
association. 
So if shares were transferred first anyway, based on the private agreement, even though it was not incorporated in the Articles
of association. 
The sisters offered first two sisters who wanted to transfer in ultimately third. 
Sister also has joined because company was. 
Suffering from a loss. 
This under they offered their shares into the fourth sister. 
Both the sister was in trouble due to the illness of her daughter in law. 
That was serious illness, so she could not provide funds to the sisters means she shall have to pay money to the system. 
So she was not in a position to pay. 
So ultimately. 
The remaining with three sisters, they transferred their shares to the outside. 
So obviously she was alone now and other. 
Mahalo for incorporated in the company, and obviously they they they will get control and so they can appoint initial directors
under there and there was a change in the management of the company. 
So there is a fourth sister, the. 
In, uh, moved. 
The court that company Law tribunal, so that family agreement was entered into ultimately sisters. 
They transferred their change to the Outsiders, so as a result, no, he her position her controlled in the company was affected. 
Usage will amount to operation operation sold busy. 
Let us confine it to write to transfer shares. 
The private limited company that aspect I'm. 
So I'm trying to cover OK, so because shares were offered to the outsiders that the that should not be valid. 
Right? 
So that was the void, contrary to the provisions of the family agreement, C&B did not accept this condition, because this private
incremental family agreement was. 
Not incorporated in the Articles of association, so that is the way it could not be enforceable, so. 
Uh, even though in one of the board of Directors meeting also it was decided. 
Play DoH. 
In one of the Board of Directors meeting also it was decided if any further shares their issues. 
These shares are also should be offered to the. 
Uh, means sister and now also SLP observed that further shares it can be offered to the sister. 
Ultimately who who was in the company so that she will be able to keep up her percentage of shares. 
So as a result she can continue as a director. 
Now also. 
Uh, because some 14% some percentage was mentioned, so if she can maintain that person tells she can continue as a director
even in the new management also. So that is why. 
Even now the company when the company issues further shares these shares should be awful. 
To the 4th sister as per the decision taken in board of Directors, she will be able to keep up her position as a director. 
So because they wanted to transfer the property into hotel business and accordingly they started business. 
But anyway their business did not flourish suffered a loss. 
Outer means 40% of shares. As a result, they took loan from the financial institutions so that that is by 40% of the shares were
given to the financial institutions for these systems. Ultimately, retail 60% of mistakes. 
So anyway, this private agreement or family agreement was not incorporated in the Articles of association is seen here. 
That agreement cannot be relied on or cannot be enforceable. 
So the. 
That that that is the main point in this case. 
Now fast fast. 
You can read up for authenticity whatever I said so 4th Para anybody can read up. 
Shall I read up or will you? 
Say Sir, no, don't keep quiet. 
Mom, yes. 
I'm ready. 
This morning numbers are responding. 
Please please. 
Better #4 
Oh crap. 
Yes, yes. 
Respondents #2 three and four are the real sisters of the appellant. These four sisters incorporated the company with the name
of Mrs Manno Maroni. 
Hotels limited respondent number one urine and certificate of incorporation dated 6 September 1988 was issued by the
Registrar of Companies sometime in the year 2000. Respondents number. 
2-3 and four. That is, the other sisters transferred their shareholding in the company to respondents number 629 here in the
Apple and protested this act of her sisters in whereafter file PP number sixteen 2000 before the CLB under factions. 
Three 97398 of the Companies Act on various grounds, pain. Revenge was the transfer of shares to outsiders is equal to which
the management of the company changed hands, and three new directors were appointed in a board meeting held on 10th
February 2000. Therefore, these consequential acts of appointment of new directors were also challenged, including the validity
of the board. 
Meeting held on 10 February 2000 on the. 
Ground that she. 
Had not received an notice of this meeting. The SLP by impugned order dated 12th January 2001 held that. 
Comment #2 Pop had the right to transfer their shareholding to outsiders as articles of the company do not contain any
provisions relating to pre emption rights. 
On the contrary of particle 30, the company could not even refuse registration or transfer of shares accepted certain grounds is
specified in the said article there for sale of shares. 
Without offering the same to the applicant could not be considered as an act of opera. 
There was non compliance with the statutory provisions while issuing further shares by the company and therefore the CLP
found substance in this allegation of the appellant as by issue of further shares on preferential basis, the ambulance rides have
been affected and her shareholding has come down and therefore it was held to be an active operation. 
The induction of three new directors in the board meeting held on 10th February 2000 was found to be given and we, as the
applet had received the notice of meeting. 
On 10th February. 
2000 the applicant will continue to be a director so long as she holds 14.7% and shares in the company and would not be liable
to retire by rotation. 
Friends with issue of further shares her percentage shareholding had come down below 14.7%. Which percentage would be
restored if she acts? 
Further, she had to be offered to her. 
Which offer should be made within one month from the receipt of the impugned order and the applicant would be at the liberty
to accept this offer within three months from the date of this offer by remitting permitting necessary configuration. 
In case he does not accept the offer within the effort period direction in this regard would not survive after that, awkward as it
went further shares her issue, he would be offered proportionate shares and how long is the applicant is director. 
Notices for the board meeting should be sent to her along with the agenda by registered post with. 
Seven days prior notice. 
Broadly, whether this para is clear? 
Operation and all independent topic is it clear? 
Do you want any clarification? 
SLP decision was upheld by High Court company law tribunal. 
No, no company law tribunal but Principal principal is important here. 
Can we move on? 
Ma'am, it would be better if you could elaborate a bit more on this principle. 
And OK while reading, I think it is better to explain further. 
OK consolidated Lee. 
I have explained OK and paralyze. 
What does this para speak of? 
No, and even the company law tribunal judgement also. 
So here what? 
What was the main contention of the appeal and the girl who is reading up? 
Can you explain? 
And first of all, there are whoever four sisters cinema. 
Mom, it was. 
It was a transfer of shares to outsiders. 
Yes, and that that was the main contention of the fourth system, with three sisters ultimately transferred their shares to the
Outsiders. 
OK and now 4th assisted was contesting that family agreement was entered into and. 
Before going to offer their first stage should be offered if any. 
She still wants to transfer her she's she shall offer their shares to the other sisters. 
Sears shares were offered to the Outsiders, so as he result Fourth Sisters percentage of holding control is reduced. 
So and then after further shares were also issued and as per apple and dishes were not offered. 
Both meeting notice was not issued. 
So CLP. 
We decided that. 
Uh, yes I think paralyzes better already I have explained like this and next pair of ID. 
Fan of mine. 
The core issue is the sale of shares held by respondent number 2242 respondents 629 respondents. 629 outside people. So,
according to the appellant. 
Four fifth point. 
According to this to this panel. 
According to the Memorandum of Family Agreement, was arranged between the parties as per which it was agreed by all the
four sisters so that in case any sister wants to dispose of her shares, she would first. 
I see. 
Offer this same to the other sisters. This right of clauses called PM 2 right 3M2, right. So she should offer to the other other
sisters. 
So it was submitted that the parties clearly understood the implication and import of his family. 
This family settlement because. 
So for, you know, control. 
It is a family company, so even if any sister wants to transfer, she will have to offer these shares to the other sisters so. 
Ultimately, family will have control over the company control. 
They will be continued as directors and they will take decisions accordingly. 
In the interest of the company and they so that they wanted any any business, any enterprise error investor list wants to know.  
Means to flourish the company in such a manner, they take decisions, outsiders. 
So if outsiders involved in the management in the Board of Directors, the so. 
Due to lack. 
Of trust and confidence family members. 
They have trust and confidence. 
That is why I told you private limited company doesn't have in a comparison with the partnership form under 1900. 
32 ACT formed under 19132 Yet trust and the confidence of. 
Here this family agreement was entered into, but that was not incorporated in the. 
Articles of association. 
So anyway, the parties clearly understood the implication and import of this family settlement and even acted upon that. 
In fact, much prior before even the Board of Directors series. 
Meeting, uh? 
Means they decisions they have. 
They have taken decisions. 
It would be clear from the Minutes of the set meeting that it was specifically recorded that four sisters who were the absolute to
shareholders of all the shares of the company which was informed why with the intention of converting. 
Family property into a hotel by them under. 
To run the. 
Same jointly with the mutually unanimous consent decisions as a family group that was. 
That was the intention at the time of incorporation of the company. 
This company. 
Yes, they they incorporated. 
This company is a public limited company. 
Now we are discussing distinction between private limited company, public limited company. 
But anyway, my main point is family agreement or private agreement should be incorporated in the Articles of association. 
Then that can. 
Be enforced if it is not incorporated in the articles of association articles of association will. 
Provide and all that private agreement cannot be cannot be enforced, so the decisions which which was specifically taken in the
said meeting. 
What are the decisions in that meeting number? 
We buy all the policy decisions regarding the hotel, the decisions of the majority will prevail. 
That is it. 
Three out of four. 
Otherwise the decision will be will not be carried out in the board meeting of this company. 
The next company will have two managing directors, the so next to the. 
Uh, so some Mr. Saros jumble and Hamlet tossing so means 22 out of 442. 
Who sisters will be managing directors at the same time under on rotation basis, next remaining to hold that position. 
So these. 
Nextcloud H, in case any of the promoter directors wishes to sell any of the shares, the same will be offered to the remaining
promoter directors. 
Because four sisters incorporated, they are the promoter directors. 
So they, if any of. 
The two directors of the promoter directors wanted to transfer their shares. 
They will have to offer to the other sisters that is main point and only and only if anyone refuses. 
Then again, it has to be offered to the remaining promoter directors in equal proportion. 
Yes, so means of the. 
Well, one sister wanted to transfer. 
She will have to offer the whatever number of shares she wanted to transfer to the remaining sisters equally. 
Suppose if one of the sisters refused to take. 
This is again should be offered equally to the remaining two sisters. 
The miss remaining two sisters. 
That is the provision here. 
So the Members deciding to buy shares will have to buy 100% of the shares offered within 30 days after the offer. So this is the
provision relating to transfer of shares. 
So why, apart from family agreement and imposed meeting, it was decided related promoter? 
Characters, so in this meeting it was also agreed that Memorandum of Understanding would be signed on the Air Force
deadlines by the parties, so it was in these circumstances memorandum of Family Agreement was signed by the parties, the
parties. 
He even acted upon. 
Inasmuch as responded number 23 earlier note and the pilot and her sister means massage jumble offering to sell their shares. 
So raid also mentioned at the rate of ₹14 per share, even mentioned that they had received they had received an offer from an
outside party. 
So two sisters wanted to transfer and they offered to shares to the other existing two sisters, and they mentioned in their offer. 
That they already got an offer from outside or or Southside party also, but they were bound by the family agreement and
algebra. 
The meanest meeting that's on so they would like to. 
Sell their shares within the family since the company was suffering from losses at the time, the opinion on the respondent and
they replied. 
And objected to the sale of shares to outsiders, so the objection was raised and requested for some time to attain some smooth
transaction thereafter. 
In the board meeting, it was resolved that two from modal directors of the company were selling their shares to the other two
promoter directors and the request was also made for giving them some time for completing the transaction. At the time,
respondent #4 even expressed her happiness OK. 
So that the President had decided to purchase. 
Says according to the feeling there, after there was some delay on the part of the appellant in arranging the funds as she got
involved in the illness of daughter-in-law. 
So which was a very serious nature so already eligible the family agreement even though it was not incorporated in articles of
association. 
The sisters who wanted to transfer, they offered their shares to the other sisters, other sisters, one of the sisters expressed her
happiness also, but she could not provide funds because of some health problem. 
So anyway, she could not, realizing this crisis. 
Never asked for the village and her sister responding #4 to accept the payment of shares, however, thereafter, without
informing the appellant, respondent number 234 out of four resistors. First two sisters wanted to transfer ultimately third sister
also. 
Wanted to transfer because your company is suffering from loss and so ultimately they sold their shares. 
2 outsiders. 
And the pilot came to know of this only after she read the notice them, because she could not provide. 
Once she did have some personal problems, so now third assisted also joined. 
All three sisters transferred their shares. 
It was the outsider, then the mining 4th sister. 
Came to know of this fact when she read a notice. 
So I know that in the put up in the premises of the hotel informing the staff that the management of the company has changed
hands. 
Because Shafer transferred outsiders automatically, they will get three sisters, Sisters Majority shares, so they will get their the
management of the company has changed hands. 
They will become directors, you know. 
So then the the loan, the counselor, some Michelle now. 
On behalf of Buddha period means fourth sister who did not could not purchase. 
She wanted to purchase but she could not provide funds. 
So then on her off, it was argued that on the basis of the Minutes and the Memorandum of Family set limits submitted, that
accolade had right of preemption. 
Reaction in this sense. 
So if any sister wants it to transfer she shares, she shall have to offer these issues to the other existing sisters. 
Other existing system. 
That does have. 
A right to buy these shares so. 
So prior writer preemption, which was breached according to the system fourth sister who could not, by who could not provide
funds. 
She contended that this memorandum of a family settlement was breached and violated by offering the shares to outsiders, and
it was. 
Also, I'll delete that property in question on which hotel was established by the four Sisters. 
Was a family property. 
And the company was incorporated with the intention that control thereof reminds within the family if four systems that
outsiders are the control will be reduced. 
The next elite of the shares held by the outsider. 
If a four sisters do have all this says, then they will have control so that towards their intention at the time of incorporating this
company therefore. 
And this. 
I love you. 
Yeah, family property so means the question on which hotel was established by four sisters with family property and the
company was incorporated with the intention that all the promoters, namely, the four sisters, were given equal control in the
management. 
60% of the shares were with four sisters in equal proportion. 40% shares were allowed to the financial institutions because
company borrowed money. 40% you know. 
440% shares were alerted to the financial institutions in the loan agreement to this type of clause can be incorporated financial
institutions when they, if they want to invest. And yes, in the in the so and so company and they give loans and and. 
Then they will ask in return for that shares that that type of agreement can also be entered into or weather for full load.  
In total or partially 50% repayment, Kelly says a lot under remaining 50 you pay in terms of money like that. These financial
institutions enter into agreements practically so to honor this commitment, understanding and understanding. 
Then the family business should not to go to an outsider. 
The four sisters sisters, sorry, had taken the decision, and even if. 
Recruited the Memorandum of Family Agreement executed in the sense all four sisters they have signed to ensure that even any
if any of the sisters wanted to sell the shares she would sell the same to the other system. 
So this very argument was advanced. 
Before the CLB Company Lawn Tribunal now now also which was however rejected by the CL because on the ground that. 
Articles of Association of the Company, which is a public limited company, shall prevail over any such family settlement. 
So whether family settlement articles of association and. 
Did we? 
Yeah, I mean articles of association will prevail over family settlement, family agreement, or memorandum of family agreement
or family settlement. 
So the problem here is this. 
This agreement was not incorporated in the Articles of association. 
Articles of association did not have this clause means restraining as per Section 2. Clause 68 of the Companies Act 2013. 
Private limited company. 
Even public limited company agreements shall be incorporated in the articles of association then only he will have. 
Value if it is not incorporated, whether articles of association will prevail over agreement, personal agreement, or private
equipment will prevail over articles of association. 
Obviously articles of association. 
It is in the document at the time of registration, lawyer city submitted to the Registrar of Companies, so obviously articles. 
Of association will prevail over it, so in so far as the articles of association in concert, they do not contain any provisions relating
to prevent pre emptive. 
Wait for preemption, right? 
It means. 
Members that can transfer to outsiders. 
This restriction needs not in articles of association so Article 30 On the contrary mandated the management of the company to
accept registration of a transfer which could be refused or specific ground mentioned. 
They did, which were not atracted. 
So registration of Trump. 
Transfer on what grounds? 
When the company member transfers the shares in the name of that in the play in the place of the name of the Transferrer
transferee name transferee means by transferer means seller so transferees the name will be replaced. 
In the register of members of the company. 
So, but the grounds can be incorporated in the articles of association for rejection of for transfer of shares. 
The company can reject the transfer of shares so unsewn so grounds, and these grounds are also not. 
Mentioned in articles of Association of this public came to the company, so the SLP further held that. 
It is the articles of the company which would govern the relationship of the company under the shareholders, and for this
provision it referred to the judgment of the Supreme Court yesterday, Rangaraj versus VB Gopalkrishna knee. 
So they in the in the in the BB Rangarajan. 
Versus VB Gopalakrishnan E. 
In this case yesterday we we have learned that this is the case of private company and its shareholders. 
Work from one family. 
They agreement between them prohibited the transfer of shares Abscess. 
Absolutely, such a prohibition was held to be void as per the Companies Act 1956, and the prohibition to transfer was absolute
and was not reflected in the articles of association here. Here in the in this case the Rangarajan case was referred to because
this. 
Prohibitionist this agreement was not reflected in the Articles of association was not incorporated in the Articles of association
Articles of association made this. 
Provision was not there, so that is why it was why that is. 
Why in this case also Rangarajan case was referred to. 
So there for sale of shares without offering the same to the petitioner, cannot be considered as an act of operation. 
So an act to be oppression separate ground. 
So let us not to. 
That's this, so ultimately, uh. 
Parajet may I do not find any infirmity in the order of CL beyond aspect. 
Obviously the attempt of the loan comes still. 
So Perro #12 May 2nd para. 
Error #12 mistake in Para delegation of the petitioner as indicated in Para. So also related to trans sale of shapes by her sisters to
another group in contravention of the value that new directors have been appointed without notice for her. 
That further shares had been issued to the shareholders and that she had been sidelined from the management of the affairs of
the company. 
So in this repair. 
Briefly mentioned that further shares shall be offered to the 4th Sister so that she will be able to keep up her percentage of
shares so that she will be able to continue in the management and because this family agreement was not incorporated in the
Articles of association. 
So articles of association will prevail over it, so that three sisters can transfer their shares to the outside. 
'cause we we CLB mentioned that it is a more because it is not in disagreement was not incorporated in the articles of
association. 
At least it would be a moral duty of the three sisters to offer these issues to the 4th sister, and they already did that, that fourth
sister. 
Would not provide concept due to her personal problem, so that moral duty they discharged but. 
Legally there before this appeal, it can't can't compel the sisters to prevent them from transferring their shares into the
outsiders. 
So ultimately we have to come to the conclusion that private agreements have family agreements are in should be should be
incorporated. 
In the Articles of association, then that can be enforced. 
Otherwise the Articles of association will prevail over the private agreement. 
And if the same restrictions are not incorporated in the articles of association and. 
All the articles of association members will have a right to transfer the shares to the Outsiders. 
That is, briefly, the meaning of this judgment. 
Are you again it? 
Yes, ma'am. 
OK, so thank you next to a form of articles in a table. Yeah for GHz we mentioned so table F deals with articles of association of a
company limited by shares. These are the kinds of state. 
Yeah, next TBG relates 2 articles of association of a company limited by guarantee and having a share capital and cable health
provides for articles of association of a company limited by guarantee and not having share capital so simply. 
We will. 
Articles of Association of Unlimited Company and having a share capital TBJ. 
Articles of Association of an unlimited campaign not having share capital. 
So these kinds of companies wants these articles of association gets completed. 
Their kinds of companies and. 
One so kind of registration gets over kind of company. 
You know Dell directors, so directors first directors and all of that is they are. 
This year has started with directors and then once the directors are also ready both of directors these. 
Ready then the company shall have to strive to achieve the objective as enumerated in the objects crossing the Memorandum of
Association in order to pursue this object, if company will be in need of money, then company can can take loan scam. 
Company can go to the public. 
To invite the public to subscribe, for instance securities. 
So that is the issue of shares chapter, I will I will teach. 
So there will be content. 
So that each way we are. 
Hello, you know teaching simultaneously to explain to you continued. 
Yes, I wanted to incorporate a company. 
What is the procedure and what are the steps? 
What shall we do? 
We will get the this question in our mind. 
We are interested in Boeing, so this this is the chain of chapters. 
Patient anyway, so take from table FC table J tuck for each company. 
Model articles are incorporated and that particular company can adopt this particular this model article in Dodo are partially so. 
This is relating to model articles. 
Next, so far as a section. 
There's two other minute. 
2nd 14 also cover. 
That is. 
Alteration of the articles. 
Second, sticks whether Aditya has covered or not. 
If he did not cover. 
Just I will explain simple section. 
Act to override memorandum and articles. 
Ma'am, please do explain. 
Even voice is cracking down. 
Thank you. 
Remind me to explain it one. 
Saying that. 
So section 6 act to override memorandum articles so save as otherwise expressly provided in this act. 
The provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles. 
Of the company, or in any agreement executed by it, or in any resolution passed by the company. 
In general meeting or by its Board of Directors whether the same be resisted. 
Executed possible as the case may be, before or after the commencement of this act, so the provisions of the Companies Act will
provide prevail over the provisions of the memorandum and articles of association or in any agreement executed by the
company. 
Are in any resolution positive by the campaign general meeting every year company shall how to hold annual general meeting
and all members of the committee. 
We are supposed to attend this meeting and in this meeting decisions will be taken by passing ordinary resolution. 
A special resolution ordinary resolution may simple majority is sufficient. 
Special resolution may three. 
4th majority is required for which decision which resolution is required ACT has mentioned. 
Solution is sufficient or special resolution is required, so accordingly decisions will be. 
Taken in annual general meeting and both of our directors so will they will. 
They will take policy decisions that they will take approval from the shareholders, though in the annual general meeting and the
the policy decisions which were approved by the by the shareholders in annual general meeting. 
Will be executed by the executives that managing direct. 
So OK, so that that is the system of the company said, so here couple Companies Act provisions, high articles of association
height to container to govern the internal management of the company, articles of Association and Memorandum of
Association. 
You know that it. 
The Constitution of the company and the annual general meeting made decisions that will be the both will prepare policy
decisions and the decisions that will be. 
Some some days genetic welcomes remembers it. 
Approval so that is the way decisions will be taken in annual general meeting. 
So out of all these which will prevail over woods. 
So here it is mentioned not to be standing now that means. 
Now, disregarding anything contrary to the content, if any controversy is there, this actress says something memorandum says
Alec thing. 
So if there is any controversy, similarly articles of association. 
Similarly both meeting and enter general meeting if any controversy. 
They just act will prevail. 
Right? 
That is mentioned notwithstanding anything to the contrary contained in the memorandum or articles or any agreement
executed by it, or any resolution passes by the company in general. 
Meeting by the board whether the same be registered. 
Are executed or possible agreements executed means Miss resolutions possible? 
As the case may be, so active will prevail over it and the class be any provision contained in the memorandum articles,
agreement, or resolution shall, to the extent to which it is repugnant to the provisions of the ACT, become become more be void
as the case may be. 
Then immediately you will ask, OK. 
In fact prevails over it, and if any controversial opinion or or any point is incorporated in the articles or memorandum or
decisions that take and what will be the legal fate of all these things and they will become void. 
Cannot be in pursuit of what it means. 
It cannot be enforced. 
So ultimately you will have to understand that provisions of the Companies Act. 
2013 shall override the provisions are contained in the memorandum and articles around any resolution positive by the
company are caused by the. 
4 double directors it. 
This implies that you know any of the action on the part of the company cannot militate against the provisions of the Act. 
So the IT prevents contracting around the end, so that is the way whether the source said provisions were effect before after the
passing of this or. 
That is in material. 
So that is why the provisions of memorandum articles are agreements, or any resolution fostered by the company shall be void. 
To the extent they are not in agreement with. 
The provisions of the Act. 
We said that if matter goes to the court immediately, court will declare that and this provision is avoiding member and Murray
or resolution positing annual general meeting or board of Directors Meeting Act will prevail over it. 
So you must learn to Doc. 
Seller ability, in contrast to one, and you know, Mr Doctor Nassar ability means. 
So valid and void if any act visitor. 
If parsley is valid under partly avoid, it means partly lawful, partly unlawful and lawful part can be severed from the unlawful,
lawful part will be valid unlawful. 
Path will become either void if it is, uh, contrary to the provisions of criminal illegal OK, and if so, if the lawful, of course. 
They cannot be severed from the illegal or unlawful or void apart. 
Whole act becomes avoid. 
That is the doctrine of severability. 
Here also Dalton officer ability is applicable. 
OK, so that is why you know when the part not in conformity with the act. 
He is separable from the rest of the provision. 
The set path will be void. 
OK, another provision will continue to operate. 
So to what extent to the beginning to that extent only becomes the void Memorandum of association provision or articles of
association provision or border meetings are over your general meeting indecisions to that extent only void remaining provisions
remaining is operative. 
So when the path not in conformity with the ACT is. 
Not discoverable or after severing the said, but the whole provision seizes to have the desired effect. 
It means the whole provision shall be treated as a void. 
That is the doctrine of severability in law. 
If the lawful part, we cannot be severed from the unlawful part and then whole act becomes avoid whole contract becomes
void. 
If your contract consists of provisions and lawful means, lawful provisions are unlawful provisions and evil awful provisions. 
Can be severed from unlawful provisions. 
Lawful provisions can be enforced. 
Local provisions that cannot be enforced illegal so and and how to sever how to server as so far as the contract is concerned and
if lawful provisions are in can independently be supported by consideration and unlawful particle, your consideration and Heiko. 
Then locks on the partner. 
Can be stubborn and mean for example. 
If a principal employees in agent to continue to carry on the business of the businesses of the principal, and this the principal
doesn't have lawful businesses and unlawful businesses. 
For example, export of narcotic drugs and lawful business. 
Also, their hotel business so and this dentist, if the agreement is entered into between the principle and the agent authorizing
the agent to carry on both the law. 
For businesses and our local businesses, and. 
He's a monthly salary 10 lacs rupees. 
So they will then hotel business can be can be severed from the illegal business. 
Not that liquid runs. 
For example, can we say can it be severed? 
Consideration is 10 less. 
Can it be severed? 
Please try to discuss with me. 
When can you just repeat the problem one? 
Means is it shall have to carry on the principles both lawful business and unlawful business, lawful. 
Any lawful business means. 
Hotel business, another awful business letters he shall have to export. 
Cancel cancel. 
Damn it can be severed. 
How how to server? 
First, how when can when can lawful part be severed? 
Give consideration alagalla hide or then lawful business can be severed hotel business. 
Again a consideration 3 lacs rupees narcotic drugs export Area 7 lacs rupees. 
So that is why narcotic drugs support provision to that extent. 
These provisions are illegal. 
Cannot be enforced. 
Consideration cannot be there. 
Lawful business hotel business carrier to three lacs rupees. 
If the principal refuses to pay, and that part can be enforced in the court and he will be able to, agent will be able to recover
three lacs rupees. 
Because consideration. 
Consideration is common means total consideration, then lawful party cannot be severed from the local part. 
Are you located? 
Yes, ma'am. 
OK, now so that is why when the when the pot, not income infirmity with the ACT is not severable. 
Or after severing the sad part, the whole provision CS is if we have the desired effect, the whole the whole provision shall be
treated as a boy. 
They do. 
So that is why in case of any repugnancy in the provisions between the sections of the company side on the provisions in the
Articles of association. 
Proposition or decisions taken. 
Both meeting annual general meeting. 
Uh can be severed. 
That this example. 
Principle in agent that that is relating to company contractor principle. 
We will have to apply here. 
Consideration question doesn't arise so that is why we're up to whether companies had provisions or articles. 
Memorandum of association. 
Which is. 
If completing Repugnancy, the provisions in the articles are member random, become void partially. 
On to, contrary to the provisions of that. So then the partially 50% remaining 50% of the provisions of the Articles of Association
Memorandum of association can be enforced. 
Are you a gay? 
Yes, ma'am. 
OK, so that is relating to now section 14. 
Section 14 alteration of articles so. 
Section 14 make conversion of memorandum of our Sorry Private Limited company into public limited Company Public Limited
Company Private Limited company how to convert this with this subsection. 
One of section 14 will be covered in the kinds of companies. 
Next, subsection 2 of section 14, every alteration in the Arctic. 
Pickles under this section and a copy of the Order of the Tribunal, tribunal, Company Law Tribunal, approving the alteration
company Lore Tribunal approval is required so as per subsection one shall be filed with the registrar. 
So first of all, Section 4 teams subsection one may subject to the provisions of this act. 
Under conditions contained in the memorandum, if any. 
If any company may buy a special. 
Resolution alternates the articles, including alterations, having the effect of conversion, so articles of Association Memorandum
subject to the provisions of this act and contain conditions contained in the memorandum and between Memorandum of
Association. 
Even beat. 
And articles of association. 
Again, if any controversy is in their memorandum, will prevail over it. 
That is why subject to the provisions of the Companies Act 2013 and the conditions contained in the memorandum company. 
May buy a. 
Special resolution altering alter its articles. 
So Memorandum of association will prevail over the articles of association. 
When it comes to. 
Act 2013, act. Both the memorandum under Article Act will provide if any controversy is there in between memorandum and
articles, if any controversial provision needs their counter, the provision in their memorandum will prevail over there, so will
provide, so that is very subjective. 
The provisions of this act under conditions containing is the Memorandum, and the company may bypassing a special resolution
special resolution in the annual general meeting it more. It means 3/4 majority is required. 
Articles of association can be amended, so conversion of private limited company kinds of companies, Milan discover
subscription to every alteration of the articles under this section and a copy of the Order of the Tribunal approving the
alteration. 
So special resolution is required and company tribunal. 
Approval is required that both of them shall be filed with the registrar, together with a copy printed copy of the altered articles
within a period of 15 days. 
In such manner as may be prescribed. 
And at the time of incorporation of the company, company promoters have submitted articles of association. 
Later on, whenever amendment takes the place, the order, the Memorandum of Association copy shall be given to the registrar. 
It is the duty of the register to maintain up to date documents of the company. 
So did the corresponding obligation is on the part of the company to file. 
Altered may articles of association. 
Register here. Time bounding within 15 days within 15 days that the copy shall be given to the register of companies we saw we
subsection 2 Rule 33. Rule 33. Incorporation rules here. Alteration of articles for affecting. 
The conversion of private private. 
After another class at 12:30. 
Oh OK, let me download that in names. 
Best music? 
Whether today's class is clear. 
Yes, ma'am. 
Technical problem. 
If you want any clarification, next class I will explain please enter the next. 
Class thank you. 
Thank you. 
 
Audio file 
Corporate Feb 24.m4a 
 
Transcript 
Good morning, Sir. 
Yeah, good morning sushi. 
Am I audible? 
OK, thank you. 
I hope that everyone must have got that information key class scheduled at this time, because due to paucity of time and
because of some of my personal engagements after. 
Like probably in March? 
Uh, I have some personal works to do, so that's why we are. 
We have to have this class. 
So OK, three people have joined, but without wasting your time. 
Uh, we shall continue with our discussion. 
Can you tell me what do we discussed in the last class? 
We were discussing about directors in which I told you that what are the kinds of directors? 
I also told you about the independent concept of independent directors, how they are appointed. 
What is the minimum number of independent directors on the board of a company? 
All that I told you next thing is that we shall look into that. 
What is the role and duties of these independent directors? 
What they do so that is provided under the schedule? 
4th of this Companies Act 2013. So basically they exist on the board for the purpose of maintaining the integrity of code to the
purpose of ensuring. 
Those are protected and if there is any sort of fraud that the people are trying to commit, then it must be caught by these
people. 
So the role of these independent directors is provided under Schedule 4, so it mentions that they must provide. 
Their independent judgment. 
Whenever there is any kind of deliberation on the board, especially on issues of strategic importance on risk management, key
appointments, and standards of conduct. 
Further, they shall provide their objective view in the evaluation of performance of board and management because they are
the. 
Outsiders, uh, there are not having any connection with the shareholders of the company. 
Or the with the majority of group of the company. 
Therefore they are in a position to provide an objective view from a professional perspective. 
Further, they shall scrutinize the performance of the management in meeting that how the management is working, running the
company. 
They shall scrutinize that thing. 
They shall protect the interest of stakeholders, especially minority shareholders, and they shall try to keep a balance between
conflicting interest. 
In the company they must moderate and arbitrate in the interest of the company and if there is any kind of conflict between
management and shareholders. 
So this is the role that these independent directors play. 
Basically they exist so that they can keep act as a watchdog. 
On the performance and management of the company. 
Next thing is what are their duties? 
So gain the duties and whatever is their professional code of conduct. 
Everything is provided under Schedule 4 only, so again it requires them to undertake. 
Induction programs to regularly update their skills, knowledge and familiarity with the company. 
Because I have to work with that company for a specified duration, so they should try to improve upon their relationship with
the. 
Company, they must seek clarification or information wherever necessary, or they must also seek professional advice and the
opinion of outside experts on the expenses of the company. 
Or they must describe to attend all the meetings of the Board of Directors and all the communities in which they have been
nominated. 
They must. 
Try to strive to attend the general meeting of the company. 
They must participate constructively and activity in the committee meetings. 
They must keep themselves informed about the company, its external environment, and its internal working, and they must not
unfairly obstruct the functioning of. 
The board, when it is otherwise proper and legal. 
OK, if board is doing something in a proper manner in a fair manner, then they must avoid undue obstruction in that. 
These are these were the duties and the one of these independent directors, how they are appointed that we have already
discussed. 
What are their qualifications and what is their database that we have already discussed? 
OK, that they can be opted out from a pool of independent director database. 
Next, one important concept in this appointment of directors is that appointment by proportional representation. 
So when I told you that the general general rule of appointment of directors is that they must be appointed in the general
meeting of the company, bypassing. 
Resolutions and those resolutions must be voted individually for every vacancy, OK. 
No two appointments can be made through seeing the resolution unless a resolution in that behalf has already been passed. 
If you want to appoint more than one director through a single resolution, then firstly you must pass a resolution approving this
thing. 
So whenever the people are to be appointed. 
Then it may happen that people who are holding the majority of the votes in the shape depending on their shareholding power.  
Suppose 51% they will always be able to get their people on the board. Suppose there are 10 people in the board and RJ vacancy
arising and that vacancy was voted or based on their 51% majority capacity they is. 
Called one person from their side, then after six months or another vacancy, arise and again they did the same thing. 
For this process continues that. 
Whenever we can see arises, these 51% people collaborate with each other and they appoint persons of their choice to the
board of Directors and the impact of that will be that everytime. 
Minority of 49% will be left out. 
There will be a possibility that that 49% will not be having even a single director from their side on the Board of Directors. So in
order to keep that thing into control. 
All the companies can adopt A method of proportional representation. This is not a compulsory thing. But as per section 163 the
companies can opt for appointment by proportional representation and this has to be done if articles provide. 
For the appointment. 
Of at least two third of directors through proportional representation by single transferable vote or cumulative voting or some
other method. 
OK. 
So firstly, this is not compulsory 3. 
This can be opted and for that provision can be made in the articles of association wherein they can mention that at least two
third of the directors shall be appointed by method of proportional representation through single transferable vote or through a
method of cumulative voting or. 
Any other method which may be prescribed so true that they can provide a representation to even my minority shareholders. 
So now coming firstly to this, what is this proportional representation? 
So this proportional representation you must be aware about this term it is. 
Generally, we study it in reference to Rajya Sabha or in reference to the, uh, this election of President of India. 
OK? 
What happens in proportional representation is that, uh, suppose there are total 1000 votes that are to be cast. 
We have a total of 1000 shareholders, each shareholder having one vote OK. 
Now, if there are nine vacancies on the board. 
Then we will find out, uh, quota that. 
One person shall get in order to get elected to that port. 
How that quota is to be? 
Find out, we will divide the total number of votes that will be cast by the number of vacancies plus one. 
That means total number of votes. That is to be cost is 1000. The total number of vacancies 9 we will add one to that nine we
will get a 10. 
And the the remaining. 
So we will get this quotient of. 
100 in that hundred we will add one and every one, and the resultant answer will be 101. 
So any member who desires as to be appointed to the Board of Directors shall get at least 101 votes. 
So whomsoever gets 101 votes will be will stents declared. 
Otherwise, in that majority rule, what would have happened? Key anyone getting 105 hundred? One vote will get elected. 
Resolution we are putting a separate resolution and every time 501 people are collaborating with each other and they are
putting their people in the board. But here. 
Anyone who gets 100. 
So please repeat this part. 
OK. 
So in this proportional representation we do not look for this majority aspect. 
I'm looking anything that room will be getting the majority. 
We will be dividing the total number of votes stored into a specific quota. 
OK, what we will do is that we will take the total number of votes that will be legally cast. 
For example, take 1000 key total. We have 1000 shares and 1000 shareholders, each holding one share. The total votes they can
cost is 1000. Now suppose there are nine vacancies. 
In the pool. 
What we will do is we will add one to that nine. OK, we will make it 10 and then we will divide that 1000 votes by this ten OK.  
The resultant quotient will be 100, and in that hundred we will add one. The answer will be 1:01 that 101 will be the code quota
of votes that every director every person should get in order to be elected. So jysk, over 101 vote smelled angle that will be
declared as elected. 
You can compare it with Rajya Sabha. 
What happens in Rajya Sabha in Rajya Sabha? 
They do the same thing. 
Suppose there are 403 vacancies, 403 legislative seats in this Uttar Pradesh. May if there are 403 seats and they have to elect
suppose. 
5 Rajya Sabha MP from Uttar Pradesh. What they will do is they will divide this 403 Pi 5 + 1 that will be 6 to 403 cost. 6 divide
curve whatever will be the quotient Uzma they will add 1. 
OK to choose cancer. 
I got that number of votes from those mles Jacobi Milegi. 
He will be declared as elected. 
Same thing applies here. 
Ya Barbie. 
Instead of finding out majority. 
That's why you must have seen key despite this present. 
Government in Uttar Pradesh. Despite the heavy 312 uh. 
Emily's in Vidhan Sabha actually should have got to manage to get two people from his party for Rajya Sabha why so because of
that method of proportional representation? Because he had that around 4950 seats. He got the support from Bojan Savage. 
Party he got the support from Congress and cumulatively they got around 7080 seats. So based on that 7080 seats based on that
proportional representation concept they can get the people elected. 
In proportion to their voting capacity. 
So it is like whatever is your percentage in the vote. 
You can get the same representation on the board. 
Next thing in this this was this proportional representation. 
Next thing is single transferable vote. 
So now you tell me what is this single transferable vote. 
This is also this. 
So we use it in the election of President of India as well as in Rajya Sabha. 
Tell me what is this single transferable vote like? 
What will happen at first you will tell it wrong. 
Sanchita rupal. 
Harshit him and Deepika. 
I'm sure I think by single transferable vote it is meant that every person has a single vote which can be transferred, but I don't.  
I can't exactly tell how can it be transferred in? 
Under what circumstances can it be transferred? 
OK, OK. 
Anyone else? 
OK, so this concept of single transferable vote is a concept of preferential votes. 
That you have one vote, but you are to give that. 
Vote in an order of. 
Friends suppose there are five people that are to be elected and I am one of the voter in that thing in an election. 
Then I will not. 
I will be having one vote, but I can give that vote to all these five people in order of preference. 
OK. 
I can say, OK, my first preference is Mr. 
But if mystery fails. 
Then my second preference will be Mr. 
Even if Mr B fails, my third preference will be Mr. 
C to uske accordance may. 
Suppose I am casting my five votes OK. 
There are other hundred people who are doing the same thing. 
Now the number of votes that is required to be. 
Elected is 101 OK and suppose there is Mr. Eight. He got 201st preference votes. 
OK. 
He is held having a surplus of 99 boots. 
He will be declared elected the moment he gets 101 votes. What we will do is we will look into those 99 votes that what was the
2nd preference of those 99 people? Conan 99 logo. 
Jenner, who opted for investor as a first preference, what was their second preference? Punky second preference? Joe hoagie.
According to that we will divide those votes among other remaining people. Suppose out of those 99. 
UH-50 were of view that our second preference is Mr. 
And in the first preference votes if Mr. C was getting 60 votes and now he has got second preference votes from the election
from the votes casted to Mr Air, then total he will be getting 60 + 50. That means 110. 
So again, he will be declared because he is having more than 101 votes and dusky video remaining nine votes at that will be
again looked into. 
Keep kiss keycap reference if we need to look into third preferences. 
So like President, maybe what we do is key. 
Suppose there are. 
Three persons who have contacted for the post of this President and the rule under the Constitution, is that a President must get
majority of the votes. 
Unlike this first past the post concept, there is a concept of complete majority. 
President must get a complete majority of votes so, but if they suppose a out there are total one Lac votes that have been cast
and there is one Mr. 
ABC, who got 40,000 votes. There is one Mr. XY, Z / 35,000 votes and there is one Mr PQR. What the remain? 
King of 25,000 votes. Now if we look at this scenario, then Mr. C is a in a sort of useless position because second person is having
more votes, that is 35,000 and the first version is having 40,000 votes. 
That is, again more than Mistress. 
This PQR, what we will do is we will. We will eliminate Mr PQR and we will look into his 25,000 votes. 
Keep those people who haunted Mr PQR as first preference. If who was in their second preference. So suppose out of those. 
25,000 votes, we find that Mr. XY Z was the 2nd preference of 20,000 people. Out of those 25,000. 
Then we will add those 20,000 votes to the lot of Mr. XYZ, and initially he was getting 35,001, though we will add that 35,000 +
24,000 that will be give us 55,000 and despite Mr ABC getting more. 
First preference vote. 
Mr. XYZ will stands declared as president. Same thing works here. Key whatever is your you have to cast it in a manner of
preference and once one person gets elected or eliminated then. 
Whatever is the left out votes of that person will look into the second preferences. 
Third, preferences of those votes and based on that we will make our decision. 
This is the concept of proportional representation by means of single transferable vote. 
So through this even minority shareholders can also get their people elected to the board. 
Next method of this. 
So giving representation to minority shareholders is through a concept of cumulative voting. 
So in this cumulative voting, the total number of votes will be equal to the total number of shares. 
Multiplied by the number of directors that have to be elected. So suppose there are 1000 shares and there are 10 directors that
are to be elected. 
The total number of votes that will be cast will be. 
10,000. 
1000 shares multiplied by 10 director post that will give us 10,000. 
Now if I am one of the share holder who is having 100 shares in the company, OK? 
So if you look at that out of 1000 shares, I am having only 10% of the shares I am having only 100 shares, but when I have to vote
I will be getting 100 in. 
Ten votes, 100 for my shares and then for the number of the directors. That means I will be giving getting 1000 votes. 
Now I have the option that I can divide these 1000 votes among different contestants or I can decide. 
To give all these votes to a single individual. 
Toyota Tacoma happy. 
The slogan abcdefgh job I can divide my votes among them. 
Kim Makiko do. I am giving path so boots to this one. I am giving hundred votes to this 110 to this one or in order to increase my
chances of electing my director to that board. 
I can decide key no. 
I'm not giving these votes to other people. 
I am giving all of these. 
Votes to Mr. 
OK. 
So in that way, my chances of getting my director elected to the board will increase. 
So here each shareholder gets as many votes as the number of vacancies, and the shareholders have the right to divide their
votes among certain candidates. 
Or they can give all of their votes to only one candidate. 
So through these methods of this proportional representation, by single transferable vote. 
All through this concept of cumulative voting or the companies are free to device some other mechanism. 
As well, they can provide this sort of protection to their minority shareholders, but this is only when the articles provide that at
least two third of the shareholders shall be elected in this manner. 
This is not compulsory for the companies to adopt. 
Next thing about directors. 
Yeah OK, we are done with this appointment part. 
At least your appointment case over there and there. 
I think disqualifications. 
Also, we discussed that day. 
Next there is one thing that there the directors are prohibited from assigning their office. 
Uh, they cannot suppose I am elected as a director. 
Now I can't transfer my office to someone else. 
I can't assign my office to someone else, so you can compare this thing with the transferable properties and other transfer of
Property act. 
Uh, I think section 6. 
As far as I remember, so there also if you are getting elected to some office you are debarred from transferring that office to
someone else. 
Same as the thing here that directors cannot assign their office to someone else. 
And if they assign their their office to someone else, then. 
It will be void and the contravention of this provision is made punishable as well. 
This is provided under section 166, subsection 6 and subsection 7. However, there there is one distinction that Supreme Court
has made. 
Between this assignment and the transfer of this office through. 
This, uh? 
Threw away Will so in that case there was one person who was appointed as a director for life. 
And before his death, that person made a will, and in that will he mentioned that after my death my office will be transferred to
my son or whatever Mr in that this question was raised, whether this thing should be prohibited or not. 
So there in the Supreme Court distinguished that assignment. 
Is applicable when you are in existence. 
When you are your survival, you are still a survivor and then you are transferring your office to someone else. 
Then it will be considered as an assignment, but if you are making some arrangement after your death then. 
Uh, that is not prohibited and that thing was considered as valid in that case. 
Next, there is one concept that I told you in brief that day, that is of a small shareholders director that is provided under section
151. So this concept of a small shareholders directors it applies to listed companies and he. 
Another small shareholders means the people who hold shares of nominal value not more than 20. 
Then rupees or such other some as may be prescribed by the government. So in that regard we have one Rule 7 of companies
appointment and qualification of directors rules 2014. So it enables the listed companies that they can either suo Moto. 
Or after receiving a notice from at least 1000 small shareholders. 
Uh, they can make this provision for them to elect one small shareholder. 
Director to the Board of Directors, and in this regard the shareholders shall leave a notice of 14 days to the registered office of
the company, and they must provide the director identification number, the consent, and the declaration that he is not
disqualified. 
Further, this director will be considered as, or treated as an independent director under Section 149. 
And as such, directors shall not hold directorship in more than two companies. 
So in general, the rule for Zoom Directorship was 20, but here for small shareholders directors it is maximum of two companies. 
Further, once this person. 
Has completed his tenure, uh then he or she shall remain ineligible for appointment for next three years. 
That means there must be a cooling off period of three years between one appointment and another appointment. 
Next is vacation of office by the directors. That means how they can get themselves relieved from their office. How can they
leave from their office that is provided under section 167 and these directors will be relieved from their office? 
If they incur any of the disqualification, so those disqualification includes. 
If they find if they turn out to be of unsound mind or if they have been declared as undischarged insolvent. 
Or if they have been convicted for an offence involving moral turpitude, then whatever were their disqualifications, if they incur
any of the disqualification, then they have to vacate their office. 
Or if they keep themselves away from the meeting of the board for a continuous period of 12. 
If they are not attending the meeting of the board, uh? 
With the leap or without leave, that means with permission or without permission, that doesn't matter, they will be if they are
absenting themselves for 12 months, then they have to vacate their office or if they failed to disclose their interest in any
transaction. 
So this is this. 
The thing relates to the concept of interested directors that I will be dealing after some time. 
So so if they are whenever the directors have any kind of interest in a transaction that the company is going to enter, then they
are supposed to disclose that interest to the board. 
In its first meeting itself. 
So if they fail to disclose that interest, then they will have to vacate their office. 
Next is if they are disqualified by an order of a code or by this LTE national Company Law Tribunal then also they have to vacate
their office or if they have been convicted by a court. 
Any offense, a sentence to six months or more imprisonment then? 
Also they have to vacate or if they have been removed in pursuance of this act, whatever is in accordance with the provisions of
this act. 
If they have been removed then they have to vacate. 
Or if they are holding this directorship. 
Uh, because of their engagement with some other institution because of them being employee of some other institution. 
Suppose nominee director. 
OK, so if they lose their that original engagement, then they will have to vacate their. 
Office of this director in that company. 
Next is the removal of directors, so as they can be appointed by the general meeting of the company, they can be removed by
the general meeting of the company so they can be removed by the shareholders as well and they can be removed by the
Tribunal that is. 
The national Company Law Tribunal as well, so that is provided under section 169 the shareholders have got every right to
remove the directors and they can bypassing in ordinary resolution, of which a special notice is given. 
To remove the director before the expiry of his term, though if there is some director that has been appointed by the Tribunal or
a director that has been appointed under the system of proportional representation, then they cannot remove that person. 
And before this resolution is passed, the director must be given and given an option of getting hurt. 
Costco hearing 
And once any vacancies created by the removal of a director under this provision of removal, then the general meeting can fill
up that vacancy on its own in that same meeting, or on a later stage. 
This these directors can be removed by passing ordinary resolution, but when it comes to independent directors they can be
passed by. They can be removed by passing a spatial resolution through a 75% vote. 
Kiss it. 
Let me just three 4 + 3 fourth of the booting capacity. 
Next, they can also be removed by tribunal under Section 242. 
So if someone has moved or made an application to the tribunal under Section 241 for operation and mismanagement in the
affairs of the company, then the tribunal has got the power to set aside any agreement or to terminate any agreement. 
That the company has with any of its directors. 
So whenever these directors are appointed, it is a sort of contractual relationship between the company and the director, and
whenever there is an application for operation and mismanagement is filed with the Tribunal then the Tribunal can set aside
that to contract or they can terminate that contract and it. 
They can also remove the directors. 
Next to these directors can resign from their office by giving a notice to the company in writing, and this resignation takes effect
from the date on which it is communicated to the company. 
This is mentioned under section 168. 
If some wrong was some wrong thing was done, some wrong was committed during the tenure of a particular director, then
even after resigning from that office he or she will continue to incur liability for that wrong thing. 
But uh, ski bad after he's leaving that office if some wrong. 
Thing has happened then he or she will not incur liability. 
Apart from that, under section 176, if directors, if whatever acts have been done by the directors, they will be considered as
valid even if it is find out, even if it is found out that their appointment was in. 
Valid because of any defect in disqualify or disqualification or various appointment was terminated on a later stage in
accordance with the provisions of Companies Act or articles. 
So it. 
This section basically permits or ensures that. 
The acts are valid because despite there being some defect in the appointment of director. 
Reason being simple, he if someone is a fine found to be someone's appointment window is found to be defective at a later
stage and he or she might have done a lot of work in that company then it might result in some retrospective effect and can
cause. 
Purpose in the company. 
So in order to ensure that such things must not happen, this provision has been made. 
Next we shall come to the that what are the powers of the Board of Directors? 
So the powers of the Board of Directors. 
They have been provided under Section 179 which talks about the general powers of the Board of Directors. 
They can exercise all powers and can do all such things as have been authorized to buy the company to do so. 
Whatever the company authorizes tend them to do. 
They can do that thing. 
Further, whenever they are to exercise their powers, they are to exercise those powers subject to the limitations of the
Companies Act. 
The memorandum, the articles and the regulations of the company. 
Further board of directors cannot exercise powers that are to be exercised. 
By the company in its general meeting. 
So if there are some specific powers that are to be exercised by the shareholders in general meeting, then the done, then those
powers cannot be exercised by the board. 
This was observed in liberal, limited versus National Insurance Company limited. 
I will write in the chat box. 
Further, if that board of directors. 
So can you please report observed in this case? 
It was just they observed that. 
The Board of Directors can exercise all the powers except those that are specifically mentioned to be exercised by the
shareholders in the general meeting of the company. 
So it is like that we have created a set that these powers are to be exercised by the shareholders in the general meeting. 
Whatever is left after that that is left to the domain of the. 
Board of directors. 
So JoJo, things are to be done by the shareholders, keeping them aside. 
Whatever is left is to be performed by the board so they can exercise all the powers except the powers that are to be exercised
in the general meeting. 
Next thing is this search. 
The shareholders cannot interfere with the powers of the code. 
If the shareholders are dissatisfied with whatever the board is doing, then they have the option that they can. 
Find out their remedy by either removing those. 
In the general meeting, if they are satisfied with them, they can remove them, but they cannot interfere with the. 
Functioning or the working of the Board of Directors. 
And this cannot even happen in general. 
Meeting that even in general meeting they cannot do so that we are passing this resolution. 
The Board shall not do this boards and not do that, but that is subject to some provisions. 
The general meeting can intervene if they are finding out that the directors are acting in a mellified manner. 
And the directors are not working for the benefit of the company, instead working for the their personal benefits. 
Then this general meeting can intervene. 
Or if the directors themselves are wrong towards the directors are indulged in some kind of fraud. 
Some kind of misfeasance, then the general meeting can intervene, or if the director is, if the Board of directors is incompetent
to do something, or if there is some deadlock in management, suppose the board of directors is not meeting properly regularly,
or if they are not. 
Uh, if they are divided in a 5050 ratio, then in such cases of deadlock, other general meeting can intervene with the. 
Functioning of board. 
These are the general powers of board of directors. Some specific powers have been mentioned under section 179, subsection
3, and these includes the powers to make calls on shareholders in respect of money to unpaid on their shares. 
So anyone tell me that what is this calls on chairs? 
I think I've told this 2/3 times. 
Arash Neha shivangi 
OK, apart from making calls on shares, they can also authorize buyback of securities. 
Buy back of securities means that if the company if the shares. 
Of the company are held by like public or some other shareholders. 
Then the management of the company or specifically the promoters of the company can give an option that they wants to
increase their shareholding in their company and they may offer to buy those shares. 
On a specific amount on a specific price that even maybe more than the. 
Actual share price of that company in market. 
So for example this. 
Tata Consultancy Services in their last board meeting they announced this buyback of shares. 
So despite their share being traded at a value of 3700 or 3800, they were offering a buyback price of 4500. 
So they can. 
Approve this buyback of security is a buyback of shares. 
They can issue securities, including debentures. 
They can borrow money, they can invest the funds of the company. 
They can grant loans or give guarantee for the loans they can approve financial statement. 
They can diversify the business of the company. 
They can approve amalgamation, mergers and reconstitution reconstruction. 
They can take over a company or acquire sauce. 
Some mistake in another company. 
These are the specific powers that the board can exercise under subsection 3 of Section 179. Next to, they have certain other
powers that are mentioned under various sections of the companies active, so one power is the power to fill up casual
vacancies. 
That we discussed at the time when we were discussing about appointment of directors. 
Whenever some director dies, or if some director has to become terminally ill or. 
Then in such cases till that time, that vacancy is filled by the general meeting. 
The direct Board of directors can fill up those casual vacancies. 
Further, they consensual contract in which director is interested. 
So this we will be discussing in are interested directors concept. 
This is under section 188. Next they can make political contributions. 
That is under section 182. 
This we will deal. 
They can recommend the rate of dividend that is to be declared by the company at into its general meeting. 
Annual general meeting subject to approval of shareholders. 
So dividend I think it will be. 
It will be dealt with by ma'am but for our purpose to give you a brief idea. 
Dividend means. 
A certain amount that company pays to its shareholders, uh? 
From the profits that it has generated in the last year. 
So whenever a company is in profit, this is a rule that the dividends can be paid only out of profits. 
So if a company is generating profits, then it divides its profit or it shares its profit with its shareholders. 
Uh, in proportion to the number of shares that they are holding in that company. 
So it is a token of. 
Incentive that the company is giving to its shareholders. 
That because the shareholders have shown trust towards that company, the company is reaping that trust. 
So dividend is a money monetary value that the company gives to its shareholders out of its profits. 
OK, and it is proportional to the number of shares that you are holding in their particular company. 
So it is the board of directors that recommend the rate of development. 
Further, they can appoint a person as managing director or they can they have the power to approve loans or invest in any in in
shares of any other body corporate and the power to enter into. 
Contracts or arrangements with the related party. 
Further, they have the power to appoint or remove key managerial persons of the company and they have the power to appoint
internal auditors and the secretarial auditors of the company. 
Next to these were the powers under section One, 79179, subsection 3, and certain other provisions. 
Which are scattered in this Companies Act, there are certain restrictions on the powers of board of directors, so those
restrictions are mentioned under Section 1. 
80 previously there was with that restriction that they cannot do anything that is to be done by the shareholders in the general
meeting. 
Apart from that, section 180 provides that. 
A certain powers cannot be exercised by the board without consent of shareholders through spatial resolution. 
These includes if they are selling something or leasing or otherwise disposing of. 
Disposing of whole or substantial portion of undertaking of the company. 
Then it is necessary to pass a special resolution of shareholders if they are investing the amount of compensation received by
them as a result of any merger or amalgamation. 
If the company has merged with someone, or if the company has amalgamated with someone and they have received any
compensation for that thing, then if they are in investing that amount then it is necessary that a spatial resolution of
shareholders must be passed, or if they are borrowing money that exceeds the aggregate. 
Of the paid up share capital of the company or its free reserves or securities premium then also they must take they must. 
Get this spatial resolution passed by the shareholders. Next is that the political contribution that power to make political
contributions that is under section 182. So what are political contributions? Firstly, that is defined under section 182. 
Uh so political contribution means a donation or subscription or payment made to a person carrying on any activity which can be
reasonably regarded as. 
Or likely to affect public support for a political party. 
So if they're making any kind of donation or a payment to a person who is? 
So working towards garnering the public support for a political party then that will be considered as a political contribution or if
any amount of expenditure is incurred by the company on advertisements in any publication on behalf of a political party so
they can either directly. 
Contribute to that to come to that party or person who are engaged in this political activity. 
Or they can advertise on their behalf. 
Both of these. 
Things will be considered as political contributions. 
Now which company can make this political contribution companies? 
Except all companies accept government companies and the companies that have been in existence for less than three years,
three financial years. 
That means robotic them recent is stage million companies and those companies and the government companies. 
They cannot make these political contributions apart from that or other companies. 
Can make political contributions. 
Further, they should pass a resolution in the meeting of the board to make this political contribution, and this must be disclosed
in the profits and loss account of the company, but our amount they have contributed towards this political contribution, they
must disclose it in the profit and loss. 
Account of the company. 
You can look this in the perspective of that electoral bonds. 
That's how things work. 
Next coming to that concept of interested directors that was mentioning that they have this obligation to disclose their interest
in. 
The transactions of the company so that is mentioned under section 184. So a director who is interested in the transaction of the
company is duty bound to disclose his interest to the board when it is and is that interest to be disclosed. 
So it is to be. 
Done in the first meeting in which that person is participating. 
As a director, so every director shell at the first meeting of the board in which he participates as a director discloses interest. 
After that. 
In the first meeting of every financial year, he or she shall disclose this interest or. 
If there is a change in the position or the interest of director from that previous meeting to the subsequent meeting, then in that
subsequent meeting he or she shall disclose that interest. 
So just be quick, change are tired whenever there is any kind of change in the position or interest of a director in any
transaction. 
Then he is duty bound to disclose that interest to the meeting of the board. 
And they must also disclose their interest in a contract or transaction when the company is to enter into a transaction with
another firm. 
That means apart form wherein he or she is a partner or another company, wherein. 
He or she. 
Is holding more than 2% of. 
So if they are having any personal interest in a transaction, or if they are, if the company is about to enter into a contract with
the partnership form, wherein a director is a partner or entering into a contract with a company where in a director holds more
than 2% of the shares, then he or she is. 
City bound to disclose that in. 
List or if he later on becomes interested, then also he or she should disclose this thing. 
The reason being simple that the information must be brought to the knowledge of the company and later on the company must
be in position to decide key whether we shall proceed with this thing or not. 
Otherwise, it will be like a conflict of interest that I'm on the Board of directors of this company and I am a partner in that
another partnership form and Uzma what I have done is key. 
I have garnered support for a particular contract that is to be given to that partnership firm by my company. 
So in order to ensure that there is a fair play, that information must be available to the Board of Directors. 
It must be disclosed and if this information is not disclosed then this non disclosure will render the contract voidable, though not
void, void neoga. 
But it will be voidable. 
The company will have the right to. 
Decide to get it to avoid it. 
This was section 184 next section 95, that is also related to directors and their relation with the company, so it talks about loans
2 directors. So it basically says that the company shall not provide. 
Want to it's directors or? 
It shall not provide any guarantee or provide any security in connection with any loan to its directors or to the directors. 
Of a company which is it's holding company or to any partner or relative of such director OK or any form in which any such
director or relative is a partner. 
So basically, if you are a director in a company then you shall not take loan from. 
That company or? 
Uh, any other company in which you are a director? 
That must not take loan from that company. 
Or if you are a partner in another partner in some partnership firm, then that partnership form shall not take loan from that
company. 
This is the rule on Section 185, however. 
Again, there is are some conditions that they can provide loan to any company in which director is interested by passing a spatial
resolution. 
In general meeting and only on the condition that the borrowing entity or boring company will utilize the loan amount for its
principal. 
Business activity to the general rule is that they must not advance loan or security or guarantee. 
But if by if they are passing a spatial resolution. 
And on a condition that the borrowing entity shall utilize that for its principal business activity, then this. 
But this is permissible. 
Next, is there are certain duties of this? 
These directors, these duties, can be divided among statutory duties and general duties. 
So what are those statutory duties that. 
They are also scared. 
Under this 
Companies Act from place to place, so one duty is that to file return of allotments so that is under Section 1, section 39,
subsection 4, and it requires the company to file with the registrar within a period of 30 days, uh, return. 
Of the allotment stating the specified particulars so. 
Whenever a company. 
Tries to offer its shares or securities in market OK then. 
A minimum amount of shares must be subscribed, or securities must be subscribed. 
So suppose if that minimum threshold is not reached and there are some people who have subscribes to those securities. 
Then, since the company has failed to get those minimum subscription, the company is duty bound to return those subscriptions
that have been received and if they fail to return those those subscriptions within time then. 
They shall incur some sort of penalty, and this is the duty that is mentioned under this section 39 subsection 4 then they are
duty by amount to return those. 
Application amount within 30 days. 
Next is under section 166. They are two directors are to act in accordance with the articles they are to act in a good faith and
promote the objects of the company. They should protect the interests of the company, shareholders, employees, community. 
And act towards protection of environment. 
Next they must exercise due and reasonable care skill and diligence, and shall exercise their independent judgment. 
They must avoid conflict with the interests of the company. 
They must shall not achieve or try to achieve any undo. 
Advantage or gain for themselves. 
Further, they shall not. 
There assign their office as already discussed. 
Next they have this duty to disclose their interest that I mentioned the duty to. 
Attend they have the duty to attend the meetings of the board. 
They have their duty to convene general annual general meeting and extraordinary general meeting of the company. 
They have the duty to appoint first auditors of the. 
To appoint cost auditors of the company so these you can check up next. 
They have some general duties of general duties, though they are mentioned in the ACT itself, but these these need a bit sort of
explanation, so first. 
One is the duty of good faith. 
So what is good faith? 
Good faith when where we talk about good faith we. 
Study it in perspective of either insurance law or under the IPC. 
So anything as IPC says that is done without due care and caution cannot be considered as a good faith. 
So here when it comes to companies, it means acting in a fair manner and. 
For the benefit of the company, if you are not acting for the benefit of the company and if you are not acting in a final fair
manner, then you cannot be considered to be acting in good faith. 
Here we have one case on this. 
Yeah, Cook versus weeks. 
So what happened in this case that there was one contract offer that was made to the company? 
Now the directors of the company, some of the directors of the company they were holding three 4th. 
Percentage of the shares of the company that means they were having 75% of the shares in the in the company OK. 
Now what they did was dead tip. 
The company is not having any kind of interest in that particular contract. 
The main aim. 
Behind doing was that they wanted there was one. 
Individual shareholders who was having that remaining 25% of the shares they wanted to exclude him from this particular
contract, so they passed a resolution in the board meeting that the company is not having any kind of interest in this particular
contract, and therefore the company is not going to. 
A bid for this particular contract. 
Now after doing this what they did was that they personally entered into that particular contract. 
After excluding that particular shareholder, these directors entered into that contract in their personal capacity. 
Now that left out shareholder, he filed an injunction against them and declaring that they acted in a. 
Against the interest of the company and the court also agreed with that contention. 
The court also observed that. 
The benefit of the that particular contract, whatever profits they those directors have derived out of that contract in their
personal capacity that must be returned to the company because that belongs to the company. 
As in equity. 
Because being directors, it is their obligation that instead of looking to their personal advantage, they must look to the
advantage and benefit of the company. 
So this is the duty of good faith. 
Next is the duty of care. 
So duty of care. 
It requires them that they should not act in a negligent manner, or they should not act in a fraudulent manner. 
They should act in carefully, but this level of care. 
It must, it must not be some extraordinary level of care because they are also human beings, so they are expected to comply
with the standards of ordinary human being. 
Whatever, and a person of ordinary prudence would do in a particular situation if they have acted in that manner. 
And Despite that, some wrong. 
Happens to the company or some loss happens to the company. 
They will be considered as that they acted in a. 
Whether their duty of care they will not incur any liability for mere errors of judgment because it is business and anyone can
make an error. 
Miss Fortune can come into play with anyone at any point of time. 
So for that purpose, for reason, Section 463 also enables the code to discharge or relieve the directors from liability. 
For from fraud, if they acted honestly and reasonably, and having regard to all the. 
Circumstances through the. 
Case so suppose if some complaint is filed against the directors that they acted without care and caution in a negligent manner. 
But if the court finds that they acted honestly and reasonably as per those circumstances, then the code can discharge them.  
The code can set them free. 
Next is the duty not to delegate, so this delegators non potash delegate that you must have studied in administrative law. 
This concept of delegators non potash delegate because these characters are themselves the agents of the company. 
When I told you about the relationship of the company. 
And the directors. 
And I told you that it is more of a agent principle and agent because they themselves are the delegates of the company. 
The company has delegated them to delegated to them. 
This task of performing day-to-day business of the company. 
They should not. 
Further delegate their work. 
They are supposed to. 
Act personally. 
They are supposed to perform their work personally. 
Delegation is allowed. 
Only when permitted by the company set or when permitted by the Articles of association or when it is expedient to do so. 
So if they are not able to do that thing themselves because of some reasons and expediency demands that they must delegate it,
then they can delegate it. 
Or if there's some provision in the Companies Act, permits them to delegate it, then they can delegate it. 
Or if the articles allows this, then they can delete it. 
The rule is against delegation. 
Next, apart from duty, there are certain liabilities of directors. 
Uh, liabilities. 
They have the liability if they commit some kind of wrong, then they have the liability towards the company. 
They have the liability to words. 
The third parties also OK and they have certain sort of. 
Criminal liability as well. 
First one is the liability towards the company so. 
If they commit a breach of their fiduciary duty, so fiduciary duty. 
I told you that the relationship between the company and directors is sometimes also a relation of trust. 
The Board of directors are supposed to act in a fiduciary manner. 
They must maintain that trust with the company, and if they commit a breach of that trust, then they can be sued as trustees of
the company. 
Uh, skateboarding. 
Uh, whatever be the obligations. 
Depending on the Indian trust sector. 
So whatever are the civil remedies that are available that can be. 
Claimed by the company. 
Next is Ultra virus acts the toward towards the company itself. 
If they are committing some kind of ultra virus set, then injunction can be asked against them. 
The shareholders can ask approach the code that they are going to enter into some kind of ultra virus. 
Transactions, then induction. 
We asked or if they have already entered into some kind of ultra virus transaction, then the company can make a plea that we
are not bound by this particular transaction because it is. 
It was ultra virus. 
The authority of board of Directors next to if they act in a negligent manner. 
Then also company can claim damages from them if it has suffered any kind of loss or if they have acted in a mellified man are in
a fraudulent manner then also the company can claim damages from them. 
Next, liability is the liability towards third party. 
So they incur personal liability for failure to state any relevant particulars as per the requirement of section 26, or if they make
any kind of misstatement in the prospectus of the company. 
So prospectus men will discuss, but prospectors are issued by the company when they decides to go public. 
Whenever they decides to issue an IPO in order to get subscription from public so that they can get some amount of equity. 
From market in order to expand their business, they issue a document that is called as prospectus in which they provide all of
the information about their financial. 
The health and their business prospects and the ideas that they have in their mind. 
So if and based on that information in the prospector. 
So the. 
Public decides to subscribe or not to subscribe? 
Ideally, though, no one reads that from public at least. 
And if they make any kind of misstatement in that thing, then they can incur personal liability for that misstatement. 
Or if they make any omission. 
So in that prospectus then, they also they will incur personal liability. Further, this section 35 provides that a director shall be
liable to pay compensation to every person who subscribed for any shares or debentures on the faith of the prospectus. 
Even you can recall that case of delivers speak from contract that was on similar lines, wherein they mentioned that are this. 
Running of mill through motor power has been approved by the competent authority and all, and based on that people
subscribed but later on it was found that it was pending approval so. 
That fraud thing was questioned in that whether it is a fraud or not. 
Next, with regard to allotment, they are supposed to return application amount within 30 days. 
As I mentioned that they have this duty to return that application amount within 30 days. 
If they fails to get the minimum subscription from people and if they do not. 
Return that amount, then they can infer. 
Liability under section 39. Further, directors can also be made personally liable for the debts and all liabilities of a company by an
order of the tribunal. 
Under Section 339 and such an order shall be made by the tribunal's where the directors have been found guilty of fraudulent
conduct or of business. 
Apart from that, there can be liability for breach of warranty. 
Breach of warranty means that these directors are. 
The agents of the company, so whenever they act with third parties, they are giving a warranty that we have this authorization
to do this particular thing and later on if it is found that they were acting beyond the scope of their authority, then the third
party can claim for damages for breach of warranty against those. 
Next is there are many provisions under the. 
Companies Act which makes. 
Which prescribes imprisonment as a punishment for violation of various duties but the from past two years. 
The government has been. 
Removing these penal sanctions. 
Their main view is that instead of criminal liability, we should try to focus more on civil liability for. 
The offences under the Companies Act. 
However, this is a point that can be discussed or debated that. 
To despite all being think all things in place. 
Despite we having the concept of independent directors despite we having all these duties despite we having all these liabilities
of directors despite we having that to these criminal liability of directors. 
Why all these frauds take place? 
Because last five 6-7 years we have seen there have been lots of corporate frauds previously. There was that September scam as
well. 
The government is failing again and again to stop these frauds. 
Recently we saw that. 
One Gujarat. 
One shipping company that committed a fraud with banks of 22,000 crowds. So despite everything in place, nothing is
happening. We are still at that place, only OK. 
After we were in under the provisions of 1956 act. So what have we got out of this nine 2013 active? 
Apart from the perspective of business, we should also look into the huge amount that is. 
Wiped out from the balance sheet of banks and the ultimately it is the taxpayers money that is being taken away. 
But in the name of God in the name of economy and in the name of this so called industrialism. 
The government is doing this giving free hand to these companies. 
Through this Companies Act and IBC. 
If you study IBC you will get to know that. 
Do whenever there are bad. 
They try to find out some resolution plan and they call it a haircut that if you are to pay 1000 crowds, you take a give us a haircut
and you give us 80 crowds so it is not basically a haircut. It is a throat cut that they do but still. 
All these things exist in our economy, so this was about directors in this one important concept that I have to deal is. 
Yeah, related party transactions, so can I take a break of? 
5 minutes. 
Is it fine? 
Yes, Sir. 
OK, thank you. 
OK. 
Thank you for the corporation. 
Uh, next thing that is itself is again, part of this director concept that is this. 
Concept of related party transactions. 
So all of us know that. 
After having gone. 
Through all these duties of directors and their liabilities. 
Uh, it is necessary that the. 
The Board shall work in the best interest of the company, its shareholders, and it's. 
And the assets of the company are to be utilized in good faith for the benefit of company and its shareholders. 
But we know that the company is to act using its board of Directors and their whatever is the day to day administration of the
company. 
It is the board of directors that have two. 
Since these people who are in the control or in the management of the company, they may try to divert the resources of the
company for their personal gains. 
By entering into transactions with their relatives, relatives not only biological relatives or. 
But relatives in the sense. 
Of that, any entity in which they have some sort of interest. 
They may try to divert the resources towards their personal gains by entering into a transaction with their relatives. 
Therefore the mostly the genesis of this financial frauds it in the corporate arena. 
It lies in these related party transactions that whatever they do is. 
That instead of. 
Utilizing that money for the benefit of the company, they divert it either to their personal accounts or to some other shell
companies. 
Vijay Mallya did the fraud in this same manner that Satyam scam took place in same manner. 
OK this one that Gujarat. 
The this shipping company whatever money it took from that those banks. 
They also did. 
Then the sort of same manner. 
So in order to control this thing or to keep this. 
Thing in check. 
We have section 188 of the Companies Act and it provides a rule. A general rule against. 
The entering into of related party transactions. 
So this related party transaction. 
The framework of this related party transaction can be divided into 3 parts. 
One is the Companies Act, another is the Sebi listing obligation and disclosure requirement regulation, that is, Sebi, LODR, 2015
and the third one is of accounting standards. 
When it comes to Companies Act, we have certain sections that is section. You can note these things down Section 2, subsection
726, Section 174, subsection 4, Claws 4 and Section 188. It is from this company actor and it applies to. 
All the companies, irrespective of public private, listed, not listed whatever it be, then. 
Seb Seb. 
So, do you know the Securities and Exchange Board of India listing obligation and disclosure Requirements Regulation 2015 so,
from this Regulation 2. 
Sub regulation 1 zed be regulation 2 sub regulation 1 zed. See regulation 2 sub regulation one ZD and Regulation 23. 
So it applies only to the companies that are listed with the stock exchanges. 
Then we have accounting standards that is accounting standard 18 and Indian accounting Standard 2000. Indian accounting is
standard 24. It relates to disclosure in financial statements. This is the framework that is applicable to related party
transactions. 
No, firstly, coming to what is a related party. 
So from the perspective of Companies Act like we have to study this related party is defined at three places. 
One is Companies Act that is Section 2, subsection 76, then it is also defined as per Indian accounting standards and it is. 
Also defined in Sebi Lodr 2015. So first one from the point of view of Section 2, subsection 76, we can divide the this. 
Related parties into five categories. 
First category will include the directors or their relatives. 
And the key managerial persons of the company or their relatives second category will include the form in which or affirm in
which director or a manager or his relative is a partner. 
3rd category will include. 
Private company in which director or manager or is relative or is a director or a manager. 
It's true. 
Next, any public company in which director or manager is directed. 
And along with relatives holds at least 2% of the shareholding or a body corporate whose board is accustomed to act in
accordance with advice, directions, or instructions of director or manager or any person on whose advice director. 
Our manager is accustomed to act. 
The 4th category will include holding company, subsidiary, company or associate company or a fellow subsidiary company or an
investing company or adventure. 
And the 5th category will include. 
Director other than independent director, the KMP of holding company CVP means the key management person of a holding
company or his or her relatives. 
This is how Section 2 subsection. 
76 defines related party now to. 
This was from that category division point of view, but. 
To identify, firstly that what is the related party transaction, it becomes quite important that. 
What is a related party? 
Because unless until you don't know what is a related party, you cannot identify what is a related. 
Party transaction OK. 
So with the reference to the company as I've already told that includes, it includes the directors or their relatives. 
It includes the key manager persons or their relatives. 
It includes a firmware in a director. 
Order manager or relative or their relative is a partner. 
It includes private companies wherein director manager member is a member or director. 
It includes public company, where in a director or manager is a director of holds more than 2% of paid up, share capital or
anybody corporate whose board of directors is accustomed to act on the advice of. 
Director or manager of the company. 
However, professional advisors are excluded from this thing. 
Accustomed to it, or any person on whose advice the directors or managers are accustomed to act, but again, professional and
devices are not taken while defining this related party. 
Further, anybody corporate, which is a holding company or subsidiary company Associate company, a fellow subsidiary company
and investing Company, a venture company that will also be considered as the related party. 
It is an obligation that a director shall disclose his interest in a contract or arrangement at the meeting of the board where in the
contract or arrangement is discussed OK. 
Further, we have looked into this definition under Section 2, subsection 76, and it many times it mentioned about a director or is
relative ucmp or is relative. What is this relative? This relative is defined under Section 2, subsection 77, and. 
If it, if we read it with. 
The Rule 4. 
Right? 
Of companies specification of definition details rules 2014. It will include. 
Uh, any person related to another as a member of Hindu undivided family. 
As husband and wife. 
As father or stepfather, mother step mother son step son son, wife, daughter, daughters and all these things that you can read. 
Further, this key managerial person with reference to a company would include the chief Executive officer. 
The Managing Director manager company secretary, Oldname director or Chief Financial Officer of the company and these key
managerial persons are those persons having authority and responsibility for planning, directing and controlling the activities of
the entity, directly or indirectly, including. 
Any director of that entity, this is mentioned under. 
The art Earth accounting standard 24. 
And so far as the common directorship is concerned, the relevant clause for identifying related party is not on the basis of
reciprocity. 
OK, so suppose if there is one Mr. 
A WHO is a director in Company X and also in a company wide and. 
If company a. 
Company X is identifying company Y as a related party based on the directorship of Mr. 
It is not necessary that the company by shall also identify missed company X as. 
A related party based on the directorship of Common directorship of Mystery. 
So this. 
When it comes to common directorship. 
Related parties cannot be identified on the basis of reciprocity. 
When I was using this defining this related party or mentioning that were included in related party many times it mentions
anybody corporate. 
The impact of this use of anybody corporate is that, uh, it will include foreign companies as well. 
Had it been any company. 
Then as per Section 2 subsection 20, it would have included only the companies incorporated under the Indian Companies Act,
this act or any prior act. 
So that's why instead of using any company, they have used the word anybody corporated. 
And based on these definitions, the company is. 
Required to prepare or created database of all of its related parties. 
As per the definition under Section 2, subsection 70. 
Six so that it becomes easy for them to identify that who, whom, which person is a related party. 
And which is not. 
Next to this wonder. 
The company set, but if we look at the definition of. 
Under Sebi, Lodr then under Regulation 21Z B, they define it as. 
Related party means L party as defined under Section 2, subsection 76 of the Companies Act or under the Applicable Accounting
Standards. 
So what they have done is that they have merged. 
They have compiled the definition of Companies Act as well as. 
Minutes so the scope of this CBD is a bit to the EMB. 
It is bit larger than the Companies Act alone or the accounting standards alone because it is using the more the definitions. 
Apart from that, any person or entity belonging to the promoter or promoter group of the listed entity and holding 20% or more
of the shareholding is the in the listed entity shall be deemed to be a related party. So if there are promoters of company
promoters. 
I don't know if it is has been discussed or not, but promoters are the people who. 
Are basically the founding members of the company who have made all the efforts to to bring company into existence. 
People who have basically promoted the company or a bug dev towards the promotion of the company. 
People who have incorporated the company. 
Whoever complied with all the formalities of incorporation of company, they are the promoters of the company. 
If any person is holding or. 
Any entity which is belonging to the promoters and that is holding 20% or more than 20% shareholding in that company that will
also be termed as a. 
Unrelated party, as per Sebi loader. 
Dispose about Seb yellow der. 
Previously it was about Companies Act now coming to accounting standard 18 because that accounting standard 18 also
defines. 
Uh, this related party and why we need to study this related party under accounting standard because smba load makes
reference to accounting standard. 
So as per accounting standard 18 enterprises that are directly or indirectly. 
Or through any kind of intermediary. 
Are controlled or controlling? 
Uh, by the reporting Enterprise reporting Enterprise will hear mean the enterprise that is issuing its financial statement. 
Apna job have any balance sheet issue career that entity. 
Uh, if that is controlling or it is controlled or. 
By some other entity, or through some intermediary entity, then these entities will be considered as a related party to each
other. 
Or an associate and joint venture of the reporting entity and the investment party. 
They will also be considered as related party or individuals who own an interest in the voting power of this reporting entity that
gives them control. 
Or significant influence over that enterprise. 
They will also be considered as a related party and also their relatives will also be considered as relative related party. 
Further, the key management personnel and the relatives of such persons will also be considered as related party. 
And any enterprise over which any person. 
Who is described in these upper 2 clauses C&D? That means the individuals who are holding a significant stake or control over
another entity or the key manager persons is able to exercise their significant influence that. 
Will also be considered as a related party. 
This was about accounting standard 18, which has tried to define what is a related party and if we look at Indian accounting
Standard 24 then it says that a person or a close member of that person family is related to a reporting entity. If that person has
controlled. 
Or joint control of the reporting entity. 
Or if that person has significant influence over the reporting entity, or if that person is a member of the key management
personnel of the reporting entity or of a parent of the reporting entity. So this accounting extended 24 is basically supplementing
accounting standard 18. 
So this from this. 
Like these definitions, we can identify that what is a related party and who is a related party, though the complete will
completely separate application then they shall keep a list of the related party so that it becomes easy for them to identify who
is a related party. 
You need not remember all these things MATLAB, but you should have at least some basic idea. 
So suppose if you get this question in your examination, then you should be able to. 
You mentioned that to some of the points that what is a related party. 
OK, you must not be blank about it though. 
Nobody expects you keep malloc keys malakhai 2% shareholdings madopar char percent shareholding and the anti war entity
need not mention each and everything but you should be able to give an idea about that thing. 
OK. 
Uh, what are that? 
This is about identifying a related party. 
Next comes the point of transactions that what transactions will be considered as related party transaction. 
So there are certain specific matters that have been mentioned in Section 188 itself, which can be treated as related party
transactions. So first one is it must be a sale or purchase or supply of. 
Good OK. 
Next is it must relate to the sale, disposal or buying of property or it must relate to the leasing of property or availing or
rendering of any kind of services or appointment of any agent or appointment of a related party to any office or place, the. 
Profit in the company or its subsidiary company. 
Hey, what is this? 
Appointment of a related party to any office. 
Place of profit of the company or subsidiary company or its associated company. 
How are you giving any kind of underwriting for any securities or derivatives of the company? 
So in these terms, so there are certain terminologies that we don't know, but if we are asked to define, then we we find it
difficult. 
So this term goods it has been defined under. 
Section 2 subsection 7 of the sales of Goods Act 1930 and it anyone tell me what what our goods? 
What Section 2 subsection 7 N sales of Goods Act says? 
Abilash water goods. 
Aryan srishti. 
Water goods. 
OK, goods includes. 
Every kind of movable property. 
Other than exchangeable claims and monies, and it includes stocks, shares, growing cloth, grass, and all that. 
So based on that we can define that water goods. 
So if it includes the supply of goods, then it can be considered as a related party transaction. 
Further, water services those services has been defined under Section 2, subsection 102 of the central Goods and Services Tax
Act 2017. 
And it means anything other than goods, money and securities, but includes activities relating to the use of money or its
conversion by cash, or by any other mode from one form, currency or denomination to another form, currency, or
denomination, for which a separate consideration is charged. 
Then there was a mention of the term office or place of profit. 
So this office of profit, if you have studied constitution then you will know what is an office of profit. 
There have been a whole process of litigation about this. 
So it means any position. 
It means. 
Any position or post which entitles any director to get renumeration over and above is renumeration as such director by way of
Celery Fee Commission or any rent free accommodation OK. 
So there are certain conditions regarding these related party transactions now related party transaction. 
It is not the case that related party transactions are prohibited. 
They are not prohibited, but it is necessary that certain conditions must be complied with before they are entered into. 
They can be entered into only with the consent of the Board of Directors if they fall within the purview of Section 188,
subsection one, and apart from that, all related party transactions require approval of audit committee. 
Now there is a resolution approving a related party transaction shall be passed at the meeting of the board and this meeting the
agenda of the meeting must disclose what is the name of that party? 
Who is the related party? 
What is his or a relationship? 
What is the nature or duration or particulars of the contract that the company is going to enter into? 
What are the terms of the contract and what is the value amount of that contract? 
Whether any kind of advanced have been paid or received by the company. 
In that regard. 
The manner of determining the price and other commercial terms and other relevant factors that may provide details about the
contractor that must be mentioned in that agenda for the meeting and any director who is interested in a related party
transaction shall not be present at the meeting. 
During the discussion on the concern transaction. 
If it falls. 
Under Section 188, subsection 1. 
Further, the transactions which are entered into by a company in the ordinary course of business and which are on an arms
length basis shall not be barred or by section 188. So Section 88 is not prohibiting any kind of thing, it is merely saying that. 
If you are doing something, do it in a fair manner. 
If you have any interest in that transaction, if you are a related party. 
As per the provisions of sect, then disclose it and step out of that purview. 
You will leave it to the discretion of other directors. 
They shall decide about whether to do it or not, and once they prove, pass a resolution in that behalf, you get it approved by the
audit committee. 
So, uh. 
No, at last that thing that I read was that these transactions which are entered into by the company in the ordinary course of
business and the that are at the arms length basis, they are not barred by section 188. To what is this ordinary course of
business? 
So ordinary course of business means. 
Anything done in a normal routine in managing trade or business of the company? 
OK to a certain, whether a whether a transaction is a transaction in ordinary course of business or not, we shall look into
following considerations, so these considerations have been. 
Right? 
Certain points about identifying weather transaction is done in an ordinary course of business or not work. 
Device in the case of IndusInd Bank versus additional side. 
So in this industry and bank versus CIT. 
In that they observed that in order to identify whether a transaction is a transaction in the ordinary course of business or not,
following things shall be considered. 
First one is that what is the object clause? 
The main object of the company are to be considered. 
In the ordinary course of business. 
So if a company is was established for the purpose of manufacturing tires and it is entering into some kind of contract with
someone for. 
Manufacturing tires for them, then it is the main object of the company and therefore it will be considered to be something
within the ordinary. 
Course of business. 
Next is we shall look into the nature of business and industry nature of business. 
This plays a special role in deciding whether the activity was in ordinary course of business or not. 
OK NEXT is we shall look into past 2 Presidents so activities. 
Which have been established through past precedent that the company did this thing two years. 
That the company did this thing four years back as well. 
So if they are doing this now also, then it can be considered to be in ordinary course of business. 
Next we shall look into periodicity that if there are some transactions which are performed on a regular basis. 
Every six months company to do this thing. 
We can consider that it is. 
Is a. 
In the ordinary course of business, but if there is something that is done out of exception, sometimes done IT company did this
10 years back then before that company did that 50 years back that we are lacking this element of periodicity here. 
Therefore if there are some infrequent transactions. 
And they are not to be considered within the ordinary course of business. 
Next point that we shall look into is uniformity. 
That this uniformity helps us identify the predictability and consistency of in the kind of transaction. 
So if something has been done in a uniform manner by the company, then it can be considered as. 
Done in the ordinary. 
Course of business. 
Next, what is this arms length business arms length transaction so arms length transaction basically just means that the things
that are done in a fair and justiciable manner without any kind of influence wherein everyone is treated equally without any ill
will or without any. 
Favor towards someone that is an arms length. 
A transaction. 
When they parted acted in their own interest and have not been subjected to any kind of pressure. 
From another party. 
So this. 
Again, this was about related party transactions under the company set. 
Apart from that, because we are also looking into CBD load. 
So Seb load. I have already mentioned that what is a related party so that related party is defined under rules Regulation 21. 
ZB and they are making a reference to the Companies Act. 
Apart from that, they are making a reference to the accounting standards and apart from that they are making a reference
specifically to the promoters that if the promoters hold 2520% of shareholding in another company or entity then also that will
be considered as a related party to another entity now coming next. 
To this regulation 21Z C. 
It defines what is a related party transaction, and it says that it means a transfer of resources, services or obligations between a
listed entity and a related party, regardless of whether the price is. 
Regardless of whether the price is charged. 
Ender transaction with a related party shall be construed to include a single transaction or a group of transactions in a contract. 
So related party transaction means any transaction that is done by a listed entity with a related party. 
And it is immaterial whether there any price as a consideration was charged or not. 
Further relative, they have also defined as they defined under Section 2, subsection 77 of the Companies Act. They have defined
under regulation 21Z D and it says that relative means as defined under the company set. So again, for that we have to look into
Companies Act. 
Now, under this listing obligation and disclosed the requirement regulation, the most important part is under Regulation 23, so it
requires that every listed entity is to formulate a policy on materiality of related party transactions. 
Now, what is this material? 
T water material related party transactions? 
So material related party transactions are those transactions. 
Where in A which exceeds 10% of the annual consolidated turnover of the listed entity. So whatever was the annual
consolidated turnover of that particular company, if it exceeds 10%, then it will be considered as a material related party
transaction or a transaction involving. 
Payment with respect to brand usage or royalty which exceeds 5% of the envelope. Consolidated turnover of the listed entity.  
Can I just get 5 minutes extra? 
So can we. 
But can we continue next class? 
We have another class from 10. 
Oh OK, fine teacher. 
OK, thank you.